cyprus_parliament

TAX INFO Q2/2015

TAX NEWS Q2/2015

The New Tax measures voted by the House of Representatives on 9 July 2015 are analysed here below.

New Tax measures voted by the House of Representatives on 9 July 2015 are analysed here below.

  • 1. The Income Tax Law
    Introduction of Notional InterestDeduction (NID) on equity
    According to the amended Law, companies resident in Cyprus and companies not resident in
    Cyprus which maintain a permanent establishment in Cyprus are entitled to a NID on equity,
    which is effectively a tax allowable deduction against the taxable profits of the company.
    The NID is calculated by multiplying the "new equity'' held and used by the business in the
    carrying on of its activities with the "reference interest rate''.

    Definitions according to the Law:

  • Referenceinterest rate is the yield of the 10 year government bond of the state in which the
    new equity is invested plus a 3% premium, having as a minimum rate the 10 year Cyprus
    government bond yield as at 31 December of the tax year preceding the relevant tax year, plus a
    3% premium.
    New equity is the equity introduced in the business on or after 1 January 2015 in the form of
    issued share capital and share premium (provided that these are fully paid) and does not include
    amounts that have been capitalised and which were derived from revaluation of movable or
    immovable property.
    It is provided that any new equity that has been introduced in a company on or after 1 January
    2015 which directly/indirectly derives from reserves existing as at 31 December 2014 but does
    not relate to the financing of new assets used in the business, is not deemed as new equity

    The NID granted on new equity cannot exceed 80% of the taxable profit as calculated before
    allowing the NID. It is further provided that in the case of a loss such deduction is not granted.

    A company may in any given tax year elect to claim the whole or part of the amount of the NID
    available.

    Anti-abuse provisions In the case where the new equity of a Cyprus tax
    resident company or a non-Cyprus tax resident company which maintains a permanent
    establishment in Cyprus, is derived directly/indirectlyfrom the new equity of another Cyprus tax
    resident company or a non-Cyprus tax resident company which maintains a permanent
    establishment in Cyprus, the NID on the new equity is available only to one of the two respective companies
    In the case where the new equity emanates directly/indirectly from loans on which interest
    expense deduction is claimed, the NID on the new equity is reduced by the amount of the
    interest expense deduction claimed.
    In the case where equity is contributed in the form of assets in kind, the amount of equity for the
    purposes of NID may not exceed the market value of the assets at the date of their introduction
    into the business, and their market value must be substantiated by the Commissioner's
    judgment.
    In the case where reorganization is carried out without generating profits subject to taxation, the
    NID on equity is calculated as if the reorganization has not taken place.
    The Commissioner may not grant the NID, if in his judgment, actions/transactions have taken
    place without substantial economic or commercial purpose or the new equity on which the NID is
    claimed emanates from equity that existed prior to 1 January 2015 and is presented as new
    equity through actions/transactions with related parties, with the aim of claiming NID.
    The provisions are affective as from 1 January 2015.
    Taxability of Widow's Pension:
    The amendment allows the individual taxpayer to opt whether his/hers widow's pension is to be
    taxed under the special mode of taxation (i.e. widow's pension exceeding €19.500 taxed at the
    rate of 20%) or to be taxed under the general mode of taxation (i.e. widow's pension included in
    the individual's aggregate taxable income).
    These provisions are effective as from the tax year 2014.

  • 2. The Special Contribution for the Defence of the Republic Law
  • Introduction of new definition of “domicile”
    Defence tax is payable only by persons who are considered to be taxed residents in Cyprus (an
    individual who spends at least 183 days in Cyprus every tax year). Defence tax is payable on
    dividends, interest and rental income.
    The Law is amended so that individuals who are not considered to be “domiciled” in Cyprus
    would be exempt from payment of defence tax on dividends, interest and rental income, even if
    they are considered as tax residents of Cyprus.
    The term “domicile inthe Republic”is defined by the Law as an individual who has a Cypriot
    domicile of origin in accordance with the Wills and Succession Law, except of:

      i. an individual who has obtained and maintained a domicile of choice outside Cyprus in
      accordance with the provisions of the WSL (i.e. factual concept - an individual permanently
      lives and intends to live in another country), provided that such an individual has not been
      resident in Cyprus, as defined in accordance with the provisions of the Income Tax Law, for
      any period of at least 20 consecutive years prior to the relevant tax year, or
      ii. an individual who has not been resident in Cyprus as defined in accordance with the
      provisions of the Income Tax Law, for a period of at least 20 consecutive years prior to the
      entry into force of the provisions of this Law.

