On the 26th of August of 2011 the House of Representatives voted as a first package of measures to stabilize and streamline the Cyprus economy in order to adhere to European Union financial guidelines. The measures include the amendment of a number of tax and company law provisions with the purpose of increasing the State revenue and simultaneously reducing the State expenditure. The measures largely leave the International business sector untouched and target mostly the local tax payers and government spending.
The below measures are in addition to the introduction and increase of the contributions payable by all Government and semi-Government employees to the Government Pension Fund, as well as an enforcement of a contribution for the period of two years on the salaries and pensions of all Government and semi-Government employees.
Within the next few weeks additional measures are expected to be introduced that they will mainly aim to the reduce the State expenditure and streamline the Cyprus economy. The increase of the VAT rate from 15% to 17% is expected to be voted within the next package of measures.
The major changes are being analysed bellow:
1. Companies, fixed annual levy of €350 on all companies
In line with other jurisdictions, Cyprus Registrar of Companies has introduced a fixed annual levy of €350 on each company registered in Cyprus by way of a renewal fee.
The levy is payable by 31 December 2011 in relation to this year and by 30 June in respect of each subsequent year.
Late payment of the levy will give rise to the following penalties:
- in case of up to a 2-month delay – a 10% penalty;
- in case of a delay between 2 and 5 months – a 30% penalty.
- It’s clarified that companies are NOT obliged to pay the above levy on the first year of their registration and regards to such year. Thus companies registered in 2011 should not pay for 2011 and companies registered for 2012 should not pay for 2012 and so on.*
If the levy is not paid within the prescribed period the Registrar of companies will remove the company from the registry. Removal from the registry will restrict the company from filing documents or requesting certificates from the Registrar office.
A company can be re-instated to the registry within a 2-year period from its removal by paying a fixed penalty of €500 (in addition to the outstanding amount of the levy). The penalty will be increased up to €750 where a company is re-instated after the 2-year period.
The levy is capped at €20.000 for Companies of the same group (as such term is defined in the Companies Law).
The above-mentioned levy will not apply to dormant companies, companies that do not own any assets or companies which own property in the occupied territory of Cyprus, not controlled by the Republic.
2. Personal Tax
(a) Introduction of a new tax band of 35% on tax resident individuals earning more than €60,000 per annum. Previously the top band was 30% on earnings over €36,300. The tax bands and rates are now as follows:
|To||Tax Rate||Cumulative tax at
top of band
(b) Motives for employment of non-Cypriot tax residents with high income
In order to encourage the establishment and settlement of new firms in Cyprus, tax motives are given for the employment of individuals who were not previously tax resident on the island. In such a case, provided the annual income of these individuals exceeds €100.000 per annum, then they are entitled to a 50% exemption on their income for a period of five years, starting from the first year of employment. This exemption is applicable for both Cypriots and non-Cypriots provided that before their establishment in Cyprus they were leaving abroad and they were not tax resident.
(c) Abolition of the tax exemption of the President of the Republic of Cyprus and the President of the House of Representatives
The tax exemption on the annual income of the President of the Republic of Cyprus and the President of the House of Representatives has been abolished.
(d) Application of the law
The above mentioned provisions will be effective from the tax year of 2011 apart from the employment of non-Cypriot tax residents that will be effective from the 1st of January 2012.
3. Special Contribution Defence (SDC) tax
(a) Increase in the rate of special defence contributions from 10% to 15% for interest income taxable
The rate of SDC is increased from 10% to 15% for interest income taxable for the Cyprus tax residents. This applies for both individuals and legal persons. In the case of legal persons if the interest is levied within their ordinary course of their business activities, then no defence contribution is imposed, this interest however is subjected to income tax. Hence the financing firms and the firms that are established with the purpose of lending to companies of a group are not expected to be affected by the rate increase. It must be noted that no SDC is imposed on interest income payable by non- Cypriots tax residents.
(b) Concerning the provident funds the SDC for interest income taxable will remain at the rate of 3%, as well as in the case of individuals which their annual income, including interest, does not exceed €12.000. Also interest received by individuals from certificates of savings and bonds issued by the Cyprus Government will continue to be taxed at the rate of 3%.
(c) Increase in the rate of SDC from 15% to 17% for dividend income
Increase of the rate of SDC from 15% to 17% for dividend income. This applies for tax resindent individuals only, since legal persons are relieved from the obligation to pay SDC for dividend income. Therefore International business companies are not affected by this measure.
The above mentioned increase will be applied also to deemed dividends in case the company does not distribute any dividends within a period of two years starting from the end of the tax year at least the 70% of their annual profits after taxation.
It must be noted that no special defence contributions for dividend income is payable by non-Cypriot tax residents, individuals or legal persons – (tax resident or not). Also the provision concerning deemed dividends is not applicable in case the shareholder of a company is not a Cypriot tax resident. As a reminder these provisions are applicable though in the case of a Cyprus company owned by another Cyprus company of which the ultimate owner/shareholder is not a tax resident in Cyprus. Therefore we recommend the distribution within the 2 year period which is tax free.
It is expected in the near future that these companies will be exempted of the obligation to pay SDC for dividend income and hence they will gain an important advantage.
(d) Application of the law
The above mentioned provisions will take effect from the date the law is published in the Gazette.
4. The Immovable Property Tax Law
(a) The existing bands are replaced and the rates paid by owners, individuals or legal persons, of immovable property situated in Cyprus are increased and at the same time the amount on which tax is paid is decreased. The tax is based on the property values as at 1 January 1980.
(b) The new bands and rates are as per the table below.
|Value of property as at 1
|Rate %||Cumulative tax at
top of band
|0 – €120.000||0%||0|
|€120.001 – €170.000||4%||€200|
|€170.001 – €300.000||5%||€850|
|€300.001 – €500.000||6%||€2,050|
|€500.001 – €800.000||7%||€4,150|
(c) These bands are applicable from 1 January 2012.
5. The Value Added Tax Law as to First Residence
- Under the current law individuals that purchase or construct their first residence are entitled to a refund by the State of up to €17.000. This provision is being replaced with a reduced rate of 5%, for purchase or construction of an individual’s first residence of up to 200 sq.m. (the reduced rate of 5% is applicable on the first 200 sq.m. if the total floor area does not exceed 300 sq.m.)
The above information should not be used for decision making but only for informative reasons. Please consult a member of our staff for further assistance on the matter.