pek cyprus tax

CYPRUS TAX SYSTEM 2016

Untitled Document

CYPRUS TAX SYSTEM

BRIEF INFORMATION
FOR TAX YEAR
2016

The information contained in this booklet is accurate as at the date of its publication.  It is based on information available at that time and is designed to answer some of the commonly asked questions and in no case should substitute seeking professional advice.

For explanations, clarifications or professional advice please contact us to the following address:

 

PEK Ltd
Chartered Certified Accountants
17 Demosthenis Severis Avenue
Central court, 3rd floor
1080 Lefkosia
PO Box 28978
2084 Nicosia

 

Tel:  +357 22 865000
Fax: +357 22 865001

 

E-mail address: info@pek-cy.com
Website: www.pek-cy.com

 

Directors:        Andreas I. Efthyvoulou FCCA (aie@pek-cy.com)
Kyriacos M. Koutsoftas FCCA (kmk@pek-cy.com)

 

January 2016

Nicosia, Cyprus

 

INDEX

 

 

 

1.

Major advantages of Cyprus as an International Business Center

1-3

 

 

 

2.

Personal Income Tax

4-8

 

 

 

3.

Corporation Tax

9-13

 

 

 

4.

Capital Allowances

14-15

 

 

 

5.

Special Modes of Taxation

16-17

 

 

 

6.

Profits from Shipping Activities

18

 

 

 

7.

Special Contribution for defence

19-22

 

 

 

8.

Maintenance of accounting books and records

23-24

 

 

 

9.

Capital Gains Tax

25-26

 

 

 

10.

Immovable Property tax

27-28

 

 

 

11.

Double Tax Treaties

29-35

 

 

 

12.

Tax Diary

36-37

 

 

 

13.

Value Added Tax

38-44

 

 

 

14.

International Trusts

45

 

 

 

15.

Social Security Contributions

46-48

 

 

 

16.

Special Contribution for official/employees/pensioners of State Service and Government Sector

49

 

 

 

17.

Special Contribution for Employees, Self-Employed and
Pensioners of Private Sector

50

 

 

 

18.

Stamp Duty

51

 

 

 

19.

Companies Registrar Rights and Fees

52-53

 

 

 

20.

Stock Exchange Transaction Fees

54

 

1. MAJOR ADVANTAGES OF CYPRUS AS AN INTERNATIONAL BUSINESS CENTER

We outline below the major advantages of using Cyprus as an International Business Centre.

Corporate tax rate 

A uniform corporate tax rate of 12.5% for all companies. This is one of the lowest corporate tax rate in Europe.

A holding company jurisdiction

Any dividend income is exempt from tax irrespective of its source.                        This exemption does not apply if the non resident company paying the dividend carries on more than 50% investment activities which give rise to investment income and the overseas tax burden on its income is significantly lower than the Cyprus tax burden (less than 5%)

Trading in securities

Any profit from the disposal of securities, irrespective of whether this profit forms part of a company’s trading activity or is of a capital nature, is exempt from Cyprus tax.

Permanent establishment abroad

Any profits from a permanent establishment maintained abroad are exempt from taxation in Cyprus. This, in conjunction with the use of Cyprus’ extensive double taxation treaty, can result in such profits escaping taxation altogether.

Non- resident companies

Companies managed and controlled outside Cyprus are considered to be non-resident and will be taxable on their Cyprus source income only. As a result a company deriving income from sources outside Cyprus will escape taxation in Cyprus altogether.
                                                                                                  
No withholding taxes

Dividends paid to non-resident shareholders are not subject to any withholding tax in Cyprus, irrespective of the existence of a double tax treaty with their country of residence. Also, no withholding tax applies to interest derived from Cyprus as well as on royalties receiving from sources outside Cyprus.

Exemption of capital gains

No capital gains tax is payable, except on the disposal of immovable property which is situated in Cyprus, or of shares in a company which owns immovable property situated in Cyprus. Therefore, Cyprus companies can be used to hold real estate outside Cyprus with no capital gains tax implications in Cyprus on their disposal.

Double taxation treaties

What distinguishes Cyprus from most other international business centers is its extensive network of double taxation treaties (currently with 49 countries). Generally, most treaties provide for reduced rates of withholding tax on dividends, interest and royalties paid out of the treaty country, or the avoidance of double taxation in the case where a resident in one of the treaty countries derives income from the other treaty country.

Non-residents working in Cyprus

Non- residents physically present in Cyprus for less than 183 days are taxable in Cyprus only on income derived from sources within an employment exercised in the Republic of Cyprus.

Personal tax rates

The personal tax rates are progressive and reach a maximum of 35% on income in excess of Euro 60.000.

Relief for overseas employment

A Cypriot resident working abroad for an overseas employer is exempt from taxation on the salary attributed to overseas duties if these duties result in spending more than 90 days in any tax year abroad.                                 

 

Relief for non-residents taking up employment in Cyprus

A non-resident taking up employment and becoming resident in Cyprus will be given a 20% allowance on employment income for the three years following the year of becoming resident in Cyprus. The allowance cannot exceed Euro 8.543 each tax year.

Also from 2012 for a non resident who is employed in Cyprus and acquire income exceeding one hundred thousand euro (€100.000) per annum, an allowance of 50% of that income will be given.  The exception applies for five years commencing from the first year of employment.

Income / profits from intellectual property rights

80% of the net profits from exploitation of intellectual property rights as well as the gain on sale of any intellectual property rights are exempt from taxation.

 

2.  PERSONAL INCOME TAX                                                             

Imposition of tax

Where an individual is a tax resident in the Republic, tax is imposed on income accruing or arising from sources both within and outside the Republic.

Where an individual is not a tax resident in the Republic, tax is imposed on income accruing or arising only from sources within the Republic relating to
a) profits or other benefits from permanent establishment in the Republic
b) gains or other benefits from any office or employment exercised in the Republic 

A tax resident in the Republic is an individual who is present in the Republic for a period exceeding 183 days in a tax year.

Tax rates

 

 

 

 

 

 

 

Taxable Income

Tax
Rate

Tax
amount

Cumulative Tax

%

 

 

 

 

0 – 19.500

0

0

0

19.501 – 28.000

20

1.700

1.700

28.001 – 36300

25

2.075

3.775

36.301 – 60.000

30

7.110

10.885

60.001 and over

35

 

 

 
Exemptions

The following are exempt from income tax:

- Gratuity or lump sum received on retirement or commutation of pensions or as a result of death

- Lump sum repayment from life insurance schemes or from approved provident funds

- Gains from disposal of securities

- Dividend income                                                                                   

 

- Interest income
Interest income arising in the ordinary course of business, including interest closely connected with the carrying on of the business, is not considered as interest but trading profit and therefore the exemption is not applicable.

- Remuneration from rendering of salaried services outside the Republic to a non-resident employer or to a permanent establishment outside the Republic of a resident employer for a total aggregate period in the year of assessment of more than 90 days

- Profits from a permanent establishment maintained outside the republic Subject to a rule that the PE activities abroad do not lead to more than 50% in investment income and the foreign tax burden is not substantially less than the Cyprus Tax (i.e. not less than 5%) 

- Remuneration from any office or employment exercised in the Republic by an individual whose residence was outside the Republic before the commencement of the employment.                          
The exemption is applicable for 20% of the remuneration or €8.543 (whichever is the lower)

Remuneration from any employment exercised in Cyprus by an individual
who was not a tax resident in Cyprus before the commencement of the
employment. For employments commencing during or after 2012
the exemption applies for a period of 5 years starting from the tax year
following the year of commencement of the employment with the last
eligible tax year being 2020. This exemption may not be claimed in
addition to the below 50% exemption for employment income.

- An allowance of 50% is given for remuneration of a non resident who is employed in Cyprus and acquires income exceeding one hundred thousand euro (100.000 Euro).  The exception applies for 10 years for employments commencing as from 1 January 2012.
For employments commencing as from 1 January 2015 the exemption does not apply in case the said individual was a Cyprus tax resident for 3 (or more) tax years out of the 5 tax years immediately prior to the tax year of commencement of the employment nor in the preceding tax year. In certain cases it is possible to claim the exemption where income falls below €100.000 per annum.

 

Tax Deductions

The following are deducted from income:

- Interest relating to the acquisition of fixed assets used in the business         

- Interest in respect to the acquisition of a building for rental purposes      

- Subscriptions to trade unions or professional bodies                                              
- Donations to approved charitable organisation (with receipts)

- Special contribution

- Expenses for letting of buildings (20% of the rental income)

- Expenditure for the maintenance of buildings under preservation order
Up to €700, €1.100 or €1.200 per sq. m. (depending on the size of the building)    
- Business entertainment expenses including hospitality expenses of any kind which are incurred for the purpose of the business.  (The lower of €17.086 or 1% of the gross income)

Disallowable expenses

The following expenses are not deducted from income:

- Private motor vehicle expenses                                     

- Professional tax                                                                                                                                     

- Interest payable or deemed to be payable in relation to the acquisition of a private motor vehicle, irrespective of whether it is used in the business or not, or other asset not used in the business.  This restriction is lifted after 7 years from the date of purchase of the relevant asset.

