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30 August 2011

TAX NEWS

Cyprus Tax legislation amendments first package

On the 26th of August the Cyprus Parliament in its efforts to eliminate the state

deficit and eventually to avoid Cyprus entry into the support mechanism voted

certain amendments to the following existing laws:

The Income Tax Law The Special Defence Contribution Law Immovable Property Tax Law The Companies Law VAT

Below its a summary of the changes introduced including the date that the new

measures comes into effect.

Amendments to the Income Tax Law

Application date as from tax year 2011 (except for tax relief of non-Cyprus tax

residents which will apply from year 2012)

Increase of top rate of Income tax for individualsA new income tax rate of 35% will apply for taxable income over 60.000.

Income tax relief on non-Cyprus tax resident individualsFor non-Cyprus tax resident individuals who start employment in Cyprusafter 1 January 2012 if their income from employment is more than 100.000per annum they are entitled to 50% relief on taxes due for the first 5 years oftheir employment.

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Abolition of exemption from taxation of the President of the Republicand the President of the Parliament.

The exemption from taxation of the emoluments and the pension of thePresident of the Republic of Cyprus and the pension of the President of theCyprus Parliament is abolished.

Amendments to the Special Defence Contribution Law (SDC)

Application date As from the date that the amendments will be published in the

Government Gazette (have not been published yet).

Interest income increase of tax rate from 10% to 15%The increase in the rate of taxation of interest income (from sources either within Cyprus or outside Cyprus) applies to both Physical persons and

Companies who are Cyprus tax residents. In the case of Companies theexisting provisions for interest income that emanates from the Companysactivities continue to apply and such income is subject only to income tax.

Therefore, financing companies, including companies acting as financevehicles within their groups, are not expected to be affected from the changein the rate.

The interest income of Provident Funds and physical persons whose totalincome including interest does not exceed 12.000 remain at 3%. The 3%rate also applies to interest income received by physical persons fromGovernment savings certificates and development stocks.

Dividend income increase of rate from 15% to 17% The rate of Defence tax on dividends received by Cyprus tax residentsincreases from 15% to 17%. This applies to distributions to physical personsand also in the case of companies that have not distributed dividend in whichcase and the deemed distribution provisions are triggered.

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Amendments to the Immovable Property Tax (IPT)

Application date effective as from tax year 2012

Immovable Property annual tax is paid by both Physical persons andCompanies who own immovable property in Cyprus. There are amendments

in the existing tax rates and also a decrease of the tax free band as follows:

Amendments to the Companies Law

As from 2011, a fixed annual levy of 350 is imposed to all companies thatare registered in Cyprus. For a Group of Companies the total amount cannotexceed the 20.000.

At the discretion of the Registrar of Companies there is an exemption fordormant Companies, Companies that do not own any assets as well asCompanies that own only assets that are situated in the occupied area ofCyprus.

The levy for the year 2011 should be paid up to 31 December 2011. The levyfor the following years should be paid up to 30th of June of each year. In caseof delay in the payment penalties will be triggered that have not been agreedyet.

If the levy is not paid within five months, the Registrar of Companies willremove the Company from the Registry.

Market value at

1 January 1980

Rate

(per thousand)

First 120.000 -

120.001 170.000 4

170.001 300.000 5

300.001 500.000 6

500.001 800.000 7

Over 800.001 8

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Amendments to the VAT

Individuals who are purchasing or constructing their private main residenceare entitled to be charged a reduced VAT rate which is set at 5% forproperties having an area of less than 200 square metres. The reduced rate

will also apply to the first 200 sq. m. as long as the total area of the propertyis not more than 300 sq. m.

For further information and advice, contact your nearest office below:

NicosiaGeorge Karavis41 - 49 Agiou Nicolaou Street

Nimeli Court, Block C, EngomiP.O.Box 239071687 LefkosiaCyprus

T +357 22600000F +357 22600001

LimassolAugoustinos Papathomas10 Filiou Zannetou Street

P.O.Box 552993820 LimassolCyprus

T + 357 25878855F +357 255344425