The Republic of Cyprus has once again kept its promise to international investors and introduced on the 9th of July 2015 amendments to its tax legislation making the jurisdiction as attractive as never before. The purpose of these amendments is to clearly establish Cyprus as the leading tax jurisdiction in the European Union, attract even further investment in Cyprus whilst at the same time harmonising its domestic laws with EU obligations.
In a nutshell the new tax legislation is as follows:
Law 59(I)/2015 on Capital Gains Tax
100% exemption from capital gains tax in Cyprus for the disposal of real estate located in Cyprus provided that the said real estate has been purchased within the period of the coming into effect of this law and the 31st December 2016. This amendment is very important as the prior applicable regime imposed a 20% capital gains tax on the seller of real estate located in Cyprus.
Law 90(I)/2015 on Land Registry Duties and enhancement of procedures
A 50% discount has been introduced on the duties for the transfer of real estate from the effective date of this law up until the 31st December 2016. Furthermore new procedures have been introduced in order to protect investors purchasing Cyprus real estate subjected to a prior mortgage.
Law 29(I)/2013 on Special Defence Contribution Tax
A very ingenious and radical amendment introducing for the first time the concept of the non-domiciled individual. Thus prior obligations to special defence contribution tax ("SDC") for individuals who could qualify as tax resident of Cyprus (183 days rule) will now be no longer applicable, if it can be proved that the said individual is not domiciled in Cyprus.
Thus a Cypriot Tax resident who does not have its domicile in Cyprus shall no longer be subjected to for example 30% SDC on bank deposits in Cyprus and/or 3% SDC on rental income arising in Cyprus and /or 17% SDC on dividends received by a Cypriot Company!
Law 170(I)/2015 on Notional Interest
This is probably the most important amendment allowing for significant tax deductions for new equity investments. As of the 1st of January 2015 "new equity capitals" and for a period of one year are to be given a notional interest deduction. The notional interest deduction shall apply on 80% of the taxable profit of a Cypriot Entity or permanent establishment of a non-Cypriot Entity. It should be noted however that the said deduction shall not be applicable in loss making scenarios.
The notional interest will be equal with the interest yield of a 10 year Cyprus Government bond increased by 3% with a lowest interest of the 10 year government bond on the last day of the year preceding the said tax year increased by 3%.
It should be noted that the interest of the Republic of Cyprus 10 year bond in 31/12/2014 was at 5,02%.
It really looks that Cyprus did it again and has established itself in the forefront of international tax planning and investments. There is much depth in these amendments. Substance requirements have also been taken into consideration, thus driving forward the investment in Cypriot real estate. Fresh capital is expected to arrive in Cyprus following the new amendment on Notional Interest. This is only the beginning, at the moment new tax laws are under discussion in the Cypriot House of Representatives expected to be finalized within the next month.
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