- Immovable Property

- Wages and salaries relating to services offered within the tax year on which contributions to the Social Insurance Fund, Redundancy Fund, Human Resource Development Fund and Provident Fund have not been paid in the year in which they were due, will not be tax deductible for the calculation of taxable income

 

In case the above contributions (including any penalties and interest) are paid in full within two years following the due date, such wages and salaries will be tax deductible in the tax year in which they are paid.

Tax Losses

Carry forward of losses

Tax loss incurred during a year can be carried forward for the next five years from the end of the tax year in which it was incurred, to be offset against taxable income. 
Where a person, including a partnership, converts his business into a limited liability company, any unrelieved losses can be transferred to the new company.    
Loss from a permanent establishment abroad  
Losses arising from a permanent establishment maintained outside the Republic can be offset against profits arising in the Republic. However, when a profit arises from such a permanent establishment, an amount equal to the losses that have been utilised in the past against profits arising in the Republic, will be included in the taxable income.                                                                   

Personal allowances

The following are deducted from income:


Social insurance contributions, contributions to approved provident and pension funds, the General Health Plan, contributions to medical or other approved funds, insurance premiums in respect of the life of the claimant

The whole amount up to 1/6 of the taxable income(before this allowance)

-     the annual life insurance premium is restricted to 7% of the insured amount

-     life insurance policies, in respect to the life of the claimant’s spouse, which were in existence up to the 31 December 2002 and for which the claimant was receiving a tax allowance, will continue to be deductible by the claimant

-     in the event of cancellation of a life insurance contract within six years from the date it was entered into, part of the life insurance premiums already given as an allowance will be taxable as follows:

  • cancellation within 3 years                                                           30%
  • cancellation between 4 to 6 years                                                  20%

 

Notional income on drawings

In case of granting a loan or financial facility including cash withdrawals from a company, to physical persons directors or shareholders or their spouses, or relatives up to second degree, it is deemed that the person has a monthly benefit equal to nine percent (9%) annually over the balance of the loan or any other financial facility at the end of each month.

The amount of tax of the monthly benefit of the person must be withheld from salary and paid to the Inland Revenue monthly under PAYE system.

 

3. CORPORATION TAX                                                                        

Imposition of tax

Where a company is resident in the Republic, tax is imposed on income accruing or arising both from sources in and outside the Republic.

Where a company is not a resident in the Republic, tax is imposed on income accruing or arising only from sources in the Republic.

Resident in the Republic is a company that is managed and controlled in the Republic.

Tax rates

Companies

12.5%

Public corporate bodies

25%

Exemptions

The following are exempt from corporation tax:

- Dividend income (excluding, as from 1 January 2016, dividends which are tax deductible by the paying company)                                                                                       

- Profit from the disposal of securities                                                        

- Profits from a permanent establishment maintained outside the Republic subject to a rule that the activities abroad do not lead to more than 50% in investment income and the foreign tax burden is not substantially less than the Cyprus Tax, i.e. not less than 5% 

- Interest income
Interest income arising in the ordinary course of business, including interest closely connected with the carrying on of the business, is not considered as interest but trading profit and therefore the exemption is not applicable. 

- Income / profits from intellectual property rights                                     
80% of the net profits from exploitation of intellectual property rights as well as the gain on sale of any intellectual property rights are exempt from taxation.

In case the IP activities are loss making for tax purposes, only 20% of the resulting net loss can be set-off and carried forward as per the relevant provisions of the law.
As of 1 January 2015, corporate entities (including permanent establishment of foreign companies) will be entitled to a Notional Interest Deduction on equity. It should be noted that in case the NID relates to the acquisition / financing of an IP falling within the scope of the IP Box regime, the notional interest deduction on equity should be regarded as a direct expense for the purpose of calculating the 80% deemed deduction.

  • Exchange differences

As from year 2015 any realized or unrealized foreign exchange difference, losses or gains will be tax neutral.  In other words, FX gains will not be taxable and FX losses will not be tax deductible.

Exception to the amended Law applies for persons trading in foreign currencies (including trading in foreign currency derivatives).  For persons trading in FX, the Law introduces an option to make an irrevocable election to be taxed only on realized FX differences provided that the 2015 Income Tax return is submitted within the statutory deadline.  In case such election is made, any unrealized FX differences will be treated as taxable/tax deductible in the year they are realized.   

Tax Deductions

All expenses of a company incurred wholly and exclusively for the production of income are deductible from income. Such expenses are the following: 

- Interest incurred for the acquisition of a fixed asset used in the business

- Special contribution                                                         

- Donations to approved charities                                             

- Expenditure for the maintenance of buildings under preservation order
Up to €700, €1100 or €1200 per sq. m.(depending on the size of the building)

- Business entertainment including hospitality expenses of any kind which are incurred for the business.  (The lower of €17.086 or 1% of the gross income)

  • Equity introduced to a company as from 1 January 2015 (new equity) in the form of paid-up share capital or share premium is eligible for an annual notional interest deduction (NID). The annual NID deduction is calculated as an interest rate on the new equity. The relevant interest rate is the yield
    on 10 year government bonds (as at December 31 of the prior tax year) of the country where the funds are employed in the business of the company plus a 3% premium (subject to a minimum amount which is the yield on the
    10 year Cyprus government bond as at the same date plus a 3% premium). Certain antiavoidance provisions apply.

The NID deduction cannot exceed 80% of the taxable
profit derived from assets financed by new equity (as calculated prior to
the NID deduction).

Disallowable expenses

The following expenses are not deducted from income:

- Private motor vehicle expenses                                                                        
- Professional tax

- Interest payable or deemed to be payable in relation to the acquisition of a private motor vehicle, irrespective of whether it is used in the business or not, or other asset not used in the business.
This restriction is lifted after 7 years from the date of purchase of the relevant asset

As from year 2012 restriction of interest payable will not apply in cases were shares are acquired directly or indirectly in a wholly owned subsidiary, provided that the subsidiary does not own any assets that are not used in the business.

- Immovable Property Tax

- Wages and salaries relating to services offered within the tax year on which contributions to the Social Insurance Fund, Redundancy Fund, Human Resource Development Fund and Provident Fund have not been paid in the year in which they were due, will not be tax deductible for the calculation of taxable income.

In case the above contributions (including any penalties and interest) are paid in full within two years following the due date, such wages and salaries will be tax deductible in the tax year in which they are paid.

Tax Losses

Carry forward of losses
Tax loss incurred during a year can be carried forward for the next five years from the end of the tax year in which it was incurred, to be offset against taxable income. 

Group loss relief

Losses for the current year only can be surrendered by a group company to another group company. Group relief will be given provided that both companies are members of the same group for the whole of a tax year.

Two companies are considered to be part of a group for group relief purposes if:

  • one is a 75% subsidiary of the other, or
  • both are 75% subsidiaries of a third company.

From 1 January 2012, where a company has been incorporated by its parent company during the tax year, this company will be deemed to be a member of this group for group relief purposes for that tax year.

As from 1 January 2015 interposition of a non-Cyprus tax resident
company will not affect the eligibility for group relief as long as such
company is tax resident of either an EU country or in a country with
which Cyprus has a double tax treaty or an exchange of information
agreement (bilateral or multilateral).

Loss of a permanent establishment abroad

Losses arising from a permanent establishment outside the Republic can be offset against profits arising in the Republic. However, when a profit arises from such a permanent establishment, an amount equal to the losses that have been utilised in the past against profits arising in the Republic will be included in the taxable income.

Insurance companies

  • losses of the life business can be offset against profits of the general

business       

  • losses of the life business can be offset against profits from other sources
  • losses of the life business can be carried forward indefinitely.

 

Company Re-organisations

In the event of a company re-organisation, unused losses brought forward will be transferred to the new company and the provisions dealing with the set off or transfer of losses will apply accordingly.

