Company audit in Cyprus

From 2023, a company incorporated in Cyprus is by default considered to be tax resident in Cyprus, given that it is not tax resident in any other jurisdiction.

Please note that as of December 31, 2022, Cyprus applies withholding tax on the payment of dividends, interest and royalties to countries listed in Annex I of the EU List of Non-Cooperative Tax Jurisdictions (also known as the EU Black List).

VAT is charged on the supply of goods and services in Cyprus, on the purchase of goods from EU countries and on the importation of goods into Cyprus.

VAT registration is mandatory for businesses with annual revenue from the sale of goods and services exceeding €15,600 in the last 12 months or expected revenue exceeding €15,600 in the next 30 days. Businesses with revenues of less than €15,600 or supplying goods and services the sale of which is not subject to VAT, but which are entitled to a refund of the relevant amounts of input VAT, have the right to register on a voluntary basis. In some other cases, the threshold for registration may not exist or may be lowered.

VAT returns must be filed quarterly in electronic form. VAT must be paid no later than the 10th day of the second month following the month of the end of the tax period.
Persons registered as VAT payers may request a different filing period. Approval is subject to the decision of the Commissioner of Taxes. The Commissioner has the right to require an individual to submit a VAT return for the previous period.
A taxable person who supplies goods and/or services to companies registered in other EU Member States is obliged to electronically file a VIES (VAT Information Exchange System) return on a monthly basis. The deadline for filing the VIES return is within 15 days after the end of the month in which the realization took place.

Every VAT registered company that supplies goods and/or receives goods from other EU Member States (the value of which exceeds the statistical threshold) is obliged to submit an INTRASTAT declaration on a monthly basis within 10 days from the end of each month. The thresholds are determined separately for arrivals and departures and may change each year.

The defense contribution is subject to:

• -17% in respect of dividends only if (a) more than 50% of the dividend-paying foreign company's income is directly or indirectly derived from investment activities and (b) the tax rate in the country of the dividend payer is significantly lower than the Cypriot tax rate (less than 6.25%).

• 30% in respect of "passive" interest, except for interest from loans issued, interest received in connection with the ordinary activities of the company, interest received by collective investment funds. Only income tax is payable on such interest.

• Gross rental income reduced by 25% is also subject to SDC at a rate of 3% (i.e. an effective rate of 2.25%). This tax is payable in addition to income tax.

The defense contribution on interest and dividend income received from sources in Cyprus is subject to withholding at source and is payable by the end of the month following the month in which the income is paid.

The defense contribution on dividend, interest and rental income received from abroad is payable semi-annually: June 30 and December 31.

Rental income is also subject to personal income tax / corporate income tax.
Taxes paid abroad can also be offset against the Defense Contribution payable.

Charged on the signing of various documents relating to property located in Cyprus or executed and executed in Cyprus.
The amount of the fee depends on the type of document and the amount of the contract, but cannot exceed €20,000.

When registering a Cypriot company €105 and €20 for each additional share issue.

Upon transfer of ownership of real estate, the buyer is charged a fee of 3% to 8% depending on the market value.

Exceptions:

1. If the real estate purchase transaction is subject to VAT, the relevant fees do not apply.
2. If the real estate purchase transaction is not subject to VAT, the relevant fees are reduced by 50%.

Individuals are taxed at the following rates, depending on the amount of income (see picture above).

Contributions to the social insurance fund are paid by the employer-8.3% and by the employee-8.3%.

Other employer contributions:

• layoff fund - 1.2%;
• training fund - 0.5%;
• social support fund - 2%;
• health insurance fund - 2.9%;
• vacation fund - 8% (unless an exemption applies).

Employees also pay a contribution to the health insurance fund - 2.65%. Contributions are subject to amount limits.
The rates and amount limits are updated periodically.

The financial statements must be presented for approval at the Annual General Meeting and filed with the Registrar together with the annual report (Form HE32 / Annual Return) within 28 days of the Annual General Meeting. The annual report together with the audited financial statements must be filed within 12 months of the previous annual report, excluding the calendar year.

A company's reporting period may be arbitrary, but the end date of the reporting period is usually combined with the end of the calendar year. The reporting period should not exceed 12 months (18 months for the first reporting period).

• If the company is registered in the first half of the year (before July), the first accounting period lasts from the date of registration to December 31 of the year in which the company is registered - the first accounting period is less than 12 months;
• If the company is registered in the second half of the year (from July to December), the first reporting period runs from the date of incorporation to December 31 of the year following the year of incorporation - the first reporting period is more than 12 but less than 18 months;
• The following reporting periods coincide with calendar years.

Corporate Income Tax An income tax return (IR4) must be filed with the tax office within 12 months after the end of the reporting period, i.e. by December 31 of the year following the reporting year. The deadline for filing the declaration electronically is March 31 of the following year.

For example: for the reporting period ended December 31, 2020, the deadline for filing the IR4 electronic declaration is 31.03.2022.

Corporate Income Tax

In case of late submission of a tax return or supporting documents requested by the tax inspector, the company pays a fine of up to 200 euros. This fine depends on the specific case.
If the tax is not paid on time, the company is subject to a penalty of 5% of the tax due.
The government interest rate applicable to late payment of taxes, as established by the Minister of Finance, for all amounts due after January 1, 2020, is: 1.75% (1.75% for 2021 and 2020; 2% for 2019; 3.5% for 2017 and 2018; 4% for 2015 and 2016; 4.5% for 2014; 4.75% for 2013, 5% for 2012 and 2011;5.35% for 2010, 8% for 2007 through 2009, and 9% for the period through December 31, 2006).


НДС (VAT)

The penalty for late submission of a VAT declaration is 100 euros for each declaration
Penalty for late submission of VIES declaration is 50 euros for each declaration
Penalty for late registration as a VAT payer is 85 for each month of delay.
Penalty for failure to submit a "reverse charge" calculation (effective from July 1, 2021) is 200 euros for each declaration.
In case of late payment of VAT, a penalty of 10% of the amount of tax payable will be charged.


SDS (Contribution for Defense)

Penalties in the amount of 3.5% p.a. of the tax amount; penalty for late filing of SDC declaration in the amount of 100 EUR; penalty in the amount of 5% of the tax amount.