The Cyprus Government in an effort to boost the competitiveness of the newly launched Cyprus Non-Domicile Scheme has recently proceeded to also amend the criteria that need to be satisfied by any individual who wishes to become a Cyprus tax resident.

 

These significant amendments to the Cyprus tax environment have now let to new advantageous co-ordinates for all persons interested in obtaining the Cyprus Tax-Residency and thus enjoy the country’s beneficial tax regime.

 

More specifically, as per unanimous approval by the Cyprus Parliament of a recent bill of date 14 July 2017, the classification of ‘Cyprus Tax Resident Individual’ can now be duly granted to any person who do not spend more than 183 days within a tax year at any other State, and is not a tax resident at any other country within that same tax year.

 

From thereon, the voted amendment to Article 2 of the Income Tax Law N118 (I)/02 in reference to the criteria for determining the rights of an individual to be considered a Cyprus tax resident requires a triple criterion to be satisfied which is comprised of the following:

  1. The individual is expected to spend a minimum of 60 days within the year under assessment in the Republic of Cyprus
  2. The individual maintains a permanent housing residence in Cyprus which can be either owned or rented
  3. The individual carries out any kind of business within Cyprus or is employed in Cyprus, or holds an office as a Director of a Company which is tax resident in the Cyprus jurisdiction, starting at any time during the tax year under consideration and throughout to the completion of that year.

 

Additionally,  the very advantageous applicable tax rate bands for Cyprus tax residents are currently the following, and these rates are applicable to the entirety of their income earned worldwide.

 

Income bands of net chargeable income with net chargeable income being the resulting net Income following all allowable deductions as per the Cyprus Income Tax Regime:

  • For up to € 19.500: Tax rate is Nil on the first €19.500
  • For the €19.501 to € 28.000: Tax rate is 20%
  • For the next € 28.001 to € 36.300: Tax rate is 25%
  • For the next € 36.301 to €60.000: Tax rate is €30%
  • For over €60.000: Tax rate is 35%

 

Thus, if you are interested in this Scheme, here at White November Corporate Services, our highly experienced teams can readily offer you the necessary detailed and specific guidance tailored to your requirements towards obtaining the advantageous Cyprus tax residency as well as the non-domicile individual status, and we look forward to attending your tax residency plans and enquiries.

 

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On the 7th of June 2017 Cyprus signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“MLI”). The MLI will implement tax treaty measures in order to reduce opportunities for tax avoidance by multinational companies.
 

Article 6 and 7 as the main impact on Cyprus Companies

The main impact on Cyprus companies will be Article 6 and 7 which relate to treaty abuse. As a result, Cyprus will implement in its double tax treaties principle purpose test (PPT) and a limitation of benefit clause (LoB). Consequently, it is essential that Cyprus companies owners examine the impact of these changes and ensure that they have sufficient substance in Cyprus. Failure to do so could lead to significant tax implications.

The treaty, based on the OECD model treaty, provides for the following maximum withholding tax rates on dividends, interest and royalty payments:

  • Dividends: No withholding tax on dividends paid to a company that holds directly at least 10% of the capital of the dividend paying company.
    Otherwise, the rate will be 5%.
  •  Interest and royalties: No withholding tax on interest and royalties paid to a resident of the other contracting state.

 

Who does the tax treaty apply to?

For the purposes of the treaty, a collective investment vehicle will be considered a resident of a contracting state if, under the domestic law of that state, it is liable to tax therein by reason of its domicile, residence, place of management or any other criterion of a similar nature. Collective investment vehicle will be considered as liable to tax if it is subject to the tax laws of that contracting state irrespective if it is exempt from tax.

The treaty also includes provisions for the exchange of financial and other information. The treaty will enter into force after formal ratification and with respect to taxes will have effect on or after 1 January following the date the treaty enters into force.

On the 3rd of May 2017 Cyprus signed double tax treaty with Barbados.
 

Nil withholding tax on dividends, interest and royalty payments

 
The treaty is based on the OECD Model Convention and provides nil withholding tax on dividends, interest and royalty payments. The treaty will enter into force after formal ratification and with respect to taxes will have effect on or after 1st January following the date the treaty enters into force.

Mr. Ionas Nicolaou, Minister of Justice and Members of Supreme Court had decided to set up a Commercial Court from the beginning of 2018.

The Commercial Court shall have jurisdiction over matters arising from contracts or disputes between companies, the purchase or sale of goods, the exploitation of oil or gas, the purchase or exchange of shares, intellectual property and insurance affairs. It shall apply to cases the scale exceeds EURO 5,000.000. The seat of the Court shall be in Limassol and Nicosia. The Procedure shall be fast track and to be completed up until 18 months at first instance. The existence of the Commercial Court shall attract new investment and companies.

The programme of Cypriot “Startup Visa” (Startup Permit Scheme) was introduced in February 2017 and will operate till February 2019. The 2 year pilot programme shall attract talented entrepreneurs from third countries (outside EU and EEA). The programme consist of two parts: individual and team.

 

This Scheme is applicable to following under below mentioned conditions:

1. Individuals as Non-EU country nationals who:

  • Is the only founder and meets the requirements of the enterprise below.
  • Has access to €50.000, which may include venture capital funding, crowdfunding or other sources of funding.
  • Holds an undergraduate degree or an equivalent professional qualification.
  • Has very good knowledge of the Greek and / or English language.

 

2. Teams consisting of Non-EU country nationals:

  • Comprise solely of founders that meet the requirements of the enterprise below and are of a maximum number of 5 individuals or, of at least 1 founder and other senior executives that their total does not exceed 5 individuals.
  • The senior management must belong to the third level of the administrative hierarchy (managers) (C – level employees) and will have the right to stock options. Possess, in total, more than 50% of the company’s shares.
  • The founder has access to € 25,000. In case the founders are more than 2 the total capital must be €50.000 which may include venture capital funding, crowdfunding or other sources of financing.
  • At least one of the team members holds an undergraduate or an equivalent professional qualification.
  • All team members have a very good knowledge of Greek and / or English language.

 

Requirements of the Enterprise:

The enterprise must be innovative. The enterprise will be considered as innovative if its research and development costs represent at least 10% of its operating costs, in at least one of the three years preceding the submission of the application, as certified by an external auditor, on the basis of international accounting standards. In the case of a new enterprise without any financial history, the evaluation will be based on the Business Plan submitted by the applicant. The Business Plan must provide that the enterprise’s head offices and tax domicile be established in Cyprus. The head offices may be common co-working spaces (e.g. business accelerators, incubators, digital hubs etc.) or co-location with other enterprises.

 

Contact us for the application procedure details.

 

Source

 

The Cyprus Tax Authority decided to change the current tax regime in relation to profit margins and loans between related parties.
 

Whom does the change apply to?

From the 1st of July 2017 all loans between Cyprus Tax Resident Companies and their related parties shall be supported by transfer pricing studies prepared by an independent expert and based on OECD principals. The new rule will affect financial transactions between related companies with regards to tax assessment and tax ruling.

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