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On the 23rd of December 2016, the following amendments to the Income Tax Law of 2002
were made, introducing new provisions for tax relief for investors in innovative small and
medium enterprises.

The amendments were introduced in order to further modernize the tax legislation of the
Republic of Cyprus and provide incentives for research and development.

Income Tax (Amendment) (No. 2) Law of 2016 L135(I)/2016

Deductions

As per this amendment, amounts invested for risk financing by independent physical persons
in innovative small and medium enterprises, are deductible from their taxable income for the
year during which the investment is made.

Independent persons are persons who were not shareholders of a company prior to the
investment. For newly formed companies, the incorporating shareholders shall be considered
to be independent.

The investment can be made directly or through an investment fund or alternative investment
platform.

Limitations

The deductible amount may not exceed 50% of the investor’s total taxable income.

However, any amount above the 50% limit may be carried forward for up to five years, provided
that the 50% limitation is not exceeded in any year.

The deductible amount may also not exceed €150.000 per year.

The provisions of para. 6 of Article 21 of the EU Regulation no. 651/2014 declaring certain
categories of aid compatible with the internal market must be adhered to.

The investment must be retained for a period of at least three years.

Qualifying enterprises

The company invested in must be an innovative small or medium enterprise, which:

a) operates and conducts business in Cyprus,

b) is not listed in a Stock Exchange, has prepared a business plan for the risk financing investment and fulfills at least one of the following conditions:

• is not yet operative
• is operative for less than seven years as from its first transaction
• requires initial risk financing, or based on a business plan, the risk financing it requires
  is 50% higher than its average annual turnover due to expansion in a new market or
  a new product.

The company must be certified as an innovative small or medium enterprise by the Ministry of
Finance of the Republic of Cyprus.

In order to be considered a small or medium enterprise, the company must fulfill the below
criteria:

Company Category – Medium

Employees: Fewer than 250

Turnover: ≤ €50 million

Balance sheet total: ≤ €43 million

Company Category – Small

Employees: Fewer than 50

Turnover: ≤ €10 million

Balance sheet total: ≤ €10 million