Holding and trading in securities has a number of tax incentives in Cyprus. The following are relevant:

Gains from disposal of titles qualifying as securities are not taxable.

Titles, as per the Income-tax law, include:

• Ordinary shares.
• Preference shares.
• Founder’s shares.
• Options attached to on titles.
• Debentures and bonds.
• Swaps on titles, short position on titles and futures/forwards on titles.
• Participation in Companies such as the Russian OOO and LLC, the American LLC (provided that it is subject to taxation on their profits), the Romanian SA and SRL and the Bulgarian AD and OOD.
• Repurchase agreements or Repos on titles.
• Units in open-end or closed-end collective investment schemes provided that they are incorporated, registered and operating according to the provisions of a specific and relevant legislation of the Country in which they were founded.

In case where it is not clear whether a title falls within the definition of securities, a request for ruling can be submitted to the Commissioner of Income Tax.

It should be noted that the list above does not include promissory notes and Bills of Exchange as well as complex investments like swaps, futures/forwards, gold e.t.c. Therefore gains from such titles will be subject to corporation tax at the rate of 12,5%.

It should be noted that losses from trading in titles qualifying as securities are not treated as tax deductible. In addition, any expenses relate to the acquisition of titles are not treated as tax deductible (i.e. legal fees, interest expense e.t.c.) as well as a portion of the administrative expenses is added back in the tax computation in proportion to the cost of investments in relation to the Total Assets of the Company. The only exemption to this rule is interest expense which directly relate to the acquisition of wholly owned subsidiary provided that the assets of the subsidiary constitutes business assets.