The government has announced plans to modernize the island`s taxation framework in order to make it more competitive and to attract investments. The changes proposed fall within three main categories:
High net worth individuals
In order to attract high-net worth individuals, it is proposed that the notion of “non-domicile” is introduced. According to this provision, individuals who choose to be Cyprus Tax Residents and are considered to be non-domiciled will be exempted from Special Defence Contribution Tax (SDC). Therefore, dividend and interest income will be tax exempt while rental income, which is normally subject to both SDC and income / corporation tax, will only be subject to the latter.
Additionally, the tax incentives for individuals that were not Cyprus Tax Residents prior to the commencement of their employment in Cyprus will be extended.
In order to encourage investments it is proposed that any new equity introduced to companies qualifies for tax deduction on the basis of a ‘notional interest’. Therefore, any new equity introduced will be treated as a loan with a tax deductible notional interest.
In order to encourage investments in real estate it is proposed that:
- The transfer fees are reduced by 50% for any sales taking place before 31/12/2016.
- Any real estate which will be purchased before 31/12/2016 is fully exempted from capital gains tax regardless of when it will be sold.
- A single Immovable Property Tax of 1 ‰ is imposed by the Tax Department on the values of the last official valuation (2013) while at the same time Immovable Property Taxes currently imposed by the local authorities will be abolished. A 10% reduction for timely payment will be applicable. According to the new regime only real estate owners with total assets which are worth more than 25,000 Euros (in 2013 prices) will be subject to IPT.
Please note that these proposals will only be applicable after they are enacted by the Parliament and published in the Official Gazette of the Republic of Cyprus.
For more information regarding how these changes might benefit you please contact us.