From the year of assessment 2003

Section 5

Resident persons (individuals and companies) are taxed in Cyprus on their world–wide income whereas non-residents are taxed on Cyprus source income only.

From the year of assessment 2003

Section 2

“Resident in the Republic” when applied to an individual, means an individual who stays in the Republic for periods exceeding in the aggregate 183 days in the year of assessment and when applied to a company, means a company whose management and control is exercised in the Republic.

Second schedule

Second schedule

4.

Corporation tax rates

Second schedule

Normal Corporation tax rates

Chargeable income         Rates of tax

Up to £40.000                    20%

£40.001 +                          25%

Reduced Corporation tax rates

Applicable to regional bus companies and companies whose shares are listed on the Cyprus Stock Exchange for the first time, for a period of 4 years.

Section 34(2)

Companies are taxed with an additional rate of 10% on the reduction of their chargeable income due to losses brought forward, investment allowances and depletion allowances for mines.

Section 28A

Special corporation tax rate 4,25% for international business entities either incorporated in the Republic, irrespective of management and control, or registered in the Republic under Section 347 of the Companies Law and having their management and control in the Republic.

Section 8(y)

The profits of international business entities registered in the Republic under Section 347 of the Companies Law and not having their management and control in the Republic, are completely exempt from tax.

Second schedule

For the year of assessment 2002

A 10% windfall tax is introduced for semi-government organizations.

From the year of assessment 2003

All companies, including international business entities without restrictions regarding their activities, are subject to a uniform tax rate of 10% except for semi-government organizations, which are taxed at 25%. A windfall tax of 5% is introduced for chargeable income in excess of £1 million for the years of assessment 2003 and 2004.

10% additional tax is abolished as from 2003.

Section 46-Grandfather clause

The existing international business entities can exercise the option to continue to be taxed at the rate of 4,25% till the year of assessment 2005.

Abolished.

5.

Taxation of Dividends

a) Withholding of tax

b) Final tax

c) Deemed distribution of dividends

Section 35

On distribution of dividends, tax is withheld at the rate of 20%(with some exceptions) or in accordance with tax treaties in force. No tax is withheld when dividends are paid to foreign companies.

Section 28A(3)

In the case of international business entities there is no withholding of tax on dividends and no additional tax on shareholders.

Section 33A

Individuals may opt to be taxed separately on their dividends at the rate of 20%, thus the tax withheld becomes final tax.

Section 8(l)

Individuals who choose to be assessed at the normal tax rates, are entitled to an exemption of £1.200 in respect of dividends from shares listed on the Cyprus Stock Exchange (CSE).

Second Schedule

No corporation tax is imposed on dividends.

Section 47

The Commissioner has the power, under certain conditions, to consider that 65% of the profits of a company controlled by not more than 5 persons, is distributed.

From the year of assessment 2003    

Section 8(20)

Dividends are exempt from income tax.

Dividends are subject to special contribution for the defence.

(Refer to No. 1.8 of Table 2)

Abolished

(Refer to No. 1.8 of Table 2)

6.

Taxation of interest

Section 5(1) (d) and Section 8(j) & (k)

The income of individuals and companies from interest is taxed at the normal tax rates, except for:

8(j)  the income of individuals and their dependants from                        Cyprus Government Securities which is completely exempt from tax, and

8(k) the interest derived by individuals from debentures listed on the CSE or deposits or savings accounts with, any bank or co-operative savings bank operating in the Republic which is exempt up to £600.

Section 5(2) and 28C(3)

Special mode of taxation for investment income remittances to Cyprus: amounts exceeding £2000 taxed at 5%.

For the year of assessment 2002

Section 8 (k) replaced

In the case of corporate bodies, 20% of the interest earned, and in the case of individuals and their dependants £600, as well as 50% of the amount of interest in excess of £600, is exempt from tax.

Interest is subject to special contribution for defence. (Refer to No. 1.9 of Table 2)

From the year of assessment 2003

Section 8 (19)

The total income of an individual from interest and 50% of the income of a company from interest is exempt from tax.  The interest derived by a person from the usual carrying out of his business including interest closely connected with the ordinary carrying out of the business is not considered interest but profit.

Interest is subject to special contribution for the defence. (Refer to No. 1.9 in Table 2)

Abolished

7

Tax Treatment of Losses

a) Losses carried forward

b) Group Relief

Section 15

The losses that cannot be set off against other income of the same year with some exemptions are carried forward and set off against the income of the next 5 years.

