Andreas NicolaouCorporate tax is a tax that businesses pay on their profits. It's like income tax for companies. If a company makes money, it has to pay a percentage of that money to the government as tax. Cyprus has one of the lowest Corporate Tax rates in Europe at 12.5% on profits.
The Tax Residency of a company determines where that Company must pay its taxes. There are two ways to show that a company is tax resident of Cyprus:
-
The company is managed and controlled from Cyprus
-
A company that has been registered in Cyprus will by default be considered a tax resident of Cyprus provided it is not a tax resident in any other country.
It's important to know if your company is a tax resident of Cyprus since a Cyprus tax resident company is taxed on its income from all sources, both within and outside Cyprus. On the other hand, a non-Cyprus tax resident company is taxed only on its income from sources within Cyprus.
Before calculating corporate income tax, it's important to determine if any of the company's income falls within exempted categories or if any deductions apply. These exemptions and deductions can lower taxable income and reduce the amount of corporate income tax the company must pay.
Since the corporate tax rate is 12.5%, the company will pay this percentage on its profits, not including exempted income and after applicable deductions have been made.
There are several types of corporate income in Cyprus that are not counted when calculating corporate income tax. These exemptions are the same as those applicable to individual income tax, but the following are specifically relevant to companies:
| Exemptions | Description |
|---|---|
| Interest | If a company in Cyprus earns some interest from money kept in a savings account, this will not be calculated as taxable income. However, if the company earns interest as part of its regular business activities, this interest is treated as regular business income and subject to corporate income tax. |
| Dividends | When a company in Cyprus receives dividends (profits from shares in other companies), these dividends are usually exempted from corporate income tax. However, if the company that is paying the dividends deducts those dividends from its income to reduce its tax in its own country, then the Cyprus company will not be able to claim the tax exemption and the dividends will be taxed normally. |
| Profit from the sale of securities | Profits of Companies trading in securities are tax exempt. Securities include, but are not limited to, ordinary shares, preference shares, debentures, bonds, options on qualifying securities, futures/forwards on qualifying securities, swaps on qualifying securities, depositary receipts on qualifying securities, and participations in open-end or closed-end collective investment schemes. |
| Charities | Income of religious, charitable, or public educational institutions. |
| Foreign Exchange Gains | Gains from foreign exchange differences (realised and/or unrealised). However, this does NOT include gains resulting from trading in currencies or currency derivatives. Read more about it here. |
| Non-profit organisations | Non-profit companies promoting art, science, or sports. |
Expenses used entirely for generating income for the business which can be supported by documentation are deductible when calculating a company's taxable income for Corporation Tax. These deductions include the following:
| Deductions | Description |
|---|---|
| Repair and Maintenance Expenses | Deductions are allowed for amounts spent on the repair of buildings, machinery, installations, and vehicles, or for renewing, repairing, or modifying any tools, or other objects used for earning income for the company. |
| Salaries and Contributions | Salaries of Employees are not deductible if the the relevant contributions have not been paid in the year that they are due, read more here. |
| Bad Debts | Bad debts are amounts of money that a business is owed but can't collect from its customers. If a business can prove to the tax authorities that these debts became uncollectible during the tax year and were officially written off in the books, it can deduct these amounts from its taxable income. However, if any of these previously written-off debts are later collected during the same year, that collected amount must be included as income for that year. |
| Research and Development Expenses | Expenses on scientific research and research and development that are recognized under international accounting standards and incurred by a business owner who owns the intangible asset resulting from such expenses are deductible. |
| Acquisition and Development of Intangible Assets | Expenditures for acquiring or developing intangible assets such as patents, copyrights, and trademarks, are deductible. These capital expenses are spread over five years for tax purposes. |
| Donations to Educational and Charitable Causes | Donations made for educational, cultural, or charitable purposes in Cyprus, local authorities, or approved charitable institutions are deductible. However, if a loss is incurred in the year of the donation, the loss amount up to the donation amount cannot be carried forward or offset against future income. |
| Interest on Business Assets | Interest on loans for acquiring assets used in the business is deductible. |
| Education Fund Contributions | Contributions to an approved fund for the education and maintenance of individuals attending educational institutions are deductible. |
| Profits from Intangible Assets | 80% of eligible profits from eligible intangible assets can be deducted. If a loss occurs instead of a profit, only 20% of the loss can be offset and carried forward. |
| Business Entertainment Expenses | Business entertainment expenses (including any kind of hospitality) can be deducted, but only if the total amount of these expenses is less than or equal to 1% of the business's gross revenue for the tax year, with a maximum limit of €17.086. |
| Audio-visual industry | If a company in Cyprus is involved in making movies, TV shows, or similar audiovisual projects, it can reduce its taxable corporate income tax. The company can lower its taxable income by up to 50%, but this reduction can't exceed 35% of the approved expenses for making the film or show. |
Wear and tear allowances or capital allowances in Cyprus are tax deductions businesses can claim to account for the depreciation of their assets such as buildings, machines or tools. These are calculated as a percentage on the cost of acquisition of the asset.
