As of 1 January 2003, Cyprus conforms to EU requirements and fully complies with the OECD initiative against harmful tax practices. Cyprus accession to the European Union was on 1st May 2004.

Imposition of tax
Companies who are Cyprus tax residents are subject to tax on their worldwide income, whether remitted to Cyprus or not. Those who are non-Cyprus tax residents are only subject to tax on their Cypriot income. A Corporation is required to submit audited financial statements together with statements of taxable profits and supplementary information and file a corporation tax return not later than December 31 after the end of each fiscal year.

Permanent establishment
It has the same meaning as defined in the O.E.C.D. Model Tax Convention on income and on capital with the exemption of “a building site or construction or installation project”, which constitutes a permanent establishment only if it lasts more than three months.

Tax Residency
A company is subject to tax in Cyprus if its management and control is exercised in Cyprus, irrespective of its place of registration.

Appeals
When a corporation disagrees with a tax assessment, may object in writing to the commissioner of Inland Revenue. The objection must be made not later than the end of the month following that in which the notice of assessment was given. In the event of not reaching an agreement with the Commissioner, the corporation may appeal to the Supreme Court within 75days from the date of determination of the objection by the Commissioner.

Statute of limitations
The commissioner has powers to make additional assessments for any of the previous six years and where fraud or wilful default is involved, for any of the previous 12 years.

Payment and collection
Corporate entities must pay provisional tax on the current year’s income in three equal instalments, on the August 1st, September 30th and December 31st and are based on income that must be declared by taxpayers prior to 1st of August. A final payment must be made on August 1st of the following year on a self-assessment basis to bring the total instalment payments of the tax borne to the actual due according to the tax return. Local companies are taxed in accordance with the following table:

Losses carried forward
Losses incurred in any one-year and which cannot be offset against other income, can be carried forward and set off against future profits for an indefinite period of time.

Group relief of trading losses are allowed among Cyprus tax resident companies, which are members of the same group (at least 75% control) for the whole year. Group trading losses can be surrendered from one company of the group to another for the current year only.

Losses of sole trader or a partnership converted into a limited liability company can be set off against future profits of the company.

Losses of a permanent establishment abroad can be set off against the Cyprus profits of a business whether incorporated or unincorporated. However, future profits of the permanent establishment will be liable to tax to the extent of the losses allowed.

RE-ORGANISATIONS

The transfer of assets and liabilities between companies can be effected without any tax consequences within the framework of a reorganisation which includes:

• Mergers
• De-mergers
• Transfer of activities
• Exchange of shares
• Transfer of assets
• Partial divisions