Tax losses carried forward for five years

Tax losses carried forward for five years

The tax loss incurred during the year is carried forward and set off against future profits for a period of five years.

Cyprus companies’ advantages besides the attractive corporate tax, the numerous corporate expense tax deductions and income exempted from tax, offers the possibility for company losses to be carried forward. This allows companies to have a flexible planning each tax year.

Cyprus company’s losses carried forward:

The tax loss occurred after a tax year and which cannot be set off against other income is carried forward subject to conditions and is set off against the profits of the next five years.

Group of companies’ losses carried forward:

The losses carried forward rule can be applied with the profits of another company (for the same year) of the group of companies – provided the companies are tax residents.

When is a company considered as a part of a Group of companies?

• When the voting of share of both companies are held at least by 75% (directly or indirectly) by a third  Company.
• Two or more companies can be defined as group when the one Company holds at least 75% (directly or indirectly) of the voting shares of the other company.
• Since tax year 2015, subsidiary company which is tax resident in another EU member state will not affect the eligibility for group relief as long as such companies are tax resident of either an EU country or a country with which Cyprus has a double tax treaty or an exchange of information agreement (bilateral or multilateral). This company can surrender its taxable losses to another group member company tax resident in Cyprus, provided the subsidiary has exhausted all the means of surrendering or carrying forward the losses in the member state of residence of the subsidiary intermediary holding Company.

A Cyprus tax resident company may also claim the tax losses of a group company which is tax resident in another EU country, provided such EU company firstly tries the all possibilities available to utilize its losses in its country of residence or in the country of any intermediary EU holding company. A partnership or a sole trader transferring a business into a company can carry forward tax losses into the company for future utilization.

Permanent abroad establishments – Losses carried forward:

Tax losses from a permanent establishment abroad can be set off with profits of the Cyprus Companies. However, Subsequent profits of the permanent establishment abroad are taxable up to the amount of losses allowed.

Should you need any further clarification, please contact us.