For example:
Say you bought an apartment to rent out for €100,000, and the allowance is 3%, you can deduct €3,000 every year (for 33 years) from your taxable income to account for its loss of value.
So, if your business owns any of the assets in the list below, you can claim a deduction every year based on the percentage of allowance.
| Buildings | Rate % |
|---|---|
| Commercial Buildings (for 33 years) | 3% |
| Hotels, Industrial and Agricultural Buildings (for 23 years) | 4% |
| Hotels, Industrial and Agricultural Buildings Bought Between (2012-2018) | 7% |
| Metallic Frame of Greenhouses | 10% |
| Wooden Frame of Greenhouses | 33.3% |
When a commercial or industrial building is sold, the new owner can continue to claim tax deductions for the building's depreciation based on its original cost, for the remaining years of its usage duration.
The usage duration for tax deduction purposes is 33 years for all buildings, except
for industrial buildings and hotels, which have a usage duration of 25 years.
For example:
Say you buy an apartment for rental purposes in 2024 where the original owner bought it in 2000 for €100,000. This leaves you 9 years to claim the remaining depreciation as the new owner.
The acquisition price is the original price, not the price you bought it in 2024. Given a depreciation rate of 3% per year, you can deduct €3,000 (3% of €100,000) annually for the next 9 years.
| Plant and Machinery | Rate % |
|---|---|
| Fork lifts, excavators, loading vehicles, bulldozers and oil barrels | 25% |
| Motor vehicles of all types except saloon cars | 20% |
| Personal computers (hardware) and operating software | 20% |
| Application software - up to €1.709 | 100% |
| Application software - over €1.709 | 33 1/3% |
| Plant and machinery used in agriculture | 15% |
| Plant and machinery; Furniture and fittings | 10% |
| Plant and machinery, Furniture and fittings (If acquired between 2012 - 2018) | 20% |
| Tools | 33.3% |
| Others | Rate % |
|---|---|
| Armoured Motor Vehicles (e.g. used by Security Services); Specialised Machinery for the laying of Railroads (e.g. Locomotive engines, Ballast wagons, Container wagons and Container Sleeper Wagons) | 20% |
| New Airplanes; New Helicopters; New cargo vessels | 8% |
| Sailing vessels | 4.5% |
| Motor Yachts; Steamers, tugs and fishing boats; New passenger vessels | 6% |
| Shipmotor launches | 12.5% |
| Wind power generators and photovoltaic systems | 10% |
There are however, certain expenses that cannot be deducted from your business's income.
| Non-Deductible Expenses | Description |
|---|---|
| Personal and Commuting Expenses | You cannot deduct expenses related to your personal life or commuting from home to work. |
| Rent for Self-Owned Buildings Used for Business | You cannot deduct rent for buildings you own and use for your business. |
| Personal Payments of Interest or Fees on Capital | You cannot deduct payments of interest or fees on capital paid to yourself. |
| Cost of Goods Used Personally | You cannot deduct the cost of goods taken from your business for personal use. |
| Non-Business Expenses | You cannot deduct expenses that are not solely for earning business income. |
| Withdrawn or Used Capital | You cannot deduct any amount of capital that is withdrawn or used as capital. |
| Improvement and Alteration Expenses | You cannot deduct expenses for improvements, modifications, or additions to your property. |
| Recoverable Amounts Through Insurance or Indemnity | You cannot deduct amounts that can be recovered through insurance or indemnity contracts. |
| Non-Income Related Rent or Repair Costs | You cannot deduct rent or repair costs not related to earning income. |
| Tax Payments | You cannot deduct amounts paid or payable as taxes under the applicable tax laws. |
| Voluntary Expenses | You cannot deduct voluntary expenses unless specifically allowed by law. |
| Business Entertainment and Hospitality | You cannot deduct business entertainment expenses if they are more than 1% of the company's gross revenue and up to €17.086. |
| Private Vehicle Expenses | You cannot deduct expenses related to a private motor vehicle. |
| Professional Tax Payments | You cannot deduct amounts paid or payable related to professional tax. |
| Interest on Private Vehicle or Non-Business Assets | You cannot deduct interest on the cost of a private vehicle or assets not used in the business, except after seven years of purchase. |
| Excessive Borrowing Costs for Companies | Companies cannot deduct borrowing costs exceeding 30% of taxable income before interest, taxes, deductions, and additions, with some exceptions for group companies and specific conditions. |
If a business in Cyprus loses money in a given year, it can use that loss to reduce its taxable income for the next five years. This means that if the business makes a profit in any of the next five years, it can subtract the initial loss from that profit to lower the amount of income that is subject to tax.
