Changes in Cyprus Tax Legislation
On 24 May 2012 the House of Representatives voted a number of amendments to Cyprus tax laws, in an attempt to make Cyprus more attractive for foreign investors. The changes, which will have retrospective effect as of 1 January 2012, include the following:
A. Taxation of Intellectual Property rights
The cost for the acquisition or development of intangible assets (being of a capital nature) is amortised equally over a five years period, i.e. at 20% per year. This provision covers a wide variety of types and categories of intangible assets.
In addition, 80% of the profit arising from the use of intangible assets, as well as out of the profit on their sale is exempt from taxable income. The 80% deduction will apply after deducting all direct expenses.
B. Deductibility of interest expense related to the acquisition of shares
Interest incurred in connection with the acquisition (directly or indirectly) of shares in a 100% owned subsidiary company (irrespective of the tax residency status of the subsidiary) shall be deductible for Cyprus tax purposes.
C. Increased capital allowances for capital expenditure
The wear and tear allowance for all machinery and plant acquired during 2012, 2013 and 2014 will be 20% (increased from the previous rate of 10%).
The wear and tear allowance for all industrial and hotel buildings acquired during 2012, 2013 and 2014 will be 7% (increased from the previous rate of 4%).
D. Profits subject to deemed dividend distribution rules
For the purposes of deemed dividend distribution, any capital expenditure incurred on the acquisition of plant and machinery and buildings during the years 2012, 2013 and 2014 is deducted from after tax profits.
E. Group loss relief / Transfer pricing adjustment
A company incorporated during the year of assessment may be considered as being a member of the group of companies for the whole year of assessment for group loss relief purposes. Before these changes, a subsidiary had to be member of the group for the whole tax year in order to be included in the group loss relief.