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With any move overseas, it is vital that you do your homework so that you are aware if it is viable to transfer your business there. The issue of regulation, laws and the cost of opening and running your business will probably dictate whether you decide to go ahead or not because there are substantial differences between countries, even those within the EU.

A new legislation in Cyprus requires companies which are incorporated in Cyprus to register with the tax authorities and obtain their Tax Identification Code (T.I.C) within 60 days from their incorporation, while companies which are not yet registered must do so by June 30, 2011 to avoid penalties.

The directive is among the several amendments to the Cyprus tax legislation made in December 2010 with the aim to streamline certain provisions of the Cyprus tax legislation.

In a business expansion in Cyprus, it is also important to note that the new amendments aim to strengthen the anti-evasion provisions in the legislation and impose additional taxes and penalties for non-compliance and late payment of taxes. If you are interested in setting up a business in Cyprus, here is a brief overview of the tax laws.

Cyprus Tax Penalties
Administrative penalties between EUR 100 to EUR 200 will be imposed for non-submission of declarations, non-provision of evidence or non-performance of compliance obligations within the stated deadlines. Penalties are applicable for Income Tax, Special Defense Contribution, Capital Gains Tax and Immovable Property Tax.
An additional 5 percent on the unpaid tax will be imposed for delayed payment.

Cyprus VAT Legislation Foodstuffs and pharmaceutical products, which were previously zero-rated, will now have a 5 percent VAT, effective from January 10, 2011.

Cyprus Tax: Income Tax Law

Disallowed Expenditure
Any expenditure which is not supported by invoices and relevant receipts or other supporting documents as required by relevant regulations will not be deductible under income tax. This provision in the Cyprus tax legislation will apply with respect to tax liabilities which arise during the tax year 2011 and any subsequent tax years.

Notional Interest on Receivables from Directors or Shareholders
Notional interest of 9 percent on receivables from shareholders will only apply to individuals and not companies (as of January 1, 2011). This new amendment to the Cyprus tax law is based on the provisions of article 33 and application of the arm’s length principles for transactions between related parties.

Payments to Non Cyprus Residents

Tax withheld on payments to non Cyprus residents should be paid to the tax authorities by the end of the month following the month of payment.

Voluntary Dissolution or Liquidation

New amendments to the Cyprus tax legislation require companies under voluntary dissolution or liquidation to:

1. Submit the relevant resolution within one month from the date of its approval
2. Declare any deemed dividend and pay any SDC applicable to the accounting

Profits of the specific tax year and the two preceding tax years

Realized deemed dividend distribution should not exceed the net assets of the company. The above law will not be enforced if the company does not have sufficient funds to repay its creditors and no residual amount is available for shareholder distribution.

In any company international expansion, it is very dangerous to assume that all elements of your local market will be replicated in an overseas environment. While there is significant information available on the Internet and via official sources, it may be worthwhile seeking professional expat tax advice which could help you avoid significant problems and potential costs in the future. With the right methodology and resources intercompany transfer pricing can provide fruitful results.