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Tax News English – 31/12/2011

Amendments to Income Tax Law

  • When a company director or individual shareholder or his/her spouse or any relative up to second degree receive a loan or other financial assistance from the company, then that person is deemed to have obtained a benefit in kind which is equal to 9% per annum on the above amount. This amount will be included in the individual’s income and will be subject to Income Tax under the PAYE system.

  • Article 39 “Loan to directors” which provides for 9% notional interest to be applied on loans or other financial assistance provided by a company to its directors or individual shareholders or their relatives up to second degree is abolished.

  • Salaries offered during a particular year will not be tax deductible for Income Tax calculation unless correct contributions to the Social Insurance Fund, Redundancy Fund, Human Resource Development Fund, Social Cohesion Fund and Provident Fund have been paid. In case the above contributions, including penalties and interests, are paid in full within the next two years after the last due date, the relevant salaries and related contributions will be tax-deductible in the tax year during which they are paid.

  • Effective date- 1 January 2012 onwards

Amendments to Special Contribution for the Defence Fund Law

  • Special Defence Contribution on dividends is increased from 17% to 20% for the tax years 2012 and 2013.

  • Special Defence Contribution will be imposed on dividends paid by a Cyprus resident company to another Cyprus tax resident company after four years from the end of the year in which the profits were made.

  • No defence contribution is payable in case the dividends are paid to non-residents of Cyprus.

  • Any dividends derived directly or indirectly from dividends on which Special Defence Contribution has already been paid are exempt from Special Defence Contribution.

  • Effective date: from 1 January 2012 onwards. The increased rate of Special Defence Contribution shall apply on dividend income derived or deemed to have been derived or accrued between 1 January 2012 and 31 December 2013.

The law providing for Special Contributions by Employees, Self-Employed and Pensioners of the private sector

  • All employees, self-employed persons or pensioners of the private sector shall pay a special contribution on their gross earnings as shown below.

  • Up to €2.500- no contribution

  • Between €2.501 and €3.500- 2.5% with a minimum contribution of €10

  • Between €3.501 and €4.500- 3%

  • €4.501 and over- 3.5%

  • There is no restriction/ maximum limit on the number of earnings.

  • For employees, the above payment is shared equally by the employer and the employee.

  • The special contribution paid is deductible from the taxable income of the employee/ employer it relates to.

  • No contribution is payable on the below for private-sector employees:

  • Retirement bonus

  • Payments from provident funds

  • Remuneration of foreigners employed by a foreign government or by an international organization

  • Remuneration of foreign diplomats/ consular representatives who are not citizens of the Republic

  • Remuneration of the crew of a Cypriot ship

  • Allowances paid cover business expenses for the account of the employer

  • Employees and pensioners who pay the Special Contribution under the Officers, Employees and Pensioners of the State and Public Sector Law on their salaries or pension are exempt from the above payment.

  • For employees and pensioners, the amount of special contribution will be withheld and paid in the same way as PAYE.

  • For self-employed individuals, the amount of special contribution will be paid on the basis of self-assessment.

  • Effective date: 1 January 2012 to 31 December 2013

Law amending the VAT Law

  • All taxable persons are obliged to issue and deliver legal receipts

  • Non-compliance will result in a penalty which is 20% of the value of the transaction to which the receipt relates to and is liable in case of court conviction, to a fine of up to €1.700 and/ or imprisonment of up to 3 years.

  • Effective date: 16 January 2012

  • From 1 March 2012, the basic VAT rate will be increased from 15% to 17%. The reduced rates of 5% and 8% will not be affected.

Law Providing for the Special Settlement of Tax Liability of 2011

  • A flat penalty of 5% is imposed on taxes due for the tax years up to 2008. All other penalties and/or interest accruing on such taxes previously imposed are waived.

  • This law concerns taxes assessed by 30 March 2012, taxes imposed by a relevant Court of Law until 30 March 2012, taxes arising in accordance with a tax payer’s return filed for any tax year up to 2008 which is submitted by 30 March 2012 and taxes which were withheld/ should have been withheld at source by 30 March 2012.

  • Any interest/ penalties which have already been paid towards the settlement of taxes up to the tax year 2008 will not be refunded.

  • Where tax liabilities are settled under the provisions of this Law along with the submission of a person’s tax return, but this has not been assessed by the Director of Inland Revenue, and after 30 March 2012 the Director makes an assessment for an additional amount due, this additional amount will not be subject to the provisions of the Law and will be subject to normal interest and penalties.

  • Effective date- from 12 December 2011 up to and including 30 March 2012.

Amendment to the Land Registry (Duties and Fees) Law

  • This law provides for the exemption of all transfer fees for all transfers for which VAT was payable on the transaction and 50% exemption for all other transfers.

  • This law covers all new contracts which are executed in the period of application.

  • Effective date- 2 December 2011 up to 1 June 2012.

Payment of taxes through the JCC Smart Website

  • Payment of various taxes by credit card is now possible via the JCC Smart website ( currently available for the following:

  • The amount of tax does not exceed €1.000

  • The tax is not overdue

  • The tax is regarding- Personal income tax withheld at source (PAYE), withholding or self-assessment of Special Defence Contribution on interest, rent and dividends (actual or deemed distribution)

  • Payments regarding temporary tax and assessments issued by the Inland Revenue cannot be made via jccsmart

Registrar of Companies accepts English financial statements

  • On 19 December 2011 the Registrar of Companies has issued a statement, whereby from now on it accepts financial statements in the English language and not only in the Greek language.

The Establishment and Operation of Independent Financial Stability Fund Law 2011

  • The basic levy is payable by all credit institutions incorporated in the Republic, including their branches operating outside the Republic and institutions established in a country other than the Republic and operating in the Republic through a branch.

  • The basic levy amounts to 0,03% of the relevant liabilities of the institution.

  • The special contribution currently paid by financial institutions amounting to 0,095% on their deposits will be abolished.

  • Effective date: 1 January 2013

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