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The Cyprus Parliament has passed a series measures to increase
various taxes and impose a levy on companies incorporated in
Cyprus. These form part of an austerity package aimed at reducing
the budget deficit, which also includes an increase in government
employees' pension contributions and a two-year special levy on
salaries and pensions paid to national and local government
employees. Further steps to reduce the government deficit are
expected to be taken over the next few months, focussing on cutting
government spending and providing tax incentives and other measures
for promoting growth.
The principal changes in the tax and company legislation are
outlined below.
Increase in the top rate of personal income tax to
35%
A 35% income tax rate has been introduced for taxable income in
excess of €60,000. The tax bands and rates for 2011 and
subsequent tax years are now as follows:
Income band from
to
Tax rate
Cumulative tax at top of band
0
€19,500
0
0
€19,500
€28,000
20%
€1,700
€28,000
€36,300
25%
€3,775
€36,300
€60,000
30%
€10,885
€60,000
and above
35%
Individuals taking up residence and employment in
Cyprus
For the first three calendar years following the start of their
employment, individuals taking up residence and employment in
Cyprus are entitled to an annual allowance of the lower of
€8,543 or 20% of their remuneration. A modification of
this arrangement has been made for highly-paid employees, in order
to attract highly-qualified individuals to relocate to Cyprus. With
effect from the 2012 tax year, if income from employment exceeds
€100,000 per annum, a 50% deduction is allowed for the
first 5 years of employment.
Increase in the rate of SDC tax on interest
The rate of SDC tax on interest received has been increased from
10% to 15%. The reduced rate of 3% payable by provident funds and
individuals whose total income for the year does not exceed
€12,000 is unchanged.
Most companies will be unaffected by the change, since interest
they receive is not subject to SDC tax, but to corporate income
tax.
Increase in the rate of SDC tax on dividends
The rate of SDC tax on dividends received by Cyprus-resident
individuals is increased from 15% to 17%. Companies are generally
exempt from SDC tax on dividends. The same increase in the rate
applies to deemed dividend distributions.
Effective date for SDC tax increases
The increased rates of SDC tax will apply to all interest and
dividends received after the date the amending law is published in
the Official Gazette.
Immovable Property Tax
The threshold for payment of immovable property tax, which is
payable by individuals and companies on the aggregate value of
property owned in Cyprus, has been reduced and the rates have been
increased. Assessments continue to be based on 1980 values.
Value of property as at
1 January 1980
From To
Rate
Cumulative tax at top of band
0
€120,000
0
0
€120,000
€170,000
0.4%
€200
€170,000
€300,000
0.5%
€850
€300,000
€500,000
0.6%
€2,050
€500,000
€800,000
0.7%
€4,150
€800,000
and above
0.8%
The changes will be effective from 1 January 2012.
VAT relief for purchase of principal private
residence
The current relief, which provides a refund of VAT of up to
€17,000, will be replaced by the introduction of a reduced
VAT rate of 5% on the costs of purchase or construction of the
first 200 square metres of a house or flat of up to 300 square
metres in total area for use as a principal private residence.
Annual levy on companies
For 2011 and subsequent years an annual levy of €350
will be payable to the Registrar of Companies by all companies
incorporated in Cyprus. Dormant companies, companies which do not
own any assets and companies owning property in the occupied areas
of Cyprus are exempt. For groups of companies there is a ceiling of
€20,000.
The levy for 2011 is payable by the end of the year; for
subsequent years the levy is payable by 30 June.
Penalties will be imposed in the event of late payment. If the
levy is paid no later than two months after the due date a penalty
of 10% will be charged. If the levy is paid between two and five
months after the due date, a penalty of 30% will be charged.
Companies which have not paid after five months from the due date
may be struck off the register. They can be restored to the
register only by paying an increased levy of €500 per year
if they are restored within two years or €750 per year if
they are restored to the register after more than two years.
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.
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