Cyprus: Domestic Corporate Taxation
Calculation of Taxable Base
Allowable expenditure needs to be incurred 'wholly and exclusively' for the business; however, mixed private/company expenses can often be apportioned. Among others, the following expenses are allowable:
- Repairs, but not improvements, alterations or additions
- Contributions to an approved fund
- Bad debts and provisions for them
- Non-capital scientific research expenditure
- Expenditure on patents or patent rights
- Various types of charitable expenditure
- Interest on loans, other than for those used to acquire shares
- Rental payments
- Salaries and other compensation costs for employees and directors
- Inventories are valued using FIFO
- Wear and tear allowances on prescribed scales which replace depreciation in the tax calculation
- Investment allowances which are available for certain activities
There are some restrictions on the use of losses from one trade to offset profits from another. Unrelieved losses can normally be carried forward to offset future profits, though they have only a 5-year life. Group relief is available but with limitations.
50% of income from interest derived by a company is exempt from corporate tax but the whole interest received or credited will be subject to the new provisions of the Special Contribution. Interest derived from ordinary trading activities will only be subject to the Income Tax Law provisions without any exceptions.
The Group Relief rules, now enacted, provide for group relief of tax losses among companies of the same group. A company will be considered as member of a group if either of these is true:
- A company is at least 75% subsidiary of the other, or
- Both companies are at least 75% subsidiaries of a third company.
A company will be considered to be 75% subsidiary of another company if and so long as not less than 75% of its ordinary share capital with voting rights are owned directly or indirectly by that other company and that other company is entitled to not less than 75 per cent of:
- Any profits available for distribution to the equity shareholders, and
- Any assets of the subsidiary company which would be available for distribution to its equity holders on a winding up.
Group tax losses may be set off as long as both companies are Cypriot tax residents and are members of the same group during the whole year of assessment.
Only the loss of any year of assessment of a company can be set off against the other company's profits of the corresponding year of assessment. Losses brought forward will not be available for Group Relief.
Any payment for acquiring the tax losses will not be taken into account in the tax computation nor will it be considered to be a dividend or an allowable expense.
Profits from the sale of shares, bonds, debentures and other titles of companies established anywhere in the world are exempt from tax.