Cyprus Tax Amendments
On July 16, 2015 the Cyprus House of Representatives passed a number of draft bills into laws, introducing various significant amendments to the Cyprus tax legislation, aiming to modernize, simplify and improve the Cyprus tax system and attract foreign investments by enhancing the competitiveness of Cyprus.
The main changes are outlined below:
1. Income Tax Law
The amended Cyprus Income Tax Law introduces a Notional Interest Deduction on “new” equity. Accordingly, a Cyprus tax resident company, or a non-Cyprus tax resident company with a permanent establishment in Cyprus, is entitled to a tax allowable deduction against its taxable profits, being equal to the reference interest rate multiplied by new equity of the company used in its course of business.
“Reference interest rate” is defined as the interest rate of 10 year government bond yield of the country in which the new equity is invested, increased by 3%, with a minimum interest rate of 10 year government bond yield of the Republic of Cyprus increased by 3% as at the 31st of December of the previous tax year.
“New equity” is defined as the equity which has been introduced in the business on or after the 1st of January 2015, but does not include amounts which have been capitalized and result from the revaluation of movable or immovable property.
Any equity which has been introduced in the business on or after the 1st of January 2015 which results directly or indirectly from reserves existing on 31st December 2014, but does not relate to property assets which are used in the business, will not be considered new equity.
The Notional Interest Deduction is capped to 80% of the taxable profit of the company for the year and is not available in cases of losses.
2. Special Defence Contribution
The amended Special Contribution to the Defence Fund Law introduces the concept of ‘non-domiciled’ persons who can respectively benefit from tax exemptions over dividends and interest earned. Accordingly, the scope of application of the defence tax with respect to individuals is limited to those persons who are resident in Cyprus for tax purposes and who are also domiciled in Cyprus.
An individual is considered to be domiciled in Cyprus by way of domicile of origin or of domicile of choice.
- Individuals who have been residents of Cyprus for tax purposes for 17 out of the last 20 years are considered to be domiciled in Cyprus;
- Individuals born in Cyprus but who have not been residents in Cyprus for tax purposes for the last 20 years prior to the year in which they become Cyprus tax residents are not considered to be domiciled in Cyprus.
Note: An individual is considered to be a resident of Cyprus for tax purposes if he resides in Cyprus for a period exceeding 183 days.
3. Capital Gains Tax
Gains from the sale of Cyprus situated property acquired between the date of entry into effect of the law and 31 December 2016 shall be exempt from Capital Gains Tax which is currently rated at 20%.
4. Department of Lands & Surveys (Levy and Duties) Law
A 50% reduction on the land transfer fees shall apply for properties transferred until 31 December 2016