Cyprus company treatment of business losses and Cyprus entity treatment of business losses

1.  Carry forward of losses (As from 2012)

If losses carried forward cannot be fully set off against a Cyprus company’s profits, the amount of that loss is carried forward and is set off against the Cyprus company’s taxable profit over the next five years.

Where a person, including a partnership, converts a business into a Cyprus limited liability company, any unutilised tax losses can be transferred to the Cyprus new company.

2.  Loss of permanent establishment abroad

Any loss that arises from a permanent establishment outside Cyprus can be set off against the profits that arise in Cyprus. However, the subsequent profits of the permanent establishment abroad are taxable up to the amount of the utilised losses.

3. Loss relief

Loss from one source of income can be surrendered to another form of source of income. If after the surrendering of losses there is still a loss not yet surrendered, the loss can be carried forward of the next 5 years.

Losses arising within 5 years that have not been surrendered are not carried forward when:

  • Within any period of three years, there is a change in the ownership of the company shares or
  • There is a substantial change in the nature of the company’s business,

4.  Group relief losses

Current year tax losses may be surrendered by one Cyprus tax resident group company to another.

A group company that is tax resident in another EU country may also surrender current year tax losses to a Cyprus tax resident company, provided such company firstly exhausts all possibilities available to utilise its tax losses in its country of residence or in the country of any intermediary EU holding company.

Group relief is available if both companies are members of the same group for the entire tax year.

Two Cyprus companies are considered to be part of a group for group relief purposes if:

one is at least a 75% subsidiary of the other,

or both are at least 75% subsidiaries of a third company.

The interposition of a non-Cyprus tax resident company does not affect the eligibility for group relief as long as such company is tax resident in either an EU country or in a country with which Cyprus has signed a tax treaty or an exchange of information treaty (bilateral or multilateral).

Where a Cyprus company has been incorporated by its parent company during the tax year, the company will be deemed to be a member of the group for group relief purposes for that tax year.

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