The term reorganisation includes

- merger /demerger
- dissolution
- transfer of activities
- exchange of shares

4. CAPITAL ALLOWANCES                                                

Capital allowances for companies and individuals who prepare accounts are as follows:


Plant and machinery

 

 

 

Forklifts, excavators, loading vehicles, bulldozers and oil barrels

25%

 

 

Motor vehicles of all types except from private saloon cars

20%

 

 

Personal computers (hardware) and operating software

20%

 

 

Application software

 

up to €1.709

100%

 

 

above €1.709

33,3%

 

 

Plant and machinery used in agriculture

15%

 

 

Water drillings, industrial carpets, video recorders, televisions

10%

 

 

Any other plant and machinery

10%

 

 

Armored cars (used by companies which provide security services)

 

20%

 

 

Specialised machinery for the laying of railroads (e.g. Locomotive engines, Ballast wagon, Container wagon and container sleeper wagon)

 

20%

 

 

Wind power generators

10%

 

 

Photovoltaic systems

10%

 

 

Buildings

 

Metallic frame of greenhouses

10%

 

 

Wooden frame of greenhouses

33,3%

 

 

Industrial, agricultural and hotel buildings

4%

 

 

Commercial

3%

 

 

Ships

 

 

 

Steamships, tug-boats and ships used in the fishing industry           

6%

 

 

Sailing vessels

4,5%

 

 

Ship launching machinery

12,5%

 

 

Used ships

in accordance with special agreements

 

 

New commercial ships

 8%

 

 

New passenger ships

6%

 

 

Used commercial and passenger ships and capital additions

remaining useful economic life in accordance with the class certificate    

 

 

Airplanes

 

New airplanes and helicopters

8%

 

 

Tools 

 

All tools in general

33,3%

 

 

Videotapes used by video clubs

50%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes

  1. Plant and machinery acquired during the tax years 2012 - 2016 are eligible to accelerated tax depreciation at the rate of 20% (excluding such assets which are already eligible for a higher annual tax rate of tax depreciation).

 

  1. In the case of industrial and hotel buildings which were acquired during the tax years 2012 - 2016, accelerated tax depreciation at the rate of 7% per annum may be claimed.

 

 

 

 

 

5. SPECIAL MODES OF TAXATION

 

Ship management companies

 

Income arising from ship management activities is subject to tax at 4,25%. A company can elect to pay special tonnage tax if is more beneficial.

Pension income from services rendered abroad  

 

The pension income of any individual resident in the Republic, which arises from services rendered abroad, is taxed at a rate of 5% for amounts exceeding €3.417 per annum.  The taxpayer has the right to choose to be taxed either under the special mode of taxation as stated above or under the personal income tax rates.

Windows pension

The widow's pension is taxed at a fixed rate of 20 % for amounts exceeding €19,500.  The taxpayer can however on an annual basis elect to be taxed at the normal tax rates.

Taxation of collective and horse racing bets

 

Every recipient of collective bets as well as the Horse Racing Authority pay bet taxes to the Republic in relation to the bets that they undertake.

The amount of tax, in every accounting period, amounts to 10% on the net receipts from bets in the corresponding period.

Net receipts from bets means the balance of the total amounts paid or payable, in the corresponding accounting period, in relation to the bets undertaken, after the deduction of the total winnings paid out.

 

Each calendar month represents an accounting period.

In the event of non payment of the tax due an additional tax of 10% is imposed on the amount due. 

Intellectual property rights etc

The gross income arising from intellectual property rights, other exploitation rights, compensations or other similar income arising from sources within the Republic, of a person who is not resident in the Republic, is subject to withholding tax at a rate of 10%.
Royalties received by a connected company registered in a European Union member State are exempt from tax (subject to conditions).
Rights granted for use outside the Republic are not subject to any withholding tax. 

Film royalties etc

The gross income derived by non-resident person in respect of royalties arising from film projection in the Republic is subject to withholding tax at a rate of 5%. Royalties received by a connected company registered in a European Union member State are exempt from tax (subject to conditions.)

Profits of professionals, entertainers etc  

The gross income derived by a non-resident individual from the exercise in the Republic of any profession, vocation or public entertainment services including football teams and other athletic missions, is subject to a 10% withholding tax. 

Profits from betting’s of OPAP and Government lottery

Profits exceeding €5.000 from lucky ticket/lottery are taxed at the rate of 20%

Bank Levy Payable by Financial Institutions

The special tax rate is 0.15%.

Fines and penalties

Tax withheld on payments to non Cyprus residents in relation to the below categories of income, should be paid to Inland Revenue Department by the end of the following month.  In case where the tax is not paid within the deadline, an additional penalty of 5% will be imposed on the tax withheld in addition to any interest that may be imposed.

  • Copyrights for use within Cyprus
  • Rights for cinematographic films
  • Income of an individual for professional services, artists and athletes fees

 

6. PROFITS FROM SHIPPING ACTIVITIES                                      

The following are exempt from taxation in accordance with the provisions of the Merchant Shipping (Fees and Taxing Provisions) Law:

-     The income of a ship-owner of a Cyprus ship from the operation of such ship in any shipping activity between Cyprus and ports abroad or between ports abroad.

-     The income of a person from the provisions of ship management services.

-     Dividends paid to the shareholders of a company if these are paid out of profits earned from the operation of a Cyprus ship in shipping activities or from the provision of ship management services.

-     Salaries and other benefits paid to the master, the officers and the crew of a Cyprus ship.

-     For the purpose of the above mentioned act the term “ship owner” includes a bareboat chartered while the term “operation of ship” includes chartering of any form.

-     Persons providing ship management services are liable to tax at rates equal to 25% of those applied for tonnage tax. Such persons may however, elect instead to pay tax at the rate of 4,25% on their taxable profits.

 

7. SPECIAL CONTRIBUTION FOR DEFENCE                                                          

Rates
All residents of the Republic are subject to defence contribution on the sources of income indicated below. Non residents are not subject to the defence contribution.


Dividends

17%

 

 

Interest income

30%

 

 

Interest received by an individual from Government Savings Certificates and from Government Bonds

3%                  

 

 

Interest earned by an approved provident fund

3%

 

 

Rental income less 25%

3%

 

 

Profits earned by public corporate bodies

3%

                                                                                                           
Dividends
Exemptions:
-     dividends paid by a company resident in the Republic to another company resident in the Republic but excluding dividends paid indirectly after four years from the end of the year in which such dividend are derived.

-     dividends received by a company resident in the Republic or a company not resident in the Republic which maintains a permanent establishment in the Republic from a company which is non-resident in the Republic. The exemption does not apply if the company paying the dividends engages more than 50%, in activities which lead to investment income and the foreign tax burden on the income of the company paying the dividends is substantially lower than the tax burden of the company in Cyprus. (i.e. 5%)

-     dividends paid out of dividend income which has suffered income tax at source and are paid within a period of six years from the date of receiving such dividend income.                                                                              

-     dividends derived directly or indirectly from profits arising from operating a Cyprus flag ship in the course of shipping activities or from ship management services

 

Deemed distribution 

A company resident in the Republic is deemed to have made a distribution of 70% of its profits in the form of dividends after deducting corporation tax, special defence contribution, capital gains tax and any tax paid abroad that has not been credited against any tax payable for the relevant year, at the end of the two years from the end of the tax year in which the profits relate and must account for 17% defence contribution thereon.

In arriving at the amount of the deemed distribution, any actual dividend which is distributed during the two year period from the end of the tax year in which the profits relate is deducted.

In cases where an actual dividend is paid after the two year period, any deemed distribution reduces the actual dividend on which the defence contribution is withheld.

For the purpose of calculating the amount of the deemed distribution, “profits” mean the accounting  profits arrived at using generally acceptable accounting principles, but after the deduction of any transfers to reserves as specified by any law. Any offset of group losses as well as any amounts, including any additional depreciation, which emanate or are the result of revaluation of movable and immovable property are ignored.

The deemed distribution provisions do not apply to profits which relate to non-resident shareholders.

In case where an individual non resident in the Republic who receives dividend from a company resident in the Republic arising from profits that have suffered deemed distribution, the defence contribution paid due to deemed distribution that relates to dividend received by such person is refunded.

For tax years 2012, 2013 and 2014 the profits subject to deemed distribution will be reduced by the cost of any plant and machinery purchased in tax years 2012, 2013 and 2014.

The definition of plant and machinery is the same as that in the Income Tax Law and it excludes any saloon cars purchased for private use.

Deemed distribution from disposal of an asset

In the case where a company disposes an asset to its shareholder (individual) or to his or her relative of up to second degree relationship or his or her spouse, without consideration or for consideration which is below the market value of the asset disposed, it is deemed that the company has distributed dividends to its shareholder, equal to the difference between the market value of the asset and the amount of the consideration.

The above will not apply in case the asset was received by the company by way of gift from its shareholder (individual) or from his or her relative of up to second degree relationship or from his or her spouse.

The above is applicable for transactions made from 2011 onwards and whichever asset is disposed and not only for immovable property.  

Company dissolution

The aggregate amount of profits in the five years prior to the company dissolution, which have not been distributed or be deemed to be distributed, will be considered as distributed on dissolution and will be subject to defence contribution at 17%.

