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New Income Tax circular from Inland Revenue
The Inland Revenue Department published a new circular clarifying the provisions of Article 11(15) of the Income Tax Law which refers to certain restrictions on interests and expenses and whether they can be deductible. The circular was implemented on 1 January 2012. Taxand Cyprus discusses how the circular is intended to help foster good relationships between taxpayers and authorities.
Article 11 (15) of the Cyprus Income Tax Law provides that, the following income will not be deducted from taxable income:
'Interest that is attributable, or is considered to be attributable, on the purchase cost of a private vehicle, irrespective of whether it is used in the business or not, and the purchase cost of any other assets (such as shares in public and private companies, land, buildings etc) which are not used in the business.'
In particular, the new circular states that the provisions of Article 11(15) will not be applied on the interest payable by a Cyprus tax resident company, in regards to the cost of shares which the Company owns entirely (100%, directly or indirectly) in another Cyprus Company and subject to the condition that the dependent Cyprus Company does not own any assets which are not used for the business' purpose.
The circular also clarifies that if the dependent Cyprus Company has assets which are not used for the business' purpose, the interest payable by the parent Cyprus Company will be limited only to those assets.
Clarifications provided by the Inland Revenue Department intend to eliminate disputes between taxpayers and authorities as well as aid a better understanding of the law.
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