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New Law regulating the settlement of overdue Taxes providing for an exemption of up to 95% discount from additional charges imposed

The law applies to tax liabilities arising under the Income Tax Law; Special Contribution Law; Immovable Property Law; Capital Gains Tax Law; Inheritance Tax Law; Special Contribution Law; Stamp Duty Law and VAT Law.

The scheme applies in the following cases:

  • Taxpayers who have tax liabilities under the above-mentioned laws for the years up to and including 2015 which at the time of application have been assessed by the Tax Department and need to be settled.
  • Amounts due as a result of submission of a self-assessment for the years up to and including 2015 where the tax returns have been submitted but no tax payments have been made.
  • Tax liabilities assessed by the Commissioner of Taxation after 3 July 2017 and relate to tax years up to and including 2015. In such cases, the application for the scheme must be made within three months from the date which the tax becomes due.

The relief of interest and/or penalties will be applied on the overdue taxes based on the number of instalments arranged (with a maximum amount of 60 instalments permitted under the scheme). Significantly, the law provides for up to a staggering 95% relief from the charges imposed if a lump-sum payment is made for the full settlement of the tax debt.

The law allows a taxpayer who is not satisfied with the Tax Commissioner’s decision to object, providing the reasons for the objection and providing supporting documentation and the Commissioner must respond within 30 days from receiving the objection. Furthermore, where a taxpayer who makes an application for settlement under the new scheme is under criminal prosecution, the Commissioner informs the Attorney General accordingly to consider suspending the prosecution.

An agreed settlement scheme can be terminated in the following instances; where the taxpayer fails to file tax returns and VAT returns during the agreed settlement period; where the taxpayer fails to settle a liability for the period after 15 December 2015; delays in paying any three instalments or one instalment for more than three consecutive months.

If you are interested in benefiting from the new amendments, applications to enter this scheme must be submitted within three months from the date the law comes into force (3 July 2017). Exemptions are made for cases where the tax liability is assessed after 3 July 2017.

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Amendments to law for Cyprus tax Residency requirements to allow for an individual to be considered as tax resident of Cyprus with only 60 days of stay in Cyprus

As of 14 July 2017, the Cyprus House of Representatives voted a bill that amended the law for the criteria for determining the rights of an individual to be considered as a tax resident of Cyprus.

In the past, for an individual to be eligible to be considered as tax resident of Cyprus, he/she had to remain in Cyprus for 183 days in one year.

As per the new law, the below three criteria must be met for an individual to be considered as tax resident of Cyprus. It is noted that an individual who fulfils all the criteria, but if in the year of the exercise of any business and/or employment in Cyprus and/or holding of position to a table person of Cyprus have ceased, then he/she will not be considered as tax resident of Cyprus in that specific tax year.

New Criteria for Cyprus Residency

  1. The individual must remain in Cyprus for at least sixty days in the tax year and must not be tax resident in any other state for the same tax year;
  2. The individual must carry out business in Cyprus and/or be employed in Cyprus and/or be a director in a company which is tax resident in Cyprus during the tax year of consideration;
  3. The individual must maintain a permanent residence in Cyprus, which can be rented or owned.

The total number of days of stay in Cyprus are calculated as follows:

  • The day of departure from Cyprus is considered not considered as a day of stay in Cyprus;
  • The day of arrival in Cyprus is considered as one day of stay in Cyprus;
  • Arrival in Cyprus and departure from Cyprus on the same day is considered as one day of stay in Cyprus;
  • Departure from Cyprus and arrival to Cyprus on the same day is not considered as a day of stay in Cyprus.

It is reminded that Cyprus tax residents are taxed on their worldwide income under Cyprus income tax rates which are as follows:

TAX BRACKET TAX RATE %
Up to €19,500 0%
Between €19,501 – €28,000 20%
Between €28,001 – €36,300 25%
Between €36,301 – €60,000 30%
Over €60,000 35%
 

·             New Non – Domiciled Rules:

Individuals who are tax resident of Cyprus but are not domiciled in Cyprus are exempt from special defence contribution imposed on dividends, interest and rental income.

