Recent Amendments to the Cyprus Tax Legislation
In an attempt to enhance the Cyprus Tax System and attract new foreign direct investments, the Cyprus House of Representatives has recently voted new tax laws and amendments.
The new tax reforms aim to enhance the capital financing of the Companies as opposite to reduce the currently excessive debt financing as well as to attract new high worth investors that in general will create business substance and accelerate the local economy.
Below are summarized the most important changes:
1. INCOME TAX
Notional Interest Deduction (NID) on new funds entering the business:
As from 1 January 2015, companies will be entitled to a notional interest deduction on ‘new equity’. The term ‘new equity’ includes funds introduced into the share capital of the company after 1 January 2015 and which have actually been paid and used for the operations of the company. Notional interest will be calculated based on the effective interest earned on the 10 year government bonds of the country in which the new equity is invested plus 3%, with the minimum rate being the equivalent 10 year bond yield of Cyprus plus 3%. The notional interest deduction cannot however exceed the 80% of the taxable income of the company for the year before the deduction.
Increased capital allowances for capital expenditure
The period during which increased capital allowances for new expenditure in plant and machinery (20% instead of 10%) and for new industrial buildings and hotels (7% instead of 4%) is extended in the years 2015 and 2016.
Based on the previous legislation introduced in 2014 (Article 20A of the Act), widow's pension is taxed under special provisions. Thus, income widows' pensions up to the amount of € 19.500 are taxed at 0% and revenue exceeding € 19.500 is taxed at the rate of 20%, separate from other income.
According to the law amendment voted, in order to avoid possible injustice, income from widow’s pensions may be taxed either as mentioned above or offset against other income of the taxpayer and taxed on the basis of the normal provisions of the law.
The tax payer may elect which tax method to apply for each tax year separately.
The provisions shall be applicable as from the fiscal year 2014.
2. SPECIAL CONTRIBUTION FOR DEFENCE
Introduction of ‘Domiciled’ persons
The Law is amended so that individuals who are not considered to be ‘domiciled’ in Cyprus, will be exempted from the payment of Special Contribution for Defence Tax on dividends, interest and rental income, even if they are considered as tax residents of Cyprus.
3. CAPITAL GAINS TAX LAW
Any property acquired during the period between the date the new Law comes into effect and 31 December 2016, will be exempted from capital gains tax from a subsequent disposal. However, the amendment of the Law does not include any property that will be acquired as a result of sale of property in settlement of a debt.
4. DEPARTMENT OF LANDS AND SURVEYS (LEVY AND DUTIES) LAW
A 50% exemption from transfer fees under the Land and Surveys (Fees) Law will apply to ALL transfer applications provided that:
· the transfer is effected until 31/12/2016, regardless of the date of entering into the contract or deposit of the contract in the Land Registry
· the contract concluded and deposited in the Land between the period from 2nd December 2011 to 31st December 2016, regardless of the date of the transfer.
The above reduction does not apply to transfers of immovable property that have been acquired under foreclosure procedures.
The amendment applies to transfers done from 16th July 2015 onwards.