Losses carried forward
The tax loss incurred during a tax year and which cannot be set off against other income is carried forward and set off against future profits. The provision is applicable for all losses incurred from 1997 tax year onwards.

The current year loss of one company can be set off against the profit of another provided the companies are Cyprus tax resident companies of a group.
Group is defined as:

1. One company holding at least 75% of the shares of the other company.
2. At least 75% of the voting shares of the companies are held by another company.

A partnership or a sole trader transferring business into a company can carry forward tax losses into the company for future utilization.

Losses from a permanent establishment abroad can be set off with profits of the company in Cyprus.  Subsequent profits of the permanent establishment abroad are taxable up to the amount of losses allowed.

Group relief
The loss of one company can be set off against the profit of another provided the companies are Cyprus tax resident companies of a group.
A group is defined as:
a) One company holding at least 75% of the shares on the other company.
b) At least 75% of the voting shares of the companies are held by another company. A partnership or a sole trader transferring business into a company can carry forward tax losses into the company for future utilisation. Losses from a permanent establishment abroad can be set off with profits of the company in Cyprus . Subsequent profits of the permanent establishment abroad are taxable up to the amount of losses allowed.

Reorganisations
Transfers of assets and liabilities between companies can be effected without tax consequences within the framework of a reorganisation.

Shipping companies
No income tax is payable on the profits earned or dividends paid by a Cyprus shipping company which owns ships under the Cyprus flag and operates in international waters, or on the salaries of officers and crew of such ships.
Local or international ship management and crew management businesses (corporated or unincorporated) have the option to be taxed either at the rate of 4.25% or at rate equal to 25% of the rates used to calculate tonnage tax of vessels under management which are registered outside Cyprus.

Insurance companies
Profit of insurance companies are liable to corporation tax similar to all other companies except in the case where the corporation tax payable on taxable profit of life insurance business is less than 1.5% on gross premium. In this case the difference is paid as additional corporation tax.

Special Contribution For Defence
Special contribution for defence is imposed on income earned by Cyprus tax residents. Non-tax residents are exempt from special contribution for defence. It is charged at the rates shown in the table below:

Notes

1. Dividends declared by a Cyprus tax resident company to another Cyprus tax resident company after the lapse of four years from the end of the year in which the profits were generated are subject to 20% defence contribution. Dividends which emanate directly or indirectly out of such dividends on which special contribution for defence was previously suffered are exempt.

2. Dividend income from abroad is exempt from defence fund contribution provided that the company receiving the dividend owns at least 1% of the company paying the dividend.
This exemption does not apply if:

(a) more than 50% of the paying company's activities result directly or indirectly in investment income and
(b) the foreign tax is significantly lower than the tax rate payable in Cyprus.

When the exemption does not apply, the dividend income is subject to special contribution for defence at the rate of 20%.

3. Interest income from savings bonds, development bonds all interest earned by a provident fund is subject to special contribution for defence at 3% (instead 10%).

In the case where the total income of an individual (including interest) does not exceed €12.000 in a taxable year, then the rate is reduced to 3%.

Deemed dividend distribution
If a Cyprus resident company does not distribute a dividend within two years from the end of the tax year then:

• 70% of accounting profits (after some adjustments) are deemed to have been distributed.
• 20% special contribution for defence is imposed on deemed dividend distribution applicable to shareholders who are residents of Cyprus.
• Deemed distribution is reduced with payments of actual dividends which have already been paid during the two years or paid during the two following years from the profits of the relevant year.

When an actual dividend is paid after the deemed dividend distribution, then special contribution for defence is imposed only on the additional dividend paid.

Company dissolution
The aggregate amount of profits in the five years prior to the company dissolution, which have not been distributed or be deemed to be distributed, will be considered as distributed on dissolution and will be subject to defence contribution at 20%.

These provisions do not apply in the case of dissolution under reorganization.

Reduction of capital 
In the case of a reduction of capital of a company, any amounts due or paid to the shareholders up to the amount of the undistributed taxable income of any tax year calculated before the deduction of losses from prior years, will be considered as distributed dividends subject to special defence contribution at 20% (after deducting any amounts which have been deemed as distributable profits). 

These provisions do not apply where the shareholders are non-residents in the Republic.

