From January 2, 2018 in Cyprus, the new VAT Law has entered into force, providing for changes in the main VAT Law No.95(I)/2000.
The document introduces VAT at a standard rate for the sale of building land, as well as leasing/rental of business premises on the conditions specified in the law. It also introduces the reverse charge mechanism for VAT-subject supplies of land and property under a loan restructuring/force-sale arrangement, which will mostly influence financial institutions.

Imposition of VAT at the standard rate of 19% on building land

The standard VAT rate of 19% will be applied in the following cases:

  • transfer of ownership;
  • transfer of indivisible land portion;
  • transfer of ownership via contract or sale agreement or agreement which specifies that the ownership will be transferred in the future or leasing agreement with buyout option.

The above shall apply to non-developed building land which is meant for the construction of one or more structures in the course of carrying out a business activity. More clarifications are still needed for the application of the law, such as the circumstances whereby a transfer is not considered to be a part of a person’s economic activities. It is expected that these clarifications will come in the form of Regulations in the near future as they require the approval by the House of Representatives.

VAT on leasing of immovable property used for business purposes

The leasing of immovable property, except for the buildings which are used as residential dwellings, for the taxable persons for taxable business activities will be subject to VAT.
The lessor has the right, based on terms and conditions which will be specified by the Commissioner of Taxation in his relevant Notification, to make decision for the non-imposition of VAT to the lessee of the immovable property. This variant is irrevocable.
The provisions on leasing will apply to lease agreements which are concluded from 13 November 2017.

Introduction of Reverse Charge provisions on transfers resulting from loan restructuring or forced transfer of property to lender

Transfers under loan reorganization or compulsory transfers are usually made without any payment to the taxpayer by the Bank. The transaction creates a VAT liability, which the taxpayer would not be in the position to pay. For this reason, article 11D is introduced in the main VAT Law, which provides for the transfer of an obligation to pay VAT from the taxpayer to the recipient (the bank). These provisions apply to immovable property, including land and/or buildings which are transferred along with the land in which they are built on, provided that the transaction takes place before the first occupation of the building.
The new reverse charge provisions came into force on January 2, 2018 and they will remain in force until December 31, 2019.
Since the property development and management industries contribute greatly to the economy of Cyprus, the consequences of this new amendment to the VAT Law will have an impact on many businesses and investments across the island, despite the inaccuracy and lack of clarification of certain aspects.

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Company Registration in Cyprus


If you have decided to take your business to the international arena and chosen this promising jurisdiction, the first thing you have to do is to register an enterprise in Cyprus. It is important to understand that the registration procedure, as well as the list of documents and requirements will differ depending on the chosen organizational and legal form. In accordance with the provisions of the local legislation, this may be a company limited by shares (where the liability of the participants depends on the nominal value of their shares) or a company limited by guarantee (the responsibility of the members is determined by the amount of their contribution). In addition, a Cypriot firm may be private or public, which implies the absence or the availability of the opportunity to offer its shares or debentures to the general public.

