Thursday 21 September 2017
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Tax Planning

Today with the squeezed global economic crisis, businesses try to maintain growth, and savings is one main solution.

Many international business companies use Cyprus as a base for international tax planning. Investors also use Cyprus as a tool in order to take full advantage of global investments after tax profit. The income that occurs from investment deeds through Cyprus, shall gain from the terms of Cyprus tax system and double taxation treaties network (DTT).

Investors and companies are offered numerous advantages in concert with a very low corporation tax (10%) through the Cyprus tax system which is one of the lowest corporate income tax rates in Europe.

Cyprus has achieved to become a trustworthy and most encouraging International Financial Centre during the past decades since Cyprus is broadly chosen by businessmen all over the world in order to maximize their corporate profits through an efficient exploitation of Cyprus tax system.

All dividends that are received by a Cyprus resident Company by another Cyprus resident Company are not liable to taxation.

Also dividends received by a Cyprus resident company are usually exempt from taxation in Cyprus if they are received from a foreign body.

The exemption does not apply where the foreign body gets more than 50% of its income from investment activities and when the foreign tax burden of the company paying the dividend is considerably lower than that of the Cyprus resident company.

The Cyprus Tax Authorities have acknowledged that foreign tax burden cover both the tax paid by the company paying the dividend and also the tax paid by lower level subsidiaries. In fact, dividends received from subsidiaries or associates are rarely taxed.

Where dividends do not meet the requirements for exemption from taxation then they are liable to defence tax at the rate of 20%. On the other hand, the taxes that are pending at source are allowed as a deduction from this tax even if it is made from a country that does not have a double tax treaty with Cyprus.


A
tax credit will be afforded according to the Double Taxation Agreements concluded by Cyprus. In the nonexistence of such an agreement, Cyprus affords a credit for the foreign tax paid on such income. The underlying tax credit is also accessible for dividends received from EU member states.


T
he taxation of interest income depends on whether it is resulting in the usual course of business or it is directly related with that business. In such cases, the interest income earned is included in the calculation of taxable income under corporation tax and taxed at 10%. Interest received by leasing companies, financial companies, banks, hire purchase companies is considered to arise from the ordinary course of business.

Interest earned as detailed below is considered to be closely related to that business and is also subject to corporation tax.

  1. Car dealers, property developers and other similar businesses that sell their products on extended payment terms and charge interest on their trade debtors
  2. Interest on existing account balances at banks
  3. Interest that is earned by businesses which operates as a tool through which a group finances the operations within the companies. No formal definition of “group” has been provided but it is generally considered that a group includes any relationship where the companies are in due course controlled by one entity. Therefore, two entities that are owned by a physical person without a common holding company are not considered a group.


I
n all other cases, where the interest is considered to occur outside the ordinary course of business is liable to defence tax at the rate of 15%. Interest on deposit accounts and interest earned on loans granted to third parties are treated in this way.

A credit is provided against the defence tax payable for any taxes withheld at source, irrespective of whether a double treaty exists or not.


G
ross amount of royalties from sources within Cyprus by a company which is not a tax resident of Cyprus are liable to 10% withholding tax at source, subject to relief under any applicable double taxation treaty. If the intangible property right however is granted to a Cyprus company for use outside Cyprus, then there is no withholding tax and the corporate rate is applied only on the profit margin left in the Cyprus Company.


For more information regarding Cyprus double taxation agreements click below:

 

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