OBLIGATIONS OF A CYPRUS COMPANY
OBLIGATIONS OF A CYPRUS COMPANY
- ANNUAL GOVERNMENT LEVY PAYMENT
Cyprus Companies are required to pay an annual government levy to the Registrar of Companies amounting to EUR350.00 by the end of June (i.e. 30/06) every year. If a company fails to pay within the deadline, but pays within the period of 01/07-31/08, there is a penalty of 10% (i.e. EUR35.00), Total Amount Payable becomes EUR385.00. If a company fails to pay within this timeframe but pays on or after 01/09 a penalty of 40% (i.e. EUR140.00) is imposed, Total Amount Payable becomes EUR490.00
If it exceeds even this timeframe, the Registrar of Companies will eventually remove the company from its Register.
- THE CONDUCT OF AUDITED ACCOUNTS/FINANCIAL STATEMENTS
Cyprus companies are obliged to perform audited financial statements in compliance with International Financial Reporting Standards and appoint a locally licenced auditor to thoroughly check the company’s financial statements.
Audited Financial Statements are due to the Registrar of Companies, together with the company’s yearly report, by the end of the year (i.e. 31 December), following the fiscal year being audited.
- FILING OF AN ANNUAL RETURN (HE32)
A Cyprus Company is obliged to file a yearly return with the Registrar of Companies, known as Annual Return (HE32). This document depicts any changes that might have happened during the previous year with the shareholders, with the directors or with the company’s secretary.
The annual return is prepared once every year, within 12 months from the date of the previous annual return, without disregarding the calendar year.
Bear though in mind that all new –incorporated companies do not have to file any such document during the first year of its operation, on condition that the company’s first return should be filed at least 18 months from its incorporation date.
If the filing of annual return is not carried out on time an administrative fixed penalty of EUR50.00 will be charged plus an additional charge of EUR1.00 will be imposed for every day that passes the deadline for the first six months and EUR2.00 for every day later, up to the maximum penalty charge of EUR500.00.
Notably with the submission of the Annual Return a copy of the audited financial statements of the company are submitted to the Registrar of Companies as well.
- VAT AND/OR VIES REGISTRATION OBLIGATION
VAT and/or VIES registration obligation might arise, depending on the transactions of the Company.
INFORMATION FOR TAXATION FOR CYPRUS COMPANIES
Corporation Tax: 12,5% on Taxable income (Special schemes also apply i.e. IP Box Regime scheme)
Special Defense Contribution: 17% on dividend income on Cyprus domiciled, 30% on interest income arisen from fixed and noticed deposits accounts
Corporation tax income exemptions
- 100% of interest income, which is not received in the ordinary course of the business
- Profits from the disposal of securities.
- Profits from a permanent establishment which is maintained abroad (under certain conditions)
Transfer Pricing Rules: As from 1 July 2017, all Cyprus Tax Resident Companies carrying out intra-group financing activities in Cyprus are obliged to follow the arm’s length principle as set out in the OECD Transfer Pricing Guidelines. Therefore, a Transfer Pricing Study is required as the supporting document to be provided to the Cyprus Tax Authorities, evidencing that the transaction which took place, was based on the Arms’ Length Principle.
Corporate tax losses: Corporate tax losses can be set off against profits of the next five years or can be offset against same year profits incurred from Cyprus companies within the same group under group relief.
PROVISIONAL TAX CONCEPT
The provisional tax return requires the estimation of the provisional taxable profit for the current year and the payment of the respective provisional tax liability in two equal instalments for example, by 31 July 2020 and 31 December 2020.
A provisional tax return may be revised by a taxpayer at any time before 31 December of the year of assessment to which it relates. Is case of revision, the Commissioner of Taxation will need to be notified in writing by completing and submitting a revised provisional tax declaration.
Upward revision of the provisional profit creates an increased provisional tax liability. This in effect results in underpayment relating to the instalment previously paid, up to the date of revision. The underpayment needs to be settled by the following due date and it will carry interest at 1.75% p.a. and a fixed penalty of 5%.
If the provisional taxable profit for 2020 is less than 75% of the final taxable profit computed based on the audited financial statements, then a 10% additional tax is added to the tax liability payable. For this reason, it may be more tax effective to execute payments through the provisional tax assessment system rather than submitting a nil return and pay the final tax together with a 10% additional tax in 2021.
An overpayment of provisional tax resulting from an overestimate of the provisional taxable profit is refundable and carries interest on a completed month basis. This refund will be effected by the Commissioner of Taxation upon submission, examination and agreement of the computation for the relevant year of assessment. It is noted that any refund cannot be netted off with any past or future tax liabilities without the Commissioner’s approval.
FINAL TAX PAYABLE PER AUDITED FINANCIAL STATEMENTS
Any unpaid tax that will be confirmed on the Audited Financial Statements should be paid before 1st of August next year.
- Penalty for late submission of Financial Statement – EUR100 per year
- Penalty on tax due not settled by 1st of August of the following year 5% is imposed on the unpaid tax. An additional penalty of 5% is imposed if the tax remains unpaid 2 months after the
Interest also applies on due amount based on official interest rate, as set by the Ministry of Finance in the different periods.