Registration Procedure of Public Company Limited by Shares
The registration procedure consists of five stages:
1. Reservation of the company name and obtaining of the initial permission from the Registrar of the Companies (1 day). A standard application for the approval of the name is submitted in person or by mail to the Cypriot "single window". The application can be also filed electronically to the Registrar of the Companies and the Official Liquidator through the site form: https://efiling.drcor.mcit.gov.cy The cost is 30 Euros and it consists of a mandatory payment of 10 Euros and an additional payment of 20 Euros to speed up the procedure. 2. The preparation of the Memorandum and Articles of Association by the lawyer (1 day). The Registrar of the Companies does not have a standard form for Memorandum and Articles of Association. The Companies Act provides a general template applicable to any type of activity. According to the law, the lawyers must draw up the Memorandum and Articles of Association, as well as sign an appropriate declaration. 3. The submission of the documents to the Company Registration and Liquidation department (2 days). The documents certified by a lawyer / jurist included in the special register can be submitted personally or online in such a composition: • the declaration form (ΗΕ1 the affidavit of the lawyer / jurist with the signature of the secretary of the district court); • the form concerning the legal address (HE2); detailed information on the directors and secretaries (HE3); • a list of persons who are willing to act as directors of a public company; • the original of the Memorandum and Articles of Association; • an application of a "single window" for the registration of a legal entity (when filed through a "single window"); • a commission of EUR 105 , an annual registration tax of 0.6% of the authorized capital, EUR 60 for filling out the accompanying documents, additional 100 EUR for the speed-up procedure (paid in cash, by check or bank transfer).
Please, note that the "single window" accepts only applications with the payment for speed-up, as well as with the application mentioned above. Upon the completion of the registration, a "Certificate of Registration" is issued. Upon the request and upon payment of the amount of 220 Euro, the following documents and /or their certified copies may be issued: • Certificate of Shareholders; • Certificate of Directors and Secretaries; • Certificate of legal address; • А certified copy of the Memorandum and Articles of Association; • А certified copy of the Certificate of Registration 4. Registration in the Tax Department for obtaining an individual tax number (ITN) and VAT number. From July 1, 2014, the Tax Department was created, which combined the Department of Internal Taxes and the VAT Service. The registration in the Tax Department can be carried out both personally and through the Internet. To register online, you will need an electronic signature. In both cases it is necessary to provide: - Form 162 for the registration as a taxpayer and receipt of ITN. - Form 101 for the registration (and activation of ITN) as a VAT payer. This registration is made after reaching the VAT threshold or by voluntary registration. The companies can be registered online at: http://www.businessincyprus.gov.cy/mcit/psc/psc.nsf/All/749FC411823BDD31C225785600375018?OpenDocument 5. Registration for the social contributions in the Ministry of Labor, Social Security and Social Insurance (1 day, at the same time as the previous procedure). The registration for social contributions in the Ministry of Labor can be made through the Internet at: https://www.pay.sid.mlsi.gov.cy/sisweb3/index.jsp
Requirements to the authorized capital and shares
• The minimum share capital is EUR 25,629. • The shares can be divided into classes and series, as well as provide for special property rights.
• The company must issue a prospectus or a statement in its place before issuing shares or bonds.
Requirements for the Director
• The company must have at least two directors. • There are no requirements for the residence of the directors, but it should be taken into account that it affects the residence of the company.
• At the registration of the enterprise or any change of the director, the information on the last one is submitted to the open state register and it is public. • The company must have a secretary who keeps the seal of the secretary and the seal of the company.
Beneficiary
• The beneficiary is the actual owner of the company that can manage it directly or through a nominal service (through a nominee director or shareholder).
• The information about the beneficiary is stored in the office of professional intermediaries, but it is not filed in the open register and it is not subject to disclosure.
Requirements to the founder
• The shareholders of the company can be both physical and legal persons. • The shareholders of the company can be both residents and non-residents of Cyprus. • МThe minimum number of shareholders is 7, the maximum is unlimited.
• The information on the shareholders and the share of ownership of each of them is submitted to the open state register and it is publicly available. The information on the shareholders is also indicated in the Shareholders Certificate.
Office of the company
• There is no requirement for an office in Cyprus. • The presence of the office in Cyprus determines the residence of the company and allows you to take all the advantages of the resident companies in Cyprus.
• The information about the legal address is recorded when the company is registered in the Certificate of legal address.
Reporting, audit
• The directors of each company are responsible for maintaining proper accounting records and ensuring the preparation of a full set of financial reports that gives a true and fair view in accordance with the International Financial Reporting Standards (IFRS). • The financial reporting is accompanied by a management report which is prepared by the directors. • The financial reporting must be verified and signed by an auditor licensed in Cyprus. The audit is conducted in accordance with the International Standards on Auditing (ISA). • The financial reporting should be presented to the shareholders at the annual general meeting. The first meeting of the company may be held within 18 months from the date of registration of the Company. Subsequently, the general meeting of the shareholders must be held within 15 months from the date of the previous annual meeting.
• The enterprises with the subsidiaries are required to prepare consolidated financial reporting. The companies which parent companies publish consolidated financial reporting are not required to file such reporting, prepared properly or if the group is considered to be a small / medium group (that is, two of the three criteria are met: total assets <20 million Euro, net turnover <40 million Euro, average number of employees <250).) • The tax authorities require from the companies that are active to file financial reporting that form the basis of the company's tax return. • All companies registered in Cyprus together with the annual financial reporting with an audit report are required to file an annual declaration to the Registrar of Companies, which includes income, information on the registered office, shareholders, directors, secretary of the company, etc.
Registration Procedure of Private Company Limited by Shares
The registration procedure consists of five stages:
