The Cyprus tax reform of 2002 is the most substantial tax reform ever made since the Republic of Cyprus was established in 1960.
The new tax regime that came into force on the 1 January 2003 brought about fundamental changes to the current tax system.
The major fundamental changes in the tax legislation of Cyprus are:
- The taxation of companies will be based on tax residency. Under the new legislation companies will be considered resident in Cyprus and taxed in Cyprus if they are managed and controlled in Cyprus.
- Participation exemption for dividends received from other companies.
- No withholding tax on dividends, interest and royalties payable to non-residents (foreign companies and individuals).
- The corporate rate is 10%.
- The term “resident” has been added to the vocabulary of relevant terms under the new taxation system. For corporate entities, as mentioned above, the criteria are management and control. As far as physical persons are concerned, an individual who stays in Cyprus for a period or periods exceeding in aggregate 183 days in the year of assessment is considered resident in Cyprus.
- Tax liability is based either on residence (worldwide income for residents) or on Cyprus source income only for non-residents. Incorporation of the Company per se is no longer a criterion establishing residence in Cyprus.
Circular by the Cyprus Inland Revenue on the definition of securities.
The Director of the Cyprus Inland Revenue, seeking to eliminate the uncertainty of the definition given in the law, has recently published Circular No. 2008/12 (hereafter ‘the Circular’) in which a clarification of the term ‘securities’ is provided.
From the Circular it follows that the Cyprus Inland Revenue has decided to adopt a very broad interpretation of the term ‘securities’ as defined above. The Circular contains a list of investment instruments that will be considered as securities by the Inland Revenue.
For interpretation of the definition of the term ‘Securities’, the Inland Revenue Department considers the below list of investment instruments as included in this term:
- Ordinary Shares.
- Founder’s shares.
- Preference shares.
- Options on securities.
- Short positions on securities.
- Futures/forwards on securities.
- Swaps on securities.
- Depositary receipts on securities, such as ADRs and GDRs.
- Claim rights on bonds and debentures that do not include entitlement to interest of such products.
- Index participations, provided that they relate to securities.
- Repurchase agreements or ‘Repos’ on securities.
- Participations in companies, such as Russian OOOs and ZAOs and American LLCs, provided that the same are subject to income tax, Romanian SAs and SRLs and Bulgarian ADs and OODs.
- Units in open-end or closed-end collective investment schemes that have been established and registered, and function in accordance with the provisions of specific and relevant legislation of the country of registration.
Examples of such collective investment scheme are:
- Investment Trusts, Investment Funds, Mutual Funds, Unit Trusts, Real Estate Investment Trusts;
- International Collective Investment Schemes or ‘ICIS’;
- Undertakings for Collective investments in Transferable Securities or ‘UCITS’;
- Other similar investment undertakings.