Tag Archive: cyprus

1. Cyprus Transfer Pricing update

   18 January 2023 7:00 am Leave a Comment

   Introduction

   On 30 June 2022, the Cyprus Parliament approved amendments to the Cyprus Income Tax Law and new Regulations to introduce Transfer Pricing (“TP”) documentation compliance obligations (Master File, Cyprus Local File, Summary Information Table).

   The documentation requirements apply to Cypriot tax resident persons and Permanent Establishments (PE’s) of non-tax resident entities that engage in transactions with related parties. The aim of the new law and regulations is to ensure compliance of covered entities with the arm’s length principle.

   In addition, the law has been amended to update the definition of related parties by introducing a minimum 25% relationship threshold relevant for companies.

   The law amendments and Regulations are effective from the tax year 2022 onwards.

   Overview

   The new transfer pricing law and regulations cover all types of transactions between related parties in excess of €750.000 per category of transaction.

   Different types of transactions include sale/purchase of goods, provision/receipt of services, financing transactions, receipt/payment of IP licences/royalties, others.

   A relevant notification has been issued by the Cyprus Tax Department (“CTD”) providing (amongst others) the required detailed contents of the Master File and Cyprus Local File.

   The Summary Information Table (SIT) must be prepared by all taxpayers that engage in Controlled Transactions on an annual basis, disclosing details regarding such transactions. There is no threshold for the SIT, and this must be submitted electronically together with the Income Tax return for the relevant tax year.

   Exemptions

   The following exemptions shall apply:

   • Master File: It applies only to Cyprus tax resident entities that are ultimate or surrogate parent entities of multinational group which has consolidated revenues above €750M (with CbCR obligations). All other persons are exempt from this obligation.

   • Local File: Exception is granted if the volume of controlled transactions does not exceed €750,000 per category of transactions.

   Quality Review

   A person who holds a Practicing Certificate from the Institute of Certified Public Accountants of Cyprus (ICPAC) or another approved by the Council of Ministers body of certified auditors

   in Cyprus is expected to perform a Quality Review of the Cyprus Local File.

   Deadline

   The TP Documentation File must be prepared on an annual basis, by the deadline of filing the Income Tax Return for the relevant tax year.

   Penalties

   In case of late submission or non-submission of files, the law and regulations prescribe the following penalties:

   Non-submission of Table of Summarized Information within deadline	€ 500
   Late filing of the Local &/or Master File:
   – within the 61st and 90th day from request	€ 5,000
   – within the 91st and 120th day from request	€ 10,000
   – after the 121st day from request or non-filing	€ 20,000

   If you have any queries about this Cyprus Transfer Pricing update, or Cyprus tax matters generally, then please do not hesitate to get in touch.

   The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.

2. Loans made by a Cyprus Company to a non-Cyprus Tax resident individual shareholders

   13 November 2022 6:37 pm Leave a Comment

   Introduction

   As from 1 January 2012, according to the provisions of article 5 (2) of the Income Tax Law 118 (I) / 2002, whenever a company grants a loan or any other monetary facility including cash withdrawal (other than balances derived from trade transactions) to natural persons, being its directors or shareholders or their spouses or their relatives up to second degree, then that person is deemed to have a monthly benefit equal to nine percent (9%) per annum on the balance of the loan or of any other monthly cash benefit at the end of each month (including cash withdrawals during the month).

   Monthly benefit

   The tax on the monthly benefit is calculated based on the applicable income tax rates and is due in accordance with the Pay-As-You-Earn ‘PAYE’ regulations. This means that the benefit is included in the taxable income of that person in Cyprus.

   It is noted that calculation of the benefit does not take into consideration the number of days spent in the Republic by the individual throughout the year (circular 14, dated 14 November 2017), as was the case up to the end of 2017. 

   Reporting

   Considering the above, the individual will have an obligation to register with the Income Tax authorities in Cyprus and submit an annual tax declaration provided that the annual amount of the deemed benefit, including any income from other sources, exceeds the tax-free amount of €19.500. If his total income is less than €19.500 then the Company has no obligation to withhold any tax.

   We note that in case the company charges interest to the individual’s debit balance, then that amount of interest reduces the value of the deemed benefit.

   Examples

   Example A – A Company’s shareholder is receiving an interest-free loan amounting to 1m:

   • Estimated deemed benefit will be 90K (1m @ 9%)
   • Amount of the benefit is more than the tax-free threshold of €19.500

   Result: An obligation arises for the Company to withhold tax on behalf of the shareholder according to the applicable rates and pay the tax under the PAYE system.

   Example B – A Company’s shareholder is receiving an interest-free loan amounting to 100K:

   • Estimated deemed benefit will be 9K (100K @ 9%)
   • Amount of the benefit is less than the tax-free threshold of €19.500

   Result: No obligation arises for the Company to withhold tax on behalf of the shareholder.

   Example C – A Company’s shareholder is receiving a loan amounting to 500K, with an interest of 6%:

   • Estimated deemed benefit will be 45K (500K @ 9%)
   • Interest charged is 30K (500K @ 6%)
   • Amount of the benefit is 15K (45K – 30K)
   • Amount of the benefit is less than the tax-free threshold of €19.500

   Result: No obligation arises for the Company to withhold tax on behalf of the shareholder.

   If you have any queries about this article, Cyprus tax , or the matters discussed more generally, then please do not hesitate to get in touch.

   The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article

3. Cyprus Tax residency for individuals – an overview

   24 May 2022 7:22 pm Leave a Comment

   Introduction

   This article provides a brief overview of Cyprus tax residency in relation to individuals, the implications of such a status and some of the practical considerations.

   Cyprus tax residence – the general rule

   Firstly, an individual who is present in Cyprus for 183 days will be resident for tax purposes in Cyprus.

   Cyprus tax residence – ‘the 60-day rule’

   In addition, one will also be resident for tax purposes in Cyprus under the so-called 60 day rules where each of the following is satisfied:

   • You remain in Cyprus for one or more periods totalling a minimum of 60 days;
   • You are not present in any other state for a total of over 183 days;
   • You are not resident for tax purpose in any other state for the same tax year;
   • You have some relevant activity in Cyprus, specifically that:
     • You operate a business in Cyprus;
     • are employed in Cyprus; or
     • hold a position in a company that is tax resident in Cyprus; and
   • You maintain a permanent residence in Cyprus (either owned or rented).

   Tax residency and Cyprus personal taxes

   Cyprus personal income tax is imposed on the worldwide income of individuals that are  resident for tax purposes in Cyprus.

   However, income from dividends and (most types of) interest income that is received by individuals are exempt from personal income tax

   From 16 July 2015, individuals are subject to Special Defence Contribution on dividends and interest income where the person is both both Cyprus tax resident and Cyprus domiciled.

   Capital gains are also not usually taxable in Cyprus unless they have arisen in respect of Cyprus situs immovable property

   Individuals who are not tax residents of Cyprus are taxed only on certain types of income accrued or derived from sources in Cyprus.

   Cyprus tax residency – practical considerations

   In order to obtain a certificate of tax residence, all supporting documents must be submitted to the Tax Department of Cyprus. These docs must be stamped.

   If the documents are in any other language than English or Greek then they must be translated.

   If an individual is considering relocating to Cyprus, expert advice should be taken with respect to Cypriot as well as cross-border tax implications arising from the relocation.

   If you have any queries about this article, tax residency in Cyprus, or tax matters more generally, then please do not hesitate to get in touch.

   The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article