Cyprus Taxation Law
The Cyprus Parliament has recently performed new amendments to the Cypriot Taxation Laws that took an effect on the 1st of January in 2009. In particular, changes have been made to Income Tax Laws and the Apecial Contribution for Defence of the Repubic Law aiming to the improvement and the attractiveness for foreign investors to start their business in Cyprus with a legal framework for the creation and operation of Collective Investment Schemes in Cyprus.
Modifications to the Income Tax Law
1) The past Income tax law was stated that under the sub-section 19 of section 8 of the IncomeTax Law in which the entire interest profits of a person and 50% interest earnings of a company was excepted from income tax it has been replaced. The new sub-section 19, excuses interest profits from income tax, whether it is earned by a person or by a business.
2) The condition to sub-section 19 of Section 8 of the Cyprus Income Tax Law has also been replaced by an extension to the application thereof to interest earned by a collective investment scheme and now this provision states the following:
The interest earned by an individual in the regular course of its company, as well as the interest related with the ordinary course of the business, including the interest earned by a ‘collective investment scheme’, open or closed type, not be considered as interest for the purposes of this sub-section.
In the effect by the application of the above condition, the interest which is not excused by the application of the rations of sub-section 19, as amended, is considered to be an ordinary business income for the purposes of the Income Tax Law.
3) At the same time, the sub-section 22 of Section 8 excused from income tax profit from the disposal of securities has been amended by the addition thereto of a provision states that:
The redemption of a participation, contribution or share in a Collective Investment Scheme of open or closed type, constitutes disposal of security
Efficiently, incomes realised on a sale or other disposal of a share or interest in a Collective Investment Scheme excused from any tax within Cyprus. However, any profit earned from the redemption of any share or interest in the Collective Investment Scheme it is also fully exempted from income tax in Cyprus.
Amendments to the Special Contri- bution for Defence (SCD) Law
1) The classification of “shareholder” has been included to extend to the application of the SCD Law to the owner of the share or interest in a collective investment scheme.
2) The requirement for the minimum investment by a Cyprus resident corporation of 1% in the capital of a non-resident corporation for the request of the exemption from the responsibility due to payment of special defence contribution at 15% of the gross total of dividends has been eradicated and an additional new provision has take its place.
Followed by the new provision any individual, entity or business, who is a tax-resident in the Republic of Cyprus and is considered to have received dividends from a collective investment organisation; the establishment and operation of which is regulated by the Open-ended Collective Investments in Transferable Securities (UCITS) and Related Matters Law or by any other legislation regulating the formation and functionality in the Republic of other collective investment schemes should be treated as to be subject for special defence payment at the rate of 3% on the gross amount of the bonus.
This provision states that the dividends from any organisations of collective investments will not be treated as the usual 15% special defence contribution which is otherwise payable, and the rate of this payment is reduced to 3%.
On the other hand, if a payment is made to an individual who is a tax resident within the Republic of Cyprus, whether a person or a company, such dividend should be fully exempted from special defence contribution within Cyprus.
3) A modification has also been formulate with respect to the imposition of special defence contribution at the rate of 10% on the gross total of income earned by any individual who is tax resident of the Republic of Cyprus with the exception of interest in earned in the regular course of its business, including interest closely related with the delivering of the regular route of the company.
4) Furthermore, it has been explained by the revision to the SCD Law that collected undistributed incomes of a collective investment scheme of an open or closed type which are circulated to the an individual entitled thereto in the case of the event of termination of the stated scheme, should not be subject to special defence payment. Similarly any redemption of any share or interest in collective investment scheme of an open or closed type should also be excused from special defence payment.