Cyprus legal and accounting and tax considerations in 2023
Since 2003, Healy Consultants Group assists our Clients with timely compliance of their annual legal, accounting and tax obligations in Cyprus.
- A tax-resident Cypriot limited liability company (i e a company which is managed and controlled from Cyprus, including having an office and staff on the island) pays 12.5% corporate tax on profits generated in Cyprus and globally.
- Similarly, the Cyprus branch of a foreign company pays 12.5% tax on profits. After tax profits of the branch will not be taxed again when remitting outwards to head office outside of Cyprus. Furthermore, foreign-sourced income is not taxed when remitting inwards to the Cyprus company/branch.
- A non-resident company (limited liability company incorporated in Cyprus, but managed and controlled from overseas) is taxed only on income derived in Cyprus.
- A corporation is considered Cyprus tax resident when its management and control is exercised in Cyprus. However, from 31 December 2022, Cypriot-incorporated entities with i) management and control exercised outside Cyprus and ii) which are not tax-resident in other jurisdictions will be considered Cypriot tax-resident. Consequently, these entities will be taxed in Cyprus on their worldwide income.
- Dividends paid to Cyprus-resident and non-resident companies are free from withholding tax.
- There is zero capital gains tax on the sale of shares. A 20% capital gains tax is payable on the sale of real estate or land.
- There is no withholding tax on interest paid to a non-resident. Royalties paid from Cyprus relating to the use of rights in the country suffer a withholding tax of between 5 and 10%. However, double tax agreements can reduce this exposure.
- Cyprus-resident companies pay no withholding tax on royalty payments.
- From 31 December 2022, a Cypriot company with i) dividend ii) interest or iii) royalties income sourced in an EU-blacklisted jurisdiction (currently Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, U.S. Virgin Islands and Vanuatu) will suffer withholding tax at the rates of i) 17% ii) 30% and iii) 10% respectively.
- Cyprus does not impose capital gains tax on profits and gains from the disposal of securities, regardless of whether the profits and gains are considered to be of a revenue or capital nature.
- Cypriot companies are exempt from taxation on foreign exchange (FX) gains, except for FX gains arising out of trading in foreign currencies and related derivatives.
- A Special Contribution for Defence (SCD) tax is levied on Cyprus-resident companies at i) 3% (for rental payments) ii) 17% (dividends) and iii) 30% (interest payments).
Value added tax (VAT)
- Under Cypriot Company Law, if a company’s annual turnover exceeds €15,600, it must register for VAT.
- The standard VAT rate levied on goods and services is 19%. Rates of between 0% and 9% may apply, depending on the types of goods and services provided.
- Non-resident companies doing business in Cyprus and which are registered for tax in their home country have a zero VAT registration threshold in Cyprus.
- Quarterly VAT returns must be submitted by the 10th of the second month following the quarter in question.
Filing due dates
Mode of filing Filing deadline e-filing 31 March
- The Cyprus Tax Authority only accepts electronic filing of tax returns.
Consequences of late / non-filing of tax returns
- A late penalty of between €100 and €200 is imposed if i) a tax return is filed late or ii) the company delays submitting information requested by the tax authority.
- If the company’s tax bill is not settled on time, a penalty of 5% of the payable tax amount will be issued. A 10% penalty will be applied for a two-month delay, and a 30% penalty for a delay exceeding two months.
- Criminal charges may be brought against a company and its directors in case of non-compliance with annual general meetings, improper and inaccurate keeping of books and records, not registering with tax authorities, not filing tax returns or submitting an annual levy. Non-payment of the levy may also result in the company being struck off from the Cyprus company register.
Tax exemptions and rebates
- Cyprus offers attractive tax breaks for companies developing i) patents ii) software and iii) other research and development work pay income tax on just 20% of their profits (in other words, 80% of qualifying profits are a tax-deductible expense).
- Cyprus-resident and non-resident companies can access a so-called Notional Interest Deduction (NID) of up to 80% of their taxable income on new equity, for example i) share capital and ii) share premiums.
