Cyprus hopes to tempt foreign investors with sweeping tax reforms
Cyprus has announced a series of tax reforms to attract foreign investment.
The most revolutionary is the introduction of the new concept of domicile. Foreign individuals classed as tax-resident under the usual day-counting basis can qualify as non-domiciled if they meet certain criteria to be set out in as yet unpublished draft legislation. Non-doms' income from dividends will be exempted from the 17 per cent special defence contribution, thus capping the effective dividend tax rate at 12.5 per cent.
'This will give an advantage principally to physical persons moving to Cyprus and becoming tax residents, who are also the registered shareholders of companies that are themselves tax-resident in Cyprus', commented the Limassol-based accountancy firm Costas Tsielepis. Such companies pay corporation tax of only 12.5 per cent on their taxable profits, which are already entitled to generous exemptions and deductions.
'This is perhaps the single most important amendment to the Cyprus tax legislation ever since the overhaul of the Cyprus tax system in 2003', said Tsielepis.
Also, new equity capital introduced into the country will attract a deemed interest tax deduction. This will encourage businesses to grow by issuing equity, while receiving a tax deduction as if the capital were a loan. It will have retrospective effect to 1 January 2015. The accelerated capital allowances available on equipment and buildings are also to be extended to the end of 2016.
Immovable property taxes will be significantly reduced. There will be no capital gains tax for land purchases until the end of 2016, and land transfer fees during the same period will be halved. Local levies on real estate are to be abolished and replaced by a single annual tax of 0.1 per cent of the property's value.
Furthermore, the 50 per cent income tax exemption already offered to highly-paid foreign staff who take up employment in Cyprus is to be made even more generous, by increasing the period over which it will apply from five to ten years.
The Cypriot president Nicos Anastasiades revealed the reforms last week as part of a plan to revive the country's economy, which was badly hit by the banking crash of 2013. The economy shrank by 2.3 per cent in 2014, although it has stabilised in the first three months of 2015. A large amount of Greek government paper has been placed with Cyprus banks, and it is not clear what would be the effect of a fully-fledged Greek default and exit from the Euro.
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