New Tax Measures to Attract Foreign Investors
The government of Cyprus has announced new amendments in the island’s tax system in order to:
- Attract foreign investment and
- Increase Cyprus’ economic activity
1. NOTIONAL INTEREST DEDUCTION
This measure enables companies to deduct deemed interest on new equity funds as of 1st January 2015.
The interest will be calculated based on the basis of a reference interest rate . This rate will be based on the 10 year government bonds yield, plus 3%.
NID Formula = (Reference Interest Rate) x (New Equity)
The NID cannot exceed 80% of the taxable income of the company in that year.
The reasoning of introducing the NID is to boost new investments and decrease the tax burden of the corporate sector.
2. NON – DOMICILE PRINCIPLE FOR DEFENCE TAX PURPOSES
From July 2015 the investment income(dividends, interests, rent) of individuals who are Cyprus tax residents but are not domiciled in Cyprus will be exempt from defence tax. This applies to both income that come from sources in Cyprus and abroad.
Such an exception aims to encourage the relocation of high net-worth individuals in Cyprus.
3. TAX EXEMPTION PERIOD OF HIGH EARNERS HAS EXTENDED
According to the legislation of Cyprus individuals who are Cyprus tax residents and have an annual income over €100,000 can enjoy 50% exemption from personal income tax for 5 years.
The personal tax exemption has now been extended to 10 years.
This amendment makes the island even more attractive for high net worth individuals.
4. PROFITS FROM THE SALE OF PROPERTY WILL BE EXEMPT FROM TAXATION
This amendment applies to property that has been purchased no later than at the end of 2016 and the profits of its sale will enjoy full tax exemption.
5. TRANSFER FEES REDUCTION
According to this bill a 50% reduction applies to the fees collected from the transfer of land that occurred until the end of 2016.