IBCs Registered in Cyprus before 31 December 2001 and deriving income from foreign sources have the option to elect to be taxed at the rate of 4.25% until the year 2005 provided that:

a) An irrecoverable election is made.
b) They will continue to derive income from abroad.

The Chargeable income will be calculated in accordance with the provisions of the Income Tax Law 2002, before the deduction of allowances and exemptions provided for interest, dividend, and income from trading in securities, group relief, reorganization, tax credits and unilateral relief.

Losses incurred during any year of assessment up-to the year 2000, will be carried forward and set off against the income of any fiscal year, with a limitation of 5 years from the end of the year in which the loss has incurred. Losses incurring after the year 2000 will be carried forward without any restriction.

IBCs that have elected to be taxed with the rate of 4.25% until the year 2005 will also be exempted from the payment of special contribution.