Worldwide Tax Summaries--CYPRUS（1999-2000）(part1)
Worldwide Tax Summaries--CYPRUS（1999-2000）(part1)
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There have been no significant tax or regulatory developments durings the past year.
TAXES ON CORPORATE INCOME
Corporation tax/The corporate tax rate is 20% on taxable income up to C￡40,000 and 25% on the excess. An additional tax of 10% is imposed on the following deductions from taxable income.
1.Losses brought forward from the previous years.
Companies listing shares on the Cyprus Stock Exchange (CSE) for the first time will be taxed for the first four tax years following the year of listing at corporate tax rates reduced by 50% (i. e., at 10% and 12.5%, respectively), provided that the shares are listed on the CSE up to July 9,2002 and represent at least 80% of the issued share capital with voting rights. The tax benefit from the reduced rates should not exceed C￡100,000.
International business entities/In the case of international business entities that derive their income from sources outside Cyprus (see "Tax incentives" )the applicable tax rate is 4.25% or nil.
Life insurance companies/When the tax payable on profits arising from life insurance business does not exceed 1.5% of the gorss amount of premiums, the difference is paid by way of minimum nonrefundable income tax.
All companies incorporated in Cyprus are treated as resident in Cyprus. Companies incorporated overseas are also treated as resident if their management and control are situated in Cyprus.
Defense contribution/A contribution for the defense of the Republic will be in force until June 30, 1999, and it may be extended for a further period by the House of Representatives. The rate is 4% (on salaries-3%; on pensions in excess of C￡3,000-3%), and it is not allowed as a deduction
for tax purposes.
Value-added tax/VAT is charged at 8%. Exports, food, medicines, and certain other essential goods and services are zero rated. Some supplies are exempt, the main categories being rents, insurance, finanCIAl services, education, and health and welfare.
The activities of international business entities fall outside the scope of VAT. As a result, they do not charge VAT and are not entitled to recover VAT charged on goods and services supplied to them. However, in order to reduce the cost of Vat to international business entities, the regulations provide the following.
1.Telecommunication services to international business entities are zero rated for VAT purposes.
2.No VAT is imposed on motor vehicles, office equipment and household effects that are imported duty free by international business entites or their expatriate personnel.
Municipal tax/All municipalities of Cyprus impose various taxes (town rates) annually; they are an allowable deduction for corporation tax purposes. The most important is the business tax, which depends on the type and volume of business and ranges from C￡450 to C￡3,000.
Social security/Employed persons are compulsorily insured under a state-administered SoCIAl Insurance Fund. Contributions to this are borne by both employer and employee.
The employer's contributions are made as a percentage of carnings to the following funds.
SoCIAl Insurance Fund…………………………… 6.3
Redundancy Fund…………………………………… 1.2
Training Development Fund……………………… 0.5
The maximum amount of monthly earnings on which the contributions are made is C￡1,577. These contributions are an allowable deduction for corporation tax purposes.
International business entities are exempt from contributing to any of the abovementionde funds in respect of their expatriate employees.
Immovable property tax/Immovable property is subject to property tax, which is levied on the market value of the property as at January 1,1980 and is payable by the end of September each year. The tax rates vary from 0 per thousand to 3 per thousand on values of up to C￡500,000 and 3.5 per thousand on any excess. This tax is an allowable deduction for corporation tax purposes.
The rate of tax on branch profits is the same as on corporate profits. No further tax is withheld on a transfer of profits to a foreign head office.
Inventory valuation/Inventories are generally stated at the lower of cost and net realizable value. LIFO is not permitted for taxation purposes.
FIFO is permitted. Conformity between book and tax reporting is not required.
Capital gains/Capital gains tax is imposed at the rate of 20% on gains arising from the disposal of immovable property and of shares in companies other than public companies, as defined in the Inceme Tax Law, that own immovable property. Liability is confined to gains accruing since January 1,1980. The costs that are deducted from gross proceeds on the disposal of immovable property are its market value at January 1,1980, or the costs of acquistion and improvements of the property, if made after January 1,1980, as adjusted for inflation up to the date of disposal on the basis of the consumer price index in Cyprus.
Intercompany dividends/All dividends from Cyprus companies are excluded from the taxable income of the recipient company.
Foreign income/Resident corporations are liable to tax on their worldwide income. Corporation tax is levied on foreign branch income when earned and on foreign dividends when received. Double taxation is avoided either through unilateral relief by giving credit for foreign taxation or by treaty relief. This credit cannot exceed the Cyprus income tax imposed on the same income. In the absence of a double taxation treaty, international business entities are not allowed a credit for foreign taxation. Instead, the foreign taxation is allowed as a deductible expense.
Stock dividends/A Cyprus corporation can distribute tax free a dividend of common stock (bonus shares) proportionately to all common stock shareholders.
Other significant items/None.
Depreciation and depletion/Depreciation is computed on a straight-line basis at rates that vary, depending on the life and type of asset. Tax depreciation is not required to conform to book depreciation. Gains on the sale of depreciated property are taxable as ordinary income to the extent of depreCIAtion allowed.