Section 15(5)

 Though provided for in the Law, in the absence of Regulations and in accordance with a decision of the Supreme Court, no group relief is allowed.

From the year of assessment 2003

Section 13

The 5 year restriction for the carry forward of losses is abolished.

Section 13(4)-(8)

Group relief granted.

8.

Reorganizations

No provision for tax relief in the case of mergers and acquisitions.

From the year of assessment 2003

PART VI

Sections 26-30

Introduced provisions to comply with EU directive 90/434/EEC for mergers and acquisitions

9.

Entertainment expenses

Section 13(id)

Entertainment expenses, except those incurred by public companies, are deductible subject to conditions set out in Regulations. In the absence of Regulations, IRD applies the “wholly and exclusively” criterion. Time consuming and ineffective process.

From the year of assessment 2003

Section 11(12)

No such expenditure over 0,50% of the business turnover or £5.000, whichever is the lower, is allowed.

10.

Private saloon cars expenses

Section 13(e)

“Wholly and exclusively” criterion applied. Time consuming and ineffective process.

From the year of assessment 2003

Section 11(13)

Such expenses are not allowed.

11.

Taxation of profits or dividends of any business carried outside the Republic by Cypriots residents in the Republic

Section 8(w)

90% of the profits or dividends imported into the Republic is exempt from tax.

From the year of assessment 2003

Section 36(3)

Profits of a Permanent Establishment outside the Republic are exempt from tax, subject to conditions.

12.

Professional services abroad

Section 8(v)

60% of the profits remitted to the Republic are exempt form tax.

From the year of assessment 2003

Abolished due to negative decision of Commissioner for Public Aid.

13.

Exemption for investment in the first issue of shares listed on the Cyprus Stock Exchange (CSE)

Section 8 (z)

Exemption granted under certain conditions

From the year of assessment 2003

Abolished

14.

Reduced tax rates for profits from exports.

Section 28£

50% of the normal rates applicable to such profits for locally produced goods

From the year of assessment 2003

Abolished. Negative decision of Commissioner for Public Aid.

15.

Investment allowances and special tax incentives.

Section 12(2)(b)- (h)

Section 8 (ab) & (ac)

Investment allowances and special tax incentives are granted for certain businesses & industries e.g. hotel, mining, farming and auxiliary tourist projects.

From the year of assessment 2003

These incentives are not compatible with EU State Aid Rules and are abolished.

16.

Exemption to encourage the importation of foreign money capital

Section 10

(1) Interest on foreign money capital imported into the Republic and deposited with a local bank is exempt from tax.

(2) The interest on foreign money capital borrowed by a person and invested in fixed assets contributing to the economic development of the Republic is exempt from tax with the approval of the Minister of Finance.

From the year of assessment 2003

Abolished

Abolished. Negative decision of Commissioner for Public Aid.

17.

Reduced tax rates for Foreign employees of international business entities and of companies situated in the Larnaca Industrial Free Zone.

Total exemption for salaried services abroad

Section 28£(1)&(2)

These employees are taxed at 50% of the normal rates for services rendered in the Republic and at 10% for services outside the Republic, if not paid through the Republic, otherwise they are exempt from tax completely

Section 8(x)

The whole amount of foreign exchange imported into the Republic for salaried services outside the Republic is exempt from tax.

From the year of assessment 2003

Section 8 (21)

20% exemption of emoluments or £5000, whichever is the lowest, granted in the case of non – residents starting employment in the Republic.  Applicable for 3 years.

Section 36(5)

Emoluments for services rendered outside the Republic for a total period exceeding 90 days in the year of assessment, to a non-resident employer or a PE abroad are exempt from tax.

18.

Allowances for spouse, children, old age and displaced individuals.

Sections 16, 17, 18 & 22

£       £500 for every child up to 18 years old or serving in the National Guard

£       £1500 for every child receiving third level education in the Republic, the tax saving not exceeding £300

£       £500 for spouse

£       £1500 for individuals over 65 years old, the tax saving not exceeding £300

£       £300 for displaced individuals with annual income up to £10.000

Note: The allowances for children and spouse are apportioned between husband and wife.   

For the year of assessment 2002

Sections 17, 18 &22 deleted

Allowances granted only for children.

From the year of assessment 2003

All allowances are abolished and replaced with a scheme of grants.

The allowances in respect of contributions to the social insurance fund, to provident funds, pension schemes, medical schemes, the general medical scheme, as well as premiums paid for life insurance policies, are still granted.

Contributions to Unions and professional subscriptions are deductible.