Cyprus tax alert
August, 2011
On Friday 26 August, the Cyprus Parliament has voted the first package of austerity measures in the form of tax changes in order to improve Government finances and cut the budget deficit. A second package of measures is expected to be introduced to Parliament by the second week of September. Some of the changes have a direct impact on international companies and this alert gives emphasis to this fact.
Changes affecting international companies
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Companies annual levy
All companies are required to pay an annual fixed levy of €350 to the Registrar of Companies — except for dormant companies and those who do not own any assets. For groups of companies a limit of €20,000 is fixed.
For 2011 this levy is due by 31 December 2011 and for subsequent years by 30 June. Any delay in payment will cause financial penalties as follows:
- 10% within 2 months of the due date
- 30% between 2 — 5 months
In case of further delay, the Registrar may deregister the company. The fee for re-registering the company within a 2-year period will carry a fixed penalty of €500 (in addition to the annual levy) and €750 if the company is re-registered after the 2-year period.
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Interest
The Special Defense Contribution on interest is increased from 10% to 15% with immediate effect. This applies to both individuals and companies. Most companies may not be affected from this change as their profits from interest will be subject to income tax at 10% and be exempt from Defense tax.
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Dividends
The rate of Special Defense Contribution on dividends is increased from 15% to 17% with immediate effect. This will mostly affect residents in Cyprus and groups of companies ultimately held by Cyprus tax resident individuals.
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Tax incentives to attract highly-paid employees
Non-resident individuals earning in excess of €100,000, taking up residence in Cyprus will enjoy a 50% exemption to tax of their income for 5 years. This exemption is effective from 1 January 2012.
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New tax band
Effective from the tax year 2011, a new tax band has been introduced for income above €60,000 at the rate of 35%
Other changes
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Immovable property tax
The bands and rates for Immovable property tax for properties situated in Cyprus have been revised with effect from 2012, as follows:
Value of property
as at 1 January 1980, € | Rate, % |
| 0 – 120.000 | 0 |
| 120.001 – 170.000 | 0.4 |
| 170.001 – 300.000 | 0.5 |
| 300.001 – 500.000 | 0.6 |
| 500.001 – 800.000 | 0.7 |
| 800.001 and over | 0.8 |
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Public sector employees
- Will contribute 3% of their salaries towards future pension benefits
- Will make progressive contributions at rates ranging between 1.5% to 3.5% for incomes above €1500 for two years as a temporary measure in reducing the budget deficit. Applies from 1 September 2011.
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Reduction of Vat on acquisition and /or construction of first residence
This is a counter-balance measure. The rate of 5% will apply instead of the normal rate of 15%, to eligible persons who purchase or construct their first residence up to 200 square meters. This reduction applies from 1 November 2011.
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