Cyprus now is in the position to enhance its foreign direct investments and encourage non-domiciled individuals to move to Cyprus. The Cyprus tax reforms will now enhance Cyprus taxation advantages and will make the island as “attractive and competitive” as ever before.
The major Cyprus Tax Reforms that finally have been passed by The Cyprus House of Representatives are:
1. New equity and notional interest deduction for Cyprus Companies
The new equity and notional interest deduction will allow new funding in Cyprus in the form of equity. This will mean a reduction of the overall effective tax rate of a Cyprus Company depending on the level of Cyprus Company capitalization. The notional Interest deduction (NID) will be granted annually.
Equity. New equity can be introduced either in the form of cash or in kind. Where new equity will be introduced in the form of assets in kind, the sum of these may not exceed the market value. Assets must be fully documented. Notional interest deduction (NID) will be given on new capital (share capital and share premium account to the extent that they have been paid) issued from 1st January 2015.
Interest. Notional interest deduction (NID) will be calculated on the amount of new share capital / share premium the same way as with interest on loans. The rate of notional interest deduction (NID) is defined as the 10 year government bond yield (at December 31 of the year preceding the tax year) of the country in which the new equity is invested, increased by 3% and having as a lower limit the 10 year Cyprus government bond increased by 3%.
Notional interest deduction (NID) is deducted from taxable income but it cannot exceed 80% of taxable income (as defined for tax purposes) before deducting Notional interest deduction (NID).
The notional interest deduction (NID) applies to companies that are tax residents of Cyprus and to companies which are not resident in Cyprus but have a permanent establishment in Cyprus.
The above will be applicable retrospectively as from 1 January 2015.
2. Tax exemptions for High-net worth non-domiciled individuals moving to Cyprus
The introduction of “Domicile” regime aims to exempt High-net worth non-domiciled individuals moving to Cyprus from Special Contribution for Defense. High-net worth non-domiciled individuals (non-doms) will need to declare Cyprus as their taxable jurisdiction and receive an exemption from Special Contribution for Defense on rents (3% on 75% on rent income), interest (30%) and dividends (17%) which are applicable to Cyprus domiciled individuals. High-net worth non-domiciled individuals even though may be tax resident in Cyprus they will not be domiciled or deemed to be domiciled in Cyprus for tax purposes and therefore they will not be subject to Special Contribution for Defence.
“Domiciled in Cyprus” is defined in accordance with the Cyprus Wills and Succession Law. Domiciled in Cyprus is an individual who has a Domicile of Origin in Cyprus but it does not include:
- An individual who has his domicile of origin in Cyprus, in accordance with the provisions of the Cyprus Wills and Succession Law, but has acquired and maintains domicile of choice in a country other than Cyprus, provided that he was not Cyprus tax resident for any period of at least 20 consecutive years before the relevant tax year which he is tax resident of Cyprus (and thus normally be subject to special defense contribution).
- An individual who has retained his domiciled of origin in Cyprus, but he was not a tax resident in Cyprus for at least 20 consecutive years before this law came into force.
Regardless of domicile, if any individual is tax resident in Cyprus for at least 17 of the last 20 years prior the fiscal year under review, will be deemed as domiciled in Cyprus and consequently will not be able to benefit from the exemption payment of special defense contribution.
Considering this amendment, individuals who currently don’t have their domicile in Cyprus but were tax resident in Cyprus and thus paid special defense contribution on dividends, interest and rent, as from 16 July 2015 they will not pay any special defense contribution if they meet the limitation of 17 years.
The above amendment is in force as from 16 July 2015. Accordingly, dividends, interest and rent received or credited before the above date will be subject to special defense contribution.
A person is considered to be a tax resident of Cyprus if it is in Cyprus for at least 184 days a year.
3. Cyprus Capital Gains Tax Exemption on Cyprus immovable property
There will be no capital gains tax for sale of immovable property in Cyprus purchased from the date the law comes into effect until 31 December 2016. The exemption shall not apply where property is sold under the new foreclosure law.
Currently Cyprus Capital gains tax is levied on gains from the disposal of Cyprus property (immovable) at the rate of 20%, as well as gains from the disposal of shares in Cyprus companies owning immovable property and are not listed in any recognised stock exchange and rights arising from a sales agreement of immovable property situated in Cyprus. For more information on Cyprus current Capital Gains Tax please click here…
4. Reduction of Cyprus property transfer fees by 50%
The Cyprus tax reforms in order to encourage the Cyprus immovable property sector, Cyprus property transfer fees have been reduced by 50% until 31 December 2016. The reduction shall not apply where property is transferred under the new foreclosure law.
Cyprus property transfer fees that are currently applicable on immovable property are based on the market value of the property according to the Cyprus Land Registry Office. Click here for more information on Cyprus transfer fees rates
The following are expected to pass into law in the near future
1. Tax exemptions for executives moving to Cyprus
A 50% allowance will be given on employment income prior to executive employment in Cyprus, where income is above €100,000. The exemption will be given for ten years. Currently the law provides for five years. For more information on current exemptions in Cyprus please click here…
2. Further extension period on Increased Capital Allowances for Machinery and Buildings acquired by Cyprus Companies and Cyprus businesses
The new Cyprus tax reforms include a further extension period on Increased Capital Allowances for machinery and Buildings acquired by Cyprus Companies and Cyprus businesses until 31 December 2016. Currently machinery and buildings acquired during the years 2012, 2013 and 2014 are eligible to tax depreciation at the rate of 20% (excluding such assets which are already eligible for a higher annual tax rate of tax depreciation). For more information on current applicable law please click here…
3. New Cyprus property tax law (New Cyprus immovable property tax law)
The new Cyprus immovable property tax law will be based on the latest General Valuation immovable property values (currently as at 31 December 2013) multiplied by a single tax rate of 0.1%. Currently Cyprus property tax (Cyprus Immovable property tax) is calculated on the market value of the Cyprus property as at the 1st of January 1980 multiplied by applicable Cyprus property tax rates and applies to immovable property owned by taxpayers at the 1st of January each year and is payable on the 30th of September of the same year. Please click here for more information on current Cyprus property tax rates and current Cyprus property tax law
How we can help
– We can help you to move to Cyprus and obtain Cyprus tax relocation advantages.
– We can review your corporate structure (holding, financing and trading) and propose changes to your structure taking into account the Cyprus current Tax Reform.
– We can advise you on your proposed or existing immovable property in Cyprus based on Cyprus current Tax Reform
Please contact us for a free personal consultation. All information will be treated in the strictest confidence. We are happy to sign Non Disclosure Agreement (NDA) or any other legal safeguards.
The authors expressly disclaim all and any liability and responsibility to any person, entity or corporation who acts or fails to act as a consequence of any reliance upon the whole or any part of the contents of this website.
Accordingly no person, entity or corporation should act or rely upon any matter or information as contained or implied within this publication without first obtaining advice from an appropriately qualified professional person or firm of advisors, and ensuring that such advice specifically relates to their particular circumstances.
PKF Cyprus firms are member firms of the PKF International Limited network of legally independent firms and do not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.”