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New real estate tax incentives in Cyprus
Specifically, exemption from capital gains tax has been introduced for sale of properties that have been or will be acquired between the day the law was enacted and 31 December 2016. As a reminder, the standard capital gains tax rate on the disposal of properties is 20% and the newly-introduced exemption will provide a boost to the construction industry.
A 50% reduction of land registry duties has been introduced and, as above, relates to transfers of real estate which will take place before 31 December 2016. With the amendments, if VAT has been paid on a real estate purchase, transfer fees will be waived. In case of transfers from a parent to a child, no fees will be due.
With the introduction of the concept of a non-domiciled individual, the Special Defense Contribution (SDC) tax has also been amended. Per the amendments, a Cypriot tax resident (based on the 183 days rule) may not be liable to SDC payment if there is proof that he/she is not domiciled in Cyprus. This novelty in the Cypriot legislation provides a very interesting incentive to high net worth individuals, who – provided they are able to prove non-domiciliation – will be exempt from SDC on bank deposit interest (otherwise taxed at 30%), rental income (3% tax) and dividends (17% tax).
Yet another change in the tax legislation is the introduction of notional interest deduction on new equity (newly issued share capital and share premiums, paid in full either in cash or in kind).
For the period 1 January 2015 - 31 December 2015 the notional interest deduction can be offset against revenue of the tax year. The amount of the notional interest deduction is equal to the interest yield of a 10 year government bond in the jurisdiction in which the new equity is invested plus 3%. The bond yield to be used in the calculation of the notional interest deduction is the one applicable on 31 December of the fiscal year prior to the year in question. Worth noting is the fact that a ceiling has been imposed on the maximum amount of notional interest deduction; namely, it may not exceed 80% of the taxable income of the company and it cannot be carried forward.
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In addition to the above, supplementary incentives are expected to be approved in Cyprus during subsequent months, including – among others - incentives relating to taxes of foreign exchange differences, group loss relief rules and annual allowances for capital expenditures.