Cyprus Law draft amendments: 2015

On July 1st 2015, the President of Cyprus Nikos Anastasiadis, has officially declared that the Cyprus taxation system needs rapid changes to increase the level of the country’s competitiveness. In order to achieve this goal, a number of amendments should be made to the tax law. On July 9th, 2015 members of Cyprus Parliament have approved the main amendments as suggested by Mr Anastasiadis.

Basic provisions of Cyprus Corporate and Individual Taxation Law include the following amendments:

• Companies will be granted the right to charge (and to deduct from taxation base) interests on the funds received as a contribution to the capital ("noting interest deduction").

• Investment income (i.e. dividends, interests) of individuals not domiciled in Cyprus will be exempt from tax.

• The tax exemption period provided by the current Cyprus legislation with regards to expatriates’ income over €100,000 will be extended.

 Accelerated tax depreciation referred to buildings, cars and equipment will be extended to 2016.

• Future profits received from the sale of property purchased no later than the end of 2016 will be exempt from tax.

• The amount of fees collected from land cession will be reduced by half till the end of 2016.

The amendments to the tax law of Cyprus are aimed at considerable reduction of the overall tax burden for Cyprus companies and individuals, as well as to increase the Republic’s investment appeal.

Eltoma Corporate Services’ comments

Noting interest deduction (NID)

The given resolution, i.e. granting the right to reduce the taxation base at the amount of noting interest expenses accrued, is aimed at boosting new investments and decreasing the tax burden of the corporate sector in Cyprus.

Just as loan agreement interest expenses, noting interests are calculated using the multiplication of a noting interest rate by new investments into a company’s capital. This initiative focuses on reducing debt investment for Cyprus companies , as well as on the procurement of new deposits to Cyprus’ companies, i.e. on increase of Cyprus competitiveness as a world financial centre.

Investment income (i.e. dividends, interests) of individuals not domiciled in Cyprus will be exempt from tax.

As per the amendments, individuals not domiciled in Cyprus, are exempt from taxation of investment income gained in the form of passive interests or dividends. Moreover, revenues from the leasing of property, as well as other rental income of individuals not domiciled in Cyprus will be subject to income tax, i.e. will not be claimed for special contribution for defence.

The current tax law in Cyprus currently allows for tax exemption of income received from the sale of financial assets’ (e.g. shares or bonds) issued by companies. Income from the sale of other titles is also exempt, except for cases when a real estate in Cyprus is owned by a company.

Hence, such exemption makes Cyprus very attractive for individuals who are not domiciled in Cyprus and own financial assets there. Domicile determination plays a significant role as the procedure will give explanation on which individuals are considered to be domiciled in Cyprus.

Tax exemption period provided by the current Cyprus legislation as regards to the expatriates’ income over €100,000 will be extended.

According to the current legislation in Cyprus, 50% of the income from an employment which is carried out by an individual in Cyprus is exempt from paying tax for a period of 5 years, providing that the individual was not a resident before the commencement of such employment in Cyprus and the total remuneration of the employeeexceeds €100,000 per annum. This rule applies to labour relations which arose after January 1st, 2012. The adopted bill extends the validity of tax exemption to ten years.

In general, the maximum rate of an income tax for individuals in Cyprus is 35%. However if 50% exemption principle is applied, the effective tax rate on expatriate’s income will range from 8% to 17.5%. Hence adoption of this amendment makes Cyprus even more attractive for high net-worth individuals (HNWI).

Accelerated tax depreciation referred to buildings, cars and equipment will be extended to 2016.

Recently only cars and equipment acquired from 2012 till 2014, were subject to a 20% tax depreciation rate per year providing that this rate exceeded the common tax rate of depreciation, applicable to this fixed asset. As for industrial buildings acquired from  2012 till 2014, their tax depreciation rate was 7% per annum.

The amendments prolong the period of purchase of the fixed assets subject to the accelerated depreciation, to the end of 2016. Eltoma Corporate Services predict that this change will allow for the enhancement of investments into fixed assets subject to accelerated depreciation.

