What expenses are tax deductible for Cyprus companies?
- In general, expenses incurred wholly and exclusively for the production of taxable income are deductible for corporate tax purposes.
- Annual wear and tear allowance.
- Interest expense incurred for the direct or indirect acquisition of a wholly owned subsidiary company will be treated as deductible for corporate tax purposes provided that this subsidiary does not own (directly or indirectly) any assets that are not used in the business. If the subsidiary owns (directly or indirectly) assets not used in the business the interest expense deduction is restricted to the amount which relates to assets used in the business. This applies for acquisitions of subsidiaries from 1 January 2012.
- Equity introduced to a company as from 1 January 2015 (new equity) in the form of paid up share capital or share premium is eligible for an annual notional interest deduction (NID). The annual NID deduction is calculated as an interest rate on the new equity. The relevant interest rate is the yield on 10 year government bonds (as at December 31 of the prior tax year) of the country where the funds are employed in the business of the company plus a 3% premium (subject to a minimum amount which is the yield on the 10 year Cyprus government bond as at the same date plus a 3% premium). The NID deduction cannot exceed 80% of the taxable profit derived from assets financed by new equity.