Income Tax, Def. Amendments to the law on contributions and tax relief – Taxation

Cyprus: Income Tax, Def. Amendments to the law on contributions and tax relief

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In November and December 2021, the House of Representatives of Cyprus passed the following amendments which will affect businesses located or operating on the island.

Tax residency of companies

Currently, a company is considered a tax resident of Cyprus if the control and management is exercised in Cyprus. Under the new amendment to the law, any company incorporated or registered in Cyprus which is managed and controlled outside of Cyprus will still be considered a tax resident of Cyprus, unless the company is considered a tax resident of any other country.

The above amendment and clarification essentially eliminates the possibility of having a company incorporated in Cyprus that is not tax resident in any jurisdiction.

Royalty fee

Royalties paid to a company which is not tax resident in Cyprus but which is either tax resident in a country on the EU blacklist of non-cooperative jurisdictions or to a company incorporated in one of these countries listed on the back list who is not considered tax resident anywhere will be subject to the 10% withholding tax, whether the asset for which the levy is paid is for use in Cyprus or elsewhere.

Dividends

Dividends paid by a Cypriot tax resident company either to a tax resident company in an EU blacklisted country or to a company incorporated in one of these blacklisted countries which is not considered as a tax resident nowhere, will be subject to a special defense contribution of 17%. The amendments apply in cases where the company receiving the dividend holds more than 50% of the voting rights, share capital or is entitled to receive more than 50% of the profits of the Cypriot tax resident company paying the dividend .

The above does not apply to dividends paid by a Cyprus tax resident company which is listed on a recognized stock exchange.

Interest

Interest paid to a company that is not tax resident in Cyprus but either tax resident in an EU blacklisted country or to a company incorporated in one of these blacklisted countries who is not considered tax resident anywhere else, will be subject to a special defense contribution of 30%.

The foregoing does not apply to interest paid in connection with securities listed on a recognized stock exchange.

EU blacklist countries (adopted from 5and from October 2021)

American Samoa, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, US Virgin Islands and Vanuatu.

The above amendments were voted on in December 2021 and will enter into force on December 31, 2022.

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Loan restructuring Tax relief

The Cyprus House of Representatives also approved the extension of existing regulations regarding the granting of tax breaks and incentives to loan restructuring agreements.

The extensions mainly concern the following elements:

  • No payment of stamp duty that arises from the restructuring of loans (up to the amount of existing debts)
  • No capital gains tax
  • No payment of land transfer fees (when transferring real estate in the name of the lender)
  • No taxation of special contribution for defense in Cyprus (in case of accounting profit and/or deemed dividend)
  • The assignment of memory, in the event of acquisition of a property by the lender as part of a loan restructuring (during the transfer of the property from the borrower to the lender)
  • Exemption from the calculation of taxable income of any advantage, surplus, profit or loss of a person that results from a loan restructuring.

The above tax relief extensions were voted on in November 2021 and are valid until 31st from December 2022.

Originally published December 15, 2021.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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