Rental Income

 

Income, generated by a Cyprus tax resident Company, arising from the letting of immovable property is taxable both under the Cyprus Income Tax (12,5%) and the Special Defence Contribution Tax legislation as follows:

 

Income Tax

The net Taxable rental income (after deducting all related expenses such as wear and tear allowances , repairs, maintenance expenses, etc.) arising in Cyprus is included in the taxable base of the Company and taxed at the flat Corporate Income Tax (CIT) rate of ten percent (12,5%).

 

Special Defence Contribution

Under the Special Defence Contribution Law, an amount of 25% is deducted from the gross amount of rental income.

After such deduction has been effected, the taxable amount of rental income is subject to tax at a rate of three percent (3%)

 

Capital Gains Tax

Capital Gains Tax are not included int he ordinary trading profit of a business but instead are taxed separately under Capital Gains Tax Law.

Capital Gains Tax from the sale of immovable property situated in Cyprus and/or sale of shares in Companies (other than quoted shares) that own immovable property situated in Cyprus, are taxed at a flat rate of 20% after allowing for indexation.

Capital Gains that arise from the disposal of immovable property held outside Cyprus or shares in Companies which may include immovable property held outside Cyprus are completely exempt from Capital Gains Tax.

 

Thin Capitalisation Rules

There are no thin capitalisation rules in the Cyprus tax legislation, Special caution must be exercised in relation to interest deductions in respect of loans of a non-trading nature as interest on balances of a trading nature is allowed as a qualifeied expense, whilst interest on balances not of a trading nature is disallowed.

 

Foreign Permanent Establishment (PE)

The profits from a foreign permanent establishment held by a Cyprus Company are exempt from corporate tax unless the following two conditions apply:

More than 50% of the income of the PE is investment income;

and

The foreign tax burden is less than 6,25%.

 

Inheritance or Estate Taxes

Although Cyprus is a full member of the EU, there are no taxes on capital.

Estate or inheritance tax was abolished as of January 1st, 2000. 

 

Losses carried forward

The tax losses incurred during a tax year and which cannot be set off against other income ,can be carried forward and set off against future profits with 5 years time restriction.

 

Group Relief

The current year loss of one Company can be set off against the profit of another provided that the companies are Cyprus tax resident Companies of a group (75% possession rule).

The losses of a Cyprus Company may be surrendered to a European Union incorporated Company subject to conditions.

 

Reorganisations

Transfers of assets and liabilities between Companies can be effected without tax consequences within the framework of a qualifying reorganisation.