1. Reservation of the company name and obtaining of the initial permission from the Registrar of the Companies (1 day. A standard application for the approval of the name is submitted in person or by mail to the Cypriot "single window". The application can be also filed electronically to the Registrar of the Companies and the Official Liquidator through the site form: https://efiling.drcor.mcit.gov.cy The cost is 30 Euros and it consists of a mandatory payment of 10 Euros and an additional payment of 20 Euros to speed up the procedure. 2. The preparation of the Memorandum and Articles of Association by the lawyer (1 day). The Registrar of the Companies does not have a standard form for the Memorandum and Articles of Association. The Companies Act provides a general template applicable to any type of activity. According to the law, the lawyers must draw up the Memorandum and Articles of Association, as well as sign an appropriate declaration. 3. The submission of the documents to Department of Registration and Liquidation of Companies (2 days). The documents certified by a lawyer / jurist and included in the special register can be submitted personally or online in such a composition: • the declaration form (ΗΕ1 the affidavit of the lawyer / jurist with the signature of the secretary of the district court); • the form concerning the legal address (HE2); • detailed information on the directors and secretaries (HE3); • the originals of the Memorandum and Articles of Association (by law, they must be drawn up by an authorized / registered lawyer); • an application of a "single window" for the registration of a legal entity (when filed through a "single window"); • a commission of EUR 105, an annual registration tax of 0.6% of the authorized capital, EUR 60 for filling out the accompanying documents, additional 100 EUR for the speed-up procedure (paid in cash, by check or bank transfer).
Please, note that the "single window" accepts only applications with the payment for speed-up, as well as with the application mentioned above. Upon the completion of the registration, a "Certificate of Registration" is issued. Upon the request and upon the payment of the amount of 220 Euro, the following documents and /or their certified copies may be issued: • Certificate of Shareholders; • Certificate of Directors and Secretaries; • Certificate of legal address; • А certified copy of the Memorandum and Articles of Association; • А certified copy of the Certificate of Registration. 4. Registration in the Tax Department for obtaining an individual tax number (ITN) and VAT number. From July 1, 2014, the Tax Department was created, which combined the Department of Internal Taxes and the VAT Service. The registration in the Tax Department can be carried out both personally and through the Internet. To register online, you will need an electronic signature. In both cases it is necessary to provide: - Form 162 for the registration as a taxpayer and receipt of ITN. - Form 101 for the registration (and activation of ITN) as a VAT payer. This registration is made after reaching the VAT threshold or by voluntary registration. The companies can be registered online at: http://www.businessincyprus.gov.cy/mcit/psc/psc.nsf/All/749FC411823B DD31C225785600375018?OpenDocument 5. Registration for the social contributions in the Ministry of Labor, Social Security and Social Insurance (1 day, at the same time as the previous procedure). The registration for the social contributions in the Ministry of Labor can be made through the Internet at: https://www.pay.sid.mlsi.gov.cy/sisweb3/index.jsp
Requirements to the authorized capital and shares
• There are no requirements on the size of the authorized capital, however, in practice, it is customary to have an authorized capital of EUR 1 000. • The shares can be divided into classes and series, and also provide for special property rights.
• Bearer shares are prohibited. • The company must issue a prospectus or an application instead of it, before issuing shares or bonds.
Requirements for the Director
• A company must have one director. • There are no requirements for the residence of the director, but it should be taken into account that it affects the residence of the company.
• At the registration of the enterprise or any change of the director, the information on the last one is submitted to the open state register and it is public. • The company must have a secretary who keeps the seal of the secretary and the seal of the company.
Beneficiary
• The beneficiary is the actual owner of a company that can manage it directly or through a nominal service (through a nominee director or shareholder).
• The information about the beneficiary is stored in the office of professional intermediaries, but it is not filed in the open register and it is not subject to disclosure.
Requirements to the founder
• The shareholders of the company can be both physical and legal persons. • The shareholders of the company can be both residents and non-residents of Cyprus. • The minimum number of shareholders is 1, the maximum - 50.
• The information on the shareholders and the share of ownership of each of them is submitted to the open state register and it is publicly available. The information on the shareholders is also indicated in the Shareholders Certificate.
Office of the company
• There is no requirement for an office in Cyprus. • The presence of an office in Cyprus determines the residence of the company and allows to take all the advantages of the resident companies in Cyprus.
• The information about the legal address is recorded when the company is registered in the Certificate of legal address.
Reporting, audit
• The directors of each company are responsible for maintaining proper accounting records and ensuring the preparation of a full set of financial reports that gives a true and fair view in accordance with the International Financial Reporting Standards (IFRS). • The financial reporting is accompanied by a management report which is prepared by the directors. • The financial reporting must be verified and signed by an auditor licensed in Cyprus. The audit is conducted in accordance with the International Standards on Auditing (ISA). • The financial reporting should be presented to the shareholders at the annual general meeting. The first meeting of the company may be held within 18 months from the date of registration of the Company. Subsequently, the general meeting of the shareholders must be held within 15 months from the date of the previous annual meeting.
• The enterprises with the subsidiaries are required to prepare consolidated financial reporting. The companies which parent companies publish consolidated financial reporting are not required to file such reporting, prepared properly or if the group is considered to be a small / medium group (that is, two of the three criteria are met: total assets <20 million Euro, net turnover <40 million Euro, average number of employees <250).). • The tax authorities require from the companies that are active to file financial reporting that form the basis of the company's tax return. • All companies registered in Cyprus together with the annual financial reporting with an audit report are required to file an annual declaration to the Registrar of the Companies, which includes income, information on the registered office, shareholders, directors, secretary of the company, etc.
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Taxation in Cyprus


