Tax Facts & Figures 2021 - Cyprus - PwC

Corporation taxBasis of taxationA company is tax resident of Cyprus if it is managed andcontrolled in Cyprus.Additionally, in accordance with the Cyprus GovernmentBudget for 2021, as from 2021 a Cyprus incorporatedcompany will by default be considered a tax resident ofCyprus, subject to the relevant law being enacted.All Cyprus tax resident companies are taxed on their incomeaccrued or derived from all chargeable sources in Cyprus andabroad.With effect as from 1 January 2019 Controlled ForeignCompany (CFCs) rules apply, i.e. non-distributed profits ofCFCs directly or indirectly controlled by a Cyprus tax residentcompany, may become subject to tax in Cyprus (certainexceptions may apply).A non- Cyprus tax resident company is taxed on incomeaccrued or derived from a business activity which is carriedout through a permanent establishment in Cyprus and oncertain income arising from sources in Cyprus.Foreign taxes paid can be credited against the Cypruscorporation tax liability.11In relation to Covid-19, in accordance with a Directive issuedin 2020, the Cyprus tax authorities will generally follow theOECD non-binding guidance in relation to tax residency ofcorporations and the existence of permanent establishments.The application of the Directive remains optional on thetaxpayer. Furthermore, the Directive also mentions that eachcase will be assessed on its own merits.Tax Facts & Figures 2021 - Cyprus

Corporate tax rateTax rate%12,5The corporation tax rate for all companies isExemptionsThe following are exempt from corporate tax:Type of incomeExemption limit Profit from the sale of securities (1)The whole amount Dividends (excluding, as from 1The whole amount (2)January 2016, dividends which are taxdeductible for the paying company) Interest not arising from the ordinaryactivities or closely related to theordinary activities of the company (3)The whole amount (4) Profits of a foreign permanentestablishment, under certainconditions (5)The whole amount Gains relating to foreign exchangedifferences (forex) with the exceptionof forex arising from trading in foreigncurrencies and related derivatives.The whole amount Profits from the production of films,series and other related audiovisualprogramsThe lower of 35% of the eligibleexpenditure and 50% of thetaxable income. Any restrictionmay be carried forward for 5years.Notes:1.2.3.4.5.12For a definition of securities see page 7.Such dividend income may be subject to Special Contribution for Defence(page 267).All the interest income of Collective Investment Schemes is considered to bearising from the ordinary activities or closely related to the ordinary activities ofthe Scheme.Such interest income is subject to Special Contribution for Defence (page 26).With effect as from 1 July 2016, taxpayers may elect to tax the profits earned bya foreign permanent establishment, with a tax credit for foreign taxes incurredon those foreign permanent establishment profits. Transitional rules apply incertain cases on the granting of foreign tax credits where a foreign permanentestablishment was previously exempt and subsequently a taxpayer elects to besubject to tax on the profits of the foreign permanent establishment.Tax Facts & Figures 2021 - Cyprus

Corporate tax deductions for expensesGenerally expenses incurred wholly and exclusively in earning taxableincome and supported by documentary evidence are deductible forcorporate tax purposes, including:13Type of expenseDeduction limit Interest expense incurred for the director indirect acquisition of 100% of theshare capital of a subsidiary companywill be treated as deductible for incometax purposes provided that the 100%subsidiary company does not own(directly or indirectly) any assets thatare not used in the business. If thesubsidiary owns (directly or indirectly)assets not used in the business theinterest expense deduction is restrictedto the amount which relates to assetsused in the business. This applies forsuch acquisitions of subsidiaries from 1January 2012.The whole amount ofinterest expense if thesubsidiary does not own(directly or indirectly) anyassets not used in thebusiness. A restrictedamount of interestexpense is allowed tothe extent the subsidiaryowns (directly orindirectly) assets used inthe business. Moreoveras from 1 January 2019an interest limitation ruleapplies in accordancewith the EU Anti-taxAvoidance Directive. Equity introduced to a company as from 1January 2015 (new equity) in the form ofpaid-up share capital or share premiummay be eligible for an annual notionalinterest deduction (NID). The annualNID deduction is calculated as the newequity multiplied by the NID interest rate.The relevant interest rate is the yieldon 10 year government bonds (as atDecember 31 of the prior tax year) of thecountry where the funds are employedin the business of the company plus a5% premium. A taxpayer may elect not toclaim all or part of the available NID for aparticular tax year. Certain anti-avoidanceprovisions apply.The NID deductioncannot exceed80% of the taxableprofit derived fromthe assets financedby the new equity (ascalculated prior to theNID deduction).Tax Facts & Figures 2021 - Cyprus

