The Tax Office issued the explanatory Circular #25 to provide additional explanation in regards with
capital contributed to Non-Cy tax resident companies without the issue of shares in return.
Our Tax department at PHS has summarized the circular and provides you below with the most important information.
As per the explanatory circular; Article 33 does not apply in regards to debit/credit balances created
from non – return capital contributions to Non -Cy tax resident companies provided all the below
provisions are met:
a) The person / company contributing the money does not have the right to ask for the repayment
of the amount at any time.
b) The repayment of the contribution can only be made via a capital reduction or dissolution /
liquidation of the recipient of the contribution. This provision does not need to be met if it is
proven that the laws and regulations of the country of the recipient does not deem necessary the
capital reduction for capital repayment.
c) The repayment is not done prior to 2 years from the year end the contribution was made.
d) The person / company contributing the money must have a direct share in the capital of the
recipient of the contribution.
e) The recipient company must not benefit from tax deduction from such contribution.
Provided all the above provisions are met then the contribution is considered as part of the assets of the company that are not used for the production of taxable income. Based on that, articles 9 and 11 of the Income tax law will apply for the restriction of the expenses related to this contribution.
In addition, the expenses related to the contribution are not allowable for tax purposes.
This circular is in force as from 1 January 2017, for all the non-return capital contributions to non – Cy tax resident companies in existence at 1 January 2017 and there on.
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