A company is taxed in Cyprus if its management and control is in Cyprus. The major factor in deciding that is in effect where the board of its directors are taking a decision which is their usual place of residence.
- In general trading profits are taxed at 12.5% Corporation tax (2012 and before 10%). Trading profits include profit from sale of goods, services, consulting.
- Defence tax is payable only when the owner of the company is Cyprus tax resident. The applicable rate is currently 20% (15% before August 2011 and 17% from August to December 2011). A deemed dividend distribution applies on 70% of the accounting profits its on the proportion of the shareholders that are Cyprus tax residents only and if there was no distribution in the last 2 years.
- Profit from a permanent establishment abroad is not taxable in Cyprus.
- Tax losses are allowed to be carried forward indefinitely. From 1/1/2013 losses can only be carried forward for 5 years. Group loss relief also applies but special provisions apply.
- Foreign tax levied on income of the company can be deducted on tax arising on the same income in Cyprus.
- Interest received as part of the normal trading is taxed as part of the trading profit after deducting interest payable and other expenses. If the interest is not part of the normal trading then it is taxed at 30% (15% before 29th April 2013, 10% before August 2011) defence tax on its gross amount.
- Cyprus does not impose any withholding tax on interest paid to non-resident recipients.
- Royalties earned from sources within Cyprus by a company which is not a resident of Cyprus is liable to ten percent (10%) withholding tax. If such right however is granted to a Cyprus company for use outside Cyprus, then there is no withholding tax and the corporate rate is applied only on the profit margin left in the Cyprus company.