Corporate Tax Provisions
A company is considered to be tax resident in Cyprus if its management and control is exercised in Cyprus . The Cyprus tax authorities normally assume that a company having its majority of board members, statutory seat and board meetings in Cyprus is considered to be managed and controlled in Cyprus .
Trading profits are taxed at the rate of twelve and a half percent (12.5%), which is the lowest corporate income tax rate in Europe .
All companies registered at the Cyprus Companies House are subject to an annual fee of €350. For Group of Companies the total fee is capped at the €20.000 per year. However, the payment of the fee is not required in the case of Companies are dormant, at the discretion of the Registrar of Companies, or have been registered in the year under examination,
There is no withholding tax on dividends in the case where the recipient is an overseas company or an individual. Only Cyprus tax resident individuals are subject to Special Defence Contribution 17% (for years 2012 and 2013 20%) on dividends received.
Deemed Dividend Distribution
A company which is resident in Cyprus (including an Investment Fund) is deemed to have distributed at least 70% of its profits arising or accruing in the year of assessment, after corporation tax paid or payable on such profits, in the form of dividends to its interested shareholders as at the end of the period of two years from the end of the year of assessment to which the profits relate. Any special contribution payable by the shareholder concerned in consequence of a deemed dividend distribution shall in the first instance be paid by the company at the rate of 17% (for years 2012 and 2013 20%) which will debit such contribution to the shareholders. The provisions of DDD are only applicable to the extent of Cyprus tax resident Investors
Active interest income (interest income effectively connected with the carrying on of a trade or business of the company) is subject to the corporate income tax rate of 12.5% as regular trading income after the deduction of any relevant expenses.
Passive interest income, (income not connected to a trade or business), is exempt from corporate income tax purposes but taxed at the level of the Special Contribution for Defence (SCD) at thirty percent (30%) on a gross basis.
The Cyprus Shipping Regime
The new tonnage tax law, which fully revises the Cyprus tonnage tax system (TTS) and which is fully compatible with the requirements of the EU acquis on State Aid to Maritime Transport, was introduced on 29 April 2010 with retroactive affect as of 1 January 2010. The new law will remain in force until 31 December 2019 and, subject to the approval of the European Commission, the validity period may be extended by a decision of the Council of Ministers.
TTS is based on the payment by beneficiaries of tonnage tax on the basis of the net tonnage of ships and provides full exemption from all income taxes that would normally be imposed under the Cyprus income and defence tax laws.
For more information please refer to KPMG website www.kpmg.com.cy