·             Relief for high paid individuals taking up employment in Cyprus:

50% exemption applies to non-residence individuals taking up residence in Cyprus for an employment in Cyprus with income exceeded €100,000 for a period of 10 years (extended from 5 years to 10 years).

·             Relief for non resident individuals taking up employment in Cyprus:

20% exemption of the remuneration with a maximum amount of €8,550 from any office or employment exercised in Cyprus by an individual who was resident outside Cyprus before commencement of employment. The exemption applies for a period of 5 years (extended from 3 years to 5 years). 

 

Please contact us for further information or simply if you would like to explore the benefits of Cyprus Tax Residency for your particular situation

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Cyprus signs three new Double Taxation Agreements with Luxembourg, Barbados and San Marino

During the month of May 2017, Cyprus has concluded 3 new Double Tax Agreements in an effort to further strengthen its ties with other countries and establish Cyprus as a forceful international financial centre.

Cyprus – Barbados Double Taxation Treaty

On 3 May 2017 Cyprus and Barbados signed an agreement for the avoidance of double taxation in London based on the Organisation of Economic Cooperation and Development (OECD) model. The agreement was reached following several years of negotiations.

The double taxation agreement signed between Cyprus and the Caribbean island lays the groundwork for cooperation between the two countries.

Paradoxically, Cyprus and Barbados have a lot in common; both countries are former British colonies that gained independence in the 1960s; both countries have a strong service-based economy with tourism and financial services playing an important role.

Cyprus – Luxembourg Double Tax Treaty

On 8 May 2017 Cyprus and Luxembourg signed a bilateral treaty on the avoidance of double taxation based on the OECD model.. The Agreement is now awaiting ratification and if it is ratified before the end of 2017 then it is expected to enter into force as of 1 January 2018.

The Grand Duchy of Luxembourg was one of the few European countries with which Cyprus did not have a Double Tax Treaty in force.

This new agreement is expected to pave the way for the enhancement of the financial and trade ties between the two countries.

The main characteristics of the treaty are as follows:

  • Withholding taxes will be imposed only on dividends at the following rates:
  • 0% where there is at least 10% participation by a tax resident company
  • 5% in all other cases
  • No withholding taxes will be imposed on interest.
  • No withholding taxes will be imposed on royalties (as long as the recipient of the royalties is the beneficial owner of the income).
  • Gains from the sale of shares of immovable property will be taxed in the country where the asset is located.

 

Cyprus – San Marino Double Tax Treaty

The Minister of Foreign Affairs of Cyprus, Mr Ioannis Kassoulides and the Minister of Foreign Affairs of San Marino, Mr Nicola Renzi, signed a double tax treaty in Nicosia on 19 May 2017.

The agreement is expected to strengthen the ties between the two countries.

 

The conclusion of new Double Tax Treaties between Cyprus and other countries is aimed at establishing Cyprus as an international financial centre and attracting additional foreign investment and further solidifying Cyprus’s international diplomatic ties.

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Economic climate reaches historical levels with Bank Deposits increasing for 12th month in a row

Further improvement in the economic sentiment was recorded in May 2017 in yet another sign that the economy is improving and stabilising, with growth expected to remain positive in the coming quarters.

Specifically, according to research conducted by the Centre for Economic Research of the University of Cyprus the Economic Climate Index increased by 2.3 points in May compared to April 2-17. This is partly due to the improvement in the retail trade as well as consumer confidence.

Increase in Bank Deposits

In yet another clear sign of the overall improvement and stability of the Cyprus economy, in April 2017 bank deposits have increased for the 12thmonth in a row, showing an increase of 6.4% on an annual basis, equal to €3.31 billion.

Significantly, household deposits displayed an increase of €49.8 million, to reach a total of €23.18 billion.

Decrease in Loans

According to data by the Central Bank, in April 2017 total loans showed a net decrease of €91.6 million. On an annual basis, the total loan amount fell by 5% or €2.77 billion.