A constant interest of modern entrepreneurs in this economic zone is largely due to its favorable tax regime, approved by the European Union and the Organization for Economic Cooperation and Development. The loyal taxation system of Cyprus includes a fairly low income tax rate (12.5%), access to a broad network of agreements on avoidance of double taxation that effectively structure investments in the tax sphere, a low tax burden for Cypriot corporations, incentives and tax incentives for high-paid managers and individuals with high incomes. Here is a brief overview of the main local taxes to your attention to enable you to understand how the tax and investment climate of Cyprus meets your expectations and opportunities.

Corporate tax (corporate income tax)
The corporate tax rate is 12.5%.
The profits of the resident company in Cyprus are imposed irrespective of the place and sources of its formation.

Non-resident companies are subject to corporate tax only on income received in the Republic.

Resident companies are the companies that are managed and controlled in Cyprus.

Tax is paid by two advance payments, based on a preliminary estimate, which should be at least 75% of the final tax amount.
Taxes paid abroad can be deducted from payable corporate tax.
From July 1, 2016, a taxpayer has the right to include the income of a permanent representation abroad (PRA) into account of the tax base of the company in Cyprus and set-off the taxes paid by the permanent
representation abroad in another jurisdiction.
The income exempt from corporate taxation:
• income from the sale of securities;
• dividends (except those dividends that are deducted by the payer of dividends from the tax base for income tax);
• interest income that does not arise from the ordinary (or closely related to the ordinary) activities of the company;
• income received from the activities of the permanent representation abroad (subject to certain conditions);
• income in the form of exchange rate differences (forex), except for exchange differences relating to trading in foreign currency or derivatives for foreign currency.
The tax year in Cyprus is a calendar year.
Contribution to defense needs
The defense contribution is subject to dividend income, "passive" interest income and rental income received by legal and physical persons-tax residents of Cyprus (except for physical persons that do not have a domicile in Cyprus). When calculating the amount of the contribution, the rates indicated in the table below are applied:
Type of income Physical persons, % Companies, %
Dividends received from the company-tax resident of Cyprus 17 0
Dividends received from the company-tax non-resident of Cyprus 17 0*
Interest on savings certificates and government bonds 3 30
The interest accrued by the fund for providing staff, the social insurance fund 0 3
Interest from the main (or closely related to the main) activities 0 0
Other interest 30 30
Rental income (subject to 75% of income) 3 3
* This exemption does not apply if:
• more than 50% of the gross income of the company paying dividends, directly or indirectly received from investment activities;
• the effective tax rate of the company distributing dividends is significantly less than the tax rate of the company receiving dividends.
In cases when exemption is not applied, income is subject to taxation by the contribution at a rate of 17%.
Capital Gains Tax
The tax rate is – 20%.
Tax is levied after the adjustment for indexation on income from the sale of real estate located in Cyprus or shares in the companies that directly or indirectly own real estate in Cyprus, provided that not less than 50% of the market value of the shares sold is derived from the property located in Cyprus, or a contract of sale of real estate located in Cyprus.
The property is not subject to CGT, which retirement relates to the following:
• land plots acquired during the period from July 16, 2015 to December 31, 2016, with their subsequent sale;
• property transferred in connection with death;
• property donated to the relatives to the third degree of kinship;
• property donated to a company which shareholders are the members of the donor's family, or donated by such a company to its shareholders, subject to certain conditions;
• property donated to charitable or state organizations;

• property transferred as a result of reorganization;
• property transferred as a result of the exchange, provided that all profits from the exchange were used to purchase other property;