Future profits received from the sale of property purchased no later than at the end of 2016 will be exempt from taxation.

Before approval of the amendments had taken place, income from the sale of Cyprus-based property was subject to a 20% rate tax deduction (Capital Gains Tax or CGT). The adopted bill grants tax exemption for profits received from sale of property until the end of 2016. As per Eltoma Corporate Services, the amendment will increase investments into the Cypriot real estate market.

The amount of fees collected from land cession will be reduced by half till the end of 2016

The adopted bill provides a 50% reduction on the amount of fees collected as a result of land cession. This allowance will apply for the land plots acquired until the end of 2016. To conclude, it is worth noting that the amendments are designed to make Cyprus even more  competitive, fair and attractive for investors than it was before. The Cyprus government believes that these changes will have a positive impact on country’s economy. 

* The next set of legislative measures will be considered by the Cyprus parliament  in the middle of September, 2015.

 

Take the next step, we are here to help.

Register a Cyprus company.
Open a Cyprus bank account.

  Resources:

Cryptocurrency & ICOs as securities & virtual commodities as per Hong Kong law

Cryptocurrency & ICOs as securities & virtual commodities as per Hong Kong law

The Hong Kong Securities and Futures Commission has remarked upon the growth and popularity of Initial Coin Offerings (ICOs) for raising money not only in Hong Kong but other Asian countries. This article confirms and explains how digital tokens that are offered or sold may be defined as "securities" and as such are therefore governed by the relevant securities legislation of Hong Kong.

New licensing regulations for Trusts & Service Providers in Hong Kong

New licensing regulations for Trusts & Service Providers in Hong Kong

As per new regulations, all Hong Kong businesses providing Trustee Services, including Corporate Service Providers will not be able to operate without a valid trading license after March the 1st 2018. The new scheme is designed to better regulate individuals carrying out services within the financial sphere in Hong Kong and will be overseen and administered by the Hong Kong Companies Registry.

The terms of Hong Kong's new register of significant controllers and what it means for companies

The terms of Hong Kong's new register of significant controllers and what it means for companies

As per new legislation, from March 1st 2018, every company incorporated in Hong Kong will be required to keep and maintain a register of all persons who have significant control of the company. The record must be updated as required and kept at the registered company address, even if there are no persons of significant control.

The pros & cons of European Passport-by-Investment schemes

The pros & cons of European Passport-by-Investment schemes

In a bid to rebuild the dwindling economy in Cyprus shortly after the financial crisis four years ago, the government launched a passport-by-investment program to temp wealthy foreigners with citizenship in exchange for an investment of no less than €2 million into the Cyprus economy.

Using the Cyprus Non-Dom scheme for beneficial tax planning

Using the Cyprus Non-Dom scheme for beneficial tax planning

In an attempt to improve and simplify the Cyprus tax system as well as to remain a highly compliant and attractive jurisdiction, the introduction of the non-domicile (shortened to Non-Dom) scheme aims to give Cyprus a competitive edge over other jurisdictions.

How are Cyprus banks handling the island's high rate of NPLs? Can more be done to combat them?

How are Cyprus banks handling the island's high rate of NPLs? Can more be done to combat them?

It is no secret that the Cyprus banking sector is struggling with the overwhelming level of Non-Performing Loans (NPLs), no matter the efforts exerted by the main banks in Cyprus by following conventional banking models to balance their profit/loss reports, NPLs remain to be the proverbial hole in the bucket.

Income tax exemptions for expats living in Cyprus: what are your options?

Income tax exemptions for expats living in Cyprus: what are your options?

Situated in the Eastern Mediterranean, the Republic of Cyprus boasts a strategic geographical location at the hub of three continents; Europe, Asia and Africa and a pleasant sunny climate year round.

The UK Persons of Significant Control Register & its impact on companies

The UK Persons of Significant Control Register & its impact on companies

The requirement to maintain a register of people with significant influence or control, more commonly known as the PSC register was introduced to mandate all unlisted companies in the UK, including LLPs and dormant companies to maintain a register identifying those with significant control over a company.