Recent amendments to Cypriot legislation

Recent amendments to Cypriot legislation

Recently Cypriot legislation has undergone noticeable changes. We have provided a summary of them below.

1000

Unified annual fee for all companies registered in Cyprus

 

On 26 August 2011, the Cypriot parliament brought into force a package of policies in accordance with which a unified annual fee of EUR350 will be required of all companies that are registered in the Cypriot registry of companies. The maximum amount of fee for groups of companies that are registered in Cyprus is limited to EUR20,000 a year.

If a company does not have any assets and the registration authorities approve, the company can postpone paying the fee.

If a company does not pay the fee within the established period, the company will be charged a 10% fine if the fee is paid within two months from the date the law establishes or a 30% fine if the fee is paid between two and five months from the date the law establishes.

When five months expire, the company’s registration authorities have the right to remove the company from the company register. Thus, the company would not be able to submit or request documents from the register (e.g. certificates, financial reporting, etc.). In this case, the legality of the company’s operations may be placed under doubt.

The company may be re-registered within two years from when it was removed if it pays fee amounting to EUR500 and EUR750.

Companies should pay the fee for 2011 before 31 December 2011. For future years, the fee should be paid before 30 June of the corresponding year.

 

Cypriot tax authorities published a circular on margins under matched funding transactions

 

Cypriot tax authorities published a circular that strengthened the unspoken yet in force rules governing the minimum profit margin (difference between interest yields and interest paid) under loan agreements between related companies for tax purposes.

The confirmed profit margin amount will apply to all transactions that involve intragroup financing be-ginning with the 2008 tax period and including:

  • Loans up to EUR50,000,000 – 0.35%
  • Loans of EUR50,000,000 to EUR200,000,000 – 0.25%
  • Loans of more than EUR200,000,000 – 0.125%.

A 0.35% profit margin will be applied to all interest free loans regardless of the loan sum.

Writing off debt from loans given or received by Cypriot tax residents does not make paying tax obliga-tory for the Cypriot tax resident. However, such write-offs would not be deductible for income tax purposes.

The circular’s provisions apply to transactions that meet the following criteria:

  • the loan is provided by the company within 6 months of receiving a loan
  • documentation should be provided that confirms that transactions are tied to financing pro-vided from borrowed money.

The circular’s most important clarification confirms that it is permitted to deduct all expenses related to providing loans for income tax purposes. However, any difference in the exchange rate during matched funding transactions may not be accounted as income/expenses when calculating the income tax base.

If the tax authorities give preliminary approval, the circular’s provisions will also be applied to transac-tions involving financial instruments.

 

Imputed Dividends Distribution

 

On 13 September the Cypriot tax authorities published a new circular 2011/2010 which significantly im-proves conditions for international corporations conducting business in Cyprus.

In accordance with the rules of dividend imputation that were in force earlier, Cypriot company-tax residents whose shares were owned by Cypriot tax residents and who distributed less than 70% of their profits during the two years after making a profit should have been paid a defense contribution amounting to 17% of these profits (15% - prior to 13 September 2011). These dividend imputation rules were not applied to profits that were subject to distribution to non-residents of Cyprus.

According to the circular, Cypriot companies now do not have to pay defense contribution if their shareholders are residents of Cyprus provided the shareholders’ ultimate beneficial owners are non-residents of Cyprus. A declaration from the company’s director that is certified by an auditor should provide confirmation of these facts.

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