• income of a physical person from the sale of an apartment or a private house - up to 85 430 euros, from the sale of rural land by a farmer - 25 629 euros.
VAT
The supply of goods and services in Cyprus, as well as the purchase of goods from the EU and the import of goods into Cyprus, are taxed. The export of goods or services is taxed at a rate of 0%.
The standard rate is 19%.
The reduced rates are 5% or 9%. These rates are levied on specific goods, services or works. For example, the rate of 5% is levied on acquisition and/or construction / reconstruction of housing, which will be used as the main residence.
The following categories of goods and services are exempt from VAT:
• lease of real estate (in this case, leasing with the right of redemption is not subject to exemption);
• the majority of banking, financial and insurance services;
• most medical and dental services;
• certain cultural educational and sporting events;
• transfer of real estate (except for the transfer of buildings before their first use), including the transfer of land and used buildings;
• postal services provided by the national postal authority;
• lottery tickets and coupons for bets on football and horse racing;
• management services provided by investment funds.
The annual VAT registration threshold is 15 600 euros.
НTaxpayers charge VAT on their taxable supplies (outgoing tax) and pay VAT on the goods or services they purchase (incoming tax).
If the outgoing tax in the VAT period exceeds the total incoming tax, the payment must be made in favor of the state. If the incoming tax exceeds the outgoing one, the difference is transferred as a loan and credited against the future outgoing VAT.
Income tax at the source of payment
Dividends, interest and royalties paid to non-residents of Cyprus are not subject to income tax at the source of payment. The exception is royalties received on the rights used in Cyprus. They are subject to tax at a rate of 10% (in the case of cinematographic films - 5%).
Technical services provided by non-residents in Cyprus are subject to taxation at a rate of 10%. However, if such services are provided through a permanent representation of a non-resident in Cyprus or carried out between the related companies, they are not subject to taxation.
The income received by non-resident persons from implementing any professional activity in Cyprus or fees of public non-resident artists is taxed at a rate of 10%.
The income received in Cyprus by non-residents (if they do not have a permanent representation) for providing services in the exploration, extraction or exploitation of the continental shelf, as well as creation and use of pipelines and other installations on land, on the seabed and on the sea surface, is taxed at a rate of 5%.
Commission charged by the Lands Administration for the transfer of ownership of real estate.
When selling real estate, the commission is charged in such amounts:

• 3% of the market value for the amount of up to 85,000 euros;
• 5% of the market value for the amount of up to 85,001 - 170,000 euros;

• 8% of the market value for the amount of more than 170 000 euros.
When transferring real estate free, the commission is calculated depending on the subjects of the transfer:
• from parents to children - 0%;

• between spouses or relatives up to the third knee - 0.1% of the market value of the property as of 01.01.2013;
• when transferring to a trust manager - € 50.
If the purchase of real estate is subject to VAT, no commission is charged.
If the purchase of real estate is not subject to VAT, the commission is reduced by 50%.
Tax on capital
When registering a company in Cyprus:
• the authorized share capital is taxed at a rate of 0.6% + 105 euros;
• the issued share capital is not taxed if the shares are issued at their nominal value. If shares are issued with a premium, the tax is 20 euros.
With the subsequent increase in capital:
• the authorized share capital is taxed at a rate of 0.6%;
• for each additional issue of shares (at a face value or with a premium), a tax of 20 euros is levied.
Employer contributions
The social insurance contribution is charged within the maximum amount of the remuneration (in 2017 it is 4 533 euros per month) at a rate of 7.8% for both an employer and employee. It is applied until December 31, 2018.
An employer also carries out the following contributions calculated on the basis of remuneration of an employee:
• in the social consent fund – 2,0%
• in the reserve fund – 1,2%
• in the fund of industrial training – 0,5%
• in the holiday fund (if there is no exemption) – 8,0%
The amount of the contribution to the social consent fund is calculated for the entire amount of the remuneration, in the rest funds - it is limited to the maximum amount of compensation (as on calculating the social insurance contribution).
In Cyprus, the following types of taxes are not levied:

• tax on real estate (abolished from January 1, 2017);
• inheritance tax (abolished from January 1, 2000).
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Business in Cyprus


Cyprus attracts international attention and it is getting more promising country for business, investment and life. The success of the island is due to the progressive legislation, regulatory regime and a powerful network of providers of financial and professional services. The government and institutions of Cyprus are actively determined to retaining leadership in the development of the industry, providing access to fast-growing markets and supporting business in Cyprus.

