Taxation (Cyprus): Corporate, Personal, VAT and Defence Contributions
Taxation in the Pancyprian examination is Cyprus-specific and calculation-heavy. You must compute chargeable income from accounting profit, apply the correct rate and payment timetable, and keep the separate regimes - income tax, VAT, Special Defence Contribution (SDC), social insurance and GESY - apart.
Corporate and personal tax
- Corporation tax is 12.5% on chargeable profits of Cyprus tax-resident companies. Start from accounting profit, add back disallowed expenses (accounting depreciation, entertainment, non-approved donations, unreceipted expenses), deduct capital allowances (plant and machinery generally 20% reducing balance, buildings at lower statutory rates) and exempt income such as qualifying dividends.
- Losses carry forward five years; group relief is available within a group.
- Individuals: 183-day rule (or the 60-day rule where certain conditions are met) determines residence. Bands run 0% to EUR 19,500, then 20%, 25%, 30% and 35% on income above EUR 60,000.
- Deemed dividend distribution: a Cyprus company must distribute at least 70% of after-tax accounting profits within two years, otherwise the undistributed amount is deemed distributed and SDC applies to individual shareholders.
- SDC: 17% on dividends to Cyprus-resident individuals, 30% on interest, and 3% on 75% of gross rents.
- VAT: standard rate 19%, reduced rates of 9% and 5% for specified supplies, zero-rating for exports and intra-EU supplies; registration threshold EUR 15,600.
Worked example
Accounting profit EUR 500,000. Add back entertainment EUR 18,000, non-approved donations EUR 12,000 and depreciation EUR 95,000; deduct capital allowances EUR 110,000 and exempt dividend income EUR 20,000. Chargeable profit = 500,000 + 18,000 + 12,000 + 95,000 - 110,000 - 20,000 = EUR 495,000. Tax at 12.5% = EUR 61,875. Provisional tax is paid in two instalments, with a 10% charge where the provisional amount falls below 75% of the final liability.
Traps that cost marks
Offsetting output VAT against input VAT for exempt activities; deducting depreciation and capital allowances; treating exempt dividends as taxable but then also applying SDC to a corporate shareholder; forgetting that SDC is collected separately from income tax; and assuming 19% applies to every supply.