Cyprus tax favors companies in various ways but here is some of the most important advantages offered. Expenses incurred wholly and exclusively in earning taxable income are deducted for corporate tax purposes.
Types of expenses that fall under deductions.
Deductible Expense 1.
Any interest expense incurred for the direct/indirect acquisition of 100% of the share capital of a subsidiary company will be treated as deductible for income tax purposes provided that the 100% subsidiary company does not own (directly or indirectly) any assets not used in the business. In the case that the subsidiary owns (directly/indirectly) assets not used in the business, the interest expense deduction is restricted to the amount which relates to assets used in that business. The whole amount is exempted in this scenario.
Deductible Expense 2.
Equity introduced to a company as from 1 of January 2015 (as a new equity) in the form of paid up share capital or share premium is eligible for an annual notional interest deduction (NID). The annual NID deduction is calculated as an interest rate on the new equity. The relevant interest rate is the yield on 10 year government bonds (as at December 31 of the prior tax year) of the country where funds are employed in the business of the company plus a 3% premium (subject to a minimum amount which is the yield on the 10 year Cyprus government bond as the same date plus a 3% premium) Have in mind that for 2018 the minimum relevant NID interest rate is 4,881% and 6,489% for 2017. The NID deduction though cannot exceed the 80% of taxable profit derived from assets financed by new equity (calculated before the NID deduction).
Deductible Expense 3.
Any donations to approved charities are fully exempted. Is important to collect all relevant receipts.
Deductible Expense 4.
Any royalty income or embedded income and other qualifying intangible assets according to the Cyprus regime (1 July 2016) is subject to 80% deduction calculated ( in accordance with the new regime ) on the net profit.
Deductible Expense 5.
Any royalty income, embedded income and other qualifying income derived from qualifying intangible assets according to the “old” Cyprus IP box is subject to 80% deduction on the net profit.
Deductible Expense 6.
Any expenses incurred for scientific researches including research for development that is carried out from small-middle size enterprises are subject to full deduction.
Deductible Expense 7.
The employer’s contributions to social insurance and approved funds on employees’ salaries are fully deducted.
Deductible Expense 8.
Employer’s contributions to medical funds for employees mean deduction of 1% on employee’s remuneration. Any provident or pension fund for employees mean deduction of 10% on employee’s remuneration.
Deductible Expense 9.
Expenses for the purpose of maintenance of a building in case there is a preservation order for it, can be deducted depending on the size of the building and vary from €700 to €1.200.
Deductible Expense 10.
Entertainment expenses for business purposes can be excluded provided that are lower than €17.086 or the 1% of the gross income of the business.
Deductible Expense 11.
Any expenditure incurred for the acquisition of shares in an innovative business can be fully excluded.
Non-Deductible expense 1.
Any expenses the purpose of which was not the acquiring of income.
Non-Deductible expense 2.
The whole amount for Private car expenses.
Non-Deductible expense 3.
Interest applicable to the cost of acquiring a private vehicle regardless the use and on other assets that were not used for establishment purposes. No deduction to the whole amount for 7 years since the day of acquiring the relevant asset.
Non-Deductible expense 4.
Salaries provided within a tax year, and of which the contributions to social insurance or other approved funds were not paid within the same year.
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