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Tax News September 2011 Amendments to Cyprus Tax Laws

First package of austerity measures
Cyprus Tax legislation amendments first package
On the 26th of August the Cyprus Parliament, in an effort to eliminate the state deficit and to avoid entry into the support mechanism, voted certain amendments to the following existing laws: The Income Tax Law The Special Defence Contribution Law Immovable Property Tax Law The Companies Law VAT This publication summarises the changes introduced including the dates that the new measures comes into effect. Use the arrows or click on the titles above to navigate

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Income Tax and Special Defence Contribution Law

Immovable Property Tax, Companies Law and VAT

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Amendments to the Income Tax Law

Application date as from tax year 2011 (except for tax relief of non-Cyprus tax residents which will apply from year 2012) Increase of top rate of Income tax for Abolition of exemption from taxation of the emoluments and pension of the President of the Republic and the President of the Parliament.

individuals
A new income tax rate of 35% will apply for taxable income over 60.000. Income tax relief on non-Cyprus tax

resident individuals
Non-Cyprus tax resident individuals who start employment in Cyprus after 1 January 2012 are entitled to 50% relief on taxes due for the first 5 years of their employment, if their income from employment is more than 100.000 per annum.

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Amendments to the Special Defence Contribution Law (SDC)

Application date 31 August 2011 SDC on interest income increases from . 10% to 15% The increase in the rate of taxation of interest income (from Cyprus and overseas sources) applies to both Physical persons and Companies who are Cyprus tax residents. In the case of Companies, the existing provisions for interest income that emanates from the Companys activities continue to apply and such income is subject only to income tax. Therefore, financing companies, including companies acting as finance vehicles within their groups, are not expected to be affected from the change in the rate. SDC on interest income of Provident Funds and physical persons whose total income including interest does not exceed 12.000 remains at 3%. The 3% rate also applies to interest income received by physical persons from Government savings certificates and development stocks. SDC on dividend income increases from

15% to 17%
The rate of Defence tax on dividends received by Cyprus tax residents increases from 15% to 17%. This applies to distributions to physical persons and also in the case of companies that have not distributed dividend, in which case the deemed distribution provisions are triggered.

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Amendments to the Immovable Property Tax (IPT)

Application date effective as from tax year 2012 Immovable Property annual tax is paid by both Physical persons and Companies who own immovable property in Cyprus. There are amendments in the existing tax rates and also a decrease of the tax free band as follows:

Market value at 1 January 1980 First 120.000 120.001 170.000 170.001 300.000 300.001 500.000 500.001 800.000 Over 800.001

Rate (per thousand) 4 5 6 7 8

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Amendments to the Companies Law

As from 2011, a fixed annual levy of 350 is imposed to all companies that are registered in Cyprus. For a Group of Companies the total amount cannot exceed the 20.000. At the discretion of the Registrar of Companies, there is an exemption for dormant Companies, Companies that do not own any assets as well as Companies that own only assets that are situated in the occupied area of Cyprus. The levy for the year 2011 must be paid by 31 December 2011. The levy for the following years should be paid up to 30th of June of each year. In case of delay in the payment, penalties will be triggered that have not been agreed yet. If the levy is not paid within five months, the Registrar of Companies may remove the Company from the Registry.

Amendments to the VAT

Individuals who are purchasing or constructing their private main residence are entitled to be charged a reduced VAT rate which is set at 5% for properties having an area of less than 200 square metres. The reduced rate will also apply to the first 200 sq. m. as long as the total area of the property is not more than 300 sq. m.

Introduction

Income Tax and Special Defence Contribution Law

Immovable Property Tax, Companies Law and VAT

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For further information and advice, contact your nearest office below: NICOSIA George Karavis 41-49 Agiou Nicolaou Street Nimeli Court Block C 2408 Engkomi, Nicosia P.O Box 23907, 1687 Nicosia Cyprus T + 357 22 600000 F + 357 22 600001 E george.karavis@cy.gt.com

LIMASSOL Augoustinos Papathomas 10 Filiou Zannetou Street 3021 Limassol P.O.Box 55299, 3820 Limassol Cyprus T + 357 25 878855 F +357 25 5344425 E august@cy.gt.com

2011 All rights reserved. Grant Thornton (Cyprus) Ltd is a member firm of Grant Thornton International Ltd (Grant Thornton International). References to Grant Thornton are to Grant Thornton International or its member firms. Grant Thornton International and the member firms are not a worldwide partnership. Services are delivered independently by the member firms.