2016 and 2017 have been years of significant tax law changes which are expected to have a substantial impact on taxpayers, writes Zoe Kokoni of Eurofast Global.
Cyprus is back on a growth track with GDP rates growing and unemployment rates falling. During 2016, the GDP of Cyprus grew by 2.8%, a growth which has continued into 2017 and is also expected to continue in 2018. Inflation similarly entered a positive course, while unemployment has been dropping from 12.9% in 2016 to 11.3% in 2017 and is expected to drop as low as 10.2% in 2019 per the predictions of the International Monetary Fund and the European Commission. 2017 has been a record year for tourism in Cyprus, with tourist rates outnumbering the total arrivals ever recorded in Cyprus. The Cyprus real estate market, which was hardly hit in the financial crisis, has also started recovering, with 2016 seeing the largest increase of the decade in the total property sales contracts submitted to the land registry. The Cypriot citizenship programme and residency programme could be argued to be two of the reasons of this growth, as the interest of foreign investors in Cyprus' real estate market keeps growing.
On July 14 2017, the House of Representatives voted into law a second test for determining the tax residency of individuals in Cyprus. The new criteria which must be met cumulatively for an individual to be considered a tax resident of Cyprus are the following:
a) Remains in Cyprus for at least sixty (60) days in the year of assessment;
b) Carries out any business in Cyprus and/or is employed in Cyprus and/or holds an office to a person resident in Cyprus at any time during the year of assessment; and
c) Maintains a permanent residence in Cyprus owned or rented by such individual
The new law has not yet been published in the official newspaper of the Republic of Cyprus but it is expected that it will be deemed to retroactively enter into force as of January 1 2017.
Once the new law become effective, an individual will be considered a Cyprus tax resident if they satisfy either one of the two tests.
On March 10 2017 the Cyprus Tax Office issued circular 2017/08, according to which changes have been introduced in the criteria for obtaining tax residency certificates.
Specifically, tax residency certificates may be issued during a tax year provided that the individual:
a) Registers with the Cyprus tax department and is assigned a tax identification code (TIC)
b) Submits a declaration according to which:
The reason of the above amendments is to avoid the complications of the prior criteria of obtaining tax residency certificates, according to which tax residency certificates were only issued once the 183 days rule had been met.
As of July 1 2017, the tax treatment of intra-group financing arrangements has been amended in Cyprus. 'Intra-group financing transactions' refers to finance activities between related parties, including permanent establishments in Cyprus. For the purposes of the transactions under the scope of the circular issued, it must be determined for each intra-group transaction whether it complies with the arm's-length principle. A comparability analysis must be performed in order to determine whether the transaction between independent entities is comparable to transactions between related entities.
In case of companies with a profile comparable to the entities subject to Regulation (EU) No 5/2013 of the European Parliament and of the Council of June 26 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) NO 64/2012, a return on equity of 10% after-tax can be observed in the market and be considered as reflecting arm's-length remuneration for the financing and treasure functions in question.
Simplified procedures exist, according to which the transactions of financing companies pursuing a purely intermediary activity are deemed to comply with the arm's-length principle if the company under review receives a minimum return of 2% after tax on assets. In order to benefit from this simplification measure, the use of it should be communicated to the Tax Department.
Minimum requirements for the transfer pricing analysis exist and are necessary in order for the analysis to be in compliance with the principles of the new circular.
Finally, any tax rulings relating to the matters of the circular which were issued before July 1 2017 will no longer be considered valid.
The new IP box regime – amended in October 2016 and applicable from July 1 2016 onwards – defines what constitutes qualifying intangible assets, qualifying profits/income, overall income and qualifying expenditure, as well as guidelines for maintaining accounting records.
The most significant change which impacts many existing IP structures is that rights used for the purposes of marketing products and services such as business names, brands, trademarks, image rights etc. are no longer be considered as qualifying intangible assets.
Additionally, qualifying expenditure only includes the total research and development costs incurred in any tax year wholly and exclusively for the development, improvement or creation of qualifying intangible assets and where costs are directly related to the qualifying intangible assets. An uplift expenditure will be added to this.
The calculation of taxable income will remain consistent with the previous IP box regime, and continue to allow for an 80% of the qualifying income to be treated as a deductible expense for tax purposes.
According to the new provisions, a qualifying investor that makes a risk-finance investment in an innovative SME may deduct the costs of the investment from their taxable income, subject to certain limitations. A qualifying investor is an individual who is independent from the enterprise. A risk-finance investment is an equity investment or a quasi-equity investment or a loan, or a combination of these, and includes finance leases and guarantees. All terms are explicitly defined in the law. The new incentives are effective from January 1 2017 and available to qualifying investors for a three-year period, provided that no new law is passed extending the period.