Among the main reasons of the attractiveness of Cyprus for the development of entrepreneurship are:
• Performance of Cyprus as a distribution center and “gateway” for investment in the European Union, Eastern Europe, Asia and Africa • Membership in the European Union and the European Monetary Union • An enviable quality of life • Highly educated, qualified and multilingual staff • A wide range of excellent legal and accounting services • A cost-effective business establishment and ongoing maintenance • Favorable tax regime, approved by the EU and OECD • Access to a wide network of double taxation agreements that effectively allows to structure investments in the tax sphere
• Effective and modern regulation, fully coordinated with the relevant EU directives • The possibility of placing collective investments in Cypriot and other recognized stock exchanges of the EU • The low tax burden imposed on Cypriot corporations • Incentives and tax benefits for highly paid managers and individuals with high incomes • Modern and effective legal, accounting and banking services based on English practice • Integrated automobile, air and sea transport solutions and services • Developed telecommunications network and easy access by air and sea
Legal System of Cyprus

The Republic of Cyprus is a member of the Eurozone and the European Union. Until 1960, Cyprus was a part of the British Empire, and even now, its own legal and judicial systems are still linked very closely to the United Kingdom. Since then, Cyprus has become an independent, sovereign presidential republic with a written constitution that guarantees the law supremacy, political stability and respect for human rights and private property. The corporate rules of law of Cyprus are based on English company law, and the legal system is based on general English law. The legislation of Cyprus, including labor law, is absolutely coordinated and complies with the legislation of the European Union. The EU directives are implemented in the local legislation, and the rules and standards have the direct application in Cyprus.

Companies in Cyprus

Public Company Limited by Shares
Private Company Limited by Shares
Exempt Private Company
Societas Europaea
In accordance with the provisions of the local law, there are two categories of the companies that can be established in Cyprus:
• A company limited by shares - the liability of its participants depends on the nominal value of their shares. • A company limited by guarantee - вhe liability of its members is determined by the amount of their contribution. This company has no authorized capital, therefore, money is not transferred to the account. The liability of the participants is limited by the amount established in the statutory documents. This amount will be a guarantee that participants must pay in the event of termination of the company. As a rule, this form of the company is used for charitable and non-profit organizations.
In addition, a Cypriot company may be private or public. • A private company cannot issue invitations to the public, subscribe to its shares or debentures. The name must contain the ending "limited", "ltd" or "Ltd". • A public company can offer its shares or debentures to the general public. The name must contain one of the following endings: “Public Company Limited”, “Public Company Ltd”, “Public Co. Ltd”,”Plc”,”Public Limited” or “Public Ltd”.
Public Company Limited by Shares

Analog of PLC.
Private Company Limited by Shares

Analog of PJSC.
Exempt Private Company

In fact, it is a private company limited by shares, which is exempt from the obligation to file financial reporting to the Registrar of the Companies, and it has no restrictions on the issuance of loans to its directors. In practice, the companies in this form are rarely established, since the tax service still recommends the companies to submit audited accounts. In addition, there is a number of limitations for such a company, for example: • No corporation, except for another exempt company, can own its shares or debentures. • The number of holders of debentures should not exceed 50. • The founder cannot be the director of the company.
Societas Europaea

The name must contain the ending "SE". This legal form is applied to the companies that operate or intend to operate in several Member States of the European Union. Read more in ourarticle.
Rules of Transfer Pricing in Cyprus
The current practice of the minimum interest rate, authorized by Cyprus tax authorities for loans between the related companies, provides for an annual interest rate of at least 0.35%. However, starting from July 1, 2017, an interest rate based on the Transfer Pricing Rules should be used to all financial transactions between a Cypriot company and a related foreign company. In other words, here the principle of the outstretched hand is used, when each of the parties should act as it would act, being independent. The interest rate on such financial transactions as loans or similar instruments should be justified by transfer pricing researches,
prepared by the independent experts based on the OECD transfer pricing guidelines. The new rule will be also applied regarding the current financial agreements (loan agreements, etc.) concluded before the date of the innovation. According to the statement of the Cyprus tax authorities, the need to revise the minimum interest rate for financial transactions between the related parties (with the participation of a Cypriot company) arose in connection with the BEPS initiative and the Code in the sphere of enterprise taxation, as well as in the compliance with the prospect of the EU state aid.
Rules of CFC (Controlled Foreign Companies) in Cyprus
At the moment, they are not applied.
Cyprus international agreements in the tax sphere
The agreements on avoidance of double taxation were signed by Cyprus with the following states:
Azerbaijan Armenia Austria Bahrain Belarus Belgium Bulgaria
United Kingdom Hungary Greece Georgia Denmark Egypt Iceland
Canada China Estonia Ethiopia Germany Finland France
Iran India Ireland Italy Qatar Kuwait Kyrgyzstan
Latvia Lebanon Lithuania Malta Mauritius Moldova Norway
United Arab Emirates Poland Portugal Romania Russia San Marino Serbia and Montenegro
Seychelles Singapore Syria Slovakia Slovenia United States Tajikistan
Thailand Ukraine Uzbekistan Czech Republic Sweden Yugoslavia South Africa
The agreements on avoidance of double taxation were signed by Cyprus with the following states:
Andorra Argentina Australia Austria Belgium Bonaire, St. Eustathius and Saba Bulgaria
Hungary Germany Guernsey Gibraltar Greece Denmark Jersey
India Iceland Spain Italy Ireland Colombia Korea
Latvia Liechtenstein Lithuania Luxembourg Malta Mauritius Mexico
Latvia Liechtenstein Lithuania Luxembourg Malta Mauritius Mexico
San Marino Seychelles The Slovak Republic Slovenia United Kingdom Faro Island Finland
France Croatia Czech Republic Switzerland Sweden Estonia South Africa

