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No. |
PROVISION |
IN FORCE |
REFORM |
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1 |
Charge of tax |
Section 5
The income of any person accruing in, derived
from, or received in the Republic and in
certain cases the income deemed to be derived in
the Republic is taxed in Cyprus. |
From the year of assessment 2003
Section 5
Resident persons (individuals and companies) are
taxed in Cyprus on their worldwide income
whereas non-residents are taxed on Cyprus source
income only. |
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2 |
Definition of resident in the Republic |
Not included. |
From the year of assessment 2003
Section 2
Resident in the Republic when applied to an
individual, means an individual who stays in the
Republic for periods exceeding in the aggregate
183 days in the year of assessment and when
applied to a company, means a company whose
management and control is exercised in the
Republic. |
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3 |
Rates of tax for individuals |
Second schedule
Chargeable income
Rates of tax
Up to £6.000 Nil
£6.001- £9.000 20%
£9.001-£12.000
30%
£12.001
+
40%
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Second schedule
For
the year of assessment 2002
Chargeable income
Rates of tax
Up to £9.000
Nil
£9.001 - £12.000 30%
£12.001 +
40%
For
the year of assessment 2003
Chargeable income
Rates of tax
Up to £9.000
Nil
£9.001 - £12.000 20%
£12.001 - £15.000 25%
£15.001 +
30%
From the year of assessment 2004
Chargeable income
Rates of tax
Up to £10.000 Nil
£10.001 - £15.000 20%
£15.001 - £20.000 25%
£20.001 +
30% |
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4. |
Corporation tax rates |
Second schedule
Normal Corporation tax rates
Chargeable income
Rates of tax
Up to £40.000 20%
£40.001 + 25%
Reduced Corporation tax rates
Applicable to regional bus companies and
companies whose shares are listed on the Cyprus
Stock Exchange for the first time, for a period
of 4 years.
Section 34(2)
Companies are taxed with an additional rate of
10% on the reduction of their chargeable income
due to losses brought forward, investment
allowances and depletion allowances for mines.
Section 28A
Special corporation tax rate 4,25% for
international business entities either
incorporated in the Republic, irrespective of
management and control, or registered in the
Republic under Section 347 of the Companies Law
and having their management and control in the
Republic.
Section 8(y)
The profits of international business entities
registered in the Republic under Section 347 of
the Companies Law and not having their
management and control in the Republic, are
completely exempt from tax.
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Second schedule
For the year of assessment 2002
A 10%
windfall tax is introduced for semi-government
organizations.
From the year of assessment
2003
All
companies, including international business
entities without restrictions regarding their
activities, are subject to a uniform tax rate of
10% except for semi-government organizations,
which are taxed at 25%. A windfall tax of 5% is
introduced for chargeable income in excess of £1
million for the years of assessment 2003 and
2004.
10% additional tax is abolished as from 2003.
Section 46-Grandfather clause
The existing international business entities can
exercise the option to continue to be taxed at
the rate of 4,25% till the year of assessment
2005.
Abolished. |
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5. |
Taxation of Dividends
a) Withholding of tax
b) Final tax
c) Deemed distribution of dividends |
Section 35
On distribution of dividends, tax is withheld at
the rate of 20%(with some exceptions) or in
accordance with tax treaties in force. No tax is
withheld when dividends are paid to foreign
companies.
Section 28A(3)
In the case of international business entities
there is no withholding of tax on dividends and
no additional tax on shareholders.
Section 33A
Individuals may opt to be taxed separately on
their dividends at the rate of 20%, thus the tax
withheld becomes final tax.
Section 8(l)
Individuals who choose to be assessed at the
normal tax rates, are entitled to an exemption
of £1.200 in respect of dividends from shares
listed on the Cyprus Stock Exchange (CSE).
Second Schedule
No corporation tax is imposed on dividends.
Section 47
The Commissioner has the power, under certain
conditions, to consider that 65% of the profits
of a company controlled by not more than 5
persons, is distributed. |
From the year of assessment 2003
Section 8(20)
Dividends are exempt from income tax.
Dividends are subject to special contribution
for the defence.
(Refer to No. 1.8 of Table 2)
Abolished
(Refer to No. 1.8 of Table 2)
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6. |
Taxation of interest |
Section 5(1) (d) and Section 8(j) & (k)
The income of individuals and companies from
interest is taxed at the normal tax rates,
except for:
8(j)
the income of individuals and their dependants
from Cyprus Government
Securities which is completely exempt from tax,
and
8(k)
the interest derived by individuals from
debentures listed on the CSE or deposits or
savings accounts with, any bank or co-operative
savings bank operating in the Republic which is
exempt up to £600.
