Russian (Russia)

Following the adoption by Cyprus of EU Anti-Tax Avoidance Directive (ATAD), Controlled Foreign Company Rules (CFC) was introduced in Cyprus that may affect a number of companies. In fact a relatively small number of companies may be effected whose profits are quite high over € 750000 per annum, provided their profits are not distributed as dividends up to 7 months from the end of the accounting year. We thought that it is important to give special attention in this and remind you of the provisions of the CFC rules.

A CFC is defined as a non-Cyprus tax resident entity or an exempt foreign permanent establishment (‘’PE’’) whose income is not taxable or exempt in Cyprus provided the following two conditions are satisfied:

  • the Cyprus tax resident company holds a direct or indirect interest of more than 50% in the foreign company or PE and
  • the foreign corporate tax paid on the profits of the foreign company or PE is lower than 50% of the corporate income tax charge that would have been payable in Cyprus had it been a Cyprus tax resident company (i.e. less than 6,25%).

Under the CFC rule, any non-distributed income of a CFC, meeting the criteria as explained above, which is derived from non-genuine arrangements* that have been put in place for the purpose of obtaining a tax advantage and which are controlled by the controlling Cyprus tax resident company will have to be included in the taxable profits of the Cyprus company.

Non-distributed income of the CFC is defined as the accounting profit after tax of the CFC which has not been distributed to the controlling Cyprus tax resident company during the tax year in which the profit is derived or within the next seven months.

The income to be included in the tax base of the controlling Cyprus tax resident company shall be calculated based on the Cyprus taxpayers’ % of entitlement of the CFC’s profits.

The income of the CFC to be included in the taxable profit of the Cyprus company shall be limited to amounts generated through assets and risks, which are linked to significant people functions carried out by the Cyprus company and shall be calculated in accordance with the arm's length principles

The non-distributed income shall be included in the tax period of the controlling Cyprus tax resident company in which the tax year of the CFC relates.

The same provisions apply in cases where the CFC generates losses instead of profits.

Specific exceptions from the CFC rule:

The Law provides that no CFC inclusion should be made of any non-distributed income of a CFC if a CFC has either:

  • Accounting profits that do not exceed €750.000 and non-trading income which is not more than €75 000; or
  • Accounting profits that do not exceed 10% of its operating costs for the tax year.

* An arrangement or a series thereof shall be regarded as non - genuine to the extent that the CFC would not own the assets which generate all or part of its income or would not have undertaken the risks, if it were not controlled by a taxpayer who carries out the significant people functions which are relevant to those assets and risks, and are instrumental in generating the CFC’s income.

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CYPRUS TAX CALENDAR 2023 IN ENGLISH & GREEK