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Recent Tax Law Amendments

Certain Tax Law amendments have taken place in July 2015 in order to:

  • Harmonize and align the Cyprus tax system with relevant EU guidelines

  • Simplify the Cyprus tax system and making it more attractive

  • Strengthen the use of Cyprus companies in international tax structuring

Recent Tax Law Amendments and Income Tax related:

  • Extension of Exemptions of income from first employment in Cyprus- at present, persons who become tax residents and are employed in Cyprus for the first time can enjoy one of 2 exemption on income:

  • 20% exemption for the first 3 years of employment (with a maximum of €8.550 per annum). This is now extended to the first five years of employment until 2020.

  • 50% exemption for the first 5 years of employment, where income from employment exceeds €100.000 per annum. This is now extended to ten years.

  • Notional interest deduction on equity- companies will be able to deduct from their tax computation notional interest on new equity/ capital. New equity/ capital includes share capital and share premium issued and settled on or after 1/1/2015. The notional interest can up be to 80% of their taxable income and will be calculated. The notional interest will be based on the effective interest earned on the 10-year government bond rate of the country in which the new equity/ capital is invested increased by 3%.

  • Group loss relief extended to include subsidiaries which are tax resident in any EU member state

  • Annual capital expenditure allowances extended- accelerated rates which refer to buildings, cars, and equipment will be extended to 2016

Defense tax-related:

  • Defense tax is paid by Cyprus tax resident individuals on certain types of worldwide income (e.g. 17% on dividends, 30% on bank deposit interest, 3% on rental income).

  • The concept of domicile has been introduced in the legislation

  • Domicile of origin- received at birth

  • Domicile of choice- acquired by the establishment of a home in Cyprus with the intention of permanent residence

  • Deemed docimile – a Cyprus tax-resident in 17 of the last 20 years

  • Consequences of non-domicile

  • Where a person is non-domiciled in Cyprus but is a Cyprus tax resident, the following consequences arise:

  • no Cyprus tax is payable on receipt of dividend income from any company anywhere in the world (although on foreign dividends, the source country may withhold taxes);

  • no Cyprus tax is payable on receipt of interest income from anywhere in the world (although on foreign interest, the source country may withhold taxes);

  • no SDC is payable on rental income.

New Capital Gains Tax exemption:

  • The gain will be exempted from CGT on a future sale of a Cyprus based property if the property is purchased between the date the law comes into effect and 31 December 2016.

Land registry (Transfer) fees reduced:

  • For properties transferred until 31 December 2016, there will be a 50% reduction in the land transfer fees.

  • Furthermore, there will be no land transfer fees on transfers of immovable property from parents to children.

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