Cyprus: From Austerity To Prosperity!

By Eurofast Taxand

The first package of austerity measures was voted by the House of Representatives on August 26, 2011. The measures intend to assist Cyprus in reducing expenditure while increasing revenue and at the same time maintaining Cyprus's reputation as a stable and competitive financial centre. The changes entail amendments to various laws, including amendments to the Immovable Property Tax whereas a second and most likely a third package of further financial changes is expected in subsequent months.

The Special Contribution for the Defence of the Republic Law

• Raising the defence tax rate on interest from 10% to 15%

Interest received by Cypriot tax residents will be subject to a 15% tax rate for the Special Contribution for the Defence of the Republic, as opposed to the previous 10% tax rate. Individuals, as well as companies, are equally liable to such taxation. Interest received by companies, if resulting from the ordinary course of the business or closely connected with the ordinary course of the business, will be exempt from defense tax. In such cases, the corporate tax rate of 10% applies.

It is worth mentioning that interest payments to non- residents are not subject to defence tax while Cypriot tax residents receiving such interest are liable to defence tax even if the interest source is located outside Cyprus.

• Raising the defence tax rate on dividends from 15% to 17%

Dividends received by Cypriot tax residents will be subject to a 17% tax rate for the Special Contribution for the Defence of the Republic, as opposed to the previous 15% tax rate. This particular law relates solely to individuals as corporate vehicles are not liable for defence tax on dividends. The raised tax rate is also applicable in situations of deemed distributions.

Dividends paid to non- residents or companies are not subject to defence taxation and the same applies when shareholders of a resident company are non- resident.

The above mentioned amendments will come into force once the new laws are published in the Official Gazette of the Republic.

Immovable Property Tax

Each registered owner whose immovable property worth exceeds €120, 000 is obliged to present a Declaration of Immovable Property (IR 301 AND IR 302) and is subject to pay the relevant tax every year before September 30^th. The bands and rates for Immovable Property Tax for property located in Cyprus have been amended as follows and will have effect from the year 2012:

Fixed Annual Fee of EUR 350 to be imposed on companies

As part of the first package of austerity measures, the Cyprus Parliament has decided to impose a 350 Euro annual charge to certain companies which were registered in Cyprus until 2010.

The applicability of the new law is limited to certain conditions:

• It is not payable by dormant companies
• For a group of companies the charge cannot be higher than 20.000 Euros. The amount is divided equally between the companies of the group
• Companies that hold no assets are not liable to pay the charge. This also applies to companies which their assets are situated in non-controlled areas of the Republic such as the northern occupied areas.

The charge is payable by June 30^th each year. For the fiscal year 2011 the charge should be paid by December 31, 2011.

For companies incorporated from 2011 onwards, the annual fee is payable on next year. For example, companies incorporated during 2011 will pay their first annual fees by June 30, 2012 and the companies which will be incorporated during 2012 will pay their first annual fees by June 30, 2013.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.