A. Laws introduced pursuant to the MOU agreed between Troika and the Cyprus government for strengthening the public finances
Towards the end of the year, the Cyprus parliament voted a number of legislative actions introducing new as well as amending existing laws in order to strengthen public finances and reduce administrative burden. The laws while forming the basis for more stability in the financial sector retain the full benefits that Cyprus offers as an international business centre. We present and analyze below some of the most important amendments made:
1. Social Insurance Contributions
The rate of Social Insurance Contributions increases by 1% for employers and employees who will contribute a total of 7,8% each. The contribution also increases for the self-employed and voluntary contributors who will contribute a total of 13,6%. This change is effective from year 2014.
2. Restriction of Carry Forward of Tax Losses
Persons, who have an obligation to keep accounting records, prepare audited financial statements and submit tax returns will be able to carry tax losses incurred over the five years following the end of the tax year in which they were incurred, to be offset against taxable income (previously such losses could be carried forward indefinitely).
3. Value Added Tax (VAT)
The standard VAT rate increases to 18% (previously 17%) for the period 14 January 2013 until 12 January 2014 and to 19% from 13 January 2014.
In addition, the reduced VAT rate increases from 13 January 2014 to 9% (previously 8%).
4. Annual Government Levy of €350
The annual levy/license fee of €350, introduced in 2011, from 2013 and onwards becomes payable for all companies. All exemptions previously available (such as dormant companies or companies having no assets or having property in the Turkish occupied areas) are now abolished. The upper ceiling of €20.000 for group companies is also abolished. Further the annual fee is now payable from the year that a new company is registered.
5. Special Contribution on Salaries of Employees & Self Employed in the Private Sector
The provisions of the special contribution law for employees, pensioners and self-employed in the private sector to contribute a percentage of their gross monthly salaries/pensions is extended for an additional period of 3 years (until 31 December 2016). Effective from 1 January 2014, the relevant ranges and contributions of the special contribution change as follows:
Special Contribution 2014- 2016
Monthly Salary or Pension % of Special Contribution
€1.501 -€2.500 2,5%
€2.501 -€3.500 3,0%
€3.501 and above 3,5%
The payment of special contribution for employees is divided equally between the employee and the employer.
6. Bank Levy payable by Financial Institutions
From 2013, the bank levy tax rate introduced in 2011 imposed on banks on their total deposits (domestic and foreign), excluding interbank deposits, increases from 0,095% to 0,11% and the provisions of this law are extended indefinitely. Further, with retrospective effect from 2011, the provision that the levy paid would not exceed 20% of total taxable income as well as the provision for refund of the excess levy paid are abolished.
7. Regulations for the Provision of Fiduciary and other Corporate Services
The provision of fiduciary and other corporate services is now regulated by the Cyprus Securities and Exchange Commission and the regulation applies to eligible persons providing such services to or from the Republic of Cyprus (excluded from the scope are lawyers and auditors that are already regulated by their respective regulatory bodies and subsidiary entities of lawyers and auditors). Transitory provisions exist for firms already operating in this field.
8. Exchange of Information
Directive 2011/16/EU on administrative cooperation in the field of taxation which regulates exchange of information between member states on tax matters has been transposed into national law. The Assessment and Collection of Taxes Law has been amended to allow Cyprus to provide information to the competent authorities of another state based on agreements for the exchange of information or the Directive 2011/16/EE of the Council of European Communities of 15 February 2011 on administrative cooperation in the field of taxation. The Director of Inland Revenue may not inform the person for whom the information is requested, if the information could hinder the investigation being conducted.
9. Tax administrative measures
- Filing obligations for non-resident companies: Companies established in Cyprus but are not tax resident in Cyprus, are obliged to submit a tax return until 31 December of the year following the tax year (or March 31 in case of electronic submission) to which it relates to.
- Employers’ returns: Starting 2013 these must be filed electronically.
- Temporary Tax returns: Returns for the provision of temporary tax should now be filed before July 31st instead of August 1st. Installments for the payment of temporary tax is reduced now to two installments instead of three previously and are due on July 31st and December 31st.
- Trusts: Trusts now need to keep accounting records.
Document Retention Period: Companies should keep their accounting records for six years after the end of the calendar year to which they relate to (previously seven).
10. Other laws that were voted
A number of other laws have been voted such as laws reducing or eliminating various subsidies (e.g. child, mother and student), introduction of taxation on winnings from betting on government lotteries and OPAP games and increases in excise duties on tobacco, alcohol and petrol. Further, significant changes have been introduced in relation to the government payroll such as reduction in government employee emoluments and freezing of automatic salary increases, changes in the working hours of the government employees, extension of the special contribution payable by government employees for a further two years to 2016 and changes in the government pension plan.
B. Russian “Black List”
Cyprus has now been officially removed from the so called Russian Black List. As a result the restrictions that normally apply to payments to companies in jurisdictions included in the Black List would not apply with regards to Cyprus companies. A more important consequence is that dividends paid by Cyprus companies to their Russian parent will now be exempt from taxation in Russia.
C. Cyprus International Tax Treaty News
Tax treaty with Ukraine: A new double tax treaty has been signed with Ukraine and the treaty shall be effective on January of the year in which the parties exchange notices of ratification. Although the new treaty is significantly different than the one currently used (the old USSR treaty), it still maintains Cyprus attractiveness for channeling inbound investment into Ukraine. The new treaty establishes a 5% withholding tax rate on dividends when the capital of the dividend paying company is at least Euro100.000 and 15% in other cases. The basic withholding rate on interest payment has been set to a very low 2%, for royalties 5% or 10% depending on the type of IP. More importantly, jurisdiction for taxing capital gains from the disposal of shares is allocated to the country where the alienator is resident irrespective of the underlying asset.
D. Stamp Duty Law
An amendment of the stamp duty law converted the amounts expressed therein from the old Cyprus currency (Cyprus pounds) to Euro. With effect from March 1st, 2013 the bands applicable for the assessment of stamp duty applicable to documents that are subject to stamp duty are as follows:Up to Euro 5.000: Nil
From Euro 5.001-170.000: 0,15%
From amounts exceeding Euro 170.001: 0,20%
Further, the stamp duty payable on documents that are subject to stamp duty has been capped to Euro 20.000.
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Clerides, Anastassiou, Neophytou LLC
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