SECOND PACKAGE OF AMENDMENTS TO THE TAX AND VAT LEGISLATION

 

The amendments were published in the official Gazette of the Republic on 30 December 2011. The amendments constitute measures that were introduced by the Government of the Republic for avoiding further deterioration of the fiscal deficit.

 

VAT LAW

 

INCREASE IN THE STANDARD RATE OF VAT FROM 15% TO 17%

 

The standard rate of VAT will rise from 15% to 17%.

 

ENTRY INTO FORCE

 

The increase in the standard rate of VAT will come into force from 1 March 2012.

 

IMPOSITION OF PENALTIES FOR FAILURE OF TAXABLE LEGAL PERSONS TO COMPLY WITH THEIR OBLIGATIONS OF ISSUING A “LEGAL RECEIPT” UPON RENDERING OF TAXABLE SUPPLIES OF GOODS AND SERVICES TO NON TAXABLE PERSONS

 

In accordance with paragraph 1A of the 10th Schedule of the Cyprus VAT Law a taxable person has the obligation to issue a legal receipt containing the following information:

 

  • Issue Date
  • Serial Number
  • Name, address and registration number of the taxable person
  • Adequate description of the goods or services offered
  • Total amount payable including VAT
  • The total amount payable (including VAT) and the applicable VAT rate for each rate of VAT
  • Indication of whether the transaction involved advance payment , cash payment or otherwise

 

In case where a person fails to issue a legal receipt , then a penalty equal to 20% of the value of the transaction for which the person is in default will be imposed.

In addition any person failing to issue a legal receipt, shall be deemed guilty of an offence and in case of conviction will be subject to a maximum fine of €1,700 or imprisonment of 3 years or both.

ENTRY INTO FORCE

 

The imposition of penalties for failure to comply with the obligation to issue legal receipts will come into force on 16 January 2012.

 

SPECIAL CONTRIBUTION FOR THE DEFENCE OF THE REPUBLIC LAW (SDC)

 

INCREASE IN THE RATE OF SPECIAL DEFENSE CONTRIBUTION (SDC) ON DIVIDEND INCOME FROM 17% TO 20%

 

The rate of SDC tax on dividend income received by a Cyprus tax resident individual is increased from 17% to 20%. Companies are generally exempt from the payment of SDC tax on dividends received.

The rate of 20% also applies when the deemed dividend distribution provisions of the legislation are applied, in case where a company does not distribute at least 70% of its accounting profits after tax as dividends within 2 years after the end of the tax year under review.

In addition to the above, it is reminded that dividends received by non Cyprus tax resident companies and individuals are not subject to SDC tax and that the deemed dividend distribution rules do not apply in cases where the company’s shareholder (direct or indirect) is not a Cyprus tax resident.

 

IMPOSITION OF SPECIAL DEFENSE CONTRIBUTION (SDC) ON DIVIDENDS PAID INDIRECTLY AFTER THE ELAPSE OF 4 YEARS FOLLOWING THE YEAR IN WHICH THE PROFITS THE DIVIDEND RELATES TO AROSE

 

In case where a Cyprus resident company receives a dividend from another Cyprus resident company, and such dividend is paid indirectly after the elapse of four years following the year in which the profits that the dividend relates to arose, then the dividend will be subject to SDC at the rate of 20%.

The above measure will not apply in cases where the dividend declared relates to profits arising directly or indirectly from dividends on which SDC had previously been imposed.

 

ENTRY INTO FORCE

 

The above amendments came into force on 1 January 2012 and is applicable on income arising or deemed to arise from 1 January 2012 to 31 December 2013

 

Note:

 

The above measures targets primarily the Cyprus resident individuals and companies, while this does not significantly affect the international companies which use Cyprus tax resident individuals and companies within their group structures. The above amendments give an opportunity to international group companies to reassess their current structure and ensure tax efficiency.

 

INCOME TAX LAW

 

Section 39 is abolished-Notional Interest on shareholders loans from the Special Contribution of Defence Law but it is incorporated in section 5 of the Income Tax Law

 

In accordance with section 39 where a company grants a loan or any other financial facility to its shareholders/ directors who are individuals, such company is deemed to have interest income at the rate of 9% per annum, on the amount of the loan facility.

This notional interest was subject to Special Defence Contribution at the rate of 15% and was exempt from Income Tax

Thus section 39 of Special Defence Contribution Law is abolished but the provisions of it are introduced in section 5 of the Income Tax Law. This means that the 9% notional interest on shareholder/director loans who are individuals will now be subject to Income Tax and will be treated as a benefit in kind for the shareholder /director. This benefit will be calculated on a monthly basis at the rate of 9% and will be taxed and paid through the Pay As You Earn (PAYE) system.

 

Note:

 

The above measure came in an effort to offset the effect of the other measures that came into force and creates positive conditions for Companies as the abolition of section 39 of Special Defence Tax and inclusion in the Income Tax Law moves the tax burden on loans granted to Directors and shareholders who are individuals from the Company to the individual shareholder /director.

 

SPECIAL SETTLEMENT OF OVERDUE TAXES

On 12th December 2011 the Special Settlement of Overdue Taxes Law was published in the Cyprus Gazette.

 

Tax payers can pay all outstanding taxes for the years up to 2008 with 5% penalty and no interest will be applied.  CONDITIONS: Due taxes shall be paid:

1. in full

2. up to 30th March 2012

 

The provisions of this Law are temporary and are valid from the date of publication of the Law till 30th March 2012.

ANNUAL CORPORATE LEVY – “DORMANT COMPANIES”

According to the interpretation of the Law regarding to the obligation of payment of the corporate levy “the dormant company” shall be interpreted in its broad meaning. Explicitly, its meaning must not be limited to the total revenue of business, which comes from sales or providing services but it is extended to revenues, which come from the activity of the company, for instance: dividends, interests, supplies, rent, exploitation rights and so on.

