Recent changes in Income Tax Laws

A. INCOME TAX LAWS

Notional interest deduction on equity

1. Deemed interest deduction will be allowed on “new equity” funds introduced into a Cyprus tax resident company and which funds are used for the operations of the company.

2. Interest will be calculated at a rate which is equal to the effective interest earned on the 10 year government bonds of the country where the funds are invested, plus 3%, with the minimum rate the effective interest earned on 10 year bonds of the government of Cyprus, plus 3%.

3. The deemed interest to be deducted cannot exceed 80% of the taxable income of the company for the year before the deduction of the deemed interest expense.

B. DEFENCE TAX LAWS

Non-domiciled persons not liable to defence tax

1. Defence tax is payable only by persons who are considered to be tax residents of Cyprus (as defined in the income tax laws), which effectively means an individual who spends at least 183 days in Cyprus every tax year. Defence tax is payable on dividends, interest and rental income.

2. The law is amended so that individuals who are not considered to be “domiciled” in Cyprus would be exempt from payment of defence tax on dividends, interest and rents, even if they are considered as tax residents of Cyprus.

3. In the law there are clear provisions on who is considered as non-domiciled in Cyprus for defence tax purposes.

C. CAPITAL GAINS TAX

Capital gains from the subsequent disposal of immovable property purchased between the date the law comes into effect and 31 December 2016 will be exempt from capital gains tax. This covers both land and buildings, but it does not cover property acquired as a result of sale of property in settlement of a debt. The sale of the immovable property can be made any time.

D. LAND REGISTRY FEES

1. For transfers of immovable property to be effected until 31 December 2016 the land transfer fees are reduced by 50%.

2. A number of other changes have been introduced on fees payable on transfers of property between related parties.