Royalty income, embedded income andother qualifying income derived fromqualifying intangible assets in the ‘new’Cyprus intellectual property (IP) box(provision applies with effect from 1 July2016)(1)80% of the net profitas calculated using themodified nexus fraction(2) Royalty income, embedded income andother qualifying income derived fromqualifying intangible assets in the ‘old’Cyprus IP box (3)80% of the net profit Tax amortisation on any expenditure ofa capital nature for the acquisition ordevelopment of IP (provision applies witheffect from 1 July 2016) (4)Allocated over thelifetime of the IP(maximum period 20years) Donations to approved charities (withreceipts)The whole amount Employer’s contributions to socialinsurance, General Health System(see page 56) and approved funds onemployees’ salariesThe whole amount Employer’s contributions to:- Medical fund for employees- Provident/Pension fund for employees 14Any expenditure incurred for themaintenance of a building in respect ofwhich there is in force a PreservationOrder1% on employee’sremuneration10% on employee’sremunerationUp to 700, 1.100 or 1.200per square meter(depending on thesize of the building)Tax Facts & Figures 2021 - Cyprus

Entertainment expenses for businesspurposesLower of 17.086 or 1%of the gross income ofthe business Expenditure incurred for the acquisitionof shares in an innovative business(abolished as from 1 January 2017)The whole amount Eligible infrastructure and technologicalequipment expenditure in the audiovisualindustry20% for small/ 10% formedium enterprisesNotes:151.Qualifying ‘intangible assets’ maybe legally or economicallyowned and comprise patents, copyrighted software, utilitymodels, intangible assets that grant protection to plants andgenetic material, orphan drug designations, extensions of patentprotection. It also comprises of other intangible assets which arenon-obvious, useful and novel, that are certified as such by adesignated authority, and where the taxpayer satisfies size criteria(i.e. annual IP related revenue does not exceed 7,5m for thetaxpayer, and group total annual revenue does not exceed 50m,using a 5 year average for both calculations). Marketing-relatedintangible assets, such as trademarks, do not qualify.2.A fraction is applied to the net profit based on research anddevelopment (R&D) activity. The higher the amount of R&Dundertaken by the taxpayer itself or via a taxable foreignpermanent establishment or via unrelated third party outsourcing,the higher the amount of R&D fraction (modified nexus fraction).Tax Facts & Figures 2021 - Cyprus

3.The term ‘qualifying intangible assets’ under the old Cyprus IP boxincludes copyrights, patents and trademarks. The old Cyprus IPbox closed as from 30 June 2016. Under transitional/grandfatheringrules, taxpayers with intangible assets that were already includedin the old Cyprus IP box as at 30 June 2016 continue to apply theold Cyprus IP box provisions for a further five years i.e. until 30June 2021 for those intangible assets. A much shorter transitional/grandfathering period to 31 December 2016 applied in the case ofintangible assets acquired directly or indirectly from related partiesduring the period 2 January 2016 – 30 June 2016, unless at thetime of acquisition such intangible assets were already benefittingfrom an IP box (including the Cyprus IP box) or were not acquiredwith the main purpose (or one of the main purposes) being taxavoidance. Embedded income and income earned from intangibleassets economically but not legally owned will only qualify in therelevant transitional/grandfathering period if earned from those typeintangible assets that would qualify for the new Cyprus IP box (i.e.patents, copyrighted software, etc.). Additionally any expenditure ofa capital nature incurred for the acquisition or development of suchintangible assets may be claimed as a tax deduction in the year inwhich it was incurred and the immediate four following years on astraight line basis.4.Excluding goodwill and intangible assets falling under the transitionalrules of the old Cyprus IP box which continue with that box’s taxamortisation (see 3 above). A taxpayer may elect not to claim allor part of the available tax amortization for a particular tax year.Unclaimed tax amortisation capacity may be carried forward to beused in future years (spread over the remaining UEL of the asset).but not including:16 Expenses of a private motor vehicleThe whole amount Interest applicable to the cost ofacquiring a private motor vehicleirrespective of its use and to the costof acquiring any other asset not usedin the businessThe whole amount for 7years from the date ofacquisition of the assetTax Facts & Figures 2021 - Cyprus

