Cyprus: Cyprus's New Package Of Tax Incentives And Technical Amendments

Last Updated: 29 July 2015
Article by Elias Neocleous and Philippos Aristotelous

Introduction

The Cyprus Government has announced a number of proposed tax incentives aimed at encouraging economic activity and attracting inward direct investment. It has also submitted a number of draft laws to the House of Representatives to implement the new provisions of the EU Parent-Subsidiary Directive, to simplify the tax regime and make it more attractive, fair and effective.

The proposed changes fall under three main headings:

  • Stimulating economic activity and investment in real estate;
  • Increasing competitiveness and aligning domestic legislation with EU Directives;
  • Attracting high-net-worth individuals and highearning employees.

Economic Activity And Investment In Real Estate

Reduction Of Transfer Fees On Real Estate Transactions

In order to stimulate the property market, the Government proposes to halve the fee payable on transfers of immovable property until December 31, 2016.

The current rate is 3 percent on the first EUR85,340 (USD95,298) of the consideration, 4 percent on the next EUR85,340 and 8 percent on the balance.

Temporary Exemption From Capital Gains Tax

In addition, any future gain on disposal of immovable property acquired in the period beginning on the date the law becomes effective and ending on December 31, 2016, will be exempt from capital gains tax.

Taxation Of Capital Gains On Indirect Disposals Of Real Estate

Gains on disposal of shares in companies in which the value of real estate directly or indirectly accounts for 50 percent or more of the value of the shares will now be subject to capital gains tax.

Abolition Of Local Taxes On Immovable Property

Immovable property taxes charged by local authorities will be abolished.

Extension Of Accelerated Capital Allowances

The accelerated tax writing-down allowances on plant and machinery and industrial and hotel buildings will be extended until December 31, 2016.

Alignment With EU Directives And ECJ Case Law

In order to implement the latest changes to the EU Parent-Subsidiary Directive, after December 31, 2015, the current exemption from Cyprus income tax on dividends received by Cyprus-resident companies will not be available in cases where the dividend was allowed as a tax deduction in the jurisdiction of the paying entity, or where the arrangement is a sham.

In addition, the group loss relief provisions are to be amended with retrospective effect from January 1, 2015, so that group relief is available between companies resident in Cyprus and companies resident in other EU member states.

Changes To The Arm's Length Principle

Cyprus does not have specific transfer pricing rules in its domestic legislation, but the arm's length principle is incorporated into the Income Tax Law, allowing the tax authorities to impose additional taxes on profits or benefits arising from related party transactions. Currently the only adjustments that can be made are to increase profits, and there is no provision for the corresponding expenses and losses to be compensated. The law will be amended to tax the profit arising from the transactions between the related parties and to allow a corresponding deduction for the counterparty to the transaction. The Government hopes that the adoption of international transfer pricing principles will attract more multinational businesses.

Notional Interest Deduction On Equity Capital

With effect from January 1, 2015, companies and permanent establishments of foreign companies are to be given a notional interest deduction (NID) on new equity capital (share capital and share premium) introduced after that date, calculated by reference to the government ten-year bond. The NID will be limited to 80 percent of the taxable profit before deducting the NID, and no NID will be allowed in the event of losses.

The introduction of the NID is intended to level the playing field between equity and debt finance, as both will be eligible for tax deductions.

Tax Neutrality Of Foreign Exchange Gains And Losses

Profits and losses arising from currency exchange rate fluctuations will be disregarded for tax purposes apart from gains or losses arising from trading in foreign currencies or foreign currency derivatives. Entities trading in foreign currencies or foreign currency derivatives may irrevocably elect to be taxed on the basis of realized profits or losses.

Limitation Of Losses Carried Forward On IP Activities

Cyprus's IP box regime allows an 80 percent deduction from the net profit generated by the use or disposal of IP rights. An amendment is proposed in order to make clear that if a loss is made from such activities, only 20 percent of the resulting loss will be allowable.

Anti-Abuse Provisions

Corporate reorganizations are currently exempt from all forms of tax. In order to prevent abuse, it is proposed that the exemption may be withheld if the tax authorities consider that a reorganization is not carried out on valid commercial grounds.

The tax authorities will also be given discretionary powers to disregard the exemption from the Special Contribution for Defence (SDC) of dividend payments to another resident company if such a company was interposed without valid commercial or economic reason apart from reducing or avoiding the liability for SDC.

Introduction Of Non-Domiciled Regime For SDC

At present, all Cyprus tax-resident individuals are liable to pay SDC on rents, dividends and interest. It is now intended to introduce the option for individuals who are resident in Cyprus to obtain exemption from SDC if their domicile is elsewhere.

Extension Of Income Tax Exemption For New Individual Taxpayers

Individuals taking up residence and employment in Cyprus with income from employment of more than EUR100,000 per annum are currently entitled to a 50 percent deduction for the first five years of employment. The Government intends to extend the period for which the deduction is available from five years to ten.

Conclusion

At this stage, the draft laws have still to be considered and voted on by the legislature, and there may be significant amendments during the course of the legislative process. We will monitor developments and issue further details when there is anything to report.

This article was first published in Global Tax Weekly on 23 July 2015

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Elias Neocleous
Philippos Aristotelous
Similar Articles
Relevancy Powered by MondaqAI
Elias Neocleous & Co LLC
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Elias Neocleous & Co LLC
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions