Cyprus Tax Update

The House of Representatives has been presented with a number of bills on important amendments to various tax laws. These bills aim at granting tax breaks and incentives and will help business development by attracting investment in Cyprus and contribute towards the improvement of Cyprus as an international business center.

A main amendment is the exemption from special defence tax on dividends, interest and rents for persons not domiciled in Cyprus.

Before the amendment, persons who are residents of Cyprus and received from sources both within and outside Cyprus income in the form of dividends, interest or rent, paid special defence contribution at the rate of 17% for dividends, 30% interest and 3 % of 75% of rents. Dividends and interest are subject to special defence contribution and not subject to income tax, while rents are, apart from the defence fund, subject to income tax.

 

Based on the amendment of legislation, people who do not have their residence (domicile) in Cyprus, do not pay special contribution on the above income. This exemption covers in addition to individuals not domiciled (domicile) in Cyprus:

(i) a person domiciled originally in Cyprus (domicile of origin), based on the provisions of the Wills and Succession Law, but has acquired and maintains a residence (domicile of choice) in a country other than Cyprus, provided that they were not Cyprus tax resident for any period of at least 20 consecutive years before the relevant tax year which in which the person is tax resident in Cyprus (and thus normally subject to defence fund).

(ii) person domiciled originally in Cyprus (domicile of origin) and which has retained, but was not a tax resident in Cyprus for at least 20 consecutive years before the entry into force of this law.

Regardless of the place of residence (domicile), any individual that is tax resident in Cyprus for at least 17 of the last 20 years before the fiscal year under review will be deemed as resident (domiciled) in Cyprus and consequently will not be able to benefit from the exemption of payment of special contribution from the 18th year onwards.

With the amendment people who currently have no residence (domicile) in Cyprus but were resident in Cyprus and thus paid special defence contribution on dividends, interest and rent from July 16, 2015 will pay no special defence levy if they meet the above limitation of 17 years.

The above amendment to the legislation comes in force from 16 July 2015. Accordingly, dividends, interest and rent received or credited before this date by a tax resident of Cyprus remain subject to defence fund.

People that are not tax residents of Cyprus are not subject to special defence contribution.

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