Cyprus - Flag

October 14, 2016 in order to bring legislation into line with the BEPS requirements (plan to counter the erosion of the tax base and output gains from taxation), the Government of the Republic of Cyprus passed a law that introduces a number of amendments to existing intellectual property regime (hereinafter - the EC).

These amendments to the IP regime came into force on 07.01.2016 year.

It should be noted that until now existed in Cyprus IP regime has not been approved by the majority of EU member states, as well as been widely criticized.

So, focus on the main points of the IP regime change which, in our view, require attention.

First, once it is worth to note that the tax rate for the use of intellectual property (hereinafter - IS) unchanged at 2.5%.

To determine the qualifying EC introduced a modified factor relation criterion (modified nexus approach). According to this criterion, the definition of qualifying IP narrowed. This factor suggests a link between the cost of the development of IP, most IP and income produced by the IP data objects. In this approach, the taxpayer must itself carry out research and development work (hereinafter - R & D).

In addition, a special formula has been derived for determining the qualifying income:

KP (qualifying income) = (amount of qualifying expenses + costs within the "allowance") / (total R & D costs) * total income from the use of IP.

It is worth noting that in the modified mode of R & D costs incurred permanent establishment of the company (hereinafter - PP) outside Cyprus are considered qualifying expenses (in expenses covered by the new regime). The only condition is that the profits of PP should be subject to tax in Cyprus on the basis of the corresponding application in the tax declaration (declaration is not subject to review). In addition, if the profits of a foreign PP taxed in another country, the Cyprus tax is practically not occur on the basis of the foreign tax set-off mechanism.

Also, it should be noted that the transitional provisions were introduced, according to which the provisions of the existing IP regime will apply to 31.06.2021 year.

Thus, the provisions of the existing IP regime shall continue to apply in respect of:

  1. existing IP assets;
  2. IP assets acquired (directly or indirectly) from affiliated entities in the period from 02.01.2016 on 30.06.2016, if they meet the criteria of the new IP regime;
  3. IP assets acquired from an independent person or independently developed in Cyprus in the period from 2 January to 30 June 2016.

According to these amendments, under a qualifying IP subject:

  1. patents;
  2. computer software;
  3. the IP assets that are non-obvious, and useful innovation, as well as the income from which does not exceed EUR 7.5 million. per year (50 ml for taxpayers that are part of the group).

At the same time, are not subject to amendment brands (including brands), marketing of IP objects, as well as branding rights.

Also, it should be noted that the mentioned amendments introduced requirements tracking income and expenses in the accounting records (tracking of income and expenditure). That is expected to maintain separate accounting for research and development costs in terms of dividing them in qualifying and not qualifying.

Intellectual property created as a result of expenses not qualifying type, will not be covered under the new regime, in profit from the use of IP assets will be taxed at a rate of 12.5%.

Our lawyers are closely watching the changes in the legislation of EU member states. If you want to keep abreast of changes in areas of interest to you, we are always ready to provide you with qualified legal advice.

Author: Yuriy Krasilnikov

managing partner Finance Business Service

Park in Cyprus

The Ukrainian parliament is currently being finalized for submission to the discussion of the draft law on ratification of the Protocol amending the Convention between the Government of Ukraine and the Government of the Republic of Cyprus for the avoidance of double taxation and prevention of tax evasion on income tax. This Protocol provides for changes in the taxation of dividends, interest on loans, as well as the alienation of the property income.

With regard to dividends, the top rate will be reduced from 15 to 10%. But lower tax rate - 5% survive only if ownership of at least 20% of the capital of a legal entity. But how exactly a person - remains a mystery, as in the original text of the Protocol stated "Partnership About", ie the "Partnership", while the bill "Partnership About" translated as "Society". As such, this provision leaves room for corruption because it allows you to abuse the tax authority in determining the rate that must be applied by the payer.

