Cyprus Tax Status

As a result to the Cyprus accession to the European Union, in mid 2002 new amending tax laws were passed. That was necessary in order to comply with the EU provisions regulating state aid and EU Code of Conduct for Business Taxation. The main provisions of these laws, affecting IBC’s are:

· Transitional Provisions for the years 2003 - 2005 IBC’s which during the year 2001 had income and continue after that to have income, exclusively from sources outside Cyprus, will have to option to be taxed for the years 2003, 2004 and 2005 at the rate of 4,25%, instead of 10% which is the normal corporation tax rate as from 1 January 2003.

This is subject to that they continue to satisfy the conditions applicable to them. The exemptions below, will not be applicable during that transitional period: 50% of interest receivable; Dividends received; Profit from sale of shares; Any loss incurred in years up to and including the year 2000 may not be carried forward after the expiration of five years from the end of the year in which the loss incurred; Group tax losses are not applicable; Foreign taxes treated as expenses.

Taxation of IBC’s as from 1 January 2003 Net profits are subject to tax at the rate of 10%; Windfall tax 5% (applicable only for the years 2003 and 2004 for the chargeable income in excess of CYP1m); Dividents’ taxation: i. Dividends income will be taxed under the Special Defence Contribution Law (15%) and will be charged only on resident persons for dividends received from resident or non-resident companies.

Non-resident persons are not liable to such taxation. Any inter-company dividends, between resident companies, will not be subject to tax. ii. Any dividends received from non-resident companies are exempt from tax, if the holding of the paying company is at least 1%. The exemption does not apply if the payee company engages more than 50% in activities, which lead to investment income, and on the same time the tax burden on the income of that company is substantially lower than the tax burden of the Cyprus company. Credit relief of underlying tax (tax on the profits of the company out of which dividend is paid) against the Cyprus tax if provided under the Double Taxation Agreement.