The Purpose Of Taxation

NTRODUCTION

The Cyprus Parliament has voted on the 14th of December 2010 certain amendments towards the following Cyprus tax laws:

* Tax Law
* Special Defense Contribution Law
* The Assessments and Assortment of Taxes Law
* Capital Gains Tax Law
* Immovable Property Tax Law
* Value Added Tax Law

These will be place in effect Six months after the publication of these laws in the Official Gazette from the Republic.

Tax LAW

(a) Disallowed expenditure:

Any expenditure not supported by invoice or corresponding receipts or other supporting information won’t be treated as deductible expenses for tax purposes.

(b) Tax withheld on payments to non-Cyprus residents:

Tax withheld on payments to non-Cyprus residents should be paid to the Income Tax authorities towards the end of the following month. When the tax isn’t paid within the deadline, an additional tax of 5% is going to be imposed about the tax withheld as well as the interest imposed (today at 5%). Such payments should be paid in respect towards the following:

1. Copyrights to be used within Cyprus at 10%;
2. Rights for cinematographic films at 5%;
3. Salary of a physical person in respect to professional services, fees of artists and athletes at 10%.

(c) Notional interest on receivables from shareholders or directors:

Notional interest, based on section 39 of Income Tax Law, are only imposed on debit balances or loans to shareholders or directors in the rate of 9%. If the shareholder is really a company, then market rate of interest will apply according to related party transactions.

SPECIAL DEFENSE CONTRIBUTION LAW

(a) Deemed dividend distribution:

When it comes to non-payment of dividends with a company within 2 yrs in the end of the financial year, the provisions of deemed dividend distribution apply where 70% of profits, after tax is deducted, is deemed to be distributed towards the shareholders of the company as dividends and special defense contribution is payable in the rate of 15%.

In the case in which a company disposes an asset to its shareholder (physical person not legal) for a consideration that is below the marketplace worth of the asset disposed, it will likely be deemed the company has distributed dividend to its shareholder equal to the main difference between the market value from the asset and also the amount of the consideration. In such a case, special defense contribution is also payable at the rate of 15%.

It ought to be noted the provisions of the law for deemed dividend distribution won’t apply where the shareholders are not tax residents in Cyprus.

(b) Definition of “Taxation”:

The definition of “Taxation” has been amended with regards to calculating a company’ profit that’s susceptible to special defense contribution to include the following:

* Special defense contribution
* Capital gains tax
* Any tax paid abroad which has not been credited against the tax and or special defense tax payable for the relevant year

(c) Capital Reduction:

Where the capital of the company is reduced, any amounts paid to the shareholders of the company in excess of the quantity of the share capital which was actually paid by the shareholder will be treated as deemed dividend taxable at 15%.

(d) Voluntary Liquidation:

In the case of a business under voluntary liquidation, a deemed dividend declaration will have to be submitted (within one month in the date of the resolution for liquidation) to the relevant authorities in respect to profits of the specific year and the two preceding years.

ASSESSMENT AND COLLECTION OF TAXES LAW

(a) Registration using the Income Tax office:

Companies come with an obligation to register using the Inland Revenue Department and obtain a tax identification code within Two months in the date of its incorporation with the Registrar of Companies in Cyprus.

(b) Banking Secrecy

The Commissioner of greenbacks Tax has the right to request from a bank to provide information within the bank’s possession for a duration of seven years in the date of such request. Such power can only supply so long as there is a written approval by the Attorney General of the Republic. As a result, specific requirements have to be fulfilled through the Commissioner just before receiving such approval.

(c) Submission of Tax statements, Tax Assessments and Objections:

1. Provisions happen to be introduced for that submission of electronic tax returns where these have been made by an expert auditor. The deadline for submission when it comes to electronically submitted returns is extended by three months.
2. Where a person (individual or company) omits to submit a taxes inside the time limit set out in the Law and when the Commissioner decides that this type of person comes with an obligation to pay for taxes, then the Commissioner can proceed with the issuance of tax assessment for your person in line with the information available.
3. Any objection submitted against a tax assessment known above usually supplies for that reasons the assessment is incorrect, the reasons he considers that no obligation to pay for the said tax arises and provide supporting documentation. Such objection should be effected within 30 days from such assessment.
4. The Commissioner has the right to request information from any civil servant to supply details in relation to any person for tax purposes.
5. Companies that have a duty to keep books and records for each tax year are obliged to update them within four months from the date of the transactions. Further, companies are required to issue invoices within Thirty days in the date of the transaction unless an itemized approval continues to be obtained through the Commissioner.

CAPITAL GAINS TAX & IMMOVABLE PROPERTY TAX

Administrative penalties comparable to EUR 100 or EUR 200 will be imposed for late submission of declarations or supporting documentation requested through the Commissioner of greenbacks Tax. In the case of late payment of capital gains or immovable property tax due, one more tax of 5% will be imposed about the unpaid tax.