In May 2012 the Cyprus Parliament approved a number of changes
to the laws relating to income tax and SDC tax aimed at stimulating
the economy and attracting investment from overseas. The changes
will come into force when the amending laws are published in the
Official Gazette and will have retrospective effect from 1 January
Taxation of intellectual property rights
Expenditure on acquisition or development of intellectual
property rights is to be capitalised and amortised in equal
instalments over the year in which the expenditure was incurred and
the four following years.
Revenue from the exploitation of intellectual property rights
(including compensation for infringement of rights and revenue from
the sale of rights) after deduction of the amortization and any
other expenses incurred in earning the revenue, is four-fifths
exempt from tax, and only one-fifth is subject to tax. These
provisions apply to all expenditure incurred by a person carrying
on a business on the acquisition or development of intangible
assets, including those defined in the Patent Law of 1998 as
amended, in the Intellectual Property Rights Law of 1976 as amended
and in the Trademark Law, Cap 268 as amended.
Deductibility of interest costs related to the acquisition
With effect from 1 January 2012 interest incurred in connection
with the acquisition of shares in a wholly-owned (whether directly
or indirectly) subsidiary company, wherever incorporated or
resident, will be deductible for tax. This represents a change from
the practice previously adopted by the tax authorities, who treated
such interest as non-deductible. If any of the subsidiary's
assets are not employed in its business the deductible interest
cost will be reduced by the amount referable to the non-business
assets. Hitherto, interest has not been deductible.
Increased capital allowances
For all plant and machinery (excluding private saloon cars)
acquired during 2012, 2013 and 2014, the annual capital allowance
for tax purposes will be doubled to 20% of the cost. For industrial
and hotel buildings acquired during these years the annual capital
allowance will increase from 4% of the cost of the asset to 7%.
Deemed distribution rules
For the purposes of calculating profits subject to the deemed
distribution rules any capital expenditure incurred on the
acquisition of plant and machinery (excluding private saloon cars)
and buildings during the years 2012, 2013 and 2014 is deductible
from post-tax profits.
The previous group relief rules required companies to be members
of a group for the whole of the tax year in order to qualify. A
subsidiary incorporated by its holding company part-way through a
year is now deemed to have been a member of the group for the whole
year. The provisions of Section 33 of the Income Tax Law regarding
arm's length principles will no longer be applied to
transactions between a parent company and its wholly-owned direct
subsidiary as long as the conditions for group relief are
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