News

The parliament of Cyprus has recently enacted a number of important changes in its tax laws, in particular the income Tax Law and the Special Contribution for Defence Law (Laws 110(I)/2009 and 111(I)/2009).

 The initial and main aim of the changes was to make more attractive the taxation regime for the creation and operation of mutual funds and collective investment schemes in Cyprus, therefore more advantageous for foreign investors, but the authorities have also taken the opportunity to simplify the taxation of interest in general.

Prior to the changes, interest was subject to Income Tax and sometimes to Special Defence Contribution Tax (according to whether the interest was “active” or “passive” in nature).   The result of that was that “active” interest was effectively being taxed at 10% and the “passive” interest at 15%. This basis of taxation will continue to apply to interest earned up to 31 December 2008 since the changes take effect retrospectively from 1stJanuary 2009.

For interest earned from 1 January 2009 interest will be subject either to income tax or to SDC tax (but not both), on the following basis

• Interest received by mutual funds is subject to corporate income tax at the flat rate of 10%.
• The net amount of interest received by individuals and companies (after deducting expenses) in the ordinary course of their business or closely connected to the ordinary course of business is subject to income tax at standard rates (10% for companies and between 20% and 30% for individuals).