On 9 July 2015, the Cypriot House of Representatives enacted certain important tax amendments aiming to further improve the competitiveness of the Cyprus tax system. These laws mainly affect corporate and individual taxation as well as real estate related taxes.
Notional Interest Deduction (NID) on equity
As from 1 January 2015, Cyprus Companies shall be entitled to an interest expense deduction based on the amount of “new equity” raised after January 2015 multiplied by a “notional interest rate”. New equity refers to share capital and share premium introduced in the company after 1 January 2015 which is fully paid. Reference interest rate refers to the interest rate yield (as at the end of the prior tax year) of the 10 year government bond of the country where the funds are used plus a 3% premium. However, the reference interest rate cannot be lower than the interest rate yield of the Cypriot 10 year government bond increased by a 3% premium.
This NID expense will be subject to the restrictions currently applied on interest and cannot exceed 80% of the taxable profits as calculated before taking into account the NID.
In order to address possible abuse of the NID provisions, the law includes a general anti-avoidance rule and a number of specific anti-avoidance provisions aiming to restrict the NID.
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Exemption from Special Defence Contribution for Non-Domiciled individuals
As of 17 July 2015, Cyprus tax resident individuals non-domiciled in Cyprus shall be exempt from Special Defence Contribution (SDC) which applies on dividends, interest and rents (i.e. passive income). Under the new provisions, Cyprus tax resident individuals which are not domiciled in Cyprus shall be completely exempt from Special Defence Contribution. The rules have specifically been introduced in order to attract highly paid executives and encourage high-net-worth individuals to take up residency in Cyprus.
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Exemption from Capital Gains Tax on Cyprus property
Any acquisitions made of Cyprus real estate from the 17th of July 2015 up to 31 December 2016 will be exempt from Cyprus CGT which is levied at the rate of 20%. The exemption from CGT will be applied provided that the acquired asset (i.e. property or shares) consists of buildings (i.e. not only land), it was acquired from an independent third party and not through an exchange of property or through a donation or gift.
50% reduction on Land transfer fees
Another measure to encourage transactions in real estate, is the reduction of 50% on Land Transfer fees applicable on the transfer of Cyprus situated immovable property for any purchases made from the 17th of July 2015 to 31 December 2016.
Further developments are in the pipeline after the summer holidays, mainly targeted to bring the Cypriot tax system in line with EU legislation.