    It is provided that an individual who has been a tax resident of Cyprus for at least 17 years out of
    the last 20 years prior to the tax year, will be considered to be “domiciled in Cyprus” and as such
    be subject to SDC regardless of the domicile of origin.

    Anti-abuse provisions
    In the case where any person domiciled in Cyprus transfers assets to a relative up to third degree
    kindred who is not domiciled in Cyprus, and in the Commissioner's judgment the main purpose of
    the transfer was to avoid paying SDC, the income arising from these assets is subject to SDC.
    Anti-abuse provisions on taxation of dividends

    An anti-abuse provision has been introduced in the SDC Law in relation to the taxation of
    dividends when these are paid to Cyprus resident companies beneficially owned indirectly by
    Cyprus resident and domiciled individual(s).
    In case where actual dividend is received by a Cyprus company which is owned indirectly by
    Cyprus tax resident and domiciled individual(s) and the Commissioner considers that the
    interposition of this Cyprus company as a shareholder of the company paying the dividend does
    not serve any substantial commercial or economic purpose but is primarily intended to prevent,
    reduce or postpone the payment of SDC, the Commissioner may deem that the dividend is paid
    directly to the Cyprus tax resident and domiciled individual(s) who directly/indirectly control the
    Cyprus company receiving the dividend and require the payment of the SDC on the dividend
    either from the Cyprus company receiving the dividend or from the Cyprus tax resident
    individual(s) who directly/indirectly control the Cyprus company.
    The above provisions have come into effect on 16 July 2015, which is the date they were
    published in the Official Gazette of the Republic.

  • 3. The Capital Gains Tax Law
  • The Capital Gains Tax (CGT) Law has been amended to provide for an exemption from CGT
    on gains from the disposal of immovable property consisting of land or land and buildings,
    provided that:

      i. it is acquired between the date the amended Law comes into effect (16 July 2015) and
      31 December 2016.
      ii. it is acquired through purchase or purchase agreement and not through an exchange or
      donation, at market value, from a non-related party.

    This exemption does not apply to disposals of immovable property that has been acquired under
    foreclosure procedures.
    The above provisions have come into effect on 16 July 2015, which is the date they were
    published in the Official Gazette of the Republic

  • 4. The Department of Lands and Surveys (Levy and Duties) Law
  • Reduction in Immovable Property Transfer Fees & Lease/Sublease registration fees
    As per the amended Law, for any transfer of immovable property as well as the registration of
    any lease/sublease until 31 December 2016, a 50% reduction in immovable property transfer
    fees and lease/sublease registration fees is provided.
    The above reduction does not apply to transfers of immovable property that have been acquired
    under foreclosure procedures.
    Abolition of Levy Refunds
    The amended Law has abolished the provisions by which the Commissioner refunded after five
    years from the day of transfer the amount of levy imposed and collected:

      On transfers of immovable property from a partnership to a company having as sole
      shareholders the partners of the assignor partnership.
      On transfers of immovable property to a (family) company by an individual shareholder of
      the company or his/her close relatives (i.e. spouse or relatives up to third degree
      kindred).

    Abolition of Special Levies on Transfers from a Company to relatives of the
    shareholders.

    According to the amendment to the Law, the special levies imposed on transfers of immovable
    property from a company to relatives of up to third degree of kindred of the shareholders are
    abolished and such transfers are now subject to the normal rates of levy on the values of the
    immovable property.
    The above provisions have come into effect on 16 July 2015, which is the date they were
    published in the Official Gazette of the Republic

      PEK Limited
      July 2015