Important Changes to the Cyprus Tax System

Defence Tax Related

Non domiciled persons are not subject to defence taxFor physical persons, defence tax was applicable on those who were Cyprus tax residents, and was applied on certain types of worldwide income (e.g. 17% on dividends, 30% on bank deposit interest, 3% on rental income). Cyprus tax residency for individuals is determined by the number of days each person spends in Cyprus on each calendar year (183 days).

 

The new amendment to the law introduces the concept of ‘non-domiciled’ persons and provides that defence tax is applicable on Cyprus tax resident persons who are also domiciled in Cyprus. This means that individuals who are NOT DOMICILED in Cyprus, and regardless of whether they are Cyprus tax residents, will now NOT BE SUBJECT to defence tax.

An individual is considered as domiciled in Cyprus by way of domicile of origin or by domicile of choice. It is also noted that an individual who has spent 17 out of the last 20 years as a tax resident of Cyprus will be considered to be domiciled in Cyprus. Furthermore, an individual who has Cyprus as domicile of origin shall be considered NOT to be domiciled in Cyprus provided he was not a Cyprus tax resident for at least 20 years before the year he becomes tax resident in Cyprus.

Property Related

New Capital Gains Tax exemption

Gain on a future sale of a Cyprus situated property (land or buildings) will be completely exempted from the 20% capital gains tax if such property is purchased between the date the law comes into effect and 31 December 2016.

Land registry (Transfer) fees reduced

For properties transferred until 31 December 2016 there will be a 50% reduction on the land transfer fees.

Income Tax Related

Notional interest deduction on equity introducedAs from 1 January 2015, companies will be entitled to a notional interest tax deduction on  ‘new equity’. New equity means funds or in-kind payments introduced into the share capital of the company after 1 January 2015 and which have actually been paid and used for the operations of the company. This interest will be calculated based on the effective interest earned on the 10 year government bond yield of the country in which the new equity is invested plus 3%, with the minimum rate being the equivalent 10 year bond yield of Cyprus plus 3%. This notional expense deduction will be tax deductible to the extent that it relates to business assets and cannot exceed 80% of the taxable income of the company for the year.

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