The effective dates of the proposed amendments will be decided by the House of Representatives together with the passing of the Law.
Implementation of amendments in line with EU Directives
Currently, group losses can only be surrendered between Cypriot tax resident companies.
Under the proposed amendments losses can be surrendered to Cyprus tax resident companies by companies resident in another Member State, and vice versa, provided that the company surrendering the losses has exhausted all available opportunities of utilising these losses in the country of tax residency or in the country where the intermediary holding company has a legal seat. It should be noted that taxable losses will be calculated based on Cypriot tax laws.
Parent Subsidiary Directive
Dividends received by a Cyprus tax resident company will not be entitled to the exemption in the following two cases:
- The dividend paid to the Cypriot tax resident company is allowed as a tax deduction in the jurisdiction of the paying company;
- An arrangement or series of arrangements exists between the paying company and the Cypriot receiving company which are not genuine, taking into account all the relevant facts and information, and the arrangement(s) are considered to have been put in place in order to obtain the said exemption.
Such dividend income will therefore be subject to Corporation Tax at the prevailing rate (currently 12,5%), not Special Contribution for Defence Tax (SCD). The purpose of this alignment is to avoid the double non-taxation of such dividend payments.
Foreign Exchange Differences
Foreign exchanges gains and losses will not be taxable or tax deductible regardless of whether such exchange differences are realised or unrealised with the exception of companies trading with foreign exchange as their primary line of business. As such, transactions performed in foreign currencies will not result in tax implications.
Reversal of Tax Neutrality of reorganisations for bona fide transaction
In an attempt to introduce anti avoidance provisions, the Tax Authorities have the right to refuse the granting of the exemptions relating to reorganisations should they have reason to believe that the reorganisation is not being carried out for valid commercial reasons, but instead intends to reduce, avoid or defer the payments of taxes.
Additionally the tax authorities are entitled to impose conditions (for example, the number of shares to be issued as part of the reorganisation and the length of time these should be held for).
Related Party Transactions
In the case where one party is entitled to adjust the income earned from the transaction, a corresponding deduction will be granted to the other party.
Exemption for first employment in Cyprus
Currently: 20% of income earned from employment in Cyprus by an individual who was not tax resident of Cyprus in the previous year is exempt for a period of 3 years, subject to maximum of €8.550 per annum.
Proposed amendments: The exemption will be extended and applicable for a total of 5 years. However, such exemptions will only be claimed until the year 2020.
Exemption for Cyprus non tax residents
Currently: Individuals who were previously non tax residents, prior to their commencement of employment in Cyprus are entitled to a 50% exemption on income from employment in Cyprus exceeding €100.000 per annum, for a period of 5 years. This is applicable from 1 January 2012.
Proposed Amendments: The exemption will be extended and applicable for a total of 10 years. The exemption is also applicable on income from employment in Cyprus less the €100.000 per annum, provided that when the employment began the income exceeded €100.000 and the Commissioner is satisfied that the increase/decrease income was no made for the purpose of obtain such an exemption.
NB – the exemptions of 20% and 50% cannot be claimed together.
Intellectual Property Tax Laws
Intellectual Property Laws
Currently: 80% exemption on net profits generated directly from the business use or disposal of a qualifying Intellectual Property (IP). No consideration was previously made in relation to any losses arising from such activities.
Proposed Amendment: 20% of any resulting losses will be tax deductible.
Capital Gains Tax
Gains on disposal of Shares in Companies holding Immovable Property
Currently: Gains arising from the disposal of immovable property located in Cyprus or of shares held in companies which hold immovable property in Cyprus are taxed.
Proposed Amendment: Gains on the disposal of shares held in companies which directly or indirectly own immovable property in Cyprus will be subject to Capital Gains Tax. This will apply only in the case where the value of the immovable property is more than 50% of the value of assets of the companies whose shares are being sold.
Definitions under Tax Laws
Republic of Cyprus: Will now include the territorial sea, contiguous zone, exclusive economic zone and continental shelf of Cyprus
Permanent Establishment: Will now include all activities for exploration and exploitation of the seabed in the exclusive economic zone as well as services in relation to such.
Tax and VAT Committee