Companies that are under voluntary dissolution or liquidation are obliged to submit within one month from the date of the approval of the resolution, a deemed dividend declaration and pay any special defence contribution in relation to the profits of the specific tax year and the two preceding years.

The deemed dividend distribution provisions do not apply on any accounting profits arising during the dissolution or liquidation if the assets of the company are not sufficient for the repayment of its creditors and no amount is available to be distributed to its shareholders.

These provisions do not apply in the case of dissolution under organization, in accordance with certain pre-requisites set out in Regulations and where the shareholders are non-residents in the Republic.

Reduction of capital

In the case of a reduction of capital of a company, any amounts due or paid to the shareholders up to the amount of the undistributed taxable income of any tax year calculated before the deduction of losses from prior years, will be considered as distributed dividends subject to special defence contribution at 17% (after deducting any amounts which have been deemed as distributable profits).

In the case of a company’s capital reduction, any amounts paid to individual shareholders in excess of the amount of the share capital that was actually paid by the shareholder will be treated as deemed dividend.
 
These provisions do not apply where the shareholders are non-residents in the Republic.

Interest income

Interest that is received as a result of the carrying on of a business activity, including interest closely connected to the ordinary activities of the business, is not considered interest for special defence contribution purposes.

A person whose total annual income, including interest, does not exceed €12.000 who receives interest which has been subject to defence contribution at 17%, has the right to a refund of the amount of defence contribution suffered in excess of 3%.

Rents

Companies, partnerships, the Government and any local authority that pay rent have the obligation to withhold special defence contribution on 75% of rental income and pay 3% special defence contribution which is payable by the end of the following month.                                                                                 

Tax credit for foreign tax paid

Any tax suffered abroad on income which is subject to special defence contribution will be credited against any defence contribution payable on such income irrespective of the existence of a double taxation treaty.

 

8. MAINTENANCE OF ACCOUNTING BOOKS AND RECORDS

Every person (individual, company or partnership) deriving income (including Dividends and Interest) from commercial or industrial business, profession or vocation, or any other occupation or from property (such as leasing or rental) must:

  • issue invoices in relation to transactions and receipts, as specified by Regulations issued by the Council of Ministers and published in the Cyprus Gazette and

 

  • maintain accounting books and records and prepare accounts in accordance with acceptable accounting standards, that are audited in accordance with acceptable auditing standards, by a person that is eligible to act as an auditor of a company in accordance with the Companies Law.

As from year 2011 and onwards the following also apply

- Expenses made for business purposes are allowable for taxation only when invoices and/or receipts exist

    • A person is obliged to update books and records within four months from the date of the transaction

 

    • Invoices should be issued within 30 days from the date of the transaction
    • Companies should carry out a stock take during the year end and the results of the stock take should be made available to the commissioner if requested

 

An individual is exempt from obligation to prepare financial statements where the annual turnover does not exceed the amount of €70.000.

Administrative penalties from 1 July 2011

1) For taxable person that do not meet the specific deadlines of the law €100
2) For taxable person that do not meet the specific deadlines of the law and the Director issues notice of assessment with due date €200.
3) If the assessment is not settled by the due date then additional penalty is imposed without due date €200.
4) Representative person that do not meet the specific deadlines of the law and the Director issues notice of assessment with due date €200.
5) In the case of late payment of the tax due, an additional 5% penalty will be imposed on the unpaid tax.
Electronic submission of tax returns

Individuals and companies, that prepare audited financial statements or persons that their tax return is submitted by a professional accountant, may be obliged to submit their tax return electronically in accordance with such means that may be approved by the Commissioner of Income Tax. In case of such electronic submission of tax returns, the deadline is extended by 3 months.

 

 

9. CAPITAL GAINS TAX                                                                          

Capital Gains Tax is imposed on gains from disposal of immovable property situated in the Republic including shares of companies not listed on a recognised Stock Exchange which own immovable property situated in the Republic, at the rate of 20%.

In computing the capital gain the value of the immovable property as at            1 January 1980 (or cost if the date of acquisition is later), the cost of any additions after 1 January 1980 or the date of acquisition if later, any expenditure incurred for the production of the gain and the indexation allowance, are deducted from the sale proceeds.

Exemptions

The following disposals of immovable property are exempt from capital gains tax:

-  Subject to conditions, land as well as land with buildings, acquired in
the period from 16 July 2015 up to 31 December 2016 will be exempted from
Capital Gains Tax upon its disposal.
-  transfer on death
-  gifts between spouses, parents and children and relatives up to third degree
-  gift to a company whose shareholders are members of the donor’s family and continue to be members of the family for a period of five years from the date of the gift
-     gift by a family company to its shareholders, if the company had also acquired the property in question via donation and provided the property remains in the procession of the shareholder for at least three years.
-  gifts to charitable orgnisation or the Republic
-  exchange or disposal under the Agricultural land (Consolidation) Laws
-  exchange provided the gain is used for the acquisition of new property. The gain derived from the exchange reduces the cost of the new property and the tax is paid when the latter is disposed
-  expropriations
-  transfer of ownership or share transfers in the event of company reorganisations.

Exemptions


Individuals are entitled to deduct (lifetime deductions) from gains the following:

Disposal of principal private residence (subject to conditions)

85.430

Disposal of agricultural land by a farmer

25.629

Other disposals

17.086

The above deductions are given only once and not for every disposal. An individual claiming a combination of the above is allowed to a maximum exemption up to €85.430.

From 1 July 2011 new administrative penalties amounting to €100 or €200 depending on the specific case will be imposed, for late submission of declarations or late submission of supporting documentation requested by the Commissioner.

In the case of late payment of the tax due, an additional 5% penalty will be imposed on the unpaid tax.

   

10. IMMOVABLE PROPERTY TAX                                                       

Immovable property tax is imposed on the market value of immovable property as at 1 January 1980 and is calculated on the immovable property owned by the tax payer on 1 January of each year.

Rates

Immovable property value

Rate per thousand

Tax

Cumulative

  ‰

0 – 40.000

6‰

      240

    240

40.001 – 120.000

8‰

     640

   880

120.001 – 170.000

9‰

     450

 1.330

170.001 – 300.000

11‰

  1.430

 2.760

300.001 – 500.000

13‰

  2.600

 5.360

500.001 – 800.000

15‰

  4.500

 9.860

800.001 – 3.000.000

17‰

37.400

47.260

3.000.001 και άνω

19‰

 

 

Immovable property owners with total immovable property value not exceeding €12.500 (1.1.1980 prices) are exempt from immovable property tax.  Immovable property owners with total immovable property value of €12.501 and over are subject to immovable property tax on the total value of their property and the exception does not apply.
In case a person delays to settle the tax obligation at the due date will be subject to 10% penalty on the due tax. 
Exemptions

The following properties are exempt from immovable property tax:

  • public cemeteries
  • churches and other religious buildings
  • public hospitals
  • schools
  • immovable property owned by the Republic foreign embassies and consulates
  • buildings under a preservation order subject to conditions
  • buildings of charitable organisations
  • agricultural land used for agriculture or animal husbandry by a farmer.
  • immovable properly situated in inaccessible or depressed areas.

 

New administrative penalties amounting to €100 or €200 depending on the specific case will be imposed, for late submission of declarations or late submission of supporting documentation requested by the Commissioner.

In the case of late payment of the tax due, an additional 5% penalty will be imposed on the unpaid tax.

Transfer fees (By the Department of Land and Surveys)

These are paid on transfers of immovable property and are calculated on the market value of the property as estimated by the Land Registry Department.

 

Market Value

 

Percentage

 

Fees

Cumulative Fees

     %

 

 

 

 

0 – 85.430

3

2.563

2.563

85.431 – 170.860

5

4.272

6.834

170.861 and over

8

 

 

  
The following rates are applicable in the case of free transfers

From parents to children

0%

Between spouses and third degree relatives

0,1%

To trustees

€50

Transfers of immovable property by a company to another company for the purpose of a company re-organisation are exempt from transfer fees.

As from 2 December 2011 until 31 December 2016 the transfer fees are reduced as follow:

Zero transfer fees

No transfer fees are paid for any transfer of immovable property on which VAT was paid

50% transfer fees

If no VAT was charged for the transfer of an immovable property, the transfer fees are reduced by 50%

The reduced transfer fees are applicable only for contracts submitted to Land Registry after 2 December 2011                                                                                             
11. DOUBLE TAX TREATIES

The following tables show the rates of withholding tax deducted from income, with countries that have signed a double taxation treaty with Cyprus.

