Companies which are tax residents of Cyprus are taxed on all income accrued or derived from all sources in Cyprus and abroad. A company must register with the Inland Revenue Department within 60 days of incorporation.
A non-Cyprus tax resident company is taxed on income arising from immovable property in Cyprus and on income accrued or derived from a business activity, which is carried on through a permanent establishment in Cyprus. Permanent establishment is a fixed place of business through which the business of an enterprise is wholly or partly carried on. The term permanent establishment includes a place of management, a branch, an office, a factory and a workshop.
As per the Income Tax Legislation (Article 5(4)), legal or natural persons non-Cyprus tax resident but with a permanent establishment in Cyprus, may elect to be treated as Cyprus tax resident persons.
A Company is a tax resident of Cyprus if it is managed and controlled in Cyprus. Under the Cyprus Law there is no exact definition of management and control. However, the basic requirements for management and control are as follows:
All companies are taxed at a rate of 12,5%.
All expenses incurred, which are wholly and exclusively for the purpose of the trade are allowable including the following:
No expenses are allowed unless supported by invoices, receipts or other relevant documents.
The tax loss incurred during a year which cannot be set off against other income is carried forward subject to conditions and set off against the profits of the next five years.
Set-off of group losses are allowable only with profits of the corresponding fiscal year between the Cyprus tax resident Companies of a group. A company incorporated by its holding company during the year is considered as member of the group for the whole year of assessment.
Two companies are deemed to be members of the group if:
A partnership or a sole trader converted to a limited liability company can transfer tax losses into the company for future utilization.
Losses from permanent establishment abroad can be set off with profits of the company in Cyprus. Subsequent profits of the permanent establishment abroad are taxable up to the amount of losses allowed.
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