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TAX UPDATE

On the 14th of December 2011 the Cypriot House of Representatives approved a number of new measures, which aim at the improvement of public finances without jeopardizing the competiveness of Cyprus as a financial centre.
1. Loans and financial assistance to directors and shareholders: Every time a loan or any other financial assistance is granted to shareholders or directors (and up to their second degree relatives) the recipient is deemed to receive a benefit of 9% per annum calculated on a pro rata basis. The tax on the said benefit shall be assessed and collected through the Pay as You Earn system for emoluments. This applies to both resident and non-resident directors.
2. Deductibility of Salaries: Salaries will not be deductible for income tax purposes in case that the employer contributions to the relevant Social Security and other Funds are not paid in the year in which they are due.
In case that the relevant contributions, together with any interest and penalties are fully paid within two years, the salaries become deductible in the year in which they are settled.
3. Special Defence Contribution on Dividends:The SDC rate on dividends to arise from 1 January 2012 to 31 December 2013 rises from 17% to 20%.
4. Four year rule on dividends:Dividends distributed between Cypriot Companies after the lapse of four years from the end of the year in which the profits occurred are subject to SDC.  Nevertheless dividends paid out of income emanating directly or indirectly from dividends on which SDC was previously paid, are exempt from SDC.
5. Private Sector Special Contribution:Employees, self-employed persons and private sector pensioners are subject to the special contribution, which is effective only for 2012 and 2013. For gross monthly emoluments up to 2,500 euro the special contribution is zero. For emoluments between 2,501 and 3,500 euro it is 2.5%, between 3,501 and 4,500 euro it is 3% and above 4,501 euro it is3.5%. The recipient of the remuneration is liable for half of the Special Contribution and the employer for the other half. For employees and pensioners it should be settled through withholding, while for self-employed persons it should be settled through the provisional tax system. This Special Contribution does not apply on retirement benefits, on payments from approved Provident Funds or on remuneration of the crew of qualifying Cyprus ships and it is deductible for income tax purposes both for individuals and for employers.
6. Obligation to issue receipts: Taxable persons that supply goods or provide services are obliged to issue and deliver a receipt for each transaction, containing specific information regarding the relevant transaction. This obligation does not exist when a cash invoice is issued. The legal receipts must be maintained for a period of seven years. In the event of non compliance severe administrative and criminal penalties may be imposed.
This obligation shall be effective as from 16 January 2012.
7. VAT rate:As from 1 March 2012 the standard VAT rate shall rise to 17% from 15%.

On the 14th of December 2011 the Cypriot House of Representatives approved a number of new measures, which aim at the improvement of public finances without jeopardizing the competiveness of Cyprus as a financial centre.

1. Loans and financial assistance to directors and shareholders: Every time a loan or any other financial assistance is granted to shareholders or directors (and up to their second degree relatives) the recipient is deemed to receive a benefit of 9% per annum calculated on a pro rata basis. The tax on the said benefit shall be assessed and collected through the Pay as You Earn system for emoluments. This applies to both resident and non-resident directors.

2. Deductibility of Salaries: Salaries will not be deductible for income tax purposes in case that the employer contributions to the relevant Social Security and other Funds are not paid in the year in which they are due.

In case that the relevant contributions, together with any interest and penalties are fully paid within two years, the salaries become deductible in the year in which they are settled.

3. Special Defence Contribution on Dividends: The SDC rate on dividends to arise from 1 January 2012 to 31 December 2013 rises from 17% to 20%.

4. Four year rule on dividends: Dividends distributed between Cypriot Companies after the lapse of four years from the end of the year in which the profits occurred are subject to SDC.  Nevertheless dividends paid out of income emanating directly or indirectly from dividends on which SDC was previously paid, are exempt from SDC.

5. Private Sector Special Contribution: Employees, self-employed persons and private sector pensioners are subject to the special contribution, which is effective only for 2012 and 2013. For gross monthly emoluments up to 2,500 euro the special contribution is zero. For emoluments between 2,501 and 3,500 euro it is 2.5%, between 3,501 and 4,500 euro it is 3% and above 4,501 euro it is3.5%. The recipient of the remuneration is liable for half of the Special Contribution and the employer for the other half. For employees and pensioners it should be settled through withholding, while for self-employed persons it should be settled through the provisional tax system. This Special Contribution does not apply on retirement benefits, on payments from approved Provident Funds or on remuneration of the crew of qualifying Cyprus ships and it is deductible for income tax purposes both for individuals and for employers.

6. Obligation to issue receipts: Taxable persons that supply goods or provide services are obliged to issue and deliver a receipt for each transaction, containing specific information regarding the relevant transaction. This obligation does not exist when a cash invoice is issued. The legal receipts must be maintained for a period of seven years. In the event of non compliance severe administrative and criminal penalties may be imposed.

This obligation shall be effective as from 16 January 2012.

7. VAT rate: As from 1 March 2012 the standard VAT rate shall rise to 17% from 15%.