New Year – New Challenges – New Opportunities

The Tax Team of Totalserve takes this opportunity to wish to all our clients, associates, friends and subscribers all the best for the New Year!

Our industry continues to face numerous challenges, mainly through the unprecedented increased compliance, reporting and generally tax related changes and developments on a global scale.

Cyprus remains committed to be a highly compliant jurisdiction, but at the same time ensuring that it remains competitive as a prime International Business Centre.

Apart from the introduction of the ‘non-domicile’ concept for individuals for tax purposes ( click here) and the revised criteria for acquiring the Cyprus Citizenship (passport) by way of investment ( click here), both of which topics have been covered in our previous Cyprus Tax Update ( click here), we set out below recent important tax related developments that you may find of interest.

We are at your disposal for any clarifications or assistance from a Cyprus tax perspective.

Cyprus – Russia Double Tax Agreement:

Postponing application of Protocol amending Article 13 "Capital gains"

The application of the revised Article 13 “Gains from Alienation of Property” of the Double Tax Agreement (DTA) between Cyprus and the Russian Federation, that would have come into effect as of 1st January 2017, has been postponed.

What this means in practice is that, until further notice, gains derived by a Cyprus company from sale of shares in a (Russian) company that owns immovable property in Russia shall continue to be taxed only in Cyprus without any taxing right for Russia. It is noted that for Cyprus tax purposes, profit from sale of shares is specifically tax exempt.

Cyprus continues to maintain one of the best double tax treaties that Russia has with any other country, thus constituting Cyprus one of the prime springboards for inward and outward investments and other transactions in Russia.

Read the full tax alert by clicking here.

Related links:

Notional Interest Deduction on equity

The relatively recently introduced provision for allowing a tax benefit through a notional interest deduction (NID) on new equity continues to attract great interest by international tax advisors. This provision, apart from reducing the effective tax of the Cyprus company by up to 80%, can also tackle the topical tax issue of being the ‘beneficial owner of income’ , especially in the cases of loans granted by the Cyprus company.

For example, instead of engaging the Cyprus company through a back to back loan arrangement, one can take advantage of the NID provisions and grant out a loan through own funds that were introduced in the share capital of the Cyprus company. New financing arrangements are prompted to consider using this method. Existing back to back loan arrangements are prompted to consider restructuring these by capitalizing the loans, which would entitle them to receive NID and at the same time help them achieve the beneficial owner of income test on interest received by the borrower.

You can read more about NID by clicking here.

Update on Cyprus IP box regime

On 14 October 2016, the House of Representatives passed amendments to the Income Tax Law in order to align the current Cyprus IP tax legislation with the provisions of Action 5 of the OECD’s Base Erosion and Profit Shifting (BEPS) project. The amendments apply retroactively, as from 1 July 2016.

The revised legislation includes certain transitional provisions for IP assets that have already qualified under the existing IP box regime. In such cases, taxpayers will continue to benefit from the existing IP regime for a maximum of five years, after which date the new IP tax regime shall apply.

In essence, both the transitional and the new Cyprus IP box regime offer a tax benefit of up to 80% on qualifying IP profit, by way of notional expense deduction.

You can read more about the new Cyprus IP box regime by clicking here.

Cyprus adopts Country-by-Country Reporting

Cyprus continues to be fully compliant with international guidelines by adopting the Country-by-Country Reporting in accordance with Action 13 of the OECD Base Erosion and Profit Shifting (“BEPS”) action plan. This development affects Groups with more than €750 million annual group turnover. You can read more by clicking here.

Update on Cyprus Double Tax Treaties

Relevant recent updates are:

  • Cyprus - India

A revised Double Tax Treaty between Cyprus and India, together with its Protocol, was  signed on 18 November 2016, and has entered into force on 14 December 2016.

The revised Treaty assigns taxing rights to the source country with regards to capital gains from the alienation of shares, with investments undertaken prior to 1 April 2017 being grandfathered. More details can be found in the News section of our webpage by clicking here.

  • Cyprus - Latvia

The Double Tax Treaty between the two countries, which was signed on 24 May 2016, was ratified and entered into force on 27 October 2016.

A full updated list of the Cyprus Double Tax Treaty network and summary of provided withholding tax rates can be obtained by clicking here.