 

 

 

 

 

Received in Cyprus

Countries

Dividends

Interest

Royalties

 

%

%

     %  

Armenia

0

(32)

5

(33)

5

 

Austria

10

 

0

 

0

 

Bahrain (31)

0

 

0

 

0

 

Belarus

5

(4)

5

 

5

 

Belgium

10

(1)

10

(16)

0

 

Bulgaria

5

(19)

7

(25)

10

(20)

Canada

15

 

15

(7)

10

(11)

China

10

 

10

 

10

 

Czech Republic

(30)

0

 

10

 

Denmark

0

(34)

0

 

0

 

Egypt

15

 

15

 

10

 

Ethiopia (31)

5

 

5

 

5

 

Estonia

0

 

0

 

0

 

Finland

5

(37)

0

 

0

 

France

10

(2)

10

(9)

0

(26)

Georgia (31)

0

 

0

 

0

 

Germany

5

(2)

0

 

0

 

Greece

25

 

10

 

0

(12)

Guernsey

0

 

0

 

0

 

Hungary

5

(1)

10

(8)

0

 

Iceland

5

(39)

0

 

5

 

India

10

(2)

10

(8)

15

(15)

Iran (31)

5

(19)

5

 

6

 

Ireland

0

 

0

 

0

(12)

Italy

15

 

10

 

0

 

Kuwait

10

 

10

(8)

5

(14)

Kyrgyzstan (27)

0

 

0

 

0

 

Lebanon

5

 

5

(16)

0

 

Lithuania

0

(40)

0

 

0

 

Malta

0

(22)

10

(8)

10

 

Mauritius

0

 

0

 

0

 

Moldova

5

(19)

5

 

5

 

Montenegro (28)

10

 

10

 

10

 

Norway

0

 (3)

0

 

0

 

Poland

0

(36)

5

(8)

5

 

 

 

 

 

 

 

 

 

Received in Cyprus

Countries

Dividends

Interest

Royalties

 

%

%

Portugal

10

 

10

 

10

 

Qatar

0

 

0

 

5

 

Romania

10

 

10

(8)

5

(14)

Russia

5

(6)

0

 

0

 

San Marino

0

 

0

 

0

 

Serbia (28)

       10

 

10

 

10

 

Seychelles

0

 

0

 

5

 

Singapore

0

 

10

(23)

10

 

Slovakia (29)

10

 

10

(8)

5

(14)

Slovenia

5

 

5

(33)

5

 

South Africa

0

 

0

 

0

 

Spain

0

(35)

0

 

0

 

Sweden

5

(1)

10

(8)

0

 

Switzerland

0

(38)

0

 

0

 

Syria

0

(1)

10

(8)

15

(13)

Tajikistan (27)

0

 

0

 

0

 

Thailand

10

 

15

(17)

5

(18)

Ukraine

5

(21)

2

 

5

 

United Arab Emirates

0

 

0

 

0

 

United Kingdom

0

(24)

10

 

0

(26)

USA

5

(5)

10

(10)

0

 

Uzbekistan (27)

0

 

0

 

0

 

 

 

 

 

 

 

 

 

 

 

Paid from Cyprus*

Countries

Dividends

Interest

Royalties

 

%

%

%

Non-treaty countries

0

 

0

 

0

**

Armenia

0

(32)

5

(33)

5

 

Austria

10

 

0

 

0

 

Bahrain (31)

0

 

0

 

0

 

Belarus

5

(4)

5

 

5

 

Belgium

10

(1)

10

 

0

 

Bulgaria

5    

  (19)

7

(25)

10

 

Canada

15

 

15

(7)

10

(11)

China

10

 

10

 

10

 

Czech Republic

0

   (30)

 0

 

10

 

Denmark

0

   (34)

0

 

0

 

Egypt

15

 

15

 

10

 

Ethiopia (31)

5

 

5

 

5

 

Estonia

0

 

0

 

0

 

Finland

5

(37)

0

 

0

 

France

10

(2)

10

(9)

0

(26)

Georgia (31)

0

 

0

 

0

 

Germany

5

(2)

0

 

0

 

Greece

25

 

10

 

0

(12)

Guernsey

0

 

0

 

0

 

Hungary

0

 

10

(8)

0

 

Iceland

5

  (39)

0

 

5

 

India

10

(2)

10

(8)

15

(15)

Iran (31)

5

  (19)

5

 

6

 

Ireland

0

 

0

 

0

(12)

Italy

0

 

10

 

0

 

Kuwait

10

 

10

(8)

5

(14)

Kyrgyzstan (27)

0

 

0

 

0

 

Lebanon

5

 

5

(16)

0

 

Lithuania

0

  (40)

0

 

5

 

Malta

15

 

10

(8)

10

 

Mauritius

0

 

0

 

0

 

Moldova

5

   (19)

5

 

5

 

Montenegro (28)

10

 

10

 

10

 

Norway

0

 

0

 

0

 

Poland

0

  (36)

5

(8)

5

 

Portugal

10

 

10

 

10

 

Qatar

0

 

0

 

5

 

Romania

10

 

10

(8)

  5

(14)

Russia

5

(6)

0

 

0

 

 

 

 

 

 

 

 

 

Paid from Cyprus*

Countries

Dividends

Interest

Royalties

 

%

%

%

San Marino

0

 

0

 

0

 

Serbia (28)

10

 

10

 

10

 

Seychelles

0

 

      0

 

5

 

Singapore

0

 

    10

(23)

10

 

Slovakia (29)

10

 

10

(8)

5

(14)

Slovenia

5

 

5

(33)

5

 

South Africa (41)

0

 

0

 

0

 

Spain

0

 

0

 

0

 

Sweden

5

(1)

10

(8)

0

 

Switzerland

0

  (38)

0

 

0

 

Syria

0

(1)

10

(8)

15

(13)

Tajikistan (27)

0

 

0

 

0

 

Thailand

10

 

15

(17)

5

(18)

Ukraine

5

(21)

2

 

5

 

United Arab Emirates

0

 

0

 

0

 

United Kingdom

0

 

10

 

0

(26)

USA

0

 

10

(10)

0

 

Uzbekistan (27)

0

 

0

 

0

 

 

 

 

 

 

 

 

Notes

*

Payments of dividends and interest to non residents are exempt from withholding tax in Cyprus. Royalties granted for use outside of Cyprus are also free of withholding tax in Cyprus.

**

10% in the case of royalties granted for use within the Republic.  5% on film and TV rights.

1.

15% if received by a company controlling less than 25% of the voting power.

2.

10% if received by a company controlling more than or equal to 10% of the voting power.  15% in all other cases.

3.

NIL if the beneficial owner is a company (other than a partnership) holding at least 10% of the capital of the company paying the dividend.  15% in all other cases.

4.

This rate applies if the amount invested by the beneficial owner is over €200.000 irrespective of the % of voting power acquired. 10% is imposed if received by a holder of at least 25% of the share capital of the paying company. Otherwise the rate is 15%.

5.

5% if received by a company controlling at least 10% of the voting power.  15% in all other cases.

6.

10% if received by company, which has invested less than €100.000.

7.

NIL if paid to the Government or for export guarantee.

8.

NIL if paid to the Government of the other State or to a financial institution.

9.

NIL if paid to the Government of the other State or in connection with the sale on credit of any industrial, commercial of scientific equipment or any merchandise by one enterprise to another or in relation to any form of loan granted by a bank or is guaranteed from government or other governmental organisation. 

10.

NIL if paid to the Government of the other State, to a bank or a financial institution or in respect to debt obligations arising in connection with sale o property or the provision of services.

11.

NIL on literary, dramatic, musical or artistic work with the exception of films used for television programs.

12.

5% on film royalties (except films shown on TV).

13.

10% on literary, musical, artistic work, films and TV royalties.

14.

NIL on literary, artistic or scientific work including films.

15.

Treaty rate restricted to Cyprus legislation rate of 10%.  10% also applies to payment of technical fees, management fees and consultancy fees.

16.

NIL if paid to the Government of the other State, a political subdivision or a local authority, the National Bank or any institution the capital of which is wholly owned by the State or a political subdivision or a local authority or in the form of interest income from bank deposits.

17.

10% on interest received from financial institutions, on interest paid in connection with industrial, commercial, scientific equipment or the sale or merchandise between two companies.

18.

10% on right to use industrial, commercial or scientific equipment or for information concerning  industrial, commercial or scientific experience and 15% for patents, trademarks, designs, models, plans, secret formulas or processes.

19.

5% is applicable if the dividend is received by a company owning directly at least 25% of the capital.  In all other cases the withholding tax is 10%.

20.

This rate does not apply, where 25% or more of the capital of the Cypriot resident is owned directly or indirectly by the Bulgarian resident paying the royalties and the Cyprus company pays less than the normal rate of tax.

21.

5% is applicable if the dividend is received by a company owning at least 20% of the capital of the dividend paying company or has invested in the acquisition of shares or other rights of the dividend paying company of at least €100.00.  15% in all other cases.

22.

