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| Latest
Tax Legislation
|  | Corporation
tax for entities
The definition of resident of Cyprus is introduced.
A company is resident in Cyprus if its management and control is in Cyprus.
There
is no longer a distinction between local companies and International business
companies (IBCs). The taxable profits of all Cypriot companies will be taxed at
the rate of 10%. Existing IBCs that had income from their activities at 31 December
2001 can choose to be taxed with the rate of 4,25% until the end of the fiscal
year 2005 (but certain tax exemptions provided by the new legislation will not
be available).
 Dividend
income from abroad and from Cyprus is wholly exempt from corporation tax.
Profits
earned from a permanent establishment abroad are fully exempt from corporation
tax.
No taxation on the profits from the disposal of securities for all
the companies that are residents of Cyprus. “Securities” are defined
as shares, bonds debentures founders` shares and other securities of companies
or other legal persons, incorporated under the law in Cyprus or abroad and options
thereon.
Abolition of the 5 year restriction for the carrying forward of
losses. No time restriction on the carrying forward of losses.
Losses of
a company can be set off against profits of another company of the same group.
In
order to conform with EU, the new tax legislation adopts the appropriate EU directive
which enables without tax implications reorganizations, mergers acquisition and
amalgamations of companies.
Abolition of 10% minimum tax on utilization
of losses brought forward from previous years.
50% of the interest income
of a company resident of Cyprus is exempt from corporation tax. However interest
income earned from the trading activities of a company is fully taxable.
For
2002, 20% of the interest income earned by a company resident of Cyprus is exempt
from corporation tax.
Abolition of reduced rates for Income Tax for profits
from exports.
Abolition of exemptions available for the importation of
foreign exchange from activities abroad.
No withholding tax on the payment
of dividends, interest and royalties to non-resident of Cyprus.
There are
special rules for an additional special tax for 2002, 2003 and 2004 for semi-government
bodies and companies that are not controlled by foreigners.
Special contribution
of defence for entities
Abolition
of special contribution for defence for companies.
Dividend income is subject
to special contribution for defence at the rate of 15% in the case where the shareholder
is resident of Cyprus. In the case where a company resident of Cyprus does not
proceed with the distribution of a dividend two years after the end of the fiscal
year on which profits have been earned, 70% of the profit will be considered as
distributed (deemed distribution). In the case where the shareholder is non-resident
of Cyprus there is no deemed distribution of dividends.
Interest income
is subject to special contribution for defence at the rate of 10% in the case
when the company is resident of Cyprus.
Interest income earned from usual trading
activities is not subject to special contribution for defence (from 1 July 2002).
| Income
tax for individuals
An individual is resident of Cyprus if he lives
in Cyprus for one or more periods which exceed the total of 183 days per fiscal
year.
All individuals who are residents in Cyprus are taxed at the following
rates:
| |  |  |  | | Dividend
income from abroad and from Cyprus is fully exempt from income tax.
The
whole amount of interest income is fully exempt from income tax. For 2002, interest
income of L600 plus 50% of amount exceeding L600 is exempt from income tax.
No
taxation on the profits from the disposal of securities for individuals that are
residents of Cyprus. “Securities” are defined as shares, bonds debentures
founders’ shares and other securities of companies or other legal persons,
incorporated under the law in Cyprus or abroad and options thereon.
Abolition
of personal allowances and deductions for individuals who are residents of Cyprus
including married allowances and allowances for children. Social grants will be
provided in lieu of the allowances abolished.
 Abolition
of reduced income tax rates for expatriates working in international business
companies. For non-Cyprus residents taking up employment in Cyprus a special exemption
from income tax will apply for the first three years of their employment in Cyprus
amounting to 20% of income earned or L5.000 per annum whichever is the lower.
Profits
of an individual earned from permanent establishment abroad are wholly exempt
from income tax.
Special contribution for defence on individuals
Abolition
of special contribution for defence on employees,
self-employed persons and
retirees (from 1July 2002).
Dividend income is subject to special contribution
for defence at the rate of 15% in case where the shareholder is resident of Cyprus.
Interest
income is subject to special contribution for defence at the rate of 10% in case
where the individual is resident of Cyprus.
In case where the total annual
income including interest income does not exceed L7.000, the interest income is
subject to special contribution for defence of 3%. Individuals earning interest
income from saving bonds, development bonds and deposits with the Housing Finance
Corporation including interest earned by a provident fund will be subject to special
contribution for defence at 3% (from 1 July 2002).
| Value
Added Tax (VAT)
VAT is 15%
Immovable
property tax
Immovable property tax is imposed on immovable property situated
in Cyprus and the rates are amended as follows: | |  |
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