Austerity Measures in Cyprus
The House of Representatives recently voted on a series of austerity measures. This is known as the first package of austerity measures in an attempt for the Cyprus Government to raise revenue. The measures include the following amendments to the law and/or taxation.
Increase of defence tax on interest from 10% to 15%. This increase affects Cypriot tax residents and is applicable to both individuals and corporations. In the case of corporations, if the interest results from the ordinary carrying on of any business, including any interest closely connected with the ordinary carrying on of the business then it is not subject to defence tax but corporation tax instead. This provision is applicable to interest received by residents (both individuals and corporations) and covers sources both within and outside Cyprus. In the case of non residents, then no defence tax is payable on interest payments.
Increase of defence tax on dividends from 15% to 17%. This increase is applicable to tax residents of Cyprus receiving dividends. This increase is also applicable to the deemed distribution rules and applies in cases where a tax resident company does not distribute at least 70% of its after tax profits within two years.
No defence tax is levied on dividends paid to non resident individuals or non resident corporations. Furthermore, the deemed distribution rules do not apply in cases where the shareholders of a resident company are not tax residents of Cyprus. If however, a Cyprus tax resident company is owned by another Cyprus tax resident company which is owned by non residents, then the deemed distribution rules will be applicable.
The above measures are effective as of the date of publication in the official gazette of Cyprus.
Immovable Property Tax: The new rates of immovable property tax, applicable to both individuals and companies owning property within the Republic of Cyprus will be as follows as from 1st January 2012:
Assessed Property Value Annual Property Tax
Up to € 120,000 0‰
€ 120,000 - € 170,000 4‰
€ 170,001 - € 300,000 5‰
€ 300,000 - € 500,000 6‰
€ 500,001 - € 800,000 7‰
Over € 800,000 8‰
Annual Company Levy: The Companies Law (Cap. 113) has been amended and as of 2011, all Cyprus registered companies are obliged to pay an annual levy of € 350 per year. This fee (for the year 2011) must be paid to the Registrar of Companies no later than the end of December 2011. Thereafter, the levy must be paid by the 30th June of each consecutive year. As far as groups of companies are concerned, the maximum levy which is to be imposed cannot exceed the amount of € 20,000.
If a Company does not comply with the new provisions and within the specified time periods i.e by the 30th June of each year then a 10% penalty will be imposed if the levy is paid within two months of the due date. If the levy is paid between two and five months, the penalty will be 30%. If a company fails to comply with the abovementioned provisions and the due dates, the Registrar of Companies will remove the company from it’s records and the company will only be able to return if the amount of € 500 per year is paid within two years of the company being removed and € 750 per annum after the two year period lapses.
Dormant companies, companies not owning any assets and companies owning property in areas not controlled by the Government of Cyprus are exempt from the annual levy.