Cyprus: Income Tax - Charge Of Tax

Resident in Cyprus

In the case of a person who is tax resident in Cyprus tax is levied on all income accruing or arising from sources both within and outside Cyprus, in respect of:

• Profits or other benefits from any business
• Profits or other benefits from any office or employment
• Dividends, interest or discount
• Rents, royalties or other profits arising from property
• Any amount or consideration in respect of any trade goodwill reduced by any amount incurred for the purchase of such trade goodwill.

Non-Resident in Cyprus

In the case of a person who is not tax resident in Cyprus, tax is levied on the income accruing or arising from sources in Cyprus only, in respect of:

• Profits or other benefits from a permanent establishment situated in Cyprus
• Profits or other benefits from any office or employment exercised in Cyprus
• Pensions derived from past employment exercised in Cyprus
• Rent from property situated in Cyprus
• Any amount or consideration in respect of any trade goodwill reduced by any amount incurred for the purchase of such trade goodwill
• The gross income derived by an individual from the exercise in Cyprus of any profession or vocation, the remuneration of public entertainers, and the gross receipts of any theatrical, musical or other group of public entertainers.

"Resident in Cyprus", when applied to an individual, means an individual who stays in Cyprus for a period or periods exceeding in aggregate 183 days in the year of assessment and, when applied to a company, means a company whose management and control is exercised in Cyprus. "Permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or party carried on, and includes a place of management, branch, office, factory, workshop, mine, oil or gas well, quarry or any other place of extraction of natural resources.

Income Tax – Exemptions

Income Tax - Capital allowances

Income Tax - Deductions for individuals

Income Tax - Deductions allowed for companies

For the purpose of ascertaining the chargeable income, there shall be deducted all outgoings and expenses wholly and exclusively incurred by the company in the production of income including:

• Repair of premises, plant, machinery and means of transport
• Ordinary annual contributions paid by an employer to approved funds
• Bad debts of any business
• Expenditure for scientific research
• Expenditure on patents or patent rights or intellectual property rights
• Donations or contributions made for educational, cultural or other charitable purposes without a limit
• Expenditure up to €1.200 for building area up to 120 sq m, up to €1.100 for building area of 121–1000 sq m, up to €700 for building area above 1000 sq m, made for maintenance, preservation or restoration of an ancient monument
• Interest in relation to the acquisition of business assets used in the business
• Contributions to a fund approved under regulations, for educational purposes and maintenance of an individual attending any university, college, school or other educational institution
• Expenses in relation to rents receivable
• Interest relating to a rented property.

Income Tax - Deductions not allowes

• Domestic or private expenses including the cost of travelling between the place of residence and the place of work
• Rent of premises owned and used by the person carrying on of a business
• Remuneration or interest on capital paid or credited by the person carrying on business
• Cost of goods taken out of the business for private use
• Disbursements or expenses not wholly or exclusively paid out for acquiring the income
• Any sum employed or intended to be employed as capital
• Expenditure for improvements, alterations or additions to immovable property
• Sums recoverable under an insurance or contract of indemnity
• Rent or cost of repairs of premises not incurred for the purposes of earning the income
• Taxes
• Payments of a voluntary nature
• Expenses of business entertainment, including hospitality of any kind, made in connection with a business and that exceeds 1% of the gross income of the business. In case that these expenses do not exceed 1% of gross income, then the allowable deduction is up to a maximum of €17.086.
• Expenses of a private motor vehicle

• Interest applicable to the cost of purchase of a private motor vehicle or any other asset not used in the business. This provision does not apply after the lapse of seven years from the date of purchase of the relevant asset.

Income Tax - Tax Rates – Individuals

Tax rates – Corporation tax 10%

Allowance for foreign tax

In case that foreign tax was paid on income subject to income tax, this can be given as a credit against the resulting income tax liability on that income irrespective of the existence of a double tax treaty with the foreign country.

Income Tax - Special tax rates

Foreign pensions of individuals:

Income Tax- Tax Losses

Generally, loss from one source of income is set off against income from other sources in the same year. Any loss remaining after the set off is carried forward indefinitely.

Loss in respect of the year 1997 and after, which was not set off against profits up to the year 2002, may be carried forward to the year 2003 and the following years.

In case there is any change in the ownership of the shares of a company and a substantial change in the nature of the business of the company, within any three-year period from the year of the loss, then the loss cannot be carried forward to the following years.

Set-off of group losses are allowable only with profits of the corresponding year of assessment. Both companies should be members of the same group for the whole year of assessment.

Two companies shall be deemed to be members of a group if:

• one is by 75% subsidiary of the other, or
• each one separately are by 75% subsidiaries of a third company.

Losses incurred by any person from any business carried on outside Cyprus, can be set-off from the same person's income from other sources for the same year.

In the case where an owner of a business, including a partnership, converts his business into a company, any accumulated losses of the owner may be carried forward to the company.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.