Amendments in Cyprus tax legislation

2011-09-06

 

The House of Representatives has voted, on 26 August 2011, the first package of measures for the improvement of public finances of the Republic of Cyprus.

The measures aim in reducing the government spending and at the same time increasing government revenues, without negatively affecting Cyprus as a financial centre and subsequently the Cypriot tax resident companies with international activities.

Amendments to the Laws / The measures

1.  Personal Income Tax

  • Cypriot tax resident individuals will be taxed at the rate of 35% on their taxable income exceeding €60.000, as from the tax year 2011.
  • 50% exemption will apply to non Cypriot tax resident employees who take up residence in Cyprus and their annual remuneration is in excess of €100.000.  This exemption applies for a period of 5 years starting from the first year of employment and effective as from 1 January 2012.

2.  Special Defence Contribution

  • Dividends
    The rate for dividend income increases from 15% to 17%.
    This is expected to mostly affect Cypriot tax resident individuals since dividend income received by Cypriot tax resident companies is usually exempt from Cypriot Special Defence Contribution.
  • Interest
    The rate for interest income increases from 10% to 15% with immediate effect.
    Cypriot tax resident companies should generally remain unaffected since their interest income is usually subject to corporation income tax at the rate of 10% (after deducting tax allowable expenses) and exempt from Special Defence Contribution, depending on the specific facts of each case.

3.  Companies Law
A fixed annual duty of €350 is imposed on each company, except for dormant and those that do not own any assets.  The maximum duty for groups of companies is €20.000.
The duty for the year 2011 is payable by 31 December 2011 , and for the following years by 30 June.

The following penalties will arise for late payments:

  • 2 month delay – 10% penalty
  • Delay between 2 and 5 months – 30% penalty

In case of further delays the Registrar of Companies may deregister a company.  The fee for re-instating a company, in addition to the above mentioned penalties, is €500 or €750 depending on when the company is re-instated.

4.  Immovable Property Tax
The bands and rates for Immovable Property Tax for properties situated in Cyprus are changed as follows, applicable as from 1 January 2012:

 Value of property as at 1 January 1980  Rate %
 €0 - €120.000

 

0

 €120.001 – €170.000

 

0.4

 €170.001 – €300.000

 

0.5

 €300.001 – €500.000

 

0.6

 €500.001 – €800.000

 

0.7

 Over €800.001 

 

0.8


5.  Government employees

  • Pension contributions
    Current government employees will be contributing 3% of their salaries towards the Government pension schemes with immediate effect following the publication of the Law in the Gazette.
  • One off contributions
    All Government employees will be paying a special contribution, as from 1 September 2011 and for a period of 24 months.  The rates vary from 1.5% to 3.5% and they apply to incomes over €1.500.

6.  Value Added Tax (VAT)
Eligible persons will be subject to a lower VAT rate of 5% for purchase or construction of first private main residence of up to 300 sq.m.  The rate applies for the first 200 sq.m.  This amendment applies as from 1 November 2011.