The Cyprus Parliament has passed a series of amendments to tax and companies legislation in order to increase various taxes and impose a levy on companies incorporated in Cyprus. These measures form part of an austerity package aimed at reducing the budget deficit, which also includes an increase in government employees' pension contributions and a two-year special levy on salaries and pensions paid to national and local government employees. Further measures are expected over the next few months which will predominantly focus on the provision of tax incentives and other measures for promoting growth.
The principal changes in the tax and company legislation are outlined below.
Increase in the top rate of personal income tax to 35%
A 35% income tax rate has been introduced for taxable income in excess of €60,000. The tax bands and rates are now as follows:
|Income band from
||Cumulative tax at top of band |
Individuals taking up residence and employment in Cyprus
For the first three calendar years following the start of their employment, individuals taking up residence and employment in Cyprus are entitled to an annual allowance of the lower of €8,543 or 20% of their remuneration.
With effect from the 2012 tax year, if income from employment exceeds €100,000 per annum, a 50% deduction is allowed for the first 5 years of employment.
The new tax rates and bands will apply for the 2011 and subsequent tax years and the 50% deduction for individuals taking up residence and employment in Cyprus will take effect from 1 January 2012.
Increase in the rate of SDC tax on interest
The rate of SDC tax on interest received has been increased from 10% to 15%. The reduced rate of 3% payable by provident funds and individuals whose total income for the year does not exceed €12,000 is unchanged.
Most companies will be unaffected by the change, since interest they receive is not subject to SDC tax, but to corporate income tax.
Increase in the rate of SDC tax on dividends
The rate of SDC tax on dividends received by Cyprus-resident individuals is increased from 15% to 17%. Companies are generally exempt from SDC tax on dividends. The same increase in the rate applies to deemed dividend distributions.
The increases will apply to all interest and dividends received after the date the amending law is published in the Official Gazette.
Immovable Property Tax
Revision of bands and increase in rates
The threshold for payment of immovable property tax, which is payable by individuals and companies on the aggregate value of property owned in Cyprus, has been reduced and the rates have been increased. Assessments continue to be based on 1980 values.
Value of property as at1 January 1980
||Cumulative tax at top of band |
The increase will be effective from 1 January 2012.
Value Added Tax
Relief for purchase of principal private residence
The current relief, which provides a refund of VAT of up to €17,000, will be replaced by the introduction of a reduced VAT rate of 5% on the costs of purchase or construction of the first 200 square metres of a house or flat of up to 300 square metres in total area for use as a principal private residence.
For 2011 and subsequent years an annual levy of €350 will be payable to the Registrar of Companies by all companies incorporated in Cyprus. Dormant companies, companies which do not own any assets and companies owning property in the occupied areas of Cyprus are exempt. For groups of companies there is a ceiling of €20,000.
The levy for 2011 is payable by the end of the year; for subsequent years the levy is payable by 30 June.
Penalties will be imposed in the event of late payment. If the levy is paid no later than two months after the due date a penalty of 10% will be charged. If the levy is paid between two and five months after the due date, a penalty of 30% will be charged. Companies which have not paid after five months from the due date may be struck off the register. They can be restored to the register only by paying an increased levy of €500 per year if they are restored within two years or €750 per year if they are restored to the register after more than two years.