Recent Taxation Changes in Cyprus

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