Section 5(2) and 28C(3)
Special mode of taxation for investment income
remittances to Cyprus: amounts exceeding £2000
taxed at 5%. |
For
the year of assessment 2002
Section 8 (k) replaced
In the case of corporate bodies, 20% of the
interest earned, and in the case of individuals
and their dependants £600, as well as 50% of the
amount of interest in excess of £600, is exempt
from tax.
Interest is subject to special contribution for
defence. (Refer to No. 1.9 of Table 2)
From the year of assessment 2003
Section 8 (19)
The total income of an individual from interest
and 50% of the income of a company from interest
is exempt from tax. The interest derived by a
person from the usual carrying out of his
business including interest closely connected
with the ordinary carrying out of the business
is not considered interest but profit.
Interest is subject to special contribution for
the defence. (Refer to No. 1.9 in Table 2)
Abolished |
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7 |
Tax Treatment of Losses
a) Losses carried forward
b) Group Relief |
Section 15
The
losses that cannot be set off against other
income of the same year with some exemptions are
carried forward and set off against the income
of the next 5 years.
Section 15(5)
Though provided for in the Law, in the absence
of Regulations and in accordance with a decision
of the Supreme Court, no group relief is
allowed.
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From the year of assessment 2003
Section 13
The 5 year restriction for the carry forward of
losses is abolished.
Section 13(4)-(8)
Group relief granted. |
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8. |
Reorganizations |
No provision for tax relief in the case of
mergers and acquisitions. |
From the year of assessment 2003
PART VI
Sections 26-30
Introduced provisions to comply with EU
directive 90/434/EEC for mergers and
acquisitions
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9. |
Entertainment expenses |
Section 13(id)
Entertainment expenses, except those incurred by
public companies, are deductible subject to
conditions set out in Regulations. In the
absence of Regulations, IRD applies the wholly
and exclusively criterion. Time consuming and
ineffective process.
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From the year of assessment 2003
Section 11(12)
No such expenditure over 0,50% of the business
turnover or £5.000, whichever is the lower, is
allowed. |
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10. |
Private saloon cars expenses |
Section 13(e)
Wholly and exclusively criterion applied. Time
consuming and ineffective process.
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From the year of assessment 2003
Section 11(13)
Such expenses are not allowed. |
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11. |
Taxation of profits or dividends of any business
carried outside the Republic by Cypriots
residents in the Republic
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Section 8(w)
90% of the profits or dividends imported into
the Republic is exempt from tax. |
From the year of assessment 2003
Section 36(3)
Profits of a Permanent Establishment outside the
Republic are exempt from tax, subject to
conditions. |
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12. |
Professional services abroad |
Section 8(v)
60% of the profits remitted to the Republic are
exempt form tax. |
From the year of assessment 2003
Abolished due to negative decision of
Commissioner for Public Aid. |
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13. |
Exemption for investment in the first issue of
shares listed on the Cyprus Stock Exchange (CSE) |
Section 8 (z)
Exemption granted under certain conditions |
From the year of assessment 2003
Abolished |
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14. |
Reduced tax rates for profits from exports. |
Section 28Ε
50% of the normal rates applicable to such
profits for locally produced goods
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From the year of assessment 2003
Abolished. Negative decision of Commissioner for
Public Aid.
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15. |
Investment allowances and special tax
incentives. |
Section 12(2)(b)- (h)
Section 8 (ab) & (ac)
Investment allowances and special tax incentives
are granted for certain businesses & industries
e.g. hotel, mining, farming and auxiliary
tourist projects.
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From the year of assessment 2003
These incentives are not compatible with EU
State Aid Rules and are abolished.
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16. |
Exemption to encourage the importation of
foreign money capital |
Section 10
(1)
Interest on foreign money capital imported into
the Republic and deposited with a local bank is
exempt from tax.
(2)
The interest on foreign money capital borrowed
by a person and invested in fixed assets
contributing to the economic development of the
Republic is exempt from tax with the approval of
the Minister of Finance.
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From the year of assessment 2003
Abolished
Abolished. Negative decision of Commissioner for
Public Aid.
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17. |
Reduced tax rates for Foreign employees of
international business entities and of companies
situated in the Larnaca Industrial Free Zone.
Total exemption for salaried services abroad |
Section 28Β(1)&(2)
These employees are taxed at 50% of the normal
rates for services rendered in the Republic and
at 10% for services outside the Republic, if not
paid through the Republic, otherwise they are
exempt from tax completely
Section 8(x)
The whole amount of foreign exchange imported
into the Republic for salaried services outside
the Republic is exempt from tax. |
From the year of assessment 2003
Section 8 (21)
20% exemption of emoluments or £5000, whichever
is the lowest, granted in the case of non
residents starting employment in the Republic.
Applicable for 3 years.