A decrease in loans was recorded both for loans from residents of third countries and quite importantly by residents of Cyprus and EU Member States.

The total amount of loans of Cyprus residents decreased by €73.8 million to reach a total of €45.07 billion.

Household loans fell by €43.8 million to reach €20.57 billion.

The highest recorded level of domestic household loans was recorded in December 2012 and reached a total of €23.85 billion, representing a decrease of around €3.28 billion.

The increase in bank deposits by local households and the decrease in loans by Cyprus residents is a clear sign of the improvement of the economy which is expected to show further signs of development, growth and stability in the coming quarters.

Such developments have prompted credit rating agency DBRS to upgrade the Republic of Cyprus’s long-term foreign and local currency issuer ratings from B to BB and change the trend from Positive to Stable. It is widely expected that the fiscal reforms adopted in the last two years will help maintain a sound budget position.

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Cyprus exhibits further indications of economic growth and stability

According to the monthly Economic Sentiment Indicator (ESI-CypERC), economic sentiment has picked up in April fuelled by the overall economic improvements as well as growing consumer confidence in the services, construction and retail trade industries.

In the first quarter of 2017, Cyprus has exhibited robust signs of the recovery of the economy across various sectors, including the following:

Increase in the registration of new companies
In March 2017 there has been a significant increase in the registration of new companies following the decrease experienced in February 2017. Prior to that, the registration of new companies increased for 17 consecutive months. Specifically, the number of new companies registered increased by an astounding 36.8% in March 2017 compared to the previous month.
According to statistics by the Department of Registrar of Companies and Official Receiver, this represented an increase of 8.8% compared to March 2016.

Credit ratings agency Fitch maintains ‘BB’ rating for Cyprus
This illustrates the agency’s long-term positive prospects for growth and stability in Cyprus.

The country’s Gross Domestic Product (GDP) increased by 2.8% in 2016 and by 1.7% in 2015 due to the strong home-based demand whilst tourism increased to record levels.

The agency predicts an increase in GDP by 2.7% in 2017 and a further 2.5% in 2018 which will be fuelled by the recovery in the labour market and by significant investments.

Increase in tourist arrivals in March reaches new record
According to data from the statistical service CyStat, there was an increase of 13.5% in tourism compared to 2016. At the same time, 19.2% more Cypriot residents travelled abroad compared to the same month last year.
Compared to March 2016, tourist arrivals in Cyprus in March 2017 increased by 2.8%, showing signs that the tourism level in Cyprus for 2017 could reach a new high.

Tourist arrivals in Cyprus from Russia also experienced an increase by 55.1% in March 2017 compared to March 2016 while tourist arrivals from Greece increased by 10.7%.
Overall, more tourists from other tourist markets such as Israel and France chose Cyprus as a destination this March.

The UK and Russia were the main sources of tourism in Cyprus in March 2017.

Significantly, the revenue generated from tourism experienced a significant increase reaching EUR 35.4 million in January 2017, compared to EUR 29.1 million in January 2016 (which is an increase of 21.6%).

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Cyprus expands its ever-growing Double Tax Treaty network to include Treaties with India, Latvia, Bahrain and Georgia

Cyprus – Iran Double Tax Treaty also entered into force on 5 March 2017

As of 1 January 2017, Cyprus’ Double Tax Treaty network has grown to include four new treaties with India, Latvia, Bahrain and Georgia.

Cyprus has also signed treaties with Ethiopia, Iran and Jersey but this are yet to be ratified.

A protocol with Ukraine updating the existing Double Tax Treaty has also been signed but not yet been ratified.

Double Tax Treaties are fundamental in allowing for the efficient investment in either country. In essence, a Double Tax Treaty will ensure that an investor will not have to pay taxes on income in both countries (i.e. country of residence and source of business activity / income) at once.

All new treaties are based on the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention framework with certain modifications in each case.

