Cyprus - enhancing corporate and personal tax competitiveness

Transcription

1 Cyprus - enhancing corporate and personal tax competitiveness September 2015

2 Cyprus at a glance The 2013 Knight Frank Report ranked Cyprus as the 5th best place for lifestyle among major European cities and other competitive destinations. Cyprus is an EU member since 2004 as well as being an Economic and a Monetary Union Member since Cyprus has Double Tax Treaties with 47 countries. Most international transactions are exempt from VAT. 20% of the population in Cyprus consists of non-cyprus nationals. Cyprus has the highest percentage of university graduates per capita in Europe. Cyprus is the largest third party Management centre in the EU. It is the home to some of the world s leading names of the shipping industry, and has the 10th largest merchant fleet in the world. The US Geological Survey estimated offshore reserves of 1.7 billion barrels of oil and 122 trillion cubic feet (TcF) of natural gas in the Levant Basin. Reserves of 5 TcF already confirmed. Why Cyprus? Infrastructure Strategic location Cyprus can be the access point to the EU market for foreign investors. Cyprus is at the crossroads of three continents Europe, Africa and Asia providing a gateway to and from each one of them. Cyprus maintains one of the most attractive tax systems in Europe. The corporation tax rate for Cyprus companies is 12,5%. Cyprus possesses a well-trained and versatile labor force with fluency in English. The legal system is based on the UK Common Law principles and aligned with the EU laws and regulations (Acqui Communautaire). Cyprus combines the international business environment with a pleasurable and balanced way of life. Cyprus has rewarding business opportunities catering for the diverse needs of international investors. Cyprus has a highly developed infrastructure, educational institutions and medical centers. The new guidelines issued by the Cypriot VAT authorities make Cyprus the most attractive jurisdiction for private aircraft registration in the EU. On the basis of the new guidelines issued by the Cypriot Tax authorities the effective tax rate for yacht registration in the EU can be reduced to as low as 3% through the use of the Yacht Leasing Scheme. Human Talent Quality of life Ease of doing business Travel & Connections Pro-business legal framework European Union & Eurozone Taxation

3 Cyprus Economy update: Outlook positive Cyprus has recorded positive GDP growth of 1.6% in the first quarter of 2015 which is the highest in the Eurozone. The latest assessment by Troika has been completed and was positive allowing Cyprus to participate in the ECB quantitative easing program. These facts follow Cyprus recent return to the international markets with the EUR1bn seven-year bonds issued by the Cypriot Government, on the 28th of April 2015, which was nearly twice oversubscribed. Furthermore, the Cyprus economy has been upgraded by the S&P from B- to B. Cyprus is now rated as B3/B+/B-/BL (stable/positive/positive/stable) by Moody's/S&P /Fitch/DBRS. In April all restrictive measures on domestic and international capital movements were lifted and together with the successful recapitalization of all banks and the recent upgrading by Fitch of two major local banks marked a new era for the Cyprus banking sector. The above positive news signal the stabilization of the Cyprus economy and the banking sector and highlight the positive outlook of the economy as a whole. Cyprus 10 - Year Government Bond Exemption for non-cyprus domiciled individuals (non-doms) Currently Cyprus tax resident individuals who earn Cyprus or foreign sourced income in the form of dividends or passive interest are subject to Cyprus Special Defence Contribution (SDC) at the rate of 17% on dividends and 30% on interest. Such dividend and passive interest income is exempt from income tax. With this amendment individuals who have non-dom status will no longer be subject to SDC. Coupled with the already existing income tax exemption this amendment exempts from taxation in Cyprus dividends and passive interest, irrespective of whether they are earned in Cyprus or abroad. Also currently Cyprus tax resident individuals earning Cyprus or foreign sourced rental income are subject to both income tax and SDC on such income. With this amendment non-doms earning rental income will only be subject to income tax on such income (as they will no longer be subject to SDC). For the purposes of the SDC Law an individual has his/her domicile in Cyprus if he/ she is either: -- an individual who has a domicile-of-origin in Cyprus, (generally as defined in the Wills and Succession Law), or -- irrespective of (a) above, an individual who is a resident of Cyprus per the Income Tax Law for a period of at least 17 years out of the last 20 years prior to the tax year of assessment. This amendment will take effect from the date of its publication in the Gazette.