- Tax losses in Cyprus can be carried forward for up to five years following the fiscal year, and can be offset against future taxable profits.
- Cyprus has signed 65 Double Taxation Agreements (DTAs) with countries around the world. In practical terms, these DTA’s help minimise withholding tax payable by Cyprus-resident companies.
- The double tax treaty between Cyprus and China includes a tax sparing credit clause, which allows Cyprus-based subsidiaries of Chinese resident entities involved in IT, pharmaceutical and financial services industries to claim 100% of their Cyprus taxes from their corporate tax payable in China. This credit is applicable even if their Cyprus subsidiary is exempted from paying taxes in Cyprus, due to the double tax treaty. This would allow Chinese subsidiaries in Cyprus to save up to 10% net off their total taxes payable, making Cyprus an attractive location for Chinese companies to set up their subsidiaries.
Tax reporting, accounting and auditing considerations
- Cyprus tax laws are straight forward, and the World Bank ranks the country highly for the ease with which taxes can be paid.
- Companies incorporated in Cyprus must file annual tax returns prepared based on audited financial statements (prepared by a licenced auditor), and in accordance with Cyprus Tax Department and international standards.
- However, under Cyprus Companies Law, small and medium sized enterprise are exempt from preparing consolidated financial statements.
- Corporate entities in Cyprus must also submit a provisional tax return before 1st August each year, based on the estimated income for the current year.
- A Cyprus-incorporated company must keep updated books and records at all times. All accounting books, records and audited accounts should be kept for at least six years in the case the Cyprus Tax Department requests to review them.
- Every Cypriot company must be registered with the Cyprus Tax Department and obtain a Tax ID Number (or Tax Identification Code (TIC) within 60 days of incorporation.
- A Cypriot company (except a ‘small’ company) is required to submit a management report which includes a review of the development and performance of the company’s business and of its financial position.
- The directors of a Cyprus-incorporated company must, by law, hold an Annual General Meeting (AGM). The first AGM must be held within 18 months of company incorporation.
- It is important our Clients are aware of their personal and corporate tax obligations in their country of residence and domicile; and they will fulfil those obligations annually. Let us know if you need Healy Consultants Group’s help to clarify your annual reporting obligations.
Healy Consultants Group fees for accounting & tax support
Cyprus accounting & tax task € Tax and VAT registration 750 Annual tax and accounting fees (active trading company) 2,300 Annual tax and accounting fees (dormant company) 950
These accounting and tax fees are an estimate of Healy Consultants Group fees to efficiently discharge your annual company accounting and tax obligations. Following receipt of a set of draft accounting numbers from your company, Healy Consultants Group will more accurately advise accounting and tax fees.
Monthly book keeping service
Healy Consultants Group will be happy to provide a monthly book keeping service for your Cypriot company. Typically, our Accounting & Tax Department (ATD) team will receive a Dropbox of data from our Client and will immediately thereafter timely supply our Client with i) a general ledger ii) trial balance iii) monthly and quarterly management accounts and iv) monthly and quarterly government reporting, including sales tax and payroll.
For further details of our book keeping service and our fees, visit this page.
Legal and compliance
- According to the Companies Act, a Cyprus company must have at least one director and one shareholder of any nationality;
- The Memorandum of Association is a contract between the shareholders and comprises i) company activities, ii) registered office address, iii) shareholder and director details, iv) share capital, v) profit distribution method;
- Each time a change occurs in the particulars of the company or to its officers, the change must be lodged with the Cyprus companies’ registry not later than i) 14 days from the day of the changes of registered office or directors and secretary and ii) 1 month of shares transfer;
- The Cyprus Companies Registrar will impose administrative fines of €50 as an initial penalty and €1 for each day of delay or maximum of €250 for missing deadline;
- Each company must have a registered office in Cyprus. Healy Consultants can provide this for monthly fee of US$1,200;
- Employers must pay social security contributions on behalf of their employees at the rate of 9.5% of their employee gross remuneration and 2% of the total employee earnings to the social cohesion fund;