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Cyprus Taxation: Major Recent Changes 

by Marios Charalambides, Financial Director of MMG Trust (Cyprus)

Published: June, 2012

Submission: August, 2012

 



The Registrar of Companies (ROC) has introduced an annual government licence fee of €350. The government licence fee for 2011 was payable by 31 December 2011. From 2012 onwards the government licence fee will need to be paid by 30 June of that year.Companies which are dormant and/or do not own any assets are exempt from this licence fee. Such companies should file a form with the ROC, stating the grounds on which they apply for this exemption.


Personal income tax


In 2011 a new income tax rate of 35% was introduced for individuals with annual taxable income in excess of €60,000. From
2012 onwards, any individuals who become tax residents in Cyprus (irrespective of their nationality) may apply for a reduction on their taxable employment income.


The reduction is for 50% of their employment income in Cyprus, provided this income exceeds €100,000 per annum.
This deduction is applicable for the first five years of employment. 



Directors’ and shareholders’ loans

From 2012 onwards, physical directors and shareholders that have taken interest free loans from their companies will
be deemed to have earned an income of 9% of the total loan amount, calculated on a monthly basis. This rule does not apply for balances that are a result of the normal trading activities of the company. Pay-as-you-earn (PAYE) will need to be deducted and paid on behalf of such deemed income incurred by the physical director or shareholder on a monthly basis.


From 2012 onwards, loans payable to companies from legal persons that act as directors or shareholders are not liable
to special contribution for defence (SDC) on deemed interest.



Special contribution for defence (SDC)

Special contribution for defence (SDC) on interest received has been increased from 10% to 15% since 31 August 2011. SDC on dividends has been increased from 15% to 17% effective 31 August 2011. For the two year period of 1 January 2012 31 December 2013, the SDC on dividends would be 20%. From 1 January 2012, SDC is payable on dividends paid by a Cyprus Company to a Cypruscompany. This applies only in cases were these dividends were not distributed within 4 years from the end of the financial year that the profits from which the dividends have been paid from were realized.

From 1 July 2011, companies paying rent should deduct at source the SDC on rent and pay it directly to the Inland

Revenue by the end of the next month. The SDC payable is 3% on the 75% of the gross rent, i.e. 2.25% on the gross rent.



Special contribution for employees
Special contribution for employees is effective for the period from 1 January 2012 to 31 December 2013. It is payable on the gross salary and/ or pension earned by a person exceeding €2,500 per month. In the case of an employee, this contribution for employees is equally split between the employee and the employer. The employer is liable to deduct this at source and to pay it to the Inland Revenue along with the monthly PAYE.

VAT
The basic rate of 15% VAT has been increased to 17% on 1 March 2012.


 


 



 



 


 

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