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  • Service: Tax & Legal, International Corporate Tax, International Corporate Tax
  • Type: Publication series
  • Date: 1/23/2012

New Economic Measures and Changes in the Legislation in Cyprus 

During December 2011 a second package of measures was enacted in the Cyprus Parliament and several changes in the legislation have been effected for 2012.

Special Contribution of private sector employees, pensioners and self employed individuals

As of 1st January and for a period of two years (1 January 2012 to 31 December 2013) a special contribution is imposed on gross emoluments, pensions and income of self employed individuals in the private sector.

For employees the gross emoluments subject to the new legislation include salaries, overtime payments, bonuses and other benefits associated with the employment.

For self employed individuals the income subject to the contribution is the earned income as defined in the tax legislations, but it should never be below the minimum amount, based on which social insurance contributions are paid.

The calculation of special contribution is based on the rates below:

 

Gross Monthly Emoluments (€)

% Contribution

Total Special Contribution (€)

0 -2.500

0%

0

2.501 - 3.500*

2,5%

25

3.501 - 4.500

3,0%

55

Over 4.500

3,5%

 

 

*minimum amount of special contribution €10

 

For employees, the contribution is shared between the employee and the employer and it is deducted and paid in the same way as PAYE.

The self employed individual’s special contribution is payable on the same dates as the installments of the temporary tax assessment ie. 1/8, 30/9 and 31/12.

 

Special Contribution for Defence : increase of dividend tax rate

Dividends received, or deemed as received within the period of 01/01/2012 and 31/12/2013, will be subject to Special Contribution for Defence at the rate of 20% and not 17% as was the previous amendments to the tax laws on 31/08/2011.

For overseas tax residents there is no withholding tax on dividends.

 

Special Contribution for Defence: tax imposed on Cyprus tax resident companies receiving 4 year old

dividends

A Cyprus tax resident Company is exempted from Special Contribution for Defence on dividends received from another Cyprus Company, provided that the dividend is not indirectly distributed after the expiry of a four year period from the end of the year to which the profits giving rise to the dividend relate.

Dividends declared out of income derived, directly or indirectly, from dividends that have been subject to deemed dividend distribution are exempted from Special Contribution for Defence.

This provision entered into force on 1st January 2012.

For overseas tax residents there is no withholding tax on dividends.

 

Special Exemption for individuals who become Cyprus Tax Residents

50% of gross emoluments is allowed as a deduction from taxable income for individuals that become Cyprus tax residents. This deduction is allowed for 5 years of employment and applies if the employment income exceeds €100.000 per annum (effected from 1 January 2012).

 

Special Tax Debt Settlement

In respect of any tax due for tax years up to tax year 2008, interest and any additional charges beyond the 5% of tax due shall be deleted, in the case of full settlement.

The amount of tax due consists of any amount of tax assessed until March 30, 2012, tax withheld at source until March 30, 2012, implied by the tax return for any tax year until 2008 submitted by March 30, 2012 and arising by virtue of a court decision until March 30, 2012.

The Law will expire on March 30, 2012.

 

Income Tax: Section 39 provisions are abolished

Section 39 providing for the imputation of a 9% notional interest on a financial facility provided to the company’s directors or individual shareholders has been abolished.

More specifically, in the event of a company granting a loan or any other financial facility, including a cash withdrawal, to directors or individual shareholders (or to their close relations), the individual will be deemed as obtaining a monthly benefit equal to 9% on the balance of the loan or financial facility or any other monthly facility at the end of each month.

This monthly additional benefit will be calculated and paid in accordance within the P.A.Y.E process.

In respect of debit balances with legal persons (e.g. corporate shareholders) the provisions of arm’s length (s.33) will continue to have effect as amended in December 2010.

This provision will enter into force as of tax year 2012 onwards.

 

Income Tax: Restriction on payroll deductibility for income tax purposes.

Emoluments concerning salaried services provided in a given tax year for which the employer contributions to the Social Insurance Fund, Redundancy Fund, Human Resource Development Fund, Social Cohesion Fund, and Provident Funds are not paid within the year these contributions are due, will not constitute allowable deductions from the employer’s taxable income.

In the event where such contributions and any penalties or interests imposed thereon are settled within a period of two years from the year these contributions are due, they will be allowed as a deduction within the year these contributions are settled.

This provision will enter into force as of tax year 2012 onwards.

 

Land Transfer Fees

In accordance with the newly enacted legislation that was published in the Official Gazette on 02/12/2011 and amends the Land Transfer Fees law, no land transfer fees will be imposed in the event where the real estate transferred is subject to VAT.

In the event of transfer of plots, buildings or part of them that are sold for the first time after the issue of their planning permission or building permit and the dates of both the conclusion of the sale agreement and the date deposited to the District Land Registry fall within the period of 6 months from the entry into force of this law, land transfer fees are reduced by 50%.

The elimination or reduction of transfer fees as described above is also applicable to the cases of conclusion and deposit of a contract under the Sale of Immovable Property (Special Execution Measures) Law that are within the aforementioned 6 month period regardless of the date the title was registered.

The Law will expire on June 1, 2012.

 

VAT: Normal Rate increased from 15% to 17%

The standard VAT Rate is increased from 15% to 17% with effect from 1st March 2012.

 

VAT: Legal Receipts

The VAT Law has been amended so as the person subject to tax, which effects a taxable supply of goods or services to a person not subject to VAT in Cyprus, is obliged to issue a legal receipt which contains the information mentioned in the recent amendment. Penalties have also been adopted for failure to adhere to this provision.

 

Contacts

Anna Voronkova

Partner

+7 (495) 937 44 77 ext. 14233

AVoronkova@kpmg.ru

 

Alexander Tokarev

Senior Manager

+7 (495) 937 44 77 ext. 12361

ATokarev@kpmg.ru

 

Daria Klementieva

Manager

+7 (495) 937 44 77 ext. 12361

DKlementieva@kpmg.ru

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