November 2015 - Important updates

1. OECD's Global Forum upgrades Cyprus

OECD's Global Forum on tax transparency has upgraded Cyprus to "Largely Compliant" with the implementation of the international standards of transparency and exchange of information for tax purposes. The Global Forum has now completed 215 peer reviews and assigned compliance ratings to 86 jurisdictions that have undergone Phase 2 reviews. 2. New DTT with Switzerland The new double tax treaty with Switzerland, signed on 25 July 2014, has entered into force on 15 October 2015. It will therefore be effective as from 1 January 2016. The entry into force of the new DTT brings the total number of countries with which Cyprus has such agreements in force to 55 3. Notional Interest Deduction (NID)

According to recent update of the tax law, corporate entities (including permanent establishments of foreign companies in Cyprus) will be entitled to a Notional Interest Deduction (NID) on new equity which has been introduced to a business on or after 1 January 2015. The NID aims to reduce corporate debt and encourage new equity. New equity may be contributed in cash or in assets in kind (at their market value). The annual NID deduction is calculated as an interest rate on the eligible share capital based on the yield of the 10 year bond of the country in which the funds are employed plus a 3% premium as at the last day of the previous tax year. The minimum allowable rate is the yield of the Cypriot 10 year bond plus a 3% premium.

The tax deductibility of NID follows the same principles of normal interest expenses i.e. for

financing of most business assets. Another important provision is that the NID cannot exceed 80% of the taxable profit as calculated before allowing the NID and is not available at all if the company is in a loss position. Consequently any unutilised NID cannot be carried forward to future periods.

There are however important anti-abuse rules which deny NID deductibility:

New equity which derives from share capital and/or share premium that existed on 31 December 2014 is excluded. a. New equity which derives from asset revaluations is excluded. b. New equity which emanates from reserves existing at December 31, 2014 is restricted unless the new equity is financing new business assets c. NID deduction will be available only to one company in cases where the new equity of a company is derived directly/indirectly from the new equity of another. d. If the new equity of a Cyprus company derives directly or indirectly from funds on which another company has claimed interest expense deduction in Cyprus then the notional interest deduction is reduced by the amount of the interest expense claimed. e. Companies benefiting from the reorganisation provisions of the tax law will have their new equity calculated as if the reorganisation had not taken place. The NID is effective as of 01/01/2015. 4. Non Domiciliation Status (“Non-Dom”)

A Cyprus tax resident who is not domiciled in Cyprus and who obtains non-dom tax status will not be subject to withholding tax (Special Defence Contribution – “SDC”) on any interest, rental income or dividends (actual or deemed). Unlike other jurisdictions offering non-dom status, the treatment applies also to income derived from sources within Cyprus, therefore regardless of whether the income is remitted to Cyprus or not.

Prior to this amendment Cyprus tax resident individuals earning Cyprus or foreign sourced income in the form of dividends or ‘passive’ interest were subject to SDC, at the rate of 17% on dividends and 30% on interest, irrespective of their domicile status. For the purposes of the SDC Law an individual has his/her domicile in Cyprus if he/she is either:

a. an individual who has a domicile of origin in Cyprus, as defined in the Wills and Succession Law, unless i.

he or she has acquired and maintains a domicile of choice outside Cyprus and was not a tax resident in Cyprus as defined in the Income Tax Law for any period of at least 20 consecutive years prior to the year of assessment, or

ii.

was non-resident for purposes of the Income Tax Law for any of the 20 years preceding the date the Non-Dom provisions were introduced (16 July 2015).

b. an individual who is a resident of Cyprus for Income Tax Law (i.e. tax resident) for a period of at least 17 years out of the last 20 years prior to the tax year of assessment. The anti-abuse provision that exists, states that if a Cyprus domiciled person transfers assets to her/his non-Cyprus domiciled relative (up to third degree) and the main purpose of the transfer was to avoid paying SDC, then the income generated by these assets will be subject to SDC.

Should you have any questions or require any assistance, our team would be happy to assist.

WTS Cyprus Ltd is an independent member firm of WTS, a global network providing tax, legal and business consulting services. All legal services are provided through registered law firms in Cyprus. This message is informative and does not constitute professional advice. Copyright © 2015 WTS Cyprus Ltd, All rights reserved. You are receiving this email due to past correspondence with WTS Cyprus Ltd Our mailing address is: WTS Cyprus Ltd 2 Amphipolis Street, 2nd Floor Nicosia CY-2025 Cyprus

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