The treaty provides that the tax on the gross amount of the dividends shall not exceed that chargeable on the profits out of which the dividends are paid.

23.

7% if paid to a bank or similar financial institution. NIL if paid to the government.

24.

The treaty provides for 15% withholding tax but the local taxation provides for 0% withholding tax.

25.

NIL if paid to or is guaranteed by the government, statutory body, the Central Bank.

 

 

26.

5% on film royalties, including films used for television programs.

27.

The treaty between the Republic of Cyprus and the United Soviet Socialist Republic still applies.

28.

The treaty between the Republic of Cyprus and the Socialist Federal Republic of Yugoslavia still applies.

29.

The treaty between the Republic of Cyprus and the Czechoslovak Socialist Republic still applies.

30.

Nil if the beneficial owner is a company (other than a partnership) which holds directly at least 10% of the capital of the company paying the dividends where such holding is being possessed for an uninterrupted period of no less than one year.  5% in all other cases.

31.

The treaty has been published in the Gazette but has not come into force until today.

32.

5% if the beneficial owner has invested in the capital of the company less than the equivalent of €150.000 at the time of the investment.

33.

Nil if paid to the Government or to a local authority, or to the Central Bank.

34.

Nil if the beneficial owner is a company (other than a partnership) which holds directly at least 10% of the capital of the company paying the dividends, where such holding is being possessed for an uninterrupted period of no less than 12 months.

Nil if the beneficial owner is the other Contracting State or the Central Bank of that other State, or any national agency or any other agency (including a financial institution) owned or controlled by the Government of that other State.

Nil if the beneficial owner is a pension fund or other similar institution providing pension schemes in which individuals may participate in order to secure retirement benefits, where such pension fund or other similar institution is established, recognized for tax purposes and controlled in accordance with the laws of that other State.  15% in all other cases.

35.

Nil if the dividend is received by a company (other than a partnership) holding at least 10% of the capital of the dividend paying company.  5% in all other cases.

36.

Nil if the beneficial owner is a company (other than a partnership) which holds directly at least 10% of the capital of the company paying the dividends, where such holding is being possessed for an uninterrupted period of no less than 24 months.  5% in all other cases.

37.

5% if the dividend is received by a company (other than a partnership) which controls directly at least 10% of the voting power in the company paying the dividend.  15% in all other cases.

38.

NIL if the beneficial owner is:

  • a company (other than a partnership) the capital of which is wholly or partly divided into shares and which holds directly at least 10% of the capital of the company paying the dividend for an uninterrupted period of at least one year.
  • a pension fund or other similar institution recognized as such for tax purposes, or
  • the Government, a political subdivision, local Authority or  Central Bank of one of the two contracting states.  15% in all other cases.

39.

5% if the beneficial owner is a company (other than a partnership) which holds directly at least 10% of the capital of the company paying the dividends.  10% at all other cases.

40.

NIL if the beneficial owner is a company (other than a partnership) which holds directly at least 10% of the capital of the company paying the dividends.  5% at all other cases.

  •  

5% if the dividend is received by a company which holds at least 10% of the capital of the company paying the dividend. 10% in all other cases.

                                                                                                                                                                                             

 

12. TAX DIARY                                                                                         

End of each month

P.A.Y.E. deducted from employees’ salaries for the previous month

 

 

 

Special contribution deducted from employees’ salaries for the previous month

 

 

 

Payment of tax withheld on payments made to non tax residents during the previous month

 

 

 

Defence contribution deducted from dividends, interest and rent (Companies, partnerships, the Government or any local authority that pay rent have an obligation to withhold special defence contribution on the amount of the rent paid) paid for the previous month

 

 

31 January

Payment of deemed distribution out of profits of 2014

 

 

31 March

Electronic submission of 2014 income tax return for individuals and companies preparing audited accounts (I.R.4)

 

 

30 April

Submission of personal tax returns for previous year for individuals who are employees and have Gross Income over €19.500 (I.R.1)

 

 

 

Payment of provisional tax by insurance companies (life sector) for the first four months of the year

 

 

30 June

Submission of personal tax return for previous year for individuals not preparing accounts and have Gross Income over €19.500 (I.R.1)

 

 

 

Payment of special defence contribution in relation to rents, from sources within Cyprus for the first half of 2016

 

 

 

Payment of special defence contribution in relation to rents, dividends or interest from sources outside Cyprus for the first half of 2016

 

 

 

Payment of final tax with self assessment for previous year by individuals who not prepare audited accounts.

 

 

31 July

Electronic submission of personal tax return for previous year for individuals who are employees and have Gross Income over €19.500 (I.R.1)

 

 

 

Electronic submission of employers’ return and employees’ details for 2015 (I.R.7)

 

 

 

Submission of provisional tax assessment for the current year and payment of the first installment (I.R.6)

 

 

1 August

Payment of previous year tax through self assessment by individuals and companies preparing audited accounts (I.R.158)

 

 

31 August

Payment of provisional tax by insurance companies (life sector) for the second four months of the year

 

 

30 September

Electronic submission of personal tax return for previous year by individuals not preparing audited accounts and have Gross Income over €19.500 (I.R.1)

 

 

 

Payment of immovable property tax for the current year

 

 

31 December

Payment of second and final installment of provisional
tax for the current year (I.R.6)

 

 

 

Payment of special defence contribution in relation to rents, from sources within Cyprus for the second half of 2016

 

 

 

Payment of special defence contribution in relation to rents, dividends or interest from sources outside Cyprus for the second half of 2016

 

 

 

Payment of provisional tax by insurance companies (life sector) for the last four months of the current year

Non compliance with the above deadlines results in penalties and interest depending on the deadline not complied with.

The formal interest rate for the year 2016 is 4% annually.

 

13. VALUE ADDED TAX

           Value Added Tax is imposed on the provision of goods and services in Cyprus and on the importation of goods from third countries.


Rates

 

Standard rate (until 12 January 2014, 18%)

           19%

Reduced rate (until 12 January 2014, 8%)

  9%

Reduced rate

5%

Zero rate

  0%

                                         
Standard rate 19% 

The standard rate applies to the provision of goods and services in
Cyprus not subject to the zero rate, the reduced rate or are not exempt.

Reduced rate 9%

  • All restaurant catering services (including the supply of alcoholic drinks, beer and wine and soft drink).
  • Accommodation in hotels, tourist lodgments and any other similar lodgments including the provision of holiday lodgments.
  • Transportation of passengers and their accompanying luggage within the Republic using urban, intercity and rural taxis and by tourist and intercity buses.
  • Movement of passengers in inland waters and their accompanying luggage.

 

Reduced rate 5%

  • The supply of fertilizers
  • The supply of insecticides
  • The supply of raticides
  • The supply of fungicides
  • The supply of food stuff for animals
  • The supply of seeds
  • The supply of live animals used for the preparation of food
  • The supply of non-bottled water
  • Books, newspapers and magazines
  • Sundry goods used by disabled persons
  • Gas irrespective of packaging
  • Ice – creams, ice – yoghourts, water – ice and similar products
  • Salted or spice products made with cereal or potatoes

 

  • Salted or roasted or spicy nuts
  • Funeral services
  • Transportation of passengers and their accompanying luggage with urban and rural buses
  • The letting of camping sites and caravan parks
  • Bottled water, ready-made drinks, juices (excluding soft drinks, alcoholic drinks, beer and wine)
  • The supply of vaccines for medical and veterinary (with certain exemptions)
  • Entry fees to theatres, circus, festivals, Luna parks, concerts, museums, zoo, cinemas, exhibitions and similar cultural events and related places
  • Entry fees at sports events and fees for using athletic centers
  • Hairdressing services
  • Repair and maintenance of private households after three years of first residence

Zero rate 0%

  • Exportation of goods
  • Supply, modification, repair, maintenance, chartering and hiring of sea-going vessels which are used for navigation on the high seas and carrying passengers for reward or used for the purpose of commercial, industrial or other activities
  • Supply, modification, repair, maintenance, chartering and hiring of aircrafts, used by airlines operating for reward mainly on international routes
  • Supply of services to meet the direct needs of sea going vessels and aircrafts
  • Transportation of passengers from the Republic to a place outside the Republic and vice versa using a sea going vessel or aircraft
  • Supplies of gold to the Central Bank of the Republic etc

Exemptions

Exempt supplies include:

  • Rental of immovable property
  • Financial services
  • Hospital and medical caring services
  • Postal services
  • Insurance services
  • Disposal of immovable property where the application for building permission has been submitted prior to 1 May 2004.
  • Education at all levels.

Reduced rate 5% for purchase / construction of permanent residence

From 1 October 2011 a new reduced VAT rate applies, of 5 percent (5%) for the purchase / construction of permanent residence.

Residences bought or constructed prior 1 October 2011 are still regulated by the Law of Sponsorships.

