Towards the end of 2011 the Cyprus Parliament enacted a number of tax changes affecting international business companies operating in Cyprus:-

1. The VAT rate was increased from 15% to 17% with effect from 1st March, 2012. The reduced VAT rates of 5% and 8% respectively have not been affected.

2. [...]]]> TAX UPDATE JANUARY, 2012

Towards the end of 2011 the Cyprus Parliament enacted a number of tax changes affecting international business companies operating in Cyprus:-

1. The VAT rate was increased from 15% to 17% with effect from 1^st March, 2012. The reduced VAT rates of 5% and 8% respectively have not been affected.

2. A special contribution on emoluments of employees, self employed and pensioners in the private sector has been introduced. The special contribution qualifies as a deduction from income and is calculated on gross monthly earnings as follows:-

Gross monthly earnings                             Special Contribution

Up to €2500                                                              0%

From €2500 to €3500                                             2.5% (with a minimum of €20)

From €3500 to €4500                                             3.00%

Over €4500                                                               3.50%

In the cases of employees the special contribution is divided equally between the employer and the employee and is paid to the Inland Revenue Department monthly. In the cases of self employed people this is payable on 1/8, 1/9 and 31/12 in every year.

This special contribution will be in force for the period 1^st January, 2012 to 31^st December, 2013.

3. Where a company provides a loan or any other monetary facility to any director, shareholder or any relative thereof up to the second degree of kindred such person will be deemed to have a monthly benefit of 9% per annum on the balance outstanding of any such loan or facility. This amount will be included in his taxable income.

Companies registered in Cyprus have obligations imposed on them amongst others by the Companies Law and the Income Tax Laws irrespective of whether a company is active or dormant.

Companies Law Cap. 113 (the “Law”) requirements:

Section 142 (1) (a) of the Law provides that the directors of a company shall [...]]]> OBLIGATIONS OF CYPRIOT COMPANIES

Companies registered in Cyprus have obligations imposed on them amongst others by the Companies Law and the Income Tax Laws irrespective of whether a company is active or dormant.

Companies Law Cap. 113 (the “Law”) requirements:

Section 142 (1) (a) of the Law provides that the directors of a company shall cause in every year to be prepared financial statements on the basis of International Accounting Standards.

Section 152A of the Law provides that every company which is not a small size company must have its financial statements audited by a Cyprus registered auditor.

The term “small sized company” means a company that fulfills simultaneously at least two of the following three criteria during the whole financial year:

(a) its total assets do not exceed € 3.4 million,
(b) its net turnover does not exceed € 7 million,
(c) its average number of employees does not exceed 50 persons.

A company which initially fulfills the above criteria is classed as a “small sized company” but will loose this status if it exceeds the above criteria during two consecutive financial years.

Section 118 (1) of the Law provides that every company having a share capital must once in every year, within 42 days from the date of its Annual General Meeting, make a return to the Registrar of Companies containing details of its registered office, authorised issued and capital, shareholders, directors and secretary etc. This annual return must be accompanied with a copy of the financial statements of the Company of the previous year translated in Greek.

Assessment & Collection of Taxes Laws (the “Tax Laws”)

According to the section 30(1) of the Tax Laws, every Company deriving income from sources both within and outside Cyprus, as this is specified in the Tax Laws, shall for each year of assessment maintain books and records on the basis of which financial statements are prepared in accordance with acceptable auditing standards by the auditor of the Company.

A Company that fulfils the exemption criteria under section 152A of the Cyprus Companies Law is, however, required by the Tax Law to prepare audited financial statements on the basis of which the necessary tax return is prepared.

Recent changes to the obligations of companies registered in Cyprus which have just been introduced and certain changes to the Cyprus tax regime. They are as follows:

1. The introduction of a flat annual levy of €350,00 for all companies registered in Cyprus. No levy is paid [...]]]> RECENT CHANGES TO THE CYPRUS TAX SYSTEM

Recent changes to the obligations of companies registered in Cyprus which have just been introduced and certain changes to the Cyprus tax regime. They are as follows:

1. The introduction of a flat annual levy of €350,00 for all companies registered in Cyprus. No levy is paid in the year of registration of a company.

In the case of companies belonging to the same group of companies the total levy will not exceed €20.000,00.

This levy does not apply in cases of dormant companies or companies that have no assets.

The levy for 2011 must be paid by 31^st December 2011 and until 30^th June for the year 2012 and for subsequent years.

Where a company fails to pay the levy in time, a 10% surcharge is payable if payment is made within 2 months of the due date and 30% surcharge is payable if payment is made within 5 months of the due date.

Where the company fails to pay the levy the Registrar removes the company from the register (this prevents the company from filing documents or request certificates from the Registrar of Companies). The company may within 2 years restore its name to the register upon payment of a levy of €500,00. After 2 years the levy is increased to €750,00.

2. The increase of the tax rate for individuals from 30% to 35% for amounts in excess of €60.000,00 (effective from the tax year 2011).

3. With a view to encouraging the establishment of new businesses, tax incentives are offered for the employment of persons who are not tax residents of Cyprus. 50% of the gross emoluments is allowed to be deducted from taxable income of individuals that become tax residents of Cyprus for the first time. This deduction is allowed for 5 years and applies provided the gross emoluments of the individuals exceed €100.000,00 per annum (starting date 1^st January 2012).

4. The increase of the Special Contributions for Defense on interest received both by individuals and companies by tax residents of Cyprus from 10% to 15%.

Notes:

(a) There are no changes in the Cyprus Corporation Tax or withholding taxes.

(b) A further package of measures will follow soon that will possibly include the increase of the VAT rate from 15% to 17% and also provide investment incentives which will enhance the attractiveness of Cyprus as an international business centre.

Nicosia, August 2011