Cyprus companies’ advantages besides the attractive corporate tax, the numerous corporate expense tax deductions and income exempted from tax, offers the possibility for company losses to be carried forward. This allows companies to have a flexible planning each tax year.
Cyprus companies – Losses carried forward
The tax loss occurred after a tax year and which cannot be set off against other income is carried forward subject to conditions and is set off against the profits of the next five years.
Group of companies – Losses carried forward
The losses carried forward rule can be applied with the profits of another company (for the same year) of the group of companies – provided the companies are tax residents.
When is a company considered as a part of a Group of companies?
- One Cyprus tax resident company holding directly or indirectly at least 75% of the voting shares of another Cyprus tax resident company.
- Both of the companies are at least 75% (voting shares) held, directly or indirectly, by a third company.
As from 1 January 2015 interposition of a non- Cyprus tax resident companies will not affect the eligibility for group relief as long as such companies are tax resident of either an EU country or a country with which Cyprus has a double tax treaty or an exchange of information agreement (bilateral or multilateral).
A Cyprus tax resident company may also claim the tax losses of a group company which is tax resident in another EU country, provided such EU company firstly tries the all possibilities available to utilize its losses in its country of residence or in the country of any intermediary EU holding company. A partnership or a sole trader transferring a business into a company can carry forward tax losses into the company for future utilization.
Permanent abroad establishments – Losses carried forward
Losses from permanent establishments abroad can be set off with profits of the company in Cyprus. Subsequent profits of an exempt permanent establishment abroad are taxable up to the amount of losses allowed.