Generally, loss from one source of income is set-off against income from other sources in the same year. Any loss remaining after the set-off is carried forward over the next five years.
Losses in respect to the year 1997 and after, which were not set-off against profits up to the year 2002, may be carried forward to the year 2003 and the following years.
In case there is any change in the ownership of the company’s shares and a substantial change in the company’s nature of the business, within any three-year period from the year of the loss, then the loss cannot be carried forward to the following years.
Current year tax losses may be surrendered by one Cyprus tax resident group company to another.
A group company which 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.
Two companies shall be deemed to be members of a group if:
One is by 75% subsidiary of the other, or
Each one separately is 75% subsidiary of a third company
Group relief is available if both companies are members of the same group for the entire tax year.
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 either a tax treaty or an exchange of information treaty (bilateral or multilateral).
Where a company has been incorporated by its parent company during the tax year, this company will be deemed to be a member of this group for group relief purposes for that tax year.
Losses incurred by any person from any business carried on outside Cyprus, can only be set-off from the same persons’ income from other sources for the same year.
In the case where a business owner, including a partnership, converts his business into a company, any of the owner’s accumulated losses may be carried forward to the company.
Losses of Permanent Establishments (PE) situated outside Cyprus can be offset against profits arising in the Republic. However, in the future when profits arise in the PE, an amount equal to the losses previously utilized will be included in the taxable income of the resident company (“claw-back provisions”).
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