The rate of taxation of interest on loans increased from 2% to 5%.

Changes are also proposed concerning the taxation of income from the alienation of shares and corporate rights. Unfortunately, due to the incorrect translation of the original text of the Protocol difficult to understand the content of the article, but it is apparent attempt to tax such income on the territory of Ukraine, in some cases. For example, the alienation of shares of a closed joint-stock company, or, if in another contracting country, such income is not taxed (in Cyprus the tax rate on such transactions - 0%).

Regarding royalties, payment of which is carried out by residents of Cyprus - the rules have not yet changed, accordingly it is an opportunity for tax optimization.

If you are interested in this information or if you would like advice on the company's discovery, our staff are ready to advise you at your convenience.

Author: Olena Kutova

senior lawyer of the Finance Business Service company

Double tax Cyprus and Ukraine

The Ukrainian government has announced a change to the existing agreements on avoidance of double taxation signed with Cyprus.

The revised text will close a loophole that led to the fact that the income from immovable property situated in Ukraine avoid taxation in Ukraine.

Income derived by a Cyprus resident from the sale of shares or other corporate rights will be subject to taxation in Ukraine if more than 50 percent of this revenue is directly or indirectly related to income immovable property situated on the territory of Ukraine.

The minimum rate on dividends is increased from two percent to five percent. This low rate is used when the recipient owns 20 or more percent of the company distributing dividends and investment at least EUR 100,000 to obtain holding.

The tax rate of ten percent is used otherwise.

The revised section on dividends will come into effect not earlier than 1 January 2019. Other changes proposed to bring in agreement with the latest international tax standards developed by the Organization for Economic Cooperation and Development.

The amendment has been sent to the Ukrainian legislators for approval.

Author: Sergey Panov

managing partner Finance Business Service

Corporate tax in 2016

UK - The Corporation Tax main rate for 1 April 2016 is set at 20%. This rate will fall to 19% for the year beginning 1 April 2017, and to 18% for the year beginning 1 April 2020.

Hong Kong - Profits tax levied at rate of 16,5% for companies carrying on business in Hong Kong (and 15% for unincorporated businesses) on relevant income earned in or derived from Hong Kong.

Ireland - Standard corporation tax rate on trading income is 12,5% and 25% on non-trading income.

Cyprus - Corporate tax rate is 12,5%. Certain types of income subject to Special Contribution for Defense at rates of 17%(dividends), 30%(interest) and 3%(rents).

Latvia – Rate is 15%.

Belize - All non-CARICOM residents, who have any taxable receipts originating from Belize, or in respect of any service provided in Belize, are required to pay business taxes as follows: Dividends - 15%, Insurance Premiums - 25%, Interest on Loans - 15%, Management fees - 25%, Rental of plant and equipment - 25%, Technical Services - 25%.

British Virgin Islands - No income tax.

United Arab Emirates - Income tax decrees currently enforced on oil and gas companies and branches of foreign banks. Oil and gas companies subject to rates of 50%55%, depending on Emirate.

Panama - Standard rate is 25% of net income, alternative minimum tax is 1,17% of gross taxable income.

Seychelles - Taxable income up to Seychelles revenue commission (SCR) 1 million taxed at 25%, income above SCR 1 million taxed at 33%. Businesses with turnover below SCR 1 million taxed at 1,5% on turnover, unless they opt for normal regime. Special rates apply to certain businesses.

Czech Republic - Rate is 5% for basic investment funds and 0% for pension funds (with certain exemptions).

Estonia - rate is 20%.

Author: Sergey Panov

managing partner Finance Business Service

Cyprus and Switzerland

The first Cyprus-Switzerland double tax treaty (DTT), signed in 2014, entered into force in October 2015 with its provisions taking effect as from January 1, 2016.

Under the treaty there is no withholding tax (WHT) on interest and royalties. There is also no WHT on dividends in those cases where the beneficial owner of the dividends is:

  • a company (other than a partnership), the capital of which is wholly or partly divided into shares, holding directly at least 10% of the capital of the company paying the dividends for an uninterrupted period of at least one year (the time period criterion may be satisfied post the date of the dividend payment), or
  • a pension fund or similar institution recognized as such for tax purposes, or
  • the government, a political subdivision, local authority, or the central bank of one of the two Contracting States.

Per the treaty, a 15% WHT on dividends applies in all other cases. Irrespective of this, per the provisions of Cyprus’ domestic tax legislation, Cyprus does not apply WHT on dividend payments out of Cyprus at all times.

Author: Sergey Panov

managing partner Finance Business Service