For example:
If your company lost €10,000 in 2023 and then makes a profit of €15,000 in 2024, you can deduct the €10,000 loss from 2023, from your €15,000 profit from 2024.
This would result in your company paying only €5,000 in corporate income tax.
However, this is not applicable in case there is a change of ownership of the company and the business activities of the company change substantially.
Additionally, if two companies are part of the same group (one owns at least 75% of the other or they are both 75% owned by a third company), one company's losses can offset the other's profits to reduce taxes.
Another situation when someone can carry forward their losses in Cyprus is in case of a partnership or a sole trader transferring their business to a company. When this happens, the losses of the partnership/sole trader can be carried forward into the new company, reducing future taxable profits.
Every Company in Cyprus is required to register with the Tax Department and obtain a Tax Identification Number (TIN) within 60 days from the date of its incorporation. The process is the same as registering as an individual:
| Steps | Registration |
|---|---|
| 1 | Register to the (Tax For All (TFA) Taxpayer Portal) on the Tax Department's website. |
| 2 | Receive your TIN and User Access Codes for TaxisNet via email. |
| 3 | On first login on TaxisNet, change your password and optionally your username. |
All companies in Cyprus are required to submit Tax Returns regardless of their income.
The submission deadline for tax returns for a given year is the 31st of March of the second year following that tax year.
For example:
The tax return for the year 2024 must be submitted by 31 March 2026. In other words, 15 months after the end of a given tax year.
The submission of your company's tax returns is made online through TaxisNet.
Companies in Cyprus have to pay provisional tax on each year's taxable profit in two equal instalments on the 31st of July and the 31st of December. Provisional taxes are essentially an early payment of your company's taxes based on a self-estimation of the profits of your company in the coming year.
For example:
If you estimate that your company will make a profit of €40,000 in 2024, then your provisional tax for the year would be €5,000 (€40,000 x 12.5%).
You'd have to pay €2,500 on the 31st of July and the remaining €2,500 on the 31st of December.
If at any point before the 31st of December you realise that you have either overestimated or underestimated your company's profits for the year then you can submit a revised provisional tax calculation by the 31st of December through the Tax Portal of the Tax Department and adjust the payment of the provisional tax accordingly.
After the year ends and you've calculated your actual profits and realise that you actually made more profit than estimated then you must make an additional payment of the remaining tax due by August 1 of the following year.
For example:
If you estimated a profit of €40,000 but at the end of the year you realise you actually made a profit of €45,000, then you'd have to make an additional payment of €625 to settle your corporate tax liability.
However, if your initially declared profit was less than 75% of your actual profit for the year and you haven't submitted a revised tax calculation by December 31st, your company will be liable to pay a 10% fine on the difference between the final tax due and the provisional tax paid.
For example:
If you estimated that your company's profit for 2024 was €40,000 but your actual profit at the end of the year came up to €60,000 you'd have to pay a fine.
That's because 75% of €60,000 is €45,000, and anything below this amount would make you liable to the fine.
Difference between the final tax due and the provisional tax paid:
- Final tax due: €60,000 x 12.5% = €7,500
- Provisional tax paid: €5,000
- Difference: €7,500 − €5,000 = €2,500
- 10% fine on the difference: 10% of €2,500 = €250
On the contrary, if you overestimated your taxable income and ended up paying more provisional tax than you owed, you can claim a refund for the excess tax paid.
Cypriot Law requires that an independent registered auditor in Cyprus audits the financial statements of your company. However, if you're a small business, you might be exempt from undergoing a statutory audit.
Specifically, if your company's net annual turnover does not exceed €200,000 and the total value of its gross assets does not exceed €500,000, then you can opt for a review by an auditor instead of a full statutory audit, which can save you costs.