Depletion is computed on the cost of natural resources properties, based mainly on the output from the source during the year.
Net operating losses/Tax losses can be carried forward and set off against taxable profits of the five succeeding years. Carrybacks are not permitted.
Payments to foreign affiliates/A Cyprus corporation can claim a deduction for royalties and interest charges paid to foreign affiliates and a reasonable amount of head office expenses of an overseas company, provided such expenditures can be justified as hving been incurred in the production of the income. In the case of insurance companies, the amount
of head office expenses should not exceed 3% of the net premiums in Cyprus for general insurance business and 2% for life insurance business.
Taxes/Taxes that are deducted in computing profits for corporation tax purposes include value-added tax not recovered, the employer's share of contributions to the SoCIAl Insurance Fund, municipal tax, and immovable property tax.
Other significant items/
1.Charitable donations or contributions made for educational, cultural or other charitable purposes to the Republic or to approved charitable institutions are wholly deductible up to C￡20,000; 50% of amounts exceeding C￡20,000 is deductible. voluntary contributions to the SpeCIAl Fund for the Relief of Displaced Persons, Which is under the control of the Accountant General, are tax deductible without limit.
2.Any expenditure on scientific research of a capital nature for which no acapital allowance is granted is allowed as a deduction from taxable income and spread equally over the year in which it has been incurred and the five subsequent years. Scientific expenditure of a revenue nature is deducted in the year incurred.
3.Any expenditure incurred on the acquisition of patents and patent rights is allowed as a deduction from taxable income and spread equally over the life of the patents or patent rights.
4.Subject to certain restrictions, 30% of the amount paid by a company to acquire first-issue shares of a public company is tax deductible.
Group relief was introduced as from January 1,1988, subject to such conditions and procedures as may be laid down by regulations, which have not yet been issued. This will permit the setoff of losses between parent and subsidiary companies.
Inward investment/The following tax incentives exist.
1.Exports-The profits arising from the export of locally manufactured or produced goods, excluding petroleum products, are subject to corporation tax at one-half the tax rates. Additionally, 60% of the profits imported into Cyprus from rendering professional services abroad and 100% of the foreign exchange imported into Cyprus derived from the rendering of
salaried services abroad to private firms are tax exempt.
2.Profits or dividends-90% of the profits or dividends imported into Cyprus by a person having an interest of not less than 15% in any business carried on outside Cyprus, by a Cypriot residing in Cyprus orby a company controlled by Cypriots is tax exempt. Thisexemption applies after deduction of any loss sustained in an enterprise carried on in Cyprus. The term "business" includes the rendering of professional services in an independent capacity, provided a permanent base is maintained abroad.
3.Foreign capital-Income that is proved to the satisfaction of the Commissioner of Income Tax to be interest on foreign capital imported into Cyprus and deposited with any bank operating in Cyprus is exempt from tax.
Also, the income of any person that is derived from interest on foreign capital imported into Cyprus and lent for the purpose of financing investments is tax exempt where the Minister of Finance is satisfied that such investment contributes substantially to the economic development of Cyprus.
1.Investment allowance-The investment allowance on fixed assets, which is additional to the normal wear-and-tear allowance, is as follows.
New plant and machinery used in production by manufacturing,
mining, farming, poultry, or fishing enterprises…………………20
New plant and machinery used in production by manufacturing
joint ventures under certain conditions………………………………40
New robots, computers and computer programs for all enterprises…
New companies-New buses acquired within five years from the formation of a company…………………………………………………… 45*
Businesses merged into a new bus company-Used buses…………… 45
Mountain tourist village, hotel or organized apartments first or
second class (those situated over 2,000 feet above sea level) …25
Hotel and extensions or improvements of three, four-or
five-star hotels in Nicosia………………………………………………25
*55% for a public company.
Expenditures for unsuccessful exploration for minerals-An amount equal to 130% of the expenditure is deductible for tax purposes.
2.Ten-year tax holiday for auxiliary tourist buildings or projects-Subject to certain conditions, a ten-year tax holiday is granted to a company on profits arising from the operation of an auxiliary tourist building or project that will enrich and upgrade the tourist product, e. g., golf courses, marinas, theme parks, luna parks, athletic centers, and health centers, as from the year of commencement of operation.
Other incentives/The following incentives are also available.
1.International business entities-International business entities are companies or branches of overseas companies or partnerships that enjoy speCIAl taxation privileges, provided all their shareholders or partners are foreigners and all profits or income are derived from activities carried on outside Cyprus. The most important tax incentives available
exclusively to international business entities are as follows:
a.Branches of overseas companies whose management and control are abroad and partnerships are fully exempt from income tax; an
b.Branches of overseas companies whose management and control are in Cyprus and companies incorporated in Cyprus are liable to income tax at the reduced rate of 4.25%.
These incentives will be in force until 2006 but may be extended for a further period.