Cyprus – India Double Tax Treaty

Although a Treaty between Cyprus and India was previously signed in 1994, this was updated to reflect global taxation, political and economic changes. The new Treaty is effective as of 1 January 2017 in Cyprus and 1 April 2017 in India.

The main provisions of the Treaty are as follow:

Withholding Tax: 10% withholding tax on dividends, interest (exemption for interest arising from the Government of a state, political sub-division or local authority) and on royalties and fees for technical services.

Capital Gains: any resulting Capital Gains by a resident of Cyprus or India will be taxable in the country of investment.

Gain from the disposal of shares that have been purchased before 1 April 2017 shall be taxable only in the country in which the individual is resident.

The Treaty includes an article on assistance in the collection of taxes.

Cyprus – Latvia Double Tax Treaty

The main provisions of the Treaty are as follow:

Withholding Tax: if the recipient is a company and the beneficial owner of the income, zero withholding tax on dividends; 10% withholding tax in all other cases. This is subject to an exemption for interest arising and beneficially owned by the government of a country, including political sub divisions and local authorities, as well as for interest paid in respect of a loan guaranteed by a government, subdivision or authority.

Capital Gains: any resulting Capital Gains by a resident of Cyprus or Latvia will not be taxable in the country of investment (apart from gains from immovable property, gains from movable property of a property establishment, gains from the sale of shares/comparable interests deriving from than 50% of their value directly from immovable property situated in the country of investment).

The Treaty includes an article on offshore activities.

Cyprus – Bahrain Double Tax Treaty

The main provisions of the Treaty are as follow:

Withholding Tax: zero withholding tax imposed on dividends, interest and royalty payments.

Capital Gains: any resulting Capital Gains by a resident of Cyprus or Bahrain will not be taxed in the country of investment except for gains from immovable property and gains from the alienation of movable property of a permanent establishment.

Gains from the sale of shares will only be taxed in the country of residence of the seller of the shares.

Cyprus – Iran Double Tax Treaty

Significantly, the DTT signed between Cyprus and Iran on 4 August 2015 entered into force on 5 March 2017 and will come into effect as of 1 January 2018.

The Treaty is expected to pave the way for new investment possibilities between Cyprus and Iran.

Dividends:

  • Not greater than 5% (at source) of the gross amount if the beneficial owner is a company which holds directly at least 25% of the capital of the company which pays the dividends and the recipient is the beneficial owner of the dividends;
  • 10% of the gross dividend amount in all other cases (if the recipient of the dividends is the beneficial owner).

Interest: not greater than 5% (at source) of the gross interest amount if the recipient is the beneficial owner.

Royalties: not greater than 6% (at source) of the gross royalty amount if the recipient is the beneficial owner.

Capital Gains: Capital Gains resulting from the disposal of immovable property will be taxed in the country in which the immovable property is located. Capital gains arising from the disposal of shares in a company deriving more than 50% of the value directly from immovable property shall be taxed in the country in which the property is situated.

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Deadline for submission of personal tax returns for 2016 approaching

By 30 April 2017, salaried individuals that are tax resident in Cyprus and have a gross income exceeding €19.500 must submit their personal tax returns for the year 2016.

An individual is considered to be a tax resident in Cyprus if s/he spends more than 183 days in Cyprus in one calendar year.

The following income tax rates are applicable for individuals:

Chargeable Income € Tax Rate      % Accumulated Tax
0 – 19.500 0 0
19.501 – 28.000 20 1.700
28.001 – 36.300 25 3.775
36.301 – 60.000 30 10.885
Over 60.000 35  

 

Note that the following are some of the items exempt from income tax:

  • 100% of Interest Income (except if the interest arises from the ordinary or closely related to the ordinary business activities of an individual).
  • 100% of Dividend Income.
  • 100% of Profits from the sale of Securities.
  • 100% of Capital payments from approved funds such as life insurance plans or provident funds.
  • 100% of profits from a Foreign Permanent Establishment (under certain conditions).
  • 100% of Remuneration from salaried services rendered outside Cyprus to a foreign employer or foreign permanent establishment for more than 90 days in one tax year.
  • 100% of Cyprus widow’s pension. For amounts over €19,500, there is a taxable flat rate of 20%.
  • 50% of the remuneration from employment in Cyprus by an individual who was not a resident of Cyprus before the commencement of the employment (this applies for 10 years for employments commencing as of 1 January 2012 given that the annual remuneration is greater than €100,000.
  • 20% of the remuneration from employment exercise in Cyprus by an individual who was not a resident of Cyprus before the commencement of the employment.
  • Foreign pensions are taxed at the flat rate of 5% on amounts over €3.420.