The follow conditions apply for the imposition of the reduced VAT rate:

  • The application of Town Planning permission / building permit should be submitted to the relevant Authorities after 1.5.2004.
  • The residence must be used as primary / permanent place of residence.
  • Total area of the residence must not exceed 275 sq.m.  The reduced 5% VAT rate is imposed only on the first 200 sq.m.

Registration to VAT

Every individual or company is obliged to register:

  • at the end of any month, if the value of taxable supplies recorded in the last 12 months exceeds €15.600 or
  • at any point in time the value of taxable supplies are expected to exceed €15.600 in the next 30 days or
  • provides services to a VAT registered person within European Union with nil registration threshold or
  • is involved in the acquisition of goods from other EU Member States (relates to persons who offer exempt supplies of goods and services or are not profitable organizations with registration threshold of €10.250) or
  • offers distant sales with registration threshold of €35.000 or
  • offers zero rated supplies of goods or services or
  • receives services for which applies the reverse charge by the recipient (registration threshold for services received €15.600)

VAT returns and payment of VAT

Any registered person must submit to the VAT Commissioner a VAT return within 40 days from the end of any tax period and pay the VAT due.

Administration of intra-community trading

Business that undertake intra-community trading i.e. purchases and sales of goods and provision of services from /to European Union member States need to complete the following forms:
Intra-Community Acquisitions (Imports)  

  • Intrastat-Arrivals of goods

Intra-Community Supplies (Exports)

  • Intrastat-Departures of goods
  • Recapitulative statement of supplies of goods and services (VIES form)

Submissions of the forms

INTRASTAT forms are submitted to the VAT authorities no later than the 10th day which follows the end of the month stated on the INTRASTAT form.
The recapitulative statement is submitted to the VAT authorities within 15 days from the end of the related month in an electronic form only.

Legal receipts

From 16 January 2012 all taxable persons making taxable supplies of goods or services to non-taxable persons are obliged to issue and deliver "legal receipts".

The legal receipts must contain the following information

  • Issue date
  • ID number
  • Name, address and registration number of the taxable person
  • Description of the goods or services offered
  • Total amount payable, including VAT
  • For each VAT rate, the total amount payable (including VAT) and the applicable rate.
  • Indication of whether the transaction involves deposit payment, part payment, cash payment or otherwise.

Any person failing to comply with this regulation will be subject to a penalty equal to 20% of the value of the transaction for which the legal receipt relates to.

Any person failing to issue and deliver a legal receipt at the time of the transaction shall be subject to a fine of €1700 or imprisonment up to three years or both.

It should be noted that in case of cash invoice, the issue of legal receipt is not required as the cash invoice may also be used as a receipt.

 

 

VAT rules for Services in the EU

Introduction

As from 1 January 2010, new rules were introduced across the EU, affecting all businesses that trade internationally in services, whether as a supplier or a purchaser, and whether externally or on an intra-group basis.

Vat changes

         VAT on almost all B2B (business-to-business) services will be chargeable in the Member State of the customer, and not in the country/Member State of the supplier. The customer will then account for the VAT due under the “reverse charge” procedure. Many more services will be subject to the reverse charge, including all management fees.
Cross-border VAT charges will be minimized but when VAT is still charged, there will be faster, more efficient refund procedures – the “Eighth Directive” VAT refund procedure is applied and electronic filing is introduced.
Exempt and partly exempt businesses, such as banks and insurance companies, currently receiving VAT-free services from abroad may face extra VAT costs on, for example, management fees, outsourced services, etc.
New “time of supply” rules governing when a reverse charge liability is accounted for and when a transaction is to be included on VIES (VAT Information Exchange System) forms.
Businesses will be required to file VIES forms for services.

Rules regarding the place of supply of services

General rule

The general rule with respect to the supply of services to a taxable person shall be the place where the taxable person (i.e. the recipient) has established its business and not the place where the supplier is established.

The place of supply of services to a non-taxable person shall be the place where the supplier is established.                                                                          

Exception rules

Exception rules shall be applied to the following services:

  • Services connected to immovable property – The place of supply shall be where the immovable property is located.
  • Passenger transport – the place of supply shall be where the transport takes place.
  • Cultural, artistic, sporting, scientific, educational and similar services – The place of supply shall be where those activities are physically performed.
  • Restaurant and catering services – The place of supply shall be where the services are physically carried out.
  • Restaurant and catering services for consumption on board ships, aircraft or trains during the section of a transport operation effected within the Community – The place of supply shall be at the point of departure of the passenger transportation.
  • Short-term hiring of means of transport – The place of supply shall be the place where the means of transport is actually put at the disposal of the customer.

 

Refund of vat paid

The existing procedure for the refund of VAT paid by a taxable person in another Member State for business expenses incurred in that Member State, were replaced by a new electronic procedure as of 1 January 2010.

The purpose of the new electronic procedure is the equal treatment of the businesses within the EU and the faster refund of the VAT to the claimants.

 As of 1 January 2010, when a taxable person who is established in one Member State (Member State of Establishment) pays VAT in another Member State of the EU (Member State of Refund), this person will be allowed to submit an electronic application for the refund of VAT in the Member State of Establishment.

The deadline for filing an application for VAT refund is newly set at 30 September of the following calendar year. The claimants will no longer be required to present the original copies of documents. The VAT authorities will be required to process claims within a stipulated time period.                      

Reporting requirements

As of 1 January 2010, businesses will be required to file VIES forms for services, similar to those already required for goods. Only taxable (not exempt) services subject to the reverse charge and supplied to a VAT-registered customer in another Member State will need to be reported. Businesses will not be required to report services supplied to the customers in the same Member State or to customers outside the EU. The VIES form must include the following information:

  • The VAT number of customer
  • Total amount of services provided or goods sold in each Member State (separate sections for each Member State)
  • The Member State of the customer

 

In Cyprus, the VIES forms for goods / services are submitted on a monthly basis the 15th day of the month following the month to which the VIES form relates.                                                                                                                           

Harmonisation of VAT legislation with directive 2010/45/EU

As from 20 December 2013 the following changes have been implemented in order to comply with European directive:

  • Maintenance of records with analytical data about goods transferring temporarily between Member States

 

  • Chargeability of VAT on intra-community supplies of goods and intra-community acquisitions
  • Introduction of optional cash accounting scheme for Member States

 

  • Amendments about invoicing system
  • Removal of special provisions regarding the time of service by lawyers and in construction industry  

 

  • Currency conversion for acquisitions from other Member States   

Penalties and interest

 

 

 

Late registration

€85 for every month of delay

 

 

Late submission of return

€51 for every return

 

 

Late payment of VAT

10% of amount due plus 4% interest

 

 

Late de-registration

€85 once-off

 

 

Late submission of VIES form    

€50 for each return

 

 

Late submission of  recapitulative statement (VIES form)

€15 for each return

14. INTERNATIONAL TRUSTS

   An international trust may be described as a trust created by a non resident settlor for the benefit of non resident beneficiaries.

For a trust to be classified as an International Trust it must satisfy the following conditions:

    • The settlor is not permanent resident of the Republic.

 

    • The trust property does not include any immovable property situated in Cyprus.
    • At least one of the Trustees is resident in the Republic during the Trust period.

 

    • None of the beneficiaries are residents except when the Trust is charitable.                                                                                         

There are various types of trusts that can be set up in Cyprus. The choice depends on the circumstances of the settlor and the objectives of the trust. The most common types of trust are the following:
- Discretionary trusts
- Fixed trusts

International trusts enjoy the following tax advantages in Cyprus:
-  the income of the trust is exempt from tax both in the hands of the trustees and the beneficiaries
-  no capital gains tax is charged on the disposal of assets held by international
trusts
-  interest on foreign currency trust funds deposited with any bank in Cyprus is
tax exempt

15. SOCIAL SECURITY CONTRIBUTIONS                                    

Contributions

 

Social Insurance

Redundancy
Fund

Industrial
Training

Social Cohesion Fund

 

%

  %

%

  %

Employer

7,8(1)

1,2

0,5

2

Employee

7,8(1)

-

-

-

Self employed

14,6(1)

-

-

-

Note
(1) Social insurance contributions are increased by 1% for the years 2014 – 2018.   Specifically, the percentage contribution to the Social Insurance Fund by employers and employees increased to 7.8% and the contribution of self-employed to 14,6%.

Upper limits for employees for 2016

 

Per week

Per month

Per annum

 

 

 

 

 

Weekly employees

1046

-

54.392

 

 

 

 

Monthly employees

-

4.533

54.396

 

 

 

 

Lower limits for self employed

Occupational Category

Week

Annual

 

  • Medical Doctors, Pharmacists, Health professionals.