Capital Gains Tax
Capital gains tax is imposed at the rate of 20% on companies and individuals on gains arising from the disposal of immovable property situated in Cyprus including gains from the sale of shares in a company which owns immovable property situated in Cyprus (excluding shares listed on any recognised stock exchange). The net profit is the sale price less the greater of the cost or the market value on 1st January 1980 as adjusted for indexation allowance.
Indexation allowance is calculated on the market value of the immovable property at 1st January 1980 (or the actual cost of acquisition and improvements of the property, if made after 1st January 1980) up to the date of disposal on the basis of the consumer price index.

Determination of capital gain
Liability is confined to gains accruing since 1 January 1980.  The costs   that are deducted from gross proceeds on the disposal of immovable property are its market value at 1 January 1980, or the costs of acquisition and improvements of the property, if made after 1 January 1980, as adjusted for  inflation  up to  the date of  disposal on  the basis of the consumer price index in Cyprus.

Expenses that are related to the acquisition and disposal of immovable property are also deducted, subject to certain conditions e.g. transfer fees, legal expenses etc. 

 
Exemptions
The following disposals of immovable property are not subject to Capital Gains Tax.

• Transfers arising on death
• Gifts made from parent to child or between husband and wife or between up to third degree relatives.
• Gifts to a company where the company’s shareholders are members of the donor’s family and the shareholders continue to be members of the family for five years after the day of the transfer.
• Gifts by a family company to its shareholders provided such property was originally acquired by the company by way of donation.  The property must be kept by the donee for at least three years.  For gifts that were made from the company to its shareholders and took place before 28 May 1999, the exception applies irrespective of how the immovable property was originally acquired by the company.
• Gifts to charities and the Government.
• Transfers as a result of reorganisations.
• Exchange or disposal of immovable property under the Agricultural Land (Consolidation) Laws.
• Expropriations.
• Exchange of properties, provided that the whole of the gain made on the exchange has been used to acquire the other property.  The gain that is not taxable is deducted from the cost of the new property, i.e. the payment of tax is deferred until the disposal of the new property.   

Exchange of properties, provided that the whole of the gain made on the exchange has been used to acquire the other property.  The gain that is not taxable is deducted from the cost of the new property, i.e. the payment of tax is deferred until the disposal of the new property.   

Value Added Tax
VAT is imposed on the provision of goods and services in Cyprus, as well as on the acquisition of goods from the European Union and the importation of goods into Cyprus.

Taxable persons charge VAT on their taxable supplies (output tax) and are charged with VAT on goods or services which they receive (input tax).

If output tax in a VAT period exceeds total input tax, a payment has to be made to the state.  If input tax exceeds output tax a repayment is due from the state.

With regard to intra-community acquisitions the trader does not pay VAT on receipt of the goods in Cyprus but instead he accounts for VAT using acquisition accounting.  This involves a simple accounting entry in the books of the business whereby he self-charges VAT and at the same time claims it back if it relates to taxable supplies thereby creating no cost to the business.

In cases where the acquisition relates to an exempt transaction, the trader must pay the VAT that corresponds to the acquisition.

VAT rates   
The legislation provides for the following four tax rates:

•   Zero rate (0%)
•   Reduced rate (5%) from 1 July 2000
•   Standard rate (17%) from 1 March 2012

Zero rate 0%
Zero rate goods and services include the following:

•   Supplies of goods to other EU Member States
•   Exports
•   Food
•   Commissions received from abroad for exportation of goods
•   Medicines
•   International air and sea transport

Reduced rate of 5%
The reduced rate of 5% applies to:

• Funeral services and supply of coffins
• Road sweeping, garbage collection and recycling
• Services of authors, composers, artists and critics of     works of art as well as their rights
• Supply of food (1)
• Supply of lox, caviar, preparation and conserve of lox, lobster, crayfish, prawns, ostracea (1)
• Supply of fertilizers
• Supply of animal feeding stuffs
• Supply of seeds
• Supply of live animals of a kind generally used for human consumption
• Supply of medicines and graft (2)
• Newspapers and magazines
• Books
• Non-bottled water
• Gas
• Transfer of persons and their luggage on a rural or city bus
• Various goods for the use of handicapped persons
• Ice-cream, yogurt ice-cream and similar products
• Dry roasted or spicy nuts
• Hair saloon services
• Confectionery products, including biscuits and chocolates that are partly or wholly covered with chocolate
• Bottled water, manufactured beverages and juice drinks (except of the soft drinks, alcoholic beverages, beers and wines that are taxable at the rate of 17%) Children's car seats
• Medical equipment that are indented for the exclusive personal use of a disabled persons
• Products that are used for women's sanitary protection
• Products that are used for contraception
• Admission to shows, theatres, circuses, fairs, amusement, parks, concepts, museums, zoos, cinemas, exhibitions and similar cultural events and facilities
• Admission to sporting events
• The licenses for the use of sporting facilities
• Repair of medical equipments
• Repairs of the equipments that are intended for exclusive personal use of disabled persons
• Supply of medical and dental care and thermal treatment that are not exempted from VAT

