Corporate income tax
The following operations are not subject to corporate tax.:
Expenditures for tax purposes can be deducted from income subject to proper documentary evidence.
Important:
In Cyprus, an advance tax payment system is in place - companies that expect to receive profit in a calendar year pay a tax on the expected profit. Cypriot companies must calculate and pay tax on the expected taxable profit of the current year (paid in two parts). The declaration of the expected profit and the payment of the first part of the tax are carried out until July 31, and the payment of the second part - until December 31.
If the final amount of tax liability (according to the financial statements confirmed by the auditor) exceeds the previously calculated amount of tax on expected profits by more than 25%, a penalty of 10% of the difference will be charged. To avoid this situation, the company has the right to submit an updated tax calculation on the expected profit (with a more accurate profit forecast) at any time until December 31 of the current year.
A Cyprus company that did not submit expected income tax calculations, however, according to the financial statements, a tax is payable, in addition to the tax amount, a penalty of 10% of the total tax is charged.
For non-payment of the self-determined and declared tax in due time, a penalty of 3.5% is charged and entails a fine of 100 Euro. Failure to submit a tax return upon a written request of the tax authority within the time period indicated in the request entails a fine of 200 Euros for each notification.
Withholding tax
The tax at the source of payment is not withheld when paying dividends and interest by a Cypriot company to non-resident individuals or legal entities.
Royalties for the use of intellectual property rights in Cyprus and paid to non-residents of Cyprus are subject to a 10% withholding rate. If intellectual property rights are not used in Cyprus, royalties are not taxed at source. The rate may be reduced in accordance with the applicable Double Taxation Treaty or the EU Interest and Royalty Directive.
Defense Tax (SDC)
A defense tax is payable on certain types of income from sources in Cyprus received by companies and individuals resident in Cyprus.
With interest income received by the company out of touch with its core business, at a rate of 30%.
From rental income (from 75% of the amount of income) - at a rate of 3%.
Dividends received from a non-resident company in Cyprus (in cases where more than 50% of the profit of the company that paid the dividends is received from investment activities, and the tax rate in the country of the company that paid the dividends is “significantly lower” than the tax rate in Cyprus) - at the rate 17% In other cases, SDC is not charged.
With "conditionally distributed" dividends. If a company does not distribute its profit after tax within 2 years after the end of the tax period in which it was received, then 70% of such profit will be considered conditionally distributed and, net of the amount of dividends actually paid, will be taxed by SDC at a rate of 17%. However, this rule does not apply if the shareholders of the company are not tax residents of Cyprus.
The obligation to pay this tax does not apply to non-residents of Cyprus.