Income Tax, Special Def. Contribution, Tax Reliefs law Amendments
By: P. Constantinou & Co Ltd
In November and December 2021, the Cyprus House of Representatives passed the following amendments that will affect companies located or operating on the island.
Companies’ tax residency
Currently, a company is considered a tax resident of Cyprus if control and management are exercised in Cyprus. Under the new amendment of the law, any company incorporated or registered in Cyprus with management and control exercised outside of Cyprus will still be considered as a tax resident of Cyprus, except if the company is considered a tax resident in any other country.
The above amendment and clarification are basically eliminating the possibility to have a Cyprus incorporated company that is not tax resident in any jurisdiction.
Royalties paid to a company which is not a Cyprus tax resident but which is either tax resident in a country which is included in the EU black list of non-cooperative jurisdictions or to a company incorporated in one of such backlisted countries which is not considered tax resident anywhere will be subject to the 10% withholding tax, regardless if the asset for which the royalty is paid is for use in Cyprus or anywhere else.
Dividends paid by a Cypriot tax resident company either to, a company tax resident in a country which is included in the EU black list, or to a company incorporated in one of such blacklisted countries which is not considered tax resident anywhere, will be subject to a 17% special defence contribution. The changes apply in cases in which the company receiving the dividend holds more than 50% of the voting rights, share capital, or is entitled to receive more than 50% of the profits of the Cypriot tax resident dividend-paying company.
The above doesn’t apply to dividends paid by a Cyprus tax resident company in which is listed on any recognised stock exchange.
Interest paid to a company which is not a Cyprus tax resident but either tax resident in a country which is included in the EU black list, or to a company incorporated in one of such blacklisted countries which is not considered tax resident anywhere else, will be subject to 30% special defence contribution.
The above doesn’t apply to interest paid related to securities listed on any recognised stock exchange.
EU Black listed countries (adopted as of 5th of October 2021)
American Samoa, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, US Virgin Islands and Vanuatu.
The above amendments were voted on December 2021 and will come into force on 31 of December 2022.
Loan restructuring Tax reliefs
The Cyprus House of Representatives also approved the extension of the existing regulations regarding the granting of tax reliefs and incentives for loan restructuring arrangements.
The extensions concern mainly the following:
- No payment of stamp duty that derives from the restructuring of loans (up to the amount of existing debts)
- No imposition of capital gains tax
- No payment of land transfer fees (when transferring real estate in the name of the lender)
- No imposition of special defence contribution in Cyprus (when accounting profit and/or deemed dividend occurs)
- The transfer of memo, in case of acquiring a property by the lender in the context of a loan restructuring (upon transfer of the property from the borrower to the lender)
- Exemption from taxable income calculation of any benefit, surplus, profit or loss of a person that derives in the context of a loan restructuring.
The above tax relief extensions were voted in November 2021 and are valid until the 31st of December 2022.