1. As from 10 January 2011 the reduced rate of 5% applies in all foods, including drinks with the exception of alcoholic drinks, beers, wine and beverages which are subject to standard rate of 17%.
2. The reduced rate of 5% for the supply of pharmaceutical products and vaccines is applicable as from 10 January 2011.

Reduced rate of 8%
The reduced rate of 8% was introduced on 1 August 2005 and the following services have been transferred from the standard rate of 15% to the reduced rate of 8%.

Rural and private taxi transport services, tourist, excursion and long distance bus services.

From 1 January 2006 the following supplies were transferred from the lower reduced rate (5%) to the higher reduced rate (8%).
Hotel and similar tourist accommodation services, and supplies of goods made in the course of catering with the exception of alcoholic drinks which are subject to VAT at the standard rate.  The transport of passengers and their accompanying luggage by sea, within Cyprus.

As from the 10th January 2011 the reduced rate of 8% applies to restaurant and catering services including the supply of alcoholic drinks beer, wine and beverages. Restaurant and catering services means the supplies of prepared and unprepared foodstuffs and beverages that are accompanied by sufficient support services that enable the immediate consumption of the foodstuffs and beverages supplied.

Exemptions
Certain goods or services are exempt from VAT.
They include:

• the letting of immovable property (the letting of immovable property with the right of purchase is not exempt)
• most banking and financial services and insurance services
• most hospital, medical and dental care services
• certain cultural educational and sports activities
• supplies of real estate (except supply of new buildings before their first use) including supplies of land and of second-hand buildings
• postal services provided by the national postal authority
• lottery tickets and betting coupons for football and horse racing
• management services provided to mutual funds

Difference between zero rate and exempt supplies
The difference between zero rate and exempt supplies is that businesses that make exempt supplies are not entitled to recover the VAT with which they have been charged on their purchases, expenses or imports.

Grant for acquisition of first residence
The grant is given to entitled persons for the construction or purchase of a new house or the transfer of ownership of a building which is used as the main permanent residence.

The application for the grant is submitted to the Ministry of Finance, in relation to houses for which an application has been submitted for the issue of a planning permission after the 1 May 2004, by any physical person citizen of the Republic of Cyprus or of any other EU member state who resides permanently in the Republic of Cyprus and has reached the age of 18 at the time of application.  The grant is given for houses whose total area does not exceed 250 m² and is restricted to 130m².

Irrecoverable input VAT
As an exception to the general rule, input VAT cannot be recovered in a number of cases which include the following:
- acquisition used for marketing exempt supplies.
- purchase, import or hire of saloon cars.
- entertainment and hospitality expenses (except those relating to employees and directors).
- housing expenses of directors.

Registration
Registration is compulsory for businesses with turnover in excess of €15.600 during the 12 preceding months or with an expected turnover in excess of €15.600 in the 30 days following. Businesses with less than €15.600 turnover have the option to register if they wish to do so. Exempted products and services, and disposal of items of capital nature are not taken into account for determining annual turnover for registration purposes. Registration is affected by completing the appropriate application form.

VAT declaration – Payment/return of VAT
VAT returns must be submitted quarterly and the payment of the VAT must be made by the 10th day of the second month that follows the month in which the tax period ends. Where in a quarter input tax is higher than output tax, and therefore a repayment is due, the difference is refundable or transferred to the next VAT quarters.

Other Taxes

Immovable Property Tax
Immovable Property Tax is imposed on market values as at 1 January 1980 and applies to the immovable property owned by the taxpayer on 1 January of each year. This tax is payable on 30 September each year. Physical and legal persons are both liable to Immovable Property Tax.

Also the following rates are applicable in the case of free transfers:

Value in this case is the one written on the title deed which refers to values of the year 1920.

Mortage registration fees are 1% of the current market value.