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Information for Cyprus Expats on the new tax measures taken by the Cyprus government
New Austerity Measures and Tax Implications
Amending laws have been approved by the Parliament on December 14 2011 with new austerity measures being adopted in order for the Republic of Cyprus to financially recover and respond to the Eurozone crisis.
Income Tax Law Amendments
Provisions of the Income Tax Law have been amended and it is now provided that where a loan or financial facility is granted by a company to its directors, shareholders, their spouses or relatives up to second degree, then it is deemed that the individual has a monthly benefit equivalent to 9% annually of the above mentioned financial facility . Such amount shall be considered as income and will be taxed according to the Income Tax provisions.
The tax amount for the monthly benefit will be paid to the Inland Revenue Department once deducted from the salary of the individual concerned.
What is more, section 39 of the Income Tax Law has been repealed. The section was stating that whenever a company, controlled by not more than five persons, was granting a loan or any other financial facility to any of its directors or shareholders or to their relatives up to the second degree, the Commissioner could deem that interest at the rate of 9% per annum was payable to the company on the amount of the loan.
The amendments to the Income Tax Law have come into force from January 1 2012.
Special Contributions for the Defence Law Amendments
Special Contribution for the Defence at 20% will be imposed on income from dividends derived or deemed to derive from January 1 2012, as opposed to the 17% tax rate introduced by the previous law amendments.
Furthermore, a Cyprus resident company is exempt from the payment of the special levy on dividends received from a Cyprus resident company, excluding dividends paid indirectly after four years from the end of the year the profits from which the dividend derive occurred.
Special Contribution for Public Officials, Public Employees and Retired Public Officials and Employees
The special contribution by public officials, employees and retired employees from January 1 2012 and two years onwards will be as follows:
| Salary € | Reduction % |
| 0- 2.500 | 0% |
| 2.501-3.500 | 2,5% |
| 3.501-4.500 | 3,0 % |
| Over 4.501 | 3,5% |
In case that the public official or employee is at the higher tier of his position an additional 0, 5% will be deducted.
Special Contribution for Private Sector Employees and Retired Private Sector Employees
The contribution rates that apply for public officials, employees and retired employees as shown above, will apply for the private sector as well, for two years as from January 1 2012. The contribution will be shared equally by the employer and the employee.
The contribution rates will also apply to self-employed individuals.
However special contribution will not be levied on the following:
- Retirement gratuity;
- Amounts paid by welfare funds;
- Remuneration of foreign diplomatic and consular representatives who are not citizens of the Republic;
- Remuneration of Cypriot ships’ crews; and
- Allowances to cover business expenses for an employer.
The special contribution by the public and private sectors is deductible from income tax.
Increase of the Standard VAT Rate from 15% to 17%
The standard VAT rate will increase from 15% to 17% and the new rate will become effective on March 1 2012. The reduced rated of 5% and 8% will not be affected.
What is more, by amending the Tenth Schedule of the VAT Law all taxable persons making a taxable supply of goods or services to non-taxable persons are obliged to issue and deliver legal invoices.
Any person who fails to comply with this regulation will be subject to a charge equal to 20% of the value of the transaction.
Furthermore, any person who fails to issue and deliver legal invoices at the time of the transaction shall be guilty of an offence and liable to a fine up to 1,700 euro or up to 3 years imprisonment or to both.
What data should be contained in a legal invoice are stated in the law and include the date of issuance of the invoice, name , address and registration number of the taxable person and substantial description of the goods or services provided.
Formation and Operation of an Independent Financial Stability Fund
A law was voted for the creation of a financial stability fund which will aim at resolving the financial crisis, ensuring financial stability and cleansing of affected credit institutions. All credit institutions incorporated in Cyprus and their branches have an obligation to pay a contribution fee that equals to 0, 03% of the liabilities of the covered institution.
It should be noted that the special contribution of 0,095% that credit institutions pay on deposits will be repealed. The law will come into force in 2013.
Salary Freeze
The salaries of public sector employees will freeze for a period of two years.
Georgia Papa
Eurofast Taxand, Cyprus
Tel: +357 22 699 222
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