4 Personal income tax exemptions Exemption 50% of the remuneration from any employment exercised in Cyprus by an individual who was not a resident of Cyprus before the commencement of the employment. Exemption applies for a period of 5 years for employments commencing as from 1 January 2012 provided that the annual remuneration exceeds Example: an individual who earns EUR120k p.a. would take home approx. EUR105k. Duration 5 years (expected to be 10 years) 20% of the remuneration (up to a max of annually) from any employment exercised in Cyprus by an individual who was not a resident of Cyprus before commencement of the employment. Exemption applies for a period of 3 years commencing from 1st January following the year of commencement of the employment. 3 years (expected to be 5 years) PwC Observation In addition to the above mentioned existing income tax exemptions for dividend and passive interest income, the Cyprus tax laws also currently provide for an unconditional exemption from tax for gains on disposals of shares/bonds issued by companies and other qualifying corporate titles (except in certain cases where the company holds immovable property in Cyprus).

5 Notional interest deduction (NID) Tax allowable deduction on corporate equity - enacted Aim is to closer align tax treatment of equity finance with tax treatment of debt finance Annual NID deduction vs annual interest expense Expected to encourage equity finance and reduce reliance on debt finance Should increase economic robustness of Cyprus companies whilst keeping their competitiveness NID applies to Cyprus tax resident companies and Cyprus Permanent Establishments of non-resident companies NID deduction = New equity * NID interest rate New equity NID interest rate NID deduction Share capital and share premium introduced as from 1 January 2015 Paid-up Cash or assets-in-kind For assets-in-kind the market value of asset must be substantiated Yield on 10 year government bonds of the country where the funds are employed in the business + 3% Minimum rate is yield on 10 year Cyprus government bonds + 3% Reference date: 31 December of prior tax year Tax deductible in a similar manner as for actual interest expense. Deductible when financing most types of business assets NID cap NID cannot exceed 80% of the taxable profit, as calculated prior to the NID Anti-avoidance provisions General anti-avoidance for non-commercial transactions Specific anti-avoidance provisions

6 Why PwC Our team of specialists will cover all aspects of setting up/relocating (personal and company) in/to Cyprus. One member of our team will be your point of contact, project managing all aspects of the project and liaising/ coordinating with other experts in our teams. We identify issues upfront to help you avoid costly breaches of compliance requirements and provide complete support during the transaction cycle. You will focus on your core business, whilst our experts promptly and efficiently take care of the various tasks and any possible complications of setting up in Cyprus. Our team will help you address all issues/challenges. We provide a tailored service which ensures all regulatory requirements and deadlines are met. You will have the support of the largest professional services firm in Cyprus. Our unparalleled size allows for deep specialisation of our people, ensuring you will receive advice and support you can rely on. Contact us Theo C Parperis Partner Head of Tax and Legal theo.parperis@cy.pwc.com Tony Hadjiloucas Partner In charge of Wealth Management Services tony.hadjiloucas@cy.pwc.com Petros N Maroudias Partner Corporate Compliance petros.maroudias@cy.pwc.com Charalambos A Sergiou Director Tax Advisory charalambos.sergiou@cy.pwc.com PwC Cyprus PwC Central, 43 Demostheni Severi Avenue,CY-1080 Nicosia P O Box 21612, CY-1591 Nicosia, Cyprus T: , F: City House, 6 Karaiskakis Street, CY-3032 Limassol, Cyprus P O Box 53034, CY-3300 Limassol, Cyprus T: , F: This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors PricewaterhouseCoopers Ltd. All rights reserved. PwC refers to the Cyprus member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see for further details.