For the purpose of raising revenues and decreasing government spending, the House of Representatives of Cyprus voted on the 26^th of August 2011, the following changes in the Tax and Company Legislation:

The Income Tax Law changes

• Abolition of exemption from taxation of the official emoluments and the pension of the President of the Republic and the pension of the President of the House of Representatives. Entry in to force: As from 1/01/2011.

• A new tax incentive has been introduced for the employment in Cyprus of persons who are not tax Residents of Cyprus: In such a case if the income from employment exceeds €100.000 per annum a 50% deduction is granted for such income for the first 5 years of such employment. This incentive is granted to anyone (Cypriot or non Cypriot) provided that prior to his employment in Cyprus this person was resident outside Cyprus and was not considered as a tax resident of Cyprus. Entry into force: As from 01/01/2012.

• A new income tax rate of 35% has been introduced for individuals on there taxable income in excess of €60.000. Entry into force: As from 01/01/2011.

The Special Contribution for the Defense of the Republic Law changes

• Increase in the rate of defense Tax on interest received by or credited to Cypriot Tax residents from 10% to 15%. This is applicable to both individuals and corporations provided this income is classified as interest. For more details as to when interest received or accrued is considered as trading income see the relative article on our website.

• Increase in the rate of defense Tax on dividends received or accrued or deemed to be received by a Cypriot tax resident from 15% to 17%. This applies only to individuals since generally companies are except from the defense tax on dividends. For more details as to the taxation of dividends see the relative article on our website.

• Both changes are effective as from 31/08/2011.

The Immovable Property Tax Law changes

• The rates applicable for the payment of the immovable property tax which is imposed on every person owning property in Cyprus have changed. The rates effective as from the year 2012 are as follows:

Up to €120.000                                  0%0

From €120.000 to €170.000           4%0

From €170.001 to €300.000           5%0

From €300.001 to €500.000           6%0

From €500.001 to €800.000           7%0

Over €800.000                                   8%0

It should be noted that the Tax is levied on the assessed value of the property as at 1/1/1980.

The Value Added Tax Law changes

• Individuals who buy or construct a flat or a house to be used as their private main residence are entitled to a reduced VAT rate of 5% on this residence provided the area of the property does not exceed 200 square meters. It should also be noted that the reduced rate of 5% also applies on the first 200 square meters if the total area of the property does not exceed 300 square meters.

The Companies Law changes

• As from 2011 an annual levy of €350 is introduced for all companies incorporated in Cyprus, payable to the Registrar of Companies. For groups of companies the maximum levy is fixed at €20.000.

• The levy for 2011 must be paid by 31 December 2011, whereas the levy for 2012 onwards must be paid by 30 June of each year.

• No annual levy is imposed for the year of incorporation.

• Dormant companies, companies which do not own any assets, as well as companies owning property located in the non Government controlled areas of Cyprus are exempted from the payment of the levy.

In case the levy is not paid in the prescribed period penalties are imposed .

Cyprus Corporate Services Multilysis Services Limited

Cyprus Lawyers N. Pirilides & Associates LLC