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
Provide incentives for investment & relocation to Cyprus
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 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.