Losses carried forwardThe tax loss incurred during a tax year and which cannot be set offagainst other income, is carried forward subject to conditions and set offagainst the profits of the next five years.The current year loss of one company can be set off against the profitof another, subject to conditions, provided the companies are Cyprus taxresident companies of a group(1). Group is defined as: One Cyprus tax resident company holding directly or indirectlyat least 75% of the voting shares of another Cyprus tax residentcompany, or, Both Cyprus tax resident companies are at least 75% (votingshares) held, directly or indirectly, by a third companyAs from 1 January 2015 interposition of a non- Cyprus tax residentcompany(ies) will not affect the eligibility for group relief as long as suchcompany(ies) is/are tax resident of either an EU country or in a countrywith which Cyprus has a tax treaty or an exchange of informationagreement (bilateral or multilateral).A partnership or a sole trader transferring a business into a company cancarry forward tax losses into the company for future utilisation.Losses of an exempt foreign permanent establishment can be set off withprofits of the Cyprus head office. In such case, future profits of an exemptforeign permanent establishment abroad are taxable up to the amount oflosses allowed.Note:1.17As from 1 January 2015 a Cyprus tax resident company may alsoclaim the tax losses of a group company which is tax resident inanother EU country, provided such EU company firstly exhausts allpossibilities available to utilise its losses in its country of residenceor in the country of any intermediary EU holding company.Tax Facts & Figures 2021 - Cyprus

ReorganisationsTransfers of assets and liabilities betweencompanies can, subject to conditions, be effectedin a tax neutral manner within the framework of aqualified reorganisation, and tax losses may becarried forward by the receiving entity.Reorganisations include: mergers demergers partial divisions transfer of assets exchange of shares transfer of registered office of a Europeancompany (SE) or a European cooperativecompany (SCE).Annual wear and tear allowances on tangible fixed assetsThe following allowances which are given as a percentage on the cost ofacquisition are deducted from the chargeable income:Fixed assetsPlant and machinery (1)%Plant and machineryFurniture and fittingsIndustrial carpetsBoreholesMachinery and tools used in an agricultural business1010101015Buildings (2)Commercial buildingsIndustrial, agricultural and hotel buildings (3) (4)FlatsMetallic greenhouse structuresWooden greenhouse structures18%3431033 1/3Tax Facts & Figures 2021 - Cyprus

Vehicles and Means of Transportation (1)Commercial motor vehiclesMotor cyclesExcavators, tractors, bulldozers, self-propelled loaders anddrums for petrol companiesArmoured Motor Vehicles (e.g. used by Security Services)Specialised Machinery for the laying of Railroads(e.g. Locomotive engines, Ballast wagons, Container wagonsand Container Sleeper Wagons)New AirplanesNew HelicoptersSailing vesselsMotor YachtsSteamers, tugs and fishing boatsShipmotor launchesNew cargo vesselsNew passenger vesselsUsed cargo/passenger vesselsOther (1)Televisions and videosComputer hardware and operating systemsApplication softwareExpenditure on application software less than 1.709, iswritten off in the year of acquisitionWind Power GeneratorsPhotovoltaic SystemsTools in generalVideotapes property of video clubs19%2020252020884,56612,586Over theiruseful lives%102033 1/3101033 1/350Tax Facts & Figures 2021 - Cyprus

