Tax Developments in Cyprus – July 2015

Notional Interest Deduction (NID) – Change taking effect as of 1st January 2015

The aim of this amendment is to encourage the decrease of corporate debt and encourage equity investment – acquisition of shares in a company either at par value or at a premium.

On the basis of the NID any investment (in cash or in kind where the in kind investment is verified), by way of equity in a Cypriot Company, will enjoy a deduction from taxable income on the basis of the interest rate which would have been payable had the investment been made by way of a loan.

The interest rate for the NID is the interest paid by way of a yield on 10 year government bonds in the proceeding tax year on the country in which the funds are deployed as part of the business of the Company plus a 3% premium which cannot be less than the yield on the equivalent Republic of Cyprus Government Bond.

The maximum NID deduction is 80% of the taxable profit for that Company in that Year.

The NID is qualified in that there are a number of strict provisions seeking to avoid abuse of the system relating to group companies and restrictions on its application were it arises form conversions of share premiums existing at 31 December 2014.

Non-Domiciled Individuals (Non-Doms) – Change taking effect as of 16th July 2015

Non-Doms are effectively defined now as persons who were not a Cyprus tax resident for at least 20 consecutive years before the commencement of this provision. Such a person will not be considered to be domiciled in Cyprus, regardless of the fact that his domicile of origin (place of birth) is Cyprus.

Non-Doms will not under the new rules be liable to Special Defence Contributions (SDC) which amounts to a levy on passive income (dividends currently at 17% and interest income 30%).

This rule covers all income including rental income from Cypriot real estate which had previously been subject to SDC. Coupled with existing exemption of taxation on the disposal of shares this should prove a strong incentive in attracting HNWI to settle and invest in Cyprus.

Expected increases of the 50% exemption of income tax on salaries of over €100,000 from a period of 5 to 10 years should also enhance the attractiveness of Cyprus.

For further information contact Constantinos Messios at messios@messios.com