CAPITAL ALLOWANCES

COMPANIES

 

1. Cyprus tax resident companies, that is, companies whose management and control are exercised in Cyprus, irrespective of their place of registration, are subject to tax on their worldwide income whether remitted to Cyprus or not, except for profit from a permanent establishment overseas. See EXEMPT INCOME, note 3, below.

2. Non-Cyprus tax resident Companies are subject to tax only on their Cyprus-source income.

3. See INTERNATIONAL BUSINESS COMPANIES (IBC), below.

 

 

CORPORATE TAX RATES

 

A.       Limited liability companies

1. 10% of chargeable income.

2. For the years 2003 and 2004, the chargeable income in excess of CYŁ1,000,000 is subject to and an additional tax of 5%.

 

B.       Public corporate bodies - 25% of chargeable income

 

C.       IBCs and international branches have the option to continue to be taxed at the lower rate of 4,25% for the years 2003, 2004 and 2005 (under transitional provisions, subject to certain restrictions), provided that during the year ended 31 December 2001 they had income or are expected to have income which has not yet arisen.

 

 

EXEMPT INCOME

 

 

 

 

 

 

 

 

 

 

 

 

Notes

1. The exemption also applies to disposal of shares in the ordinary course of business

2. Excludes interest arising from or closely related to the ordinary carrying on of a business.

3. The exemption does not apply if :

· The permanent establishment’s income is generated by more than 50% from investment income.

· The foreign taxes on the profits from the permanent establishment are significantly less than the tax burden in Cyprus.

· If tax deduction were given in the past for loses from the permanent establishment then profits from such source of an equivalent amount will be added to the Company’s taxable income.

 

TAX LOSSES

 

1. The tax loss incurred in anyone year can be carried forward and set off against future profits for an indefinite period.

2. Unutilised tax losses for the years 1997 to 2002 may be carried forward to 2003 and subsequent years for an indefinite period.

3. Group relief is allowed among Cyprus tax resident companies of the same group (with at least 75% control).

4. The losses of a sole trader or partnership business converted into a limited liability company can be set off against future profits of the company

5. The losses of a permanent establishment abroad can be set off against the profits of the company in Cyprus However, future profits of the permanent establishment are liable to tax, to the extent of the losses allowed.

COMPANY REORGANIZATIONS

 

1. Transfers of assets and liabilities between companies in the course of a reorganization (including provisions and reserves) are affected without any tax consequences.

2. The term reorganization includes exchange of shares, transfer of commercial activities, mergers and de-mergers.

 

INTERNATIONAL BUSINESS COMPANIES (IBC)

 

Until 31 December 2002, IBCs, irrespective of where their management and control was exercised, and branches of overseas companies managed and controlled in Cyprus were taxed at the rate of 4,25%

As of 1 January 2003 (unless they qualify and opt to be taxed under the transitional provisions), these companies will be subject to tax at the rate of 10%, as follows :

 

1. if Cyprus tax resident, on their worldwide income

2. if non-Cyprus tax resident, only on their Cyprus source income

 

IBCs and international branches have the option to continue to be taxed at the lower rate of 4,25% for the years 2003, 2004 and 2005 (under transitional provisions, subject to certain restrictions), provided that during the year ended 31 December 2001 they had income or are expected to have income which has not yet arisen.

 

SHIPPING COMPANIES

 

The profits or dividends from a company incorporated in Cyprus which owns ships registered under the Cyprus flag that are engaged in international traffic are exempt from taxation The exemption applies also to the emoluments of the crews of Cyprus flag ships Ship management companies, have the option to be taxed either at 4,25% or at 25% of the rates used to calculate the tonnage tax of the foreign ships under their management.

 

INSURANCE COMPANIES

 

Insurance companies are taxed at the same rate of tax as all other companies However, where the corporation tax payable on the chargeable income of the life insurance business is less than 1,5% of the gross premiums, the insurance company has to pay the difference.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes

1. In case of a loss, to the extent of the donation, the loss is not carried forward.

2. Depending on the covered area of the building, as follows :

 

 Square meters           CYŁ per square meter

 Up to 100                       Up to 350

 101-1000                        Up to 300

 Over 1000                       Up to 200

3. Interest paid for acquiring a saloon car is not allowable for the first seven years.

4. Excludes the running expenses of private motor vehicles.

 

 

CAPITAL ALLOWANCES

Annual wear and tear allowances, at the following rates, are granted on the acquisition cost of assets used in a business

ALLOWABLE DEDUCTIONS

 

 

 

 

 

 

 

 

 

 

 

Type of income

Limit

Note

Profits on disposal of shares

100%

1

Dividend income

100%

 

Interest income

50%

2

Interest on deposits made with the Housing Finance Corporation

50%

 

Profits from operations through permanent establishment abroad

100%

3

COMPANY REGISTRATION FEES

Depreciation Rate

%

Industrial, agricultural and hotel buildings

4

Commercial buildings

3

Plant & machinery

10

Loose tools

33,3

Furniture, fixtures & fittings

10

Computer hardware and operating software

20

Motor vehicles (excluding saloon cars)

20

Excavators, tractors, bulldozers, self propelled loaders and drums for petrol companies

25

Application software

33,3 (100% if under Ł1,000)

Authorised Capital CYŁ

Fee

First 5,000

75

5,001-10,000

125

10,001 -8,000,000

125 plus 30 cents for every additional CYŁ100 or part thereof

Over 8,000,000

24,098

Description

Limit

Note

Donations to approved charitable institutions

100%

1

Expenditure incurred for the purpose of maintaining a preserved building

100%

2

Business entertainment expenses

Up to 1 % of gross income, with a maximum allowable amount of CYŁ10000

 

Interest on loans to acquire assets used in the business

100%

3

Amounts paid to an approved fund for the purpose of the education and maintenance costs of a student

100%

 

All expenses incurred wholly and exclusively for the production of income

100%

4

Notes

1.   In case of a loss, to the extent of the donation, the loss is not carried forward.

2.   Depending on the covered area of the building, as follows :

 Square meters           CYŁ per square meter