Since the 2013 financial crisis, Cyprus has moved to streamline its tax system and introduce greater incentives for business and address the high level of corporate debt. The aim is to retain the pro-business features of the low tax regime, while raising the level of tax transparency.
Cyprus strives towards implementing the EU and OECD initiatives to enhance transparency. For instance, the Cypriot government is bringing the national legal system in line to initiate the automatic exchange of financial account information. The authorities are expanding the legal framework to provide for the compulsory exchange of cross-border rulings and APAs.
"Everything is changing," said Elias Neocleous, managing partner at Elias Neocleous & Co. "Our success as a financial centre is based on our good reputation. As a result we're constantly seeing the introduction and implementation of new laws and standards." Although the island nation is not a part of the OECD, the Cypriot government has adopted many of the BEPS measures. These measures include amendments the introduction of transfer pricing documentation, as well as new measures to tackle harmful tax practices and treaty abuse. Notably, the government will phase out the current intellectual property regime and bring them in line with BEPS Action 5 and the modified nexus approach.
Another major change in this direction is the substance requirement. Today companies based in Cyprus are expected to have a substantial presence on the island. This means the companies have to open offices and hire employees to enjoy the benefits of the low corporate tax regime, which is is at 12.5% among the lowest in Europe.
But this was not always the case.
"Before BEPS and other global initiatives there were many companies being set up without any justification for being located in Cyprus," said Pieris Markou, the tax and legal leader at Deloitte Cyprus. "More and more investors are looking at their current set up with the aim of enhancing the substance. We're having meetings to identify what they need to do to justify their presence having regard to the nature of their operations."
At the same time, Cyprus is set to transpose the EU's Anti-Tax Avoidance Directive (ATAD) into domestic legislation. This will mean new anti-abuse laws for combating aggressive tax planning and new mechanisms for dispute resolution. Meanwhile the authorities are keen to maintain a delicate balance to avoid deterring new investment.
Hence the government has set out to find new incentives for business. These new measures include a notional interest deduction (NID) for certain forms of equity, a new framework for tax relief, the annulment of the immovable property tax and a 50% cut to transfer fees on real estate.
"We're a part of the global community and quite wisely we took the conscious decision to be at the leading edge of international best practice," said Neocleous. "The days of stigma being attached to secretive offshore jurisdictions are numbered. Cyprus is a compliant country applying the rules and regulations, while finding tax incentives for clients and companies as part of a new strategy."
24 Spyrou Kyprianou Avenue
CY-1075 Nicosia, Cyprus
Country Tax Leader
Tel: +357 22 360300
Tel: +357 25 868686
Tel: + 357 25 868686
Tel: +357 22 360300
Tel: +357 22 360300
Wealth Management Services
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Visit our website: www.deloitte.com/cyprus
Eurofast is a Regional Business Advisory Organisation employing over 200 local advisors in South East Europe and Middle East through fully fledged subsidiaries in Lefkosia, Athens, Thessaloniki, Sofia, Bucharest, Belgrade, Podgorica, Tirana, Skopje, Zagreb, Pristina, Banja Luca, Sarajevo, Cairo, Alexandria, Tbilisi, Kiev, Moscow, Erbil, Beirut and Tehran.
Every Eurofast office consists of teams ranging from 15-60 advisors with diverse backgrounds and experience including tax, legal, M&A, payroll, accounting and advisory services.
Our services include M&A and transactional advisory, international tax and restructuring, transfer pricing, accounting and payroll services, cross border structuring as well as permanent residency & visas.
Over the company's 25-year history, Eurofast has worked for, and continues to work with, many global brands and leading institutions operating in the manufacturing, retail, airlines and professional services sector.
Eurofast is Taxand Cyprus. Eurofast Taxand provides comprehensive tax advisory services in Cyprus. Taxand provides high quality, integrated tax advice across nearly 50 countries.
Eurofast has been recognized as a leader in professional services. The organization has achieved worldwide market recognition for our exceptional advice, capabilities and innovation.
Eurofast has been acknowledged as a leader in Tax in Cyprus. In the past years, Eurofast has been ranked top Tax Advisors and announced "Cyprus Tax firm of the Year" by ITR which is a true recognition for the valued client work we deliver every day.
Eurofast has been acknowledged as a leader in tax in Cyprus and the region we operate in. Among others, we have been ranked top Tax Advisors and announced "Cyprus Tax firm of the Year" by International Tax Review which is a true recognition for the valued client work we deliver every day. We have also been acknowledged as 'Corporate Adviser of the Year – South East Europe' for our work done in the Region and ranked Tier One Tax Planning Advisor by International Tax Review for the seventh time in a row. In 2014, Eurofast was also recognized for its expertise in M&A.
