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Recent Changes in the Tax Legislation of Cyprus

8 сентября 2015

Cyprus has introduced in July 2015 part of the proposed changes in the Cypriot tax legislation for the purposes of, amongst others, introducing incentives for encouraging new investments in Cyprus and the creation of regional headquarters in Cyprus for international groups, including those in the shipping industry. The most important amendments to the laws are summarized below.


Notional interest deduction on equity

Cyprus introduced provisions to allow notional deduction of interest in cases where funds are introduced to the company in the form of equity instead of interest bearing loans. The main provisions are:

  • Deemed interest deduction will be allowed on “new equity” funds introduced into a company after 1 January 2015.
  • The deemed interest will be calculated on the basis of a “reference interest rate”. This rate is equal to the yield on the 10 year government bonds, plus 3%.
  • The notional interest to be deducted cannot exceed 80% of the taxable income of the company.



Non – Domiciled persons not liable to defense tax

Currently defense tax is payable only by Cyprus tax resident individuals and is payable on dividends, interest and rental income earned by the tax resident individual both from sources within Cyprus and outside Cyprus.

The law has been amended, so Cyprus tax resident that individuals who are not considered to be “domiciled” in Cyprus would be exempt from payment of defence tax on dividends, interest and rents, even if they are considered to be tax residents of Cyprus.


C. Changes in the Capital gains Tax laws

Capital gains from sale of property acquired between the date the law comes into effect and 31 December 2016.

Capital gains from the subsequent disposal of immovable property purchased between 17 July 2015 and 31 December 2016 is exempt from capital gains tax. This covers both land and buildings, but it does not cover property acquired as a result of sale of property in settlement of a debt. The sale of the immovable property can be made any time.