Corporate Tax Planning

Today, globalisation characterises the modern economy and sets the rules under which corporations operate. It becomes vital to be able to control and minimise your tax liability. Tax planning will offer you the opportunity to provide amounts for other expenses, even of an investment nature, thus increasing your company’s competitiveness.

We assist you in providing a proper and high value tax planning for your corporation. Based on the nature, the volume and complexity of your activities we can implement various strategies in order to minimise tax liability.

Examples of tax planning areas include the choice of stock valuation used, the method of recognizing revenues (i.e. in cases of construction contracts), tax relief benefits provided through legislation such as group relief for losses incurred, even spreading business income among family members, which can have a great impact on minimising tax liability for small corporations. Business forms are also considered based on each case's distinctive facts. Joint ventures, large group companies, partnerships, limited liability companies, sole proprietors are also considered.

 

Tax Exemptions

  • 100% of interest receivable

In accordance to tax legislation 100% of interest received by corporation is tax exempt, excluding interest received from the recipient's ordinary course of business or closely connected with the recipient's ordinary business.

  • Dividends received

Dividends received from abroad are now totally exempt from corporation tax by virtue of the new tax legislation. Furthermore, they are also exempt from the 17% defence contribution.

  • Restructuring provisions

In view of the incorporation of the EC Merger Directive 90/434/EEC into the new tax law, there are tax exemptions on the transfer of assets (including shares) under a reorganisation (merger / de-merger / transfer of assets).

  • Gains on shares and Capital Gains Tax

Profits from buying and selling shares are exempt from tax. Furthermore, there is no capital gains tax except for the 20% capital gains tax applying on gains accruing from disposal of immovable property held in Cyprus and shares in non-listed companies, which own immovable property in Cyprus.

  • Profits from activities of Permanent Establishment abroad

The profits from a permanent establishment abroad are exempt from taxation. The exemption does not apply if (i) the Permanent establishment directly or indirectly engages in more than fifty per cent (50%) in activities that produce investment income, and (ii) the foreign tax burden is substantiaally lower than that in Cyprus.

  • Cyprus Branches of Companies

With the accession of Cyprus in the EU, double taxation relief will be available to all Cyprus branches, of companies resident in other member states in the European Union, since there is no discrimination between the companies resident in a Member state and the branches of such companies residence inanother member state.

  • Distributions by Cyprus Holding Companies

Dividends paid to non-resident shareholders are exempt from withholding tax. In fact, Cyprus does not impose withholding taxes on payments of dividend, interest and royalties (provided the intellectual property rights are not used in Cyprus) to non-resident recipients.

 

Corporate Tax Benefits

  • Carry forward of Losses

Tax losses for the year 1997 onwards may be carried forward indefinitely. Losses incurred abroad by a permanent establishment of a Cyprus company can be offset against profits of the Cyprus Company.

  • Group relief

The Group relief rules are now enacted, providing for group relief of tax losses between a holding Company and its subsidiaries in the event where the Holding Company owns at least 75% of the Subsidiary directly or indirectly and/or otherwise among companies of the same group for the whole year. However, losses brought forward will not be available for Group Relief.

By virtue of the said rules a company is considered as a member of a group if it is at least a 75% subsidiary of the other, or both companies are at least the 75% subsidiaries of a third company.

  • NoThinCapitalisation

There are no thin capitalisation rules in the Cyprus tax legislation. However, interest suffered on loans used for the acquisition of assets not used in the business is not tax deductible.

  • AdvanceRulings

Advance rulings can be obtained from the Income Tax office upon request.

  • No Transfer Pricing Legislation

There is no transfer pricing legislation in Cyprus, other than a provision in the Income Tax Law which requires transactions between ‘related parties’ to be in accordance with the ‘arm’s length principle’. The Cyprus tax legislation adopted the OECD model and guidelines to determine whether a transaction is at arm’s length.

  • No Controlled Foreign Companies (CFC) Rules

There is no Controlled Foreign Companies rule in Cyprus tax legislation and Cyprus companies are not subject to CFC Rules.There is no requirement or licensing procedure for the participation of foreigners in a Cyprus company.

  • Exit Routes

The Cyprus Company offers an ideal exit route through a tax free sale of participations and own shares or the liquidation of the company and distribution of the proceeds completely tax free to the non-resident shareholders.

  • Reorganisation Provisions

Cyprus legislation provides for a fully exempted reorganisation of Companies procedures. Such reorganisation may include any division, merger, partial division, transfer of assets, exchange of shares and redomiciliations. The same reorganisation provisions apply in Cyprus and for all EU Companies or Cyprus Companies in other EU Jurisdictions under the European Union Merger Directive.

  • Re-Domiciliation of Companies

Re-domiciliation of any share capital in and out of Cyprus is permissible; however, the other jurisdiction’s legislation must also recognise such a possibility.

  • Tax Sparing Provisions

Cyprus Tax Sparing Provisions in a number of DTTs has the effect that if tax is ‘spared’ (i.e. exempted) in Cyprus, then it is credited against the investor’s tax liability in his home country (the treaty counterpart) as if it had actually been paid in Cyprus.

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