Notes1.2.3.4.Plant and machinery, vehicles (excluding private motor vehicles)and other assets acquired during the tax years 2012 - 2018(inclusive) are eligible to accelerated tax depreciation at the rate of20% per annum (excluding such assets which are already eligiblefor a higher annual tax rate of tax depreciation).The rates stated for buildings are for new buildings. Rates areamended in the case of second-hand buildings.In the case of industrial and hotel buildings which are acquiredduring the tax years 2012 - 2018 (inclusive), an accelerated taxdepreciation at the rate of 7% per annum applies.Buildings for agricultural and livestock production acquired duringthe tax years 2017-2018 (inclusive) are eligible for accelerated taxdepreciation at the rate of 7% per annum.Special type of companiesShipping companiesThe Merchant Shipping Legislation fully approved by the EU (approvalextended up to 31 December 2029) provides for exemption from all directtaxes and taxation under tonnage tax regime of qualifying shipowners,charterers and shipmanagers, from the operation of qualifying communityships (ships flying a flag of an EU member state or of a country in theEuropean Economic Area) and foreign (non community) ships (underconditions), in qualifying activities.The legislation allows non community vessels to enter the tonnage taxregime provided the fleet is composed by at least 60% community vessels.If this requirement is not met, then non community vessels can still qualify ifcertain criteria are met.The legislation includes an “all or nothing” rule, meaning that if a shipowner/charterer/ shipmanager of a group elects to be taxed under the Tonnage Taxregime, all shipowners/ charterers/ shipmanagers of the group should electthe same.Exemption is also given in relation to the salaries of officers and crew aboarda community qualifying Cyprus ship.20Tax Facts & Figures 2021 - Cyprus

ShipownersThe exemption applies to: profits derived from the use/chartering out of the ships interest income relating to the working capital of the company profits from the disposal of qualifying ships dividends received from the above profits at all distribution levels profit from the disposal of shipowning companies and its distributionThe exemption also applies to the bareboat charterer of a vessel flying theCyprus flag under parallel registrationBareboat charter out agreements remain eligible for tonnage tax, withrestrictions introduced for bareboat charter agreements to third parties.The legislation provides a definition, as well as a specific list, of what areancillary services. Moreover, it clarifies that the revenue from the ancillaryservices may fall under the tonnage tax regime, provided that the incometherefrom does not exceed 50% of the total income generated from MaritimeTransport Activities (‘Core Activities’).CharterersExemption is given to: profits derived from the operation of chartered in ships interest income relating to the working capital of the company dividends received from the above profits at all distribution levelsThe law grants the exemption provided that the option to register forTonnage Tax is exercised for all vessels and provided a compositionrequirement is met: at least 25% (reduced to 10% under conditions) of thenet tonnage of the vessels owned or bare boat chartered in.21Tax Facts & Figures 2021 - Cyprus

ShipmanagersThe exemption covers: Profits from technical and/or crew managementDividends paid out of these profits at all levels of distributionInterest income relating to the working capital of the companyIn order to qualify shipmanagers must satisfy the following additionalrequirements: Maintain a fully fledged office in Cyprus with personnel sufficient innumber and qualificationAt least 51% of all onshore personnel must be community citizensAt least 2/3 of total tonnage under management must be managedwithin the community (any excess of 1/3 taxed under corporation tax)The application of the tonnage tax system is compulsory for ownersof Cyprus flag ships and optional for owners of non Cyprus flag ships,charterers and shipmanagers. Those who choose to enter the Tonnage Taxregime must remain in the system for at least 10 years unless they had avalid reason to exit such as disposal of their vessels and cessation their ofactivities.Insurance companiesProfits of insurance companies are liable to corporation tax similar to allother companies except in the case where the corporation tax payableon taxable profit of life insurance business is less than 1,5% of the grosspremiums. In this case the difference is paid as additional corporation tax.22Tax Facts & Figures 2021 - Cyprus

The Cyprus Alternative Investment Funds (AIFs)and Undertakings for Collective Investment inTransferable Securities (UCITS)The Alternative Investment Funds Law 124(I)/2018, to the extentamended (hereinafter, the ‘’AIF Law’’) defines alternative investmentfunds as any collective investment undertakings, including investmentcompartments thereof, w

2 Tax Facts Figures 2021 - Cyprus Table of contents Foreword 1 Personal income tax 2 Corporation tax 11 Special Contribution for Defence 26 Capital gains tax 32 Inheritance Tax 35 Value Added Tax 36 Immovable Property Tax 48 Trusts 50 Transfer fees by the department of land and surveys 52 Social insurance 54 General health system 56 Stamp duty 58 Capital duty 60 Tax treaties and withholding .