As part of a reform of the tax framework of the Republic of Cyprus, certain of the proposed
amendments were voted into law by the House of Representatives and were published in the
Cyprus Government Gazette on the 16th July, 2015.


The amendments were introduced in order to enhance the competitiveness of Cyprus as a
jurisdiction for investments as well as to encourage high net worth individuals to invest in


In brief, the amendments already voted into law are as below:


Notional Interest Deduction on Qualifying Equity

Law 116(I)/2015 amending the Income Tax Laws of 2002 to (No.4) 2004


By the introduction of the Notional Interest Deduction (NID), companies that obtain new
capital/equity may claim a notional tax deduction on the new capital for up to 80% of the
company’s taxable profits.


The NID will be calculated as the multiple of the new capital/equity and the “reference interest


The “reference interest rate” is defined as the 10 year government bond yield of the country
in which the new equity is invested increased by 3% with lower limit the 10 year
government bond yield of the Republic of Cyprus increased by 3%. The rate used will be
the rate as at 31 December of the previous tax year.


The NID can be set against any income generated by the company during the specific tax year.


New equity is defined as any equity introduced in the business on or after the 1st January 2015
and may be in the form of issued share capital and share premium, fully paid in cash or assets
in kind. However, the amount of the new equity may not exceed the substantiated market value
of the asset.


New equity does not include any amounts that have emanated from a revaluation of assets.


It is not obligatory for the company to claim part or all of the NID deduction available in a tax


In order to combat possible abuse of the NID, several anti-abuse provisions will be


The NID is applicable for Cyprus tax resident companies and permanent establishments in
Cyprus of non tax resident companies.


Introduction of the “Domicile” status and exemption from Special Defence

Law 119(I)/2015 amending the Special Defence Contribution Laws of 2002 to


As previously, the earned income (whether generating from Cyprus or abroad) of a Cyprus tax
resident in the form of dividends or interest received, was subject to Special Defence
Contribution (“SDC”) at the rate of 17% on dividend income and 30% on interest earned.


With this amendment, the income of individuals who are not of Domicile status in the form of
dividends, interest received and rental income, is exempt from SDC, regardless of whether the
income was generated in Cyprus or abroad.


For the purposes of the SDC Laws, an individual is considered to have Domicile in the Republic
of Cyprus if they have a Domicile of Origin as per the provisions of the Wills and Succession
Law, i.e. domicile of the father at the time of birth, but does not include:

(i) an individual who has acquired and maintains a Domicile of Choice outside Cyprus as per
the provisions of the Wills and Succession Law, provided that they were not a tax resident
of Cyprus for a period of at least 20 consecutive years prior to the tax year in question; or

(ii) an individual who has not been a Cyprus tax resident for a period of at least 20 consecutive
years prior to the date of the Law becoming effective.


Furthermore, individuals who are tax resident as defined by the Income Tax Law for a period
of at least 17 years out of the last 20 years prior to the year in question, are considered to have
Domicile in the Republic of Cyprus regardless of point (i) above and will be thus subject to the
relevant taxation if and when this condition is met.


In conclusion, individuals who are not considered to have Domicile in Cyprus will be exempt
from SDC payments on dividends, interest and rental income, even if they are considered tax
residents of the Republic of Cyprus.


Exception from Capital Gains Tax on future sales of immovable property
acquired until the 31st December 2016

Law 117(I)/2015 amending the Capital Gains Tax Laws of 2002 to 2015


As per the amendment to the Capital Gains Tax Laws, any income gains generated by the
disposal of immovable property consisting of land or land and buildings will be exempt from
Capital Gains Tax, provided that:

(i) the immovable property is acquired from the date the amendment becomes in force until
the 31st of December 2016; and

(ii) the immovable property is acquired by purchase or purchase agreement at market value
from an unrelated party and not through exchange or donation.


It should be noted that it is expected that further positive amendments will be discussed and
voted into law by the House of Representatives of the Republic of Cyprus in September. The
amendments to be discussed will concern foreign exchange (forex) differences, losses carried
forward on intellectual property income, extension of exemptions from personal tax on
individuals who relocate to Cyprus for work purposes, increase of annual allowances for capital
expenditure (plant and machinery and industrial buildings) and group relief for losses.

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