 

 

  • Persons with up to 10 years practice

384

19.949

 

 

 

  • Persons with more than 10 years practice

760

39.542

 

 

 

  • Accountants, Economists, Lawyers and other Liberal professions

 

 

  • Persons with up to 10 years practice

384

19.949

 

 

 

  • Persons with more than 10 years practice

776

40.351

 

 

 

 

 

 

 

 

 

 

Week

Annual

 

  • Managers (Businessmen), Estate Agents, Wholesalers

 

776

 

40.351

 

 

 

  • Teaching Professionals (University, Secondary education, Primary and pre-primary education, Teaching Associates, Special education teaching professionals)

 

 

  • Persons with up to 10 years practice

375

19.496

 

 

 

  • Persons with more than 10 years practice

750

38.991

 

 

 

  • Builders and related occupations

471

24.483

 

 

 

  • Farmers, Dairy and Livestock producers, Poultry producers, Fishermen and related occupations

 

262

 

13.601

 

 

 

  • Drivers, Excavator operators and related occupations

 

375

 

19.496

 

 

 

  • Technicians, Mass Media Associates, Stationary – Plant (not related to building occupations) and Metal, Rubber, Plastic, Wood and related products assemblers

 

 

375

 

 

19.496

 

 

 

  • Clerks, Typists, Cashiers, Secretaries

375

19.496

 

 

 

  • Artisans not falling under any other occupational category

 

375

 

19.496

 

 

 

  • Shopkeepers

357

18.589

 

 

 

  • Butchers, Bakers, Pastry – Cooks, Meat, Milk, Fruit, Tobacco product makers/preservers and related occupations

 

288

 

14.962

  • Street vendors, mail carriers, garbage collectors, miners and quarry workers, riggers and cable splicers, sweepers, Service providers and salesmen

 

 

262

 

 

13.602

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Week

Annual

 

  • Street vendors, mail carriers, garbage collectors, miners and quarry workers, riggers and cable splicers, sweepers, Service providers and salesmen

 

 

262

 

 

13.602

 

 

 

  • Cleaners, Messengers, Watchpersons, Dry Cleaning Owners

 

357

 

18.589

 

 

 

  • Draughts persons, computer equipment operators, ships’ engineers, Agents and related occupations Musicians, Magicians

 

384

 

19.949

 

 

 

  • Persons not failing, under any other occupational category

 

384

 

19.949

 

Employers are obliged to pay the monthly contributions by the end of the subsequent month.

Self employed persons are obliged to pay the contributions within 40 days from the end of the quarter.

Late payment results in the imposition of a penalty of 3% for each month of delay as long as the delay continues.  The total amount of the penalty cannot exceed 15% of the amount due.

Social Cohesion Fund

Every employer has an obligation to contribute 2% of the amount of salaries paid to employees, to the social cohesion fund.

The amount contributed to the social cohesion fund, is calculated on the aggregate emoluments without restriction or any upper limit.

 “Emoluments” do not include the emoluments of a non-Cypriot who is employed by an overseas government or an international organisation or a company that owns a Cyprus ship or ship management company.

 

 

16. SPECIAL CONTRIBUTION FOR OFFICIAL / EMPLOYEES / PENSIONERS OF STATE SERVICE AND GOVERNMENT SECTOR

As from 1 September 2011 until 31 December 2016 a special contribution is imposed to the Gross Earnings of Government sector officials/employees/pensioners with the exception of hourly workers.

The contribution is as follow:
                 


Special contribution 2014 - 2016

 

Gross monthly earnings

Contributions
%

Special contribution rate for highly ranked employees

€0 - €1500

-

-

€1501 - €2500

2,50%

3,00%

€2501 - €3500

3,00%

3,50%

€3501 και άνω

3,50%

4,00%

  

 

17. SPECIAL CONTRIBUTION FOR EMPLOYEES, SELF-EMPLOYED AND PENSIONERS OF PRIVATE SECTOR

From 1 January 2012 until 31 December 2016 each employee and / or self-employed and / or retired person of the private sector is obliged to pay a special contribution to the Republic for the enhancement of Public Finance, a percentage of gross earnings as shown in the table below.

In case of employees the payment of special contribution is shared equally by the employer and the employee (i.e. 50% of the special contribution by the employer and 50% of the special contribution by the employee).

Special contribution 2014 - 2016

 

Gross monthly    earnings

Total contributions
%

Employers
contributions
%

Employee
contributions
%

€0 - €1500

-

-

-

€1501 - €2500

2,50

1,25

1,25

€2501 - €3500

3,00

1,50

1,50

€3501 and over

3,50

1,75

1,75

The above special contribution is calculated on the total gross earnings without restriction or limit on the amount of contribution and with a minimum charge of €10.  The special contribution is deductible from income tax.

Gross earnings of employees in the private sector are the salary, wages, overtime pay, bonus, allowances, paid for employment, but does not include

  • Retirement bonus
  • Amounts paid by approved provident funds
  • Remuneration of foreigner employed by a foreign government or international organization
  • Remuneration of foreign diplomatic and consular representatives who are not citizens of the Republic
  • Remuneration of Cypriot ship’s crew
  • Allowances to cover business expenses on behalf of the employer

In the case of an employee or pensioner the amount of special contribution will be withheld from salary or pension of a person and paid to Inland Revenue each month.
In the case of a self-employed the amount of special contribution will be paid by the same procedure as provisional tax (31 July and 31 December).                                                                                                    

18. STAMP DUTY                                                                                      

Type of document

Duty

 

 

Letters of guarantee

€4

 

 

Letters of credit

€2

 

 

Receipts for amounts over €4

€0.07

 

 

Customs documents

€18/€35

 

 

Bills of lading

€4

 

 

Bills of exchange
(payable at sight on first demand or within 3 days from demand or sight)

€1

 

 

Charter hire document

€18

 

 

General power of attorney

€6

 

 

Special power of attorney

€2

 

 

Certified copies of contracts and documents

€2

 

 

Will

€18

Estate administration document

€9

Tax residence certificate

€ 80,00

 

 

Contracts

 

- up to €5.000

Nil

- from €5.001 up to €170.000

1,5‰

- over  €170.001

2‰ (maximum fee €20.000)

 

 

- without fixed amount

€35

 

 

Company reorganization

Transactions that take place in relation to company reorganization are exempt from stamp duty.                                                                                             

 

19. COMPANIES REGISTRAR RIGHTS AND FEES

Registration of a limited company by shares or guarantee, with share capital

€105
Plus 0.6% on nominal  capital

Registration of a company without share capital

€175

Registration of an increase in the company’s share
capital

0.6% on the additional amount of increase

Change of name of company

€40

Reduction of capital

                €80

Application for registration of a general or a limited
partnership

€120

 

Application for registration of a business name

€80

Filing with the Registrar of the following documents:

 

Annual Report

€20

Annual Report which is overdue

€40

Notification of a registered mortgage on immovable property in the Republic of Cyprus irrespective of the sum of money

 

20

 

Registration of a charge apart from a mortgage on immovable property within the Republic of Cyprus:

 

 

- on the form of notification of the charge

€40

- on the charge document securing maximum amount

 

  • for a sum of money up to €17.086

€100

 

 

  • for a sum of money exceeding €17.086 but not over €34.172

 

€200

 

 

 

 

  • or a sum of money exceeding €34.172 but not over €85.430

€340

 

 

  • for a sum of money exceeding €85.430 but not over €170.860

€500

 

 

  • for a sum of money over €170.860 where no

             amount is mentioned

€600

 

Annual corporate fee

The annual fee of three hundred fifty euro (€350) is imposed to all Cyprus companies. For group of companies the total amount of fees cannot exceed the amount of twenty thousand euro (€20,000).

The payment of the fee for the year 2015 must be made by 30 June 2015.  The annual fee is payable from the year of registration of the company.

In case of non-compliance with the obligation to pay the fee the company is subject to a penalty of 10% if the fee is paid within two months from the due date and to a penalty of 30% if the fee is paid within a period of five months from the due date.

If the fee is not paid within five months the Registrar will remove the company from the Registry. The company can return to the Registry within a period of two years from the removal with the payment of €500 and thereafter with the payment of €750.

 

20. STOCK EXCHANGE TRANSACTION FEES                                

A special fee is imposed in relation to transactions that take place in the Cyprus Stock Exchange or are announced to the Cyprus Stock Exchange at the following rates:

Individuals and legal entities                                                       0.15%

The fee is suffered by the seller or the person who announces the transaction.

Exempt transactions

The following transactions are exempt:

-  share issue and share redemption by the issuer
-  transactions in non-convertible company bonds
-  transactions in non-convertible company promissory notes
-  transactions inn bonds, development bonds and government bills of exchange
-  gifts of securities by parent to child, either single or married, between spouses or relatives up to third degree.

 

 

 

 

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