Amendments to the Income Tax Law – 24/5/2012

On 24^th May 2012, the House of Representatives voted on a number of amendments to the law in order to promote foreign investments.

AMENDMENTS TO THE INCOME TAX LAW

Intellectual property (IP) rights

• 80% of the net profit from the exploitation of IP is now exempt from tax. Net profit is arrived at by deducting all direct expenses.
• 80% of the profit arising on disposal of IP rights is now exempt from tax.
• The rate of capital allowances on the cost of the intangible is set to 20%.
• Effective date: 1 January 2012

This new amendment brings a new competitive edge to Cyprus in the area of Intellectual Property.

Increase of capital allowances

• Capital allowances it the rates below will be granted on the following assets which have been purchased in the tax years 2012 to 2014
  • 20% for plant and machinery
  • 7% for industrial and hotel buildings

Group relief

• Prior to the amendment, for the purposes of group relief, a company is considered to be part of the same group if it was part of the group for the whole year.
• Under the new amendments, when a company has been incorporated by its parent company during the tax year, the new company will be considered part of the group for that tax year for group relief purposes.
• Effective date: 1 January 2012

Related party transactions

• The provisions of section 33 of the Income Tax Law will not apply for transactions between the parent company and its 100% owned subsidiaries in cases where group relief provisions of section 13 have been applied.
• Effective date: 1 January 2012

Deduction of interest for tax purposes

• Interest payable for the acquisition of a wholly owned subsidiary will be tax deductible for tax purposes in cases where the subsidiary does not own any assets which are not used in the business.
• In cases where the subsidiary does own assets which are not used in the business then restriction of interest will correspond to the percentage of assets not used in the business only.
• Effective date: for shares acquired from 1 January 2012 onwards

AMENDMENTS TO THE SPECIAL CONTRIBUTION FOR DEFENCE FUND LAW

Deemed dividend distribution

• The cost of acquisition of any plant, machinery and buildings (excluding saloon cars) will be deducted from the profits for the purposes of deemed dividend distribution.
• This will apply only for the profits of the years 2012 to 2014.

AMENDMENTS TO THE VAT LAW

Reduced rate of 5% on the purchase of a building in Cyprus

• The purchase of a building located in Cyprus by a non Cyprus tax resident is subject to 5% VAT assuming that the building is used as the primary and permanent place of residence in the Republic.

Private aircraft

• Upon import of a private aircraft into the Republic, VAT is now payable when the VAT return is submitted.