In accordance with its agreement with its international lenders,
Cyprus has made a number of changes to tax rates. Increase in the corporate tax rate
With effect from 1 January 2013 the corporate tax rate has been
increased from 10% to 12½%.
Transfer and carry forward of tax losses by credit
institutions
With effect from 25 March 2013, in the event of a transfer of
operations, assets, rights or obligations from one credit
institution to another under the Credit Institutions Resolution
Law, any accumulated losses of the transferor at the date of the
transfer are transferred to the acquirer and may be used by it for
up to fifteen years from the end of the year in which the transfer
took place.
Increase in special contribution for defence on
interest
The rate of special contribution for defence, commonly referred to
as SDC tax, on interest has been increased from 15% to 30%. The
increase will take effect from the date of publication of the law
in the official gazette, which will no doubt take place
shortly. SDC tax is payable only by tax residents of Cyprus;
non-resident individuals and companies are completely exempt.
Interest on corporate financing or loan arrangements is subject to
income tax rather than SDC tax.
Annual levy on bank deposits
With effect from 1 January 2013 the levy payable by banks on
customer deposits has been increased from 0.11% to 0.15%. No levy
is payable on inter-bank deposits. The levy is not deductible for
the purpose of calculating taxable profits. It will, however,
reduce the amount of profits subject to deemed dividend
distribution
Limited effect
The changes do not detract from Cyprus's attractiveness as a
holding company jurisdiction. Even after the increase, Cyprus's
corporate tax rate is one of the lowest in the EU and the increase
should not materially affect most holding companies. Furthermore,
the other benefits of the Cyprus holding company regime such as the
tax free flow of dividends through Cyprus and the beneficial exit
opportunities offered by Cyprus's favourable national tax
legislation and wide network of double tax agreements remain
intact. In this connection it should be noted that a number of
reports elsewhere have mistakenly referred to an increase in
capital gains tax. This is due to a misinterpretation and incorrect
translation of the increase in SDC tax on interest. Cyprus does not
impose capital gains tax, except on gains deriving from real estate
in Cyprus.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.