The tax amending laws voted by the House of Representatives of Cyprus were
published in the Government Gazette on 6 July 2012 and have come into effect
from 1 January 2012. The main amending laws relate to the intellectual property
regime, interest deductibility, group relief and the deemed distribution of
dividends.
Intellectual property rights
• The meaning of patent rights and intellectual property (IP) rights has
been amended to coincide with the definition in the Patent Rights Law
of 1998, the Intellectual Property Law of 1976 and the Law regarding
Trademarks. This ensures that all types of IPs will be covered by this
new regime avoiding any uncertainty.
• The new law provides for an 80% exemption on the net profit from the
exploitation of such intangibles.
• The net profit is calculated after deducting from the licensing of the
intangibles all direct expenses associated with the production of this
income.
• The rate of capital allowances on such intangibles has been set at 20%
of the cost of acquisition.
• Any profit arising from the disposal of such intangibles will also benefit
from the 80% exemption.
Interest deductibility
• No interest expense restriction will apply in cases where shares are
acquired directly or indirectly in a wholly owned subsidiary provided that
this subsidiary does not own any assets which are not used in the
business.
• If this subsidiary does own assets that are not used in the business, the
restriction of interest will only correspond to the percentage of assets
not used in the business.
• This amendment is effective in respect of interest incurred on
borrowings used for the acquisition of shares acquired on or after 1
January 2012.
Group relief provisions
• Under the current provisions of group relief a company is considered to
belong to the same group for group relief purposes if it is part of that
group for a whole tax year.
• With the amended legislation, in cases where a company has been
incorporated by its parent company during the tax year, this company
will be deemed to be a member of this group for group relief purposes
for that tax year.
Capital Allowances
• The rate of capital allowances for any plant and machinery purchased
in the tax years 2012, 2013 and 2014 has been set at 20%, unless the
rate of capital allowances on such assets is higher.
• For industrial and hotel buildings purchased in the tax years 2012, 2013
and 2014, the capital allowances rate will be increased from 4% to 7%.
Provident Funds
• For the purposes of the Income Tax Law, approved Provident Funds
and Pension Funds are those which have been approved by the
Commissioner of Income Tax.
Special Contribution for the Defense Law
• In calculating the profits subject to deemed distribution under this law a
deduction will be given for the acquisition of any plant and machinery
purchased in tax years 2012, 2013 and 2014.
• The definition of plant and machinery is the same as that in the Income
Tax Law and it excludes any saloon cars purchased for private use.
• This provision will apply for the profits earned in the tax years 2012,
2013 and 2014.
VAT on construction / acquisition of residential properties
The VAT law provisions regarding the application of the reduced rate of 5% on the construction/acquisition of residential property in Cyprus which is to be used as their primary and permanent place of residence, have been extended, so as to include acquisitions by individuals who do not ordinarily reside in Cyprus, but acquire property to be used as their residence whilst in Cyprus. This amendment comes into force as of the date of publication of the law in the Official Gazette of the Republic.
Land Registry Office Fees
The law providing for the exemption from transfer fees on sales made after 2 December 2011 in case the immovable property is subject to VAT and 50% exemption in case of first sale, has been extended until 31st December 2012.
