1. Saving of books and records
For income tax purposes, companeis should now keep their accounting records for six years instead of seven, after the end of the tax year to which they relate to. For VAT purposes, the period for keeping accounting records remains to seven years.
2. Keeping books and records
Persons, who receive income from dividends and interest, whether originated from sources within or outside the Republic, are obliged to keep accounting records.
3. Provisional tax
The submission of the provosional tax assessment should be made before 31st July of the current year instead of 1st August.
Provisional tax payments should be made in two instalments instead of three that was applicable until now. The first instalment must be paid on 31st July and the second on 31st December of the current year.
4. Employer’s Return (IR7)
The Employer’s Return (IR7) is now compulsory to be submitted electronically until the 31st of July of the year following the year of assessment.
5. Income tax returns of employees (IR1)
The submission date of annual income tax returns of employees is extended from 30th April to 31st July following the year of assessment in case that the submission of the return is made electronically. Alternatively, if the submission is made by hand the deadline remains 30th April.
6. Income tax returns of non tax residents
Companies which are incorporated in Cyprus but are not Cyprus tax residents must also submit an income tax return to the Director of Inland Revenue Department until the 31st December of the year following the year of assessment.
7. Increase in the penalty for fraudulent omission or delay in tax payments
Fraudulent omission or delay in tax payments by a natural person is subject to imprisonment for at least one year. Previously, imprisonment term would not exceed six months.
8. Capital gains tax
Any lease of immovable property which is registered with the Department of Lands and Surveys and any further disposal are taxable under Capital Gains Tax.
A disposal is considered to take place upon registration of the lease with the Department of Lands and Surveys and not upon the date of signature or commencement of the lease, and is applicable for the remaining years.
Buildings which are constructed by the lessee are considered as a gain for the owner of the immovable property.
9. Double tax relief
Between Cyprus and Germany
On the 16th December 2011 the agreement between Cyprus and Germany for double tax relief came into force. The agreement concerns taxes that are withheld at source from income that is payable or paid by 1st January 2012 and onwards as well as other taxes on income on or after 1st January 2012. The terms of the agreement dated 9th of May 1074 between Cyprus and Germany cease to apply
10. Rental income subject to special defence contribution
Individuals who are Cyprus tax residents and earn income from rent are subject to Special Defence Contribution.
If the tenant is a Company, then it is obliged to withhold the Special Defence Contribution from the monthly rend paid to the owner and pay the tax to the Inland Revenue department by the end of the following month.
11. Value Added Tax
From 1st March 2012, the standard VAT rate increased from 15% to 17%. For the period from 14th January 2013 to 12th January 2014, the standard VAT rate will be 18% and as from 13th January 2014 will increase to 19%.
As of 13th January 2014, the reduced VAT rate will increase from 8% to 9% for the following categories:
- Transport of passengers and their accompanying luggage in the Republic, with civil, intercity and rural taxis and with tourist, excursive and intercity buses.
- Restaurant and catering services (except sales of alcoholic beverages, beer and wine)
- Accommondation in hotels and resorts or similar
12. Social Insurance
From 2014, employers’ and employees’ social insurance contributions will increase from 6,8% to 7,8%. Also, social insurance contribution for self employed individuals will increase from 12,6% to 14,6%.
13. Amendments on IP rights
House of Representatives passed the amendments to the Income Tax Law in May of 2012. The amendments to the law provide that 80% of any income generated from IP rights will be exempt from Corporate Income Tax (CIT); therefore only 20% of the profits generated from IP rights (royalties) will be subject to CIT at the rate of 10%. This tax treatment is also applicable to any profit made from the future sale of the IP rights.
Furthermore, the law permits the deduction of all expenses resulting from the production of the royalty income, so, the amount to be paid may be reduced even further.
With regard to capital expenditure it should be noted that the Cyprus IP Company will be able to write off any capital expenditure for the purpose of the acquisition or development of the IP rights. Such a write off will be permitted for the initial five years of use. Straight line capital allowances at the rate of 20% will be applicable for the first five years of use. Consequently, a Cyprus IP Company will effectively be liable to a maximum tax of 2%, as it is only taxed on 20% of its profits in case of royalty income.
The amendments to the law have come into force on 6 July 2012 and have a retroactive effect as of 1 January 2012. In addition, it is expected that within the coming weeks the Cypriot Tax Authorities shall issue a circular providing detailed guidelines on the practical operation of the latter law.