Changes to Tax Legislation in Cyprus

This year significant changes in the Cyprus tax system have been implemented. The government is trying to improve the state of economy in the country by all means, offer the best conditions for natural and legal persons, and make the registration of companies easier. Let`s have a look at main amendments in Cyprus tax system.

1.Non – Dom Law Regime The non-domiciled resident rules came into effect on 17 July 2015

Non- Domiciled persons are now exempt from Special Contribution for Defence (the ‘SCD’) defence tax.

An individual is considered as domiciled in Cyprus by way of domicile of origin or by domicile of choice. It is also noted that an individual who has spent 17 out of the last 20 years as a tax resident of Cyprus will be considered to be domiciled in Cyprus. Furthermore, an individual who has Cyprus as domicile of origin shall be considered NOT to be domiciled in Cyprus provided he was not a Cyprus tax resident for at least 20 years before the year he becomes tax resident in Cyprus.

Non domiciled persons are not subject to defence tax For physical persons, defence tax was applicable on those who were Cyprus tax residents, and was applied on certain types of worldwide income (e.g. 17% on dividends, 30% on bank deposit interest, 3% on rental income). Cyprus tax residency for individuals is determined by the number of days each person spends in Cyprus on each calendar year (183 days).

2.  Exception of income from first employment to Cyprus

(a)   20% of the income from employment in Cyprus of a person who was not a tax resident of Cyprus during the previous tax year is exempt from taxation for a period of three years starting from the 1st of January of the year following the year or employment. The exemption is capped at €8.550 per annum. This exemption will be extended from three to five years.  It will be abolished by 2020.

(b)    There is also an exemption equal to 50% of the income from employment in Cyprus which commences after 1 January 2012 of a person who was not tax resident of Cyprus during the previous tax year provided that the income from employment in Cyprus exceeds €100.000 per annum. The exemption is applicable for a period of five years. This exemption will be extended from five to ten years.

3. National Interest Deductions on Equity (the ‘NID’) – came into effect 1/01/2015

Companies will be allowed deductions on ‘new capital’ (the ‘NID’). New capital means the in –cash or in-kind contribution, which has been injected in the Cyprus company and which has been actually paid up and used for the operations of the Company. The NID granted cannot exceed 80% of the taxable income for the year and if tax computation results in tax losses then the NID is restricted.

In kind contribution is permitted, but such should be supported by the appropriate valuations and carried out by the qualified professionals.

The legislation includes number of anti – abuse provisions.

4. Immovable property Tax Law

– The municipality and community levy payable to the Municipalities will be abolished.

– A new Immovable Property Tax Law will be introduced which provides for the imposition of tax, based on a single tax rate of 1‰ on the value of the property based on the latest General Valuation by the Department of Lands and Surveys (currently that of 31 December 2013)

 Land registry fee

For transfers of immovable property to be effected until 31 December 2016 the transfer fees will be reduced by 50%.