Cypress Centre, 5 Chytron Str.,
P.O. Box 24707
Tel: +357 22 699 222
Fax: +357 22 699 004
Indirect Tax & VAT
Real Estate Tax
Ernst & Young Cyprus Limited
Jean Nouvel Tower
6 Stasinou Avenue
P.O. Box 21656, 1511, Nicosia Cyprus
Tel: +357 22 209 999
Fax: +357 22 209 998
Ernst & Young House
27 Spyrou Kyprianou, Mesa Geitonia P.O. Box 50123, 3601 Limassol Cyprus
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International Tax Services
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Tel: +357 22 209709
|Capital Gains Tax||20%||A|
|Corporate income tax rate|
|Public corporate bodies||12.5%|
|Net Operating Losses (years)|
|Royalties from, for example, patents, know-how||5%||10%||C|
|Branch Remittance Tax||0%||N/A|
A) Capital Gains Tax is imposed on the gain from the alienation of immovable property situated in Cyprus and/or shares in companies owning immovable property situated in Cyprus.
B) Cyprus does not impose withholding taxes on dividends or interest payments to non-tax residents and non-domiciled in Cyprus.
C) Royalties paid to a non-resident for the use of rights in Cyprus are subject to a withholding tax of 5% on film royalties, and 10% on all other royalties. These rates may be reduced under a tax treaty or the EU interest and royalties directive. Royalties paid to a non-resident for the use of rights outside Cyprus are exempt from withholding tax. There is no withholding tax on the payment of royalties by one resident company to another.
Therapon Mafkas is the head of tax at Baker Tilly Klitou. He joined the firm as a manager in 2007, having previously worked at PwC. Therapon specialises in advising multinational corporations on tax structuring, particularly for companies looking to invest in Cyprus.
Another distinguished partner is Stelios Gregoriou, senior director at the Limassol office, who merged his legal practice with Baker Tilly in 2007. He specialises in tax law, especially VAT and corporate advice. The firm's areas of expertise include direct and indirect tax, international tax planning, corporate and personal tax compliance, due diligence reports and negotiating tax rulings with the Cypriot authorities.
Managing director Charles Savva is one of the founding partners of C. Savva & Associates. He has a wealth of knowledge amassed over more than 13 years in the field. The firm specialises in tax planning, VAT, financial management, accounting, reporting and auditing. The tax practice is active in multiple jurisdictions, taking on cases in Canada, China, Russia, India and the UK.
C. Savva & Associates offers a wide range of services, such as tax reports and analysis, as well as advance tax rulings, due diligence reviews and preparations of annual returns.
The legal practice at Chrysses Demetriades & Co is made up of lawyers and accountants with a service line divided into three key areas: 1) corporate, commercial and tax; 2) shipping and energy; 3) litigation. The firm has a strong corporate tax focus, particularly geared towards financial services, banks and institutional investors in M&A, joint ventures, restructuring, asset finance and distribution.
A key partner at the firm is Chrysses Demetriades, who focuses on corporate, commercial and banking transactions. The tax department has a wealth of experience in all aspects of IT, communications, as well as e-commerce and internet law. The client base includes major telecom firms, software companies and internet service providers.
Mikhail Sobolev is the head of international tax at Consulco. He has more than 19 years of experience in international tax planning and serves as the firm's leading consultant on the Commonwealth of Independent States (CIS). The practice offers clients advice and assistance in areas such as M&A, transactions, planning; accounting and VAT.
Another important figure at the firm is Marios Hajiroussos, who founded Consulco in 1993, with Elena Hajiroussos and Dmitry Khenkin. The three of them compose the management of the Consulco group. The firm's client base includes multinational corporations and the financial services sector is a major focus for the firm.
Pieris Markou is the head of tax at Deloitte Cyprus, where the practice offers the full spectrum of tax services. This range includes planning, VAT, direct and indirect tax. The team often liaises with the tax authorities on important legislative issues. Deloitte's client base is drawn from major industries, such as oil and gas, real estate and financial services.
Markou has a great deal of experience advising multinational companies on tax planning. He has been an active member of the Institute of Certified Public Accountants of Cyprus (ICPAC) for 25 years. He has taken part in high-level meetings with the Ministry of Finance, the House of Representatives and the tax commission.
Markou works closely with Antonis Taliotis, who heads the tax team in Limassol, and Christos Papamarkides, the head of indirect tax services; as well as Alecos Papalexandrou, who specialises in Cypriot International Collective Investment Schemes (CICIS). Other distinguished tax specialists include Panayiota Vayianou and Agis Agathocleous, who offer advice to clients on tax efficient structures.
