Economic and tax news bulletin September

Contributed by Anthony Ashiotis & Co [www.ashiotis.com.cy]

Whilst Cyprus is currently in the headlines in respect of considerable foreign and local investment projects taking place on the island (which is currently also enjoying record numbers with respect to the inflow of tourists) there are strong indications that in future years the economy will become much stronger thanks to oil and gas deposits which are believed to lie beneath the sea bed of Cyprus southern coast (Exploratory drilling is currently taking place by “US firm Noble Energy”).

Further to the above encouraging news the Cyprus Government has taken measures to raise revenue and decrease certain government spending so that the current economic crisis which has affected many countries worldwide and to some extent also Cyprus is dealt with in the best possible way for near future purposes.

After considerable debate the Parliament of Cyprus has on August 26, 2011 enacted amendments to various tax legislations which are also expected to positively received by International Credit Rating Agencies.

The most important changes are as follows:

1. Increase of the tax rate for individual persons by 5% (from 30% to 35%) for amounts in excess of €60.000 (effected from tax year 2011).


2. 50% of gross emoluments can be deducted for individuals who are Cyprus tax residents for the first time. This deduction is allowed for five years of employment and applies if the employment income exceeds €100000 per annum (effected from January 1, 2012).


3. Introduction to a flat annual levy of € 350 for all Cyprus-registered companies. In case a group of companies, the levy is set at a top maximum of € 20000 per year. Dormant companies that do not have any assets are exempted from the payment of any levy. Whenever the company fails to pay the levy, additional penalties can be imposed and it can be removed from the Company Registry. The 2011 levy is due by 31 December 2011. From 2012 onwards, the deadline will be 30 June of each year. In case the levy is not paid within the prescribed period, if the levy is paid within two months from the due date, a penalty of 10% is payable which is increased to 30% if the levy is paid within five months from the due date. If the levy is not paid within five months, the Registrar of Companies will remove the company from the registry (something which is expected to restrict the company from filing documents or requesting certificates from the Registrar of Companies). The return of the company to the registry can be effected within two years with the payment of a levy of € 500 and thereafter with the payment of a levy of € 750.


4. A 2% increase of Special Contribution for Defence for dividends received by Cyprus Tax Residents from 15% to 17% (which will become effective the date the change is published in the official Gazette of the Republic).
   This applies only to individuals resident in Cyprus since under the provisions of the legislation companies are generally exempt from the payment of defence tax on dividends. The increase in the rate also applies when the deemed distribution rules are applied in cases where a tax resident company does not distribute within two years at least 70% of its after tax profits.

   It should be noted that no defence tax is levied on dividends paid to non resident individuals or corporations. It is also noted that the deemed distribution rules are not applicable in the case where shareholders of a resident company are non tax residents of Cyprus. However, the deemed distribution rules are applicable in the case of a Cypriot tax resident company owned by another Cypriot tax resident company, which in turn is owned by non residents. It is expected that shortly such companies will be excluded from the provisions of the deemed distribution rules, therefore there would be a significant benefit for such companies in case of inability to distribute an actual dividend.



5. The rate of defence tax on interest received or credited by Cypriot tax residents is increased by 5% (from 10% to 15%) and applies to both individuals and corporations. For corporations the interest results from ordinary carrying on of business and is subject to corporate tax, not to defence tax, so financing companies are not going to be affected by the change. No defence tax is payable on interest payments to non residents of Cyprus. This applies to interest received by resident individuals and corporations, from sources in Cyprus and outside of the island.


6. Changes in the bands and tax rates of Immovable Property Tax, charged on immovable property located in Cyprus based on the assessed values as on 1 January, 1980. The increase will be effective as from year 2012.



Assessed Values and Tax Rates for Payment of Immovable Property Tax as on January 1, 1980
0 -120.000	0%
120.001 – 170.000	4%
170.001 – 300.000	5%
300.001 – 500.000	6%
500.001 – 800.000	7%
Over – 800.001	8%

 

 

 

 

 

 

 

 

 

7. A 10% decrease on the VAT (from 15% to 5%) for individuals that are buying their first private residence. Under existing legislation, individuals who buy or construct a flat or house to be used as private main residence are entitled to apply for a refund amounting to about €17.000 from the Government. This provision is replaced with the introduction of a reduced VAT rate of 5% on the purchase or construction of the house or flat to be used as private main residence, provided the area of the property does not exceed 200 square meters (the reduced rate of 5% also applies on the first 200 square meters if the total area of the property does not exceed 300 square meters).


8. A 3 % increase of the contributions of the Government employees to the pension scheme.


9. Restructuring of the pension benefits received from the recently joined Government employees.


10. Additional contributions by Government employees and retirees for the next two years in accordance to the following bands:



Gross Salary (€)	% Reduction
0 -1.500	0%
1.501 - 2.500	1,5%
2.501 - 3.500	2,5%
3.501 - 4.500	3%
Over 4.501	3,5%

 

 

 

 

 

 

 

11. Increase of the contributions to the Widows and Orphans pension Scheme to 2%.


12. Taxability of emoluments and pensions received by the President of the Republic of Cyprus and also the President of the Cyprus Parliament (in effect from tax year 2011).

No changes have been made to the Cyprus Corporation Tax or Withholding Taxes. It is expected that other changes in legislation will be ratified which will include measures to reduce public spending there is possibility to increase the upper VAT rate by 2% to provide investment that will promote Cyprus as an attractive business centre etc.

Contact Details

Maria House, 8 Samou str.
St. Omologites
CY-1086 Nicosia
Cyprus
P.O. Box 26613
CY-1640
Tel: +357 22 455 455 | Fax: +357 22 516 333
Email: ashiotis@ashiotis.com.cy | Web: www.ashiotis.com.cy

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