The following are some of the items deducted from income tax:

  • 20% of gross Rental Income.
  • 100% of donations / contributions to approved charities (with receipts).
  • Amount invested in approved small and medium sized innovative enterprises (under certain conditions).
  • 100% of loss made in current year and previous five years (if individuals prepare audited financial statements).
  • 100% of contributions made to trade unions or professional bodies.
  • 100% of special contributions of private sector employees, pensioners and self-employed.
  • Social insurance contributions; annual life insurance premiums; provident fund contributions; pension fund contributions; medical fund contributions.

For any further information or for assistance in preparing your mandatory annual tax submissions please contact a member of our team who will be happy to assist you in any way.

 

 

 

 

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UK Chancellor of the Exchequer, Philip Hammond, delivered the 2017 Spring Budget which included tax changes which affect foreign property investors

UK Chancellor of the Exchequer, Philip Hammond, delivered the 2017 Spring Budget which included tax changes which affect foreign property investors

UK Chancellor of the Exchequer, Philip Hammond, delivered the 2017 Spring Budget which included tax changes which affect foreign property investors

The changes announced this week, due to take effect as of the new UK tax year of 6 April 2017, adversely affect Cypriots and foreign nationals who own property in the United Kingdom (UK).

As of 6 April 2017, Cypriot and other foreign investors who own property in the UK, whether directly or indirectly through offshore companies and other vehicles, will have to pay Inheritance Tax at the rate of 40%.

Until now, Cypriots and other foreign nationals who owned property in the UK through offshore vehicles were exempt from paying the hefty Inheritance Tax imposed by the UK Government.

Inheritance Tax is a tax on the property, money and possessions of an individual who has died. The current rate of Inheritance Tax levied is 40% charged on part of the estate valued above £325,000. If an individual’s estate is worth less than £325,000 after death or if the estate is left to the spouse or civil partner or a charity as opposed to offspring’s, then there is no Inheritance Tax to be paid.

In a further blow to property investors, it was also announced that as of April 2017, investors with buy-to-let mortgages will not be able to claim relief from their tax liability on the full amount of mortgage interest paid. Currently, the full amount of mortgage interest paid is off-set from the tax liability. However, this is set to change as of April 2017 with the relief going from 100% to zero by April 2020 and all landlords with buy-to-let mortgages will have to pay tax on the full amount received less a tax relief fixed at 20%.

One way to beat this new tax hike is to restructure your property ownership and own property via a Company. The Government has also announced plans to reduce the corporate tax rate from 19% to 17% by 2020, just as the new buy-to-let changes will take effect.

The Chancellor also announced changes on the domicile status of an individual, whereby as of April 2017 a non-UK domiciled individual will be considered as domicile if they have been UK resident for 15 of the last 20 years.

In light of these changes recently announced as well as the impending ‘Brexit’, if you think these changes may affect you, please contact one of our expert advisers who can go through them with you and explore ways to mitigate the setbacks.

 

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Cyprus is experiencing ‘solid economy recovery’ according to the European Commission

Cyprus is experiencing ‘solid economy recovery’ according to the European Commission

Cyprus is experiencing ‘solid economy recovery’ according to the European Commission

The European Commission (EC) predicts growth of 2.5% in 2017 with inflation projected to be moderately positive.