Partner Philippos Raptopoulos leads the tax practice at EY in Cyprus. He has been at EY for close to a decade and specialises in corporate and international tax advice and has a great deal of experience in advising clients on international financial reporting standards (IFRS).
Raptopoulos works closely with board member Petros Liassides, who has a background in accounting, tax and auditing. The firm offers its client base a full range of tax services, including accounting, performance advisory, tax policy and controversy, transactions tax and VAT. The tax team has been assisting clients with emphasising global compliance and reporting. This service range extends to developing effective operating models.
Managing partner Elias Neocleous oversees the tax practice at Elias Neocleous & Co. Philippos Aristotelous coordinates the day-to-day activities, working closely with Kyriacos Xenophontos and Panos Labropoulos. The firm succeeded Andreas Neocleous & Co in March 2017. The firm's key focus areas include cross-border transactions, domestic tax, VAT, stamp duty and tax litigation. The team also offers advice on corporate restructuring and strategic tax advice and planning.
Elias Neocleous consists of 18 partners and more than 100 other fee earners. A recent recruit to the firm is Daniel Sakellariou, a tax specialist from PwC. With offices in Moscow and Kiev, the large tax practice maintains a strong international client base, including multinational companies and major law firms, with a network spanning Russia and Eastern Europe. This is a strategic asset, as the firm advises clients on Russian 'de-offshoring' laws.
The tax practice at Eurofast Taxand, Taxand Cyprus offers clients expertise in areas such as tax planning, indirect tax, transfer pricing and international trusts. Directors Zoe Kokoni and Christodoulos Damianou oversee the practice, alongside them Maria Savva, who heads regional operations. Key focus areas include M&A, liquidations, joint ventures and real estate.
The tax practice consists of 10 partners and 84 other fee earners recruited from finance, law firms, listed companies and public institutions. The firm has a strong regional capacity, with teams in offices across Eastern Europe, the Balkans and the Middle East. This enables Eurofast to offer its service range to clients across these regions.
As part of the international Taxand network, Eurofast collaborates with member firms all over the world. The network comprises almost 400 partners and more than 2,000 tax advisers working in nearly 50 countries.
George Karavis is a key tax partner at Grant Thornton. His expertise is in international tax, in which he has many years of experience. Karavis represents the firm on the VAT committee of the ICPAC. He works closely with assurance partner George Pouros, who specialises in personal and corporate tax.
The firm provides a full range of tax services, such as compliance and reorganisation, to a variety of international clients. The aim is to deliver cost-effective and efficient services to minimise the tax burden.
George Markides is the head of tax at KPMG Cyprus. He has more than 20 years of experience in the tax field and sits on the board of KPMG. Markides has advised major international and national companies on their tax affairs.
Another prominent figure at the firm is chairman Angelos Gregoriades, who heads the corporate services practice. With more than 30 years of experience, Gregoriades has a wealth of knowledge on restructuring, M&A and tax planning. He is also chairman of ICPAC and sits on the board of the Audit Committee of the Cypriot government.
KPMG is one of the largest firms operating in Cyprus, with more than 750 dedicated professionals working to deliver value and uphold a quality service for clients. The practice offers advice and assistance with a wide range of tax affairs, using innovative technology to achieve greater compliance and cost optimisation.
Managing partner Menelaos Kyprianou heads the tax team at Michael Kyprianou & Co. He works closely with Tonia Antoniou, who focuses on corporate and financial law and tax planning. The practice offers a service line for dispute resolution and arbitration, among others. The firm has offices in Nicosia, Limassol and Paphos, as well as a presence in Malta and Greece.
Founding partner Michael Kyprianou is regarded as one of the leading litigators in Cyprus. Another important team member is Lambros Soteriou, who has extensive knowledge of corporate structuring, tax and finance. He is the head of the corporate department at the Nicosia and Limassol offices.
Partner Theo Parperis is the head of tax and legal services at PwC. He has impressive experience in tax and statutory compliance for international groups, advising and assisting clients with restructuring. Other key partners include Marios Andreou, who oversees tax advisory services, Nicos Chimarides, who oversees the corporate compliance team, and Chrysilios Pelekanos, who leads the indirect tax team.
The firm's three main focus areas are tax advisory services, corporate compliance and indirect tax. These areas encompass corporate tax, international tax structuring, wealth management and accounting. The indirect tax services include planning, refund requests and due diligence with regard to VAT and customs.
PwC's clientele ranges from high-net-worth individuals to international groups. The client base is drawn from a broad range of sectors, including energy, commodities, shipping and technology.