Cyprus is a unique EU jurisdiction that offers a host of financial advantages and benefits to companies and individuals. Among other benefits of the tax regime, Cyprus has one of the lowest corporate tax rates within the EU.
Corporate Tax Rate
The standard corporate tax rate in Cyprus is 12.5 %. It applies to all types of companies that are Cypriot resident companies. A company is a Cyprus tax resident if it is managed and controlled in Cyprus. Cyprus levies tax based on the taxpayer’s tax residency therefore Cypriot resident companies are taxed on income accruing or arising from sources both within and outside the Republic. A non-Cyprus tax resident company is taxed on income accrued or derived only from the sources within the Republic.
Exemptions from Corporate Income Tax
The Cyprus Income Tax Law provides for a number of exemptions for many and varied types of income, profit, and gain such as:
- Interest income (excluding interest income arising in the ordinary course of business or closely connected with the ordinary carrying on of the business);
- Dividend income (excluding dividends which are tax-deductible for the paying company);
- Foreign exchange (FX) gains, with the exception of FX gains arising from trading in foreign currencies and related derivatives;
- Gains arising from a loan restructuring;
- Gains arising from the disposal of securities;
- Profits of a permanent establishment maintained outside the Republic;
- Rent from a preserved building;
- The income of a company that operates in the Republic in the audio-visual industry.
Deductible Expenses
Taxable income is based on the accounting profit as per the audited financial statements of the company prepared in accordance with the International Financial Reporting Standards. When calculating taxable income, all expenses incurred wholly and exclusively for the production of taxable income are deductible for corporate tax purposes, including amongst others:
- Interest incurred for the acquisition of an asset used in the business;
- Notional interest deduction (NID) on new equity;
- Expenditure for the maintenance of buildings under a preservation order;
- Donations to approved charitable organizations;
- Donations to political parties;
- Profits from the exploitation of intellectual property rights;
- Profits from the disposal of intellectual property rights;
- Employer‘s contributions to approved funds on employees’ salaries;
- Expenditure for scientific research including research and development undertaken by an innovative small/medium-sized business;
- Expenditure on film infrastructure and technological equipment;
- Benefits provided to an employee and/or their family members that have been taxed in the hands of the employee.