NewsCase StudiesEvents

Cyprus - Tax Treatment of Non-Refundable Capital Contributions

Also in the news...

Registration of Title to Land at Abuja Geographic Information System, Nigeria

The Federal Capital Territory (FCT) Abuja, Nigeria’s capital is gradually becoming a renowned city in Africa. In recent times, there has been an influx of people into the city and its real estate development and construction sectors are developing at a tremendous pace.

FREE VISA FOR LIFE WITH COMPANY SETUP STARTING AT AED 14,500

Looking to set up your UAE company? How about a visa for life? It might sound too good to be true, but it’s a reality. And the offer ends October 31st.

4 Red Flags You Should Watch Out for When Hiring a Web Design Team

If you want to build traction for your startup, you need to invest in a high-quality website. You also can't afford to make too many mistakes, because a good website costs money.

UK showcases green dozen at Global Investment Summit

The Government reveals the 12 businesses from across the UK who will showcase their green technology and innovations at the Global Investment Summit.

Effective Approaches To Improve Fleet Efficiency For Your Business

Various types of businesses need a fleet, from car rental companies and public utilities to distribution centers, courier companies, and so many others. So, there are tons of enterprises out there that are constantly searching for better ways to enhance fleet efficiency, as any business that utilizes a fleet can ultimately enhance its bottom line if heightened efficiency is achieved.

Cyprus - Tax Treatment of Non-Refundable Capital Contributions

Back to News

Through Interpretative Circular 25 (the “Circular”), released on 3 September 2018, the Cyprus Tax Department clarifies the tax treatment of non-refundable capital contributions (i.e. when a capital contribution is made to a company without any issue of shares in exchange) by Cyprus taxpayers (the “Contributor”) to companies, which are tax resident abroad.

The Circular provides that article 33 of the Income Tax Law (covering related party transactions and their adjustment to an arm’s length basis) does not apply to debit or credit balances generated by non-refundable capital contributions in favour of non-Cyprus tax resident companies (the “Recipient”), provided that the following conditions are cumulatively satisfied and backed with supporting evidence:

    · the Contributor has no legal right to request repayment of the contribution;

    · the repayment of the contribution is validly made by the reduction of capital or through dissolution or liquidation of the Recipient, as per the provisions of the legislation applicable in the Recipient’s jurisdiction, or the Contributor provides satisfactory evidence that the said law does not require a formal reduction of capital in the relevant jurisdiction, if this is the case;

    · the repayment takes place not earlier than 2 years from the end of the tax year in which the capital contribution was made;

    · the Contributor has a direct interest in the Recipient’s capital; and

    · the Recipient is not entitled to tax relief in its jurisdiction for deemed costs arising as a consequence of non-refundable capital contributions.

Non-refundable capital contributions meeting the requirements above are not eligible for any tax relief in Cyprus, and are subject to disallowance of direct and apportioned expenses, particularly for what concerns the deduction from taxable income of costs of investment in innovative enterprises and the notional interest deduction. Furthermore, no deduction is allowed on the costs of financing non-refundable capital contributions.

The Circular applies retroactively with effect from 1 January 2017 to non-refundable capital contributions in existence as at that date and those created thereafter. Any existing advance tax rulings covering, exclusively or partly, non-refundable capital contributions, which are not in line with the provisions of the Circular become void for what concerns their provisions on this topic.


You are not logged in!

Please login or register to ask our experts a question.

Login now or register.