 

When a company is DORMANT, the Director of the Company has to submit the relevant confirmation to the Company Registrar in order to be exempt from the payment of the corporate levy. In this case if the confirmation is submitted till 30th of June, then the Company is considered to be dormant for whole year for which the confirmation was given.

 

If a company has activities after submitting the said confirmation but before 31st of December there is no obligation of payment of the corporate levy for this year but the Company is obliged to pay the levy for the subsequent year until June.

 

For further information please contact:

Angela Katchies

Advocate

This email address is being protected from spambots. You need JavaScript enabled to view it.

+357 25508000

ANNOUNCEMENT OF THE MINISTRY OF COMMERCE, INDUSTRY AND TOURISM OF THE REPUBLIC OF CYPRUS

LEVY 2011

 

The payment of the annual corporate levy for the year 2011 shall be done by 31/12/2011 otherwise the penalty of:

  • 10% will be applied if the payment is delayed for 2 months or
  • 30% - if the payment is delayed for 5 months

GENERAL AND LIMITED PARTNERSHIP AND BUSINESS NAMES

General and Limited Partnership and Business Names Law, Capital 116, (hereinafter called “the Law”) was amended on 4th of November 2011 by the amendment Law No. 146(I)/2011.

 

Provisions of the Company Law, Capital 113 regarding to ANNUAL FINANCIAL STATEMENTS and FINANCIAL STATEMENTS AND AUDIT shall apply to partnerships which were incorporated in Cyprus provided that one or all partners are:

  1. Limited Liability Companies, incorporated according to provisions of the Company Law, Cap.113
  2. Companies of the member state of EU within the meaning of section 2 of the Company Law
  3. Companies of Third Countries, which have identical legal form with the above mentioned companies
  4. Partnerships, incorporated under the provisions of the Law
  5. Partnerships and private companies of other Member State of EU, which are expressly mentioned in the Law

 

THE ABOVEMENTIONED PARTNERSHIPS SHALL:

  • PREPARE and SUBMIT to the Company Registrar ANNUAL FINANCIAL STATEMENTS according to provisions of sections 118 -122 of the Company Law

In this case the following rules shall apply:

  • Financial statement shall be submitted within 6 month after the end of financial year
  • It is not necessary to enclose documents to the Annual Statement, presented to the General Meeting provided that:

a)      The public has access to this documentation at the office of the Company

b)      Copies of this documentation are available to the public

  • Comply with provisions of the Company Law, regarding PREPARATION OF ANNUAL FINANCIAL STATEMENTS (sections 142 -143) and PRESENT TRUE and FAIR PICTURE OF THE COMPANY
  • Comply with provisions of the Company Law, regarding PUBLICATION OF FINANCIAL STATEMENTS (section 150)
  • Comply with provisions of the Company Law, regarding PREPARATION OF REPORT OF THE DIRECTORS, which is enclosed to financial statements (section 151)  
  • PRESENT FINANCIAL STATEMENTS AND REPORTS OF THE DIRECTORS TO THE GENERAL MEETING according to section 152 of the Company Law, where all partners or their legal representatives are present
  • PRESENT FINANCIAL STATEMENTS AND REPORTS OF THE DIRECTORS FOR VERIFICATION

 

PENALTIES FOR NON – COMPLIANCE WITH THE ABOVE MENTIONED PROVISIONS OF THE LAW:

 

PARTNERSHIPS, which have the obligation to prepare and submit to the company registrar annual financial statements and DO NOT COMPLY:

 

1.       With provisions of sections 118 -122 of the company law are liable to “THE PENALTY OF OMISSION”, having the meaning, given to it by section 375 of the Company Law

 

          According to section 375 of the Company Law “THE PENALTY OF OMISSION” shall be estimated for every day where omission, refusal or violation is continued. It shall not exceed the amount defined by specific provision or if it is not prescribed it should not exceed the penalty of 42.72 euro.

 

2.       With provisions of section 142 of the Company Law, regarding PREPARATION OF ANNUAL FINANCIAL STATEMENTS, commit criminal offence and in case of conviction is liable to imprisonment not exceeding one year or to a fine not exceeding 1700 euro or to both of these sentences

 

3.       With provisions of section 150 of the Company Law, regarding PUBLICATION OF FINANCIAL STATEMENTS, commit criminal offence and in case of conviction is liable to a fine not exceeding 850 euro

 

4.       With provisions of section 151 of the Company Law, regarding REQUIREMENTS OF PREPARATION OF REPORT OF THE DIRECTORS, which is enclosed to financial statements, commit criminal offence and in case of conviction is liable to imprisonment not exceeding one year or to a fine not exceeding 17000 euro or to both of these sentences

 

          DEFENCE: If it is proved that the defendant had a reasonable cause to believe and he believed that there was another capable and responsible person who was obliged to comply with the said provisions of the Law and that this person was able to perform this duty

 

5.       With provisions of section 151 of the Company Law, regarding PUBLICATION OF REPORT OF THE DIRECTORS, which is enclosed to financial statements, commit criminal offence and in case of conviction is liable to a fine not exceeding 850 euro

 

6.       With provisions of section 152 of the Company Law, regarding PRESENTATION OF FINANCIAL STATEMENTS AND REPORTS OF THE DIRECTORS TO THE GENERAL MEETING, is liable to a fine not exceeding 170 euro

 

For further information, please contact:

Angela Katchies

Advocate

This email address is being protected from spambots. You need JavaScript enabled to view it.

(+357) 25508000

Areti Charidemou & Associates LLC Law Firm