COMPANY – OTHER TAXES

If a Cyprus tax resident company does not distribute dividends that cover 70% of the adjusted for DDD accounting profits within two years from the end of the tax year in which the profits were generated then:

• 70% of adjusted for DDD accounting profits are deemed to have been distributed, and 17% special contribution is imposed to shareholders who are residents in Cyprus.
• Any actual dividends paid reduce this liability, and
• No liability will arise from actual dividends that will be paid in the future from these profits.

The provisions of DDD (payment of 17% special contribution apply also to the following cases:

• Disposal of assets to shareholder at less than the market value: The DDD applies to the difference between the consideration paid and the market value. The provision does not apply for assets originally gifted to the company by the shareholder. (The term shareholder, covers individuals, their spouse and relatives of them up to second degree).
• Company dissolution: The DDD applies to the cumulative profits of the last five years prior to the company’s dissolution, which have not been distributed or deemed to have been distributed. The provision does not apply in the case of dissolution under Reorganisation.
• Reduction of capital. The DDD applies to the amounts paid or due to the shareholders over and above the previously paid-in equity.

Special contribution for defense is imposed on dividend income, “passive” interest income and rental income. Companies are subject to Special Contribution for Defense if they are tax resident in Cyprus.

Individuals are subject to Special Contribution for Defense if they are both Cyprus tax resident and Cyprus domiciled. (Prior to 16 July 2015 individuals were subject to Special Contribution for Defense if they were tax resident in Cyprus).

* As from 01/01/2016 when dividends received from non – Cyprus resident companies are deductible for tax purposes by the paying company are subject to Corporation Tax. Thus this section applies only to dividends which are not deductible for tax purposes by the paying company. When this section applies, the exemption from Special Contribution for Defense does not apply if: -more than 50% of the paying company’s activities result in investment income and, – the foreign tax is significantly lower than the tax burden in Cyprus (below 6.5% on the distributed profit).

If a Cyprus tax resident company does not distribute dividends that cover 70% of the adjusted for DDD accounting profits within two years from the end of the tax year in which the profits were generated then:

• 70% of adjusted for DDD accounting profits are deemed to have been distributed, and 17% special contribution is imposed to shareholders who are residents in Cyprus.
• Any actual dividends paid reduce this liability, and
• No liability will arise from actual dividends that will be paid in the future from these profits.

The provisions of DDD (payment of 17% special contribution apply also to the following cases:

• Disposal of assets to shareholder at less than the market value: The DDD applies to the difference between the consideration paid and the market value. The provision does not apply for assets originally gifted to the company by the shareholder. (The term shareholder, covers individuals, their spouse and relatives of them up to second degree).
• Company dissolution: The DDD applies to the cumulative profits of the last five years prior to the company’s dissolution, which have not been distributed or deemed to have been distributed. The provision does not apply in the case of dissolution under Reorganisation.
• Reduction of capital. The DDD applies to the amounts paid or due to the shareholders over and above the previously paid-in equity.

*As already noted rental income is subject to income tax (corporation & personal) as well.

Capital Gains tax is imposed (when the disposal is not subject to income tax ie trading activity) at the flat rate of 20% on gains from the disposal of immovable property situated in Cyprus including gains from disposal of shares in companies which own immovable property, excluding shares listed on any recognized stock exchange. From 17 December 2015 the disposal of shares of companies, which indirectly own immovable property situated in Cyprus and at least 50% of the market value of that shares derive from the immovable property, is also subject to Capital Gains Tax.

The gains from the future disposal of Land as well as land with a building / buildings acquired within the period from 16 July 2015 up to 31 December 2016 will be exempt from Capital Gains Tax subject to conditions. The basic condition is that the immovable property is acquired through purchase or purchase agreement and not through an exchange or donation, at market value, from a non-related party.

Expenses that relate to the acquisition and disposal of the property are deductible from the taxable base. Indexation allowance is always granted and lifetime exemptions are available.