The Cyprus Parliament has approved a number of changes to the laws relating to income tax and SDC tax aimed at stimulating the economy and attracting investment from overseas. The changes will come into force when the amending laws are published in the Official Gazette and will have retrospective effect from 1 January 2012. Taxation of intellectual property rights
Expenditure on acquisition or development of intellectual property rights is to be capitalised and amortised in equal instalments over the year in which the expenditure was incurred and the four following years.
Revenue from the exploitation of intellectual property rights (including compensation for infringement of rights and revenue from the sale of rights) after deduction of the amortization and any other expenses incurred in earning the revenue, is four-fifths exempt from tax, and only one-fifth is subject to tax. These provisions apply to all expenditure incurred by a person carrying on a business on the acquisition or development of intangible assets, including those defined in the Patent Law of 1998 as amended, in the Intellectual Property Rights Law of 1976 as amended and in the Trademark Law, Cap 268 as amended.Deductibility of interest costs related to the acquisition of shares
With effect from 1 January 2012 interest incurred in connection with the acquisition of shares in a wholly-owned (whether directly or indirectly) subsidiary company, wherever incorporated or resident, will be deductible for tax. This represents a change from the practice previously adopted by the tax authorities, who treated such interest as non-deductible. If any of the subsidiary’s assets are not employed in its business the deductible interest cost will be reduced by the amount referable to the non-business assets. Hitherto, interest has not been deductible.Increased capital allowances
For all plant and machinery (excluding private saloon cars) acquired during 2012, 2013 and 2014, the annual capital allowance for tax purposes will be doubled to 20% of the cost. For industrial and hotel buildings acquired during these years the annual capital allowance will increase from 4% of the cost of the asset to 7%. Deemed distribution rules
For the purposes of calculating profits subject to the deemed distribution rules any capital expenditure incurred on the acquisition of plant and machinery (excluding private saloon cars) and buildings during the years 2012, 2013 and 2014 is deductible from post-tax profits.Group relief
The previous group relief rules required companies to be members of a group for the whole of the tax year in order to qualify. A subsidiary incorporated by its holding company part-way through a year is now deemed to have been a member of the group for the whole year. The provisions of Section 33 of the Income Tax Law regarding arm’s length principles will no longer be applied to transactions between a parent company and its wholly-owned direct subsidiary as long as the conditions for group relief are satisfied.
For further information please contact Philippos Aristotelous.