According to the EC winter forecast, Cyprus is experiencing sound economy recovery with growth expected to continue and remain vigorous. The EC forecasts growth of 2.5% in 2017 and 2.3% in 2018 (2.8% in 2016). Inflation is expected to be moderately positive in 2017 and float at around 1.2% in 2017 and 1.1% in 2018.

The labour market is also expected to do well, with employment estimated to have increased by 2.7% in 2016 and is expected to grow by 2.2% in 2017 and an additional 1.8% in 2018 with unemployment declining by 12% in 2017 and 11% in 2018.

In a real sign of the general wellbeing and improvement of the Cyprus economy, by 2018 the debt is expected to be below 100%. For 2016, the debt stood at 107.4%, and it is expected to fall to 103.2 in 2017.

The budget of 2017 will show a deficit of -0.2% and notably, in 2018 and 2019 it is projected that it will show a surplus of 0.4%.

According to the University of Cyprus Economic Research Centre, forecasts for growth are much higher at 3.1%. While this figure is slightly more enthusiastic than the EC’s forecast of 2.5%, what is important is that all outlooks for Cyprus’s economy remain positive, with Cyprus really expected to grow and flourish as of 2017 and in the coming years.

The Cyprus Economic Research Centre report credits this growth to the robust Gross Domestic Product and employment growth experienced in the third quarter of 2016 as well as the moderate growth in the EU. Further, the normalisation of the domestic banking sector has greatly contributed to the stability of the economy and forecasts for further growth in 2017 and 2018.

The tourism industry, one of the largest sectors in Cyprus, has outperformed forecasts for 2016 and is expected to grow even further in 2017, with revenue generated from tourism in 2016 alone estimated to have surpassed €2.3 billion.

Undoubtedly, the Cyprus economy has come a long way in a relatively short period since the 2013 banking crisis. The banking system has since stabilised, public finances are on a healthy track and the Government has regained access to the markets.

It is then not much of a surprise that all reports, while varying slightly in their predictions, expect the Cyprus economy to grow and flourish in 2017 onwards.

 

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Increase in Property Prices in Cyprus

Increase in Property Prices in Cyprus

The first increase in property prices since 2009 has been reported in the last quarter of 2016, in a further sign of the stability and expansion of the Cyprus economy.

The Property Price Index has noted increases in property prices across all towns and asset categories.

According to the Property Price Index, an increase in residential property prices for houses and flats across Cyprus in the last quarter of 2016 has been recorded by 0.6% and 0.9% respectively.

The biggest increase documented has been in Limassol with an increase of 1.4% in prices for flats followed by Paphos, with an increase of 1.77% for houses.

According to the 28th publication of the RICS Cyprus Property Price Index (a quarterly price and rental index which tracks property and rental prices across Cyprus), compared to the third quarter of 2015, year on year prices of flats increased by 0.6%, 0.9% for houses and 0.9% for offices.

Tellingly, as the Cyprus economy has also shown significant signs of increase and stability in 2016, there has also been an increase of 0.8% in retail prices.

The volume of property transactions during the quarter was also higher on a year on year basis.

According to Mr Vakis Iacovou, Fellow Chartered Certified Accountant (FCCA), as the Cyprus economy is expected to grow further in 2017 and in turn, property prices are also expected to increase, now is the ideal time for investors to purchase assets in Cyprus.

 

Positive increases were also noted in rental values and gross yields.

In comparison to the third quarter of 2015, rents for flats increased by a staggering 5.3%, 6.7% for houses, 3.9% for retail, 3.5% for offices and 2.5% for warehouses.

At the end of the third quarter of 2016, average gross yields for apartments were at 4%, 2% for houses, 5.4% for retail, 4.4% for warehouses and 4.5% for offices.

According to the Central Bank of Cyprus, the positive growth of the property market in Cyprus is as a direct result of the expansion and stability of the economy overall. In the last quarter of 2016, the economy’s performance outperformed expectations.

It is predicted that as the economy stabilises and grows further in 2017, so too will the confidence in the property market return. Thus, it is anticipated that as demand increases in 2017, property prices across the island will grow from strength to strength.

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