Several new laws have been voted on affecting the international business sector in Cyprus in the process of the financial bailout negotiations with the EU, European Central Bank and International Monetary Fund. Most of these laws came into effect on 1 January 2013 and the Cyprus government has made every effort for the measures to have the minimum possible impact on the international business sector in Cyprus, according to industry professionals.
VAT Amending Law
The standard rate of the VAT will be increased from 17% to 18% for the period 14 January 2013 – 12 January 2014 and to 19% thereafter. The reduced rate of VAT, whichapplies for hotel and restaurants, will be increased from 8% to 9% as from 13 January 2014.
Income Tax Amending Law
The carrying forward of tax losses for persons obliged to prepare audited accounts will be restricted to a maximum period of five years from the end of the year in which the losses are incurred. Currently there is no restriction in the period during which tax losses can be carried forward. Persons obliged to prepare audited accounts are all legal persons and those physical persons with an annual turnover exceeding €70,000.
Companies’ Amending Law
The annual levy of €350 paid to the Registrar of Companies will apply to all registered companies with no exemptions. So far dormant companies or companies with assets were exempt from the obligation to pay the levy. The cap of €20,000 in total levy for companies belonging to a group, as defined in the Companies Law will be abolished. The levy will apply from the year of incorporation, which so far was exempt from the provisions of the law. The levy is payable by 30 June in respect of each subsequent year. Late payment of the levy will give rise to the following penalties:
- 10% penalty in case of up to a two-month delay
- an additional 30% penalty in case of a delay of two to five months
Non-payment of the levy within the five-month period will result in a deregistration (strike-off) of a company by the Registrar of Companies. This does not mean the company will cease to exist, but that it will not be able to submit to the Registrar of Companies any documentscovering corporate actions and it will not be able to request certificates from the Registrar.
If a company is re-instated within a two-year period from its strike-off, a fixed penalty of €500 will be imposed. The fixed fee will be increased to €750 where a company is re-instated after the two-year period.
Share warrants will from now on only be issued by Cyprus companies listed in organised markets. The period for keeping accounting records for preparation of financial statements is set at six years from the end of the calendar year to which they relate. This brings the Companies Law in line with the relevant requirement in the Income Tax Law and the VAT Law.
Assessment and Collection of Taxes Amending Law
A person charged as guilty for deceitful omission or delay for payment of tax liabilities will be subject to an imprisonment sentence of at least one year. So far this sentence has not exceeded six months.
In accordance with the provisions of the Prevention and Suppression of Money Laundering Activities Law, when the imprisonment sentence is of at least one year the offense is considered as predicated and implies an obligation by the competent authorities of the Republic of Cyprus to provide information about the person committing the offense when these are requested by the competent authorities of another state.
A Cyprus Company, which is not a tax resident of Cyprus, becomes liable for submission of a tax return with the same deadlines as for a resident company (31 December of the following year or 31 March of the year after for electronic submissions).
Law providing for the Special Contribution of the Employees, the Self-employed Persons and the Pensioners of the Private Sector
The application of the Law is extended from 31 December 2013 to 31 December 2016 and the basis of calculation will change as from 1 January 2014.The rates of the special contribution, up to 31 December 2013 and thereafter are as per the table below:
| Up to 31 December 2013 | From 1 January 2014 to 31 December 2016 | ||
Gross monthly emoluments € | Rate % | Gross monthly emoluments € | Rate € |
| 0 - 2,500 | 0 | 0 - 1,500 | 0 |
| 2,501 - 3,500 | 2.5* | 1,501 - 2,500 | 2.5* |
| 3,501 - 4,500 | 3 | 2,501 - 3,500 | 3 |
| 4,501 and over | 3.5 | 3,501 and over | 3.5 |
* Minimum contribution €10
It is worth noting that the special contribution is calculated on total gross emoluments without any restriction either on the level of emoluments, or that of the contribution.
The following are exempted from special contribution:
- Retirement bonus
- Provident fund contributions
- Emoluments of a foreigner who is employed by a foreign government or an international organization
- Emoluments of foreign diplomatic or consular missions, which are not citizens of Cyprus
- Emoluments of the crew of Cyprus flag vessels
- Allowances for covering professional costs for the purpose of the employer
Public servants are exempted from the provisions of this law, since their contribution is covered by a different law, the application of which was also extended until 31 December 2016.
For employees the payment of the special contribution is done equally by the employer and the employee. For self-employed persons the income on which such a contribution is paid is the earnable income, which cannot be lower than the one on which contributions to the social insurance fund are made.
All contributions are deductible for Corporation Tax/Income Tax purposes for the employer and the employee respectively.
Law governing the provision of Corporate, Trust and Fiduciary Services in Cyprus
Cyprus has finally introduced a Law, which is purported to regulate the provision of corporate, trust and fiduciary services, also known as the Fiduciary Law.
The Cyprus Securities and Exchange Commission (CySEC) will be the regulatory authority as per the provisions of the law. Lawyers and auditors are exempted from the provisions of the law with the reasoning that they are given self-regulatory power in the amended Anti Money Laundering Law (see below).
The International Cooperation in Criminal Matters Amending Law
This relates to cases where a competent authority of Cyprus receives a written request for obtaining evidence within the Republic from a competent authority of another country, in relation to a procedure already initiated in front of a court of that other country or with regards with a criminal investigation taking place in the said country.
The competent authority of Cyprus, after ascertaining that an offense has been committed in violation of a law of the foreign country and that a procedure is already initiated in front of a court of that other country or that a criminal investigation is taking place in the said country, cannot deny the execution of the request, in the manner specified by it, unless that manner is forbidden by the constitution or another international convention for human rights, ratified by Cyprus.
The Prevention and Suppression of Money Laundering Activities Amending Law
Some clarifications were made in what is also known as the Anti-Money Laundering Law, in order to remove any doubt with regards to the powers of the Unit For Combating Money Laundering (MOKAS).
The authority of the Self-Regulatory Bodies for auditors (the Institute of Certified Public Accountants) and lawyers (the Cyprus Bar Association) was extended in order to cover provision of services as per the Fiduciary Law covered above.
The Administrative Cooperation on Taxation Aspects Law
Clearer rules on exchange of information between EU Member States have been defined, which make the coverage of all physical and legal persons of the EU possible. In addition, it provides for procedures for exchange of information upon request, for automatic and voluntary exchange of information as well as for other types of administrative cooperation.