Section 36(5)
Emoluments for services rendered outside the
Republic for a total period exceeding 90 days in
the year of assessment, to a non-resident
employer or a PE abroad are exempt from tax. |
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18. |
Allowances for spouse, children, old age and
displaced individuals. |
Sections 16, 17, 18 & 22
¨
£500 for every child up to 18 years old or
serving in the National Guard
¨
£1500 for every child receiving third level
education in the Republic, the tax saving not
exceeding £300
¨
£500 for spouse
¨
£1500 for individuals over 65 years old, the tax
saving not exceeding £300
¨
£300 for displaced individuals with annual
income up to £10.000
Note: The allowances for children and spouse are
apportioned between husband and wife.
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For the year of assessment 2002
Sections 17, 18 &22 deleted
Allowances granted only for children.
From the year of assessment 2003
All allowances are abolished and replaced with a
scheme of grants.
The allowances in respect of contributions to
the social insurance fund, to provident funds,
pension schemes, medical schemes, the general
medical scheme, as well as premiums paid for
life insurance policies, are still granted.
Contributions to Unions and professional
subscriptions are deductible. |
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NO |
PROVISION |
CURRENT REGIME |
TAX REFORM |
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1.
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Liability to pay special contribution |
Section 3
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Section 3
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1.1 |
Employees |
(2)(a)
at 2% of their emoluments
|
Abolished as from 1.7.2002. |
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1.2 |
Employers |
(2)(b)
at 2% on their employees´ total emoluments |
Abolished, as from 1.1.2003 introducing an
identical contribution to the Social Cohesion
Fund.
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1.3 |
Self-employed persons |
(2)(c)
at 2% on their emoluments |
Abolished as from 1.7.2002.
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1.4 |
Pensioners |
(2)(d)
at 2% on their pensions and / or annuities over
£3000 annually.
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Abolished as from 1.7.2002. |
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1.5 |
Persons holding or exercising an office in the
Republic
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(2)(e)
at 2% on their emoluments |
Abolished as from 1.7.2002. |
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1.6 |
Companies |
(2)(i)
at 3% on profits from any commercial,
industrial agricultural business in the Republic
|
Abolished as from 1.1.2003. |
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1.7 |
Other corporate bodies including semi-government
organizations
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(2)(j)
at 3% on their income |
Abolished as from 1.1.2003, retained only for
semi-government organizations at 3%.
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1.8
 1.9
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Persons receiving Dividends
Persons receiving or credited with interest
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(2)(f)
at 3% on dividends received from companies
registered in the Republic.
(2)(g)
from any source in the Republic at 3% |
As from 1.1.2003
(2)(a)
The rate increases to 15% and only persons
resident in the Republic are liable. Companies
resident in Cyprus are exempt in respect of
dividends received from other Cyprus resident
companies. The exemption is extended, subject
to conditions to dividends form non resident
companies.
(3)
A company resident in the Republic is deemed to
have distributed 70% of its profits arising in
the year of assessment, except for the profits
attributable to non resident shareholders,
after the reduction of such profits by the
corporation tax paid or payable thereon, in the
form of dividends to its shareholders as at the
end of two years from the end of the relevant
year of assessment.
(4)
The amount of deemed dividends is reduced by any
actual dividends declared during the two year
period and for actual distributions after the
two years, the dividends are reduced by the
deemed dividends.
(8)
In the case of reduction of capital of a
company, any amounts paid or payable to the
shareholder, to the extent of undistributed
chargeable income of any year before the
deduction of losses from previous years, shall
be deemed to be dividends distributed liable to
special contribution, after deduction of already
deemed distributed dividends as per sub
section (3).
As from 1.7.2002
(2)(c)
The rate is increased to 10%, except for
interest falling under paragraph (d), and only
persons resident in the Republic are
liable.
It is provided that an individual
whose annual total income does not exceed £7000
is entitled to a refund of 7%.
(2)(d)
Interest of individuals from saving bonds or
development bonds or from deposits with the
Housing Finance Organization as well as interest
earned by provident funds is liable to special
contribution at 3%.
As from 1.1.2003
Two new provisions inserted in (2)(b),
previously (2)(c):
(i) Interest of a person from the ordinary
carrying out of his business, including
interest closely connected with the ordinary
carrying out of the business is not considered
as interest for the purpose of this paragraph
but profit
(ii) interest deemed to be derived by a company
under section 39 of the Income Tax Law is liable
to special contribution.
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2 |
Relief in respect of foreign tax paid on income
liable to special contribution |
No specific provision, tax relief is granted in
accordance with tax treaties in force. |
Section 3 (10)
To comply with EU Directive 90/435/EEC for
parent and subsidiary companies, tax relief in
respect of foreign tax paid is introduced.
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