A Cyprus company that earns interest in the normal course of its business/operations, including interest closely associated with its normal business/operations, is subject to income tax at the rate of 10%. The Institute of Certified Public Accountants of Cyprus has recently reached an agreement with the local tax authorities in relation to the minimum profit margins that may be accepted by the authorities regarding transactions of a tax resident company in Cyprus, in respect of the raising and the granting of loans from and to associated companies. Profit Margin in this case represents the difference between the interest rate on the loan granted from the interest rate on the loan received.

Specifically, the following minimum profit margins have been agreed in the case of back to bank loans:

In case there is a non-interest bearing interest within the transaction, the minimum acceptable profit margin is 0,35%, irrespective of the loan amount.

There are some minimum conditions in order for the above rates to be allowed, such as:
1. The time interval between the time the company receives the loan and the date it grants the loan will not exceed 6 months.
2. The said profit margins will apply for each separate loan the Cyprus resident company receives and grants.

Based on this development, group of companies that choose Cyprus companies for their group financing needs may end up being taxed with a rate as low as 0,0125% (margin 0,125% X 10% tax rate).

For questions, comments and selection of topics that might interest you please contact the author of the column:

Charilaos Hadjiioannou, BSc, ACA

 IMPORTANT NOTE: THE ABOVE INCENTIVE IS APPLICABLE UNTIL 30 JUNE 2016. CONTACT US FOR FURTHER INFORMATION.