Amendments to the Cyprus

income tax legislation

Amendments were voted by the Cyprus Parliament on 14
December 2010 aiming to simplify certain provisions of the Cyprus
tax legislation and also to extend and strengthen the anti-
avoidance and anti evasion provisions contained therein.

These amendments also include additional taxes and penalties for

late payment of taxes and non compliance with the legislation.

1. Amendments to The Income Tax Law

Disallowed expenditure

Only expenditure which is supported by invoices and relevant

receipts or other supporting documents as required by relevant
Regulations will be deductible under income tax.

This provision will apply with respect to tax liabilities which arise
during the tax year 2011 and any subsequent tax years.

Notional interest on receivables from directors or shareholders

Up to 31 December 2010, notional interest at the rate of 9% is

imposed on receivables from directors and shareholders of
companies which are controlled by less than 5 persons.

As from 1 January 2011, this provision will only apply where the
directors or shareholders are physical persons and will not apply
where they are companies. Where they are companies the
provisions of article 33 relating to arm’s length conditions in
transactions between related parties will apply.

Tax withheld on payments to non Cyprus residents

Tax withheld on payments to non-Cyprus residents should be paid

to the tax authorities by the end of the following month.

2. Amendments to The Special Defence

Contribution Law
The following provisions will enter into force 6 months after the
publication of the relevant amending law in the official Gazette of
the Republic.
 December 2010 www.bdo.com.cy

Amendments of deemed dividend distribution provisions

Where a company disposes an asset to its shareholder who

is an individual or to his/her relative for consideration
which is below the market value of the asset, it will be
deemed that the company has distributed dividend to its
shareholder, equal to the difference between the market
value of the asset and the amount of the consideration.
This provision will not apply in the case where the asset
had been acquired by the company by way of donation
from its shareholder(s).

The deemed dividend distribution provisions which apply

upon a capital reduction have been simplified. More
specifically, in the case of reduction of the capital of a
company, any amounts paid to the shareholders in excess
of share capital which had actually been paid by a
shareholder will be treated as deemed dividends and taxed
accordingly.

Companies which are under voluntary dissolution or

liquidation are obliged to submit within one month from
the date of approval of the relevant resolution, the
deemed dividend declarations and pay any resulting SDC
with respect to the profits of the specific tax year and the
two preceding tax years. It is noted that in case where,
upon the dissolution or liquidation of a company, any
profits become realized, the deemed dividend distribution
of such profits may not exceed the amount or the value of
the net assets distributed to the shareholders.

Any accounting profits arising during the dissolution or

liquidation will not be subject to a deemed dividend
distribution if the assets of the company are not sufficient
for the repayment of its creditors and no amount is
available to be distributed to the shareholders.

When assets are being distributed upon the dissolution or

liquidation of a company, which have a market value
exceeding the cost of their acquisition by the company, the
deemed distribution provisions will apply. Specifically, it
will be deemed that a dividend has been distributed to the
shareholders, equal to the difference between the market
value of the asset and its cost of acquisition.

Withholding of SDC at source with respect to rents

Companies or partnerships that pay rents in Cyprus should

withhold SDC at source at the rate of 3% on 75% of the amount of
the rent.
 December 2010 www.bdo.com.cy

Payment of SDC on dividends or interest income received from

abroad

It is clarified that the SDC on dividends or interest from sources

outside the Republic is payable in two six-monthly instalments,
i.e, by 30 June and 31 December of each year respectively.

3. Amendments to the Assessments and Collection

of Taxes Law
The following provisions will enter into force 6 months after the
publication of the relevant amending law in the official Gazette of
the Republic.

Registration with the tax authorities

Companies which are incorporated or registered or become tax

resident in Cyprus should register with the tax authorities and
obtain their Tax Identification Code within 60 days from their
incorporation or registration or from the date that they become
tax residents in Cyprus.

In addition, companies which are already registered with the tax

authorities should inform the authorities within 60 days of any
relevant amendment to their records which affect the Tax
Authorities Register.

Existing companies which are not yet registered with the tax
authorities may register by 30 June 2011 without suffering any
penalties.

Electronic submission of returns

The tax returns of companies or other persons that prepare

audited accounts may be submitted electronically. In such a case,
the deadline for submission will be extended by three months.

Updating of accounting records

The accounting records of a business should be updated within 4

months from the date of each transaction. In addition, businesses
should issue invoices within 30 days from the date of the
transaction, unless the approval of the Commissioner has been
obtained for the contrary.

All businesses which maintain stocks should carry out annual stock
takes and the related documentation should be available for
inspection by the tax authorities.
 December 2010 www.bdo.com.cy

Payment of disputed tax in the case of litigation

In the case where a recourse has been filed at the Supreme Court
against an assessment raised by the tax authorities, only the
payment of the disputed amount of tax (and not the total amount
of tax) will be postponed until the issuance of the decision of the
Court.

4. Imposition of additional penalties

Administrative penalties amounting to €100 or €200 will be
imposed for non submission of declarations, non provision of
evidence or non performance of any compliance obligations within
the relevant deadlines that apply. These penalties apply for
Income Tax, Special Defence Contribution, Capital Gains Tax and
Immovable Property Tax.

Also, in the case where a person does not pay, by the appropriate
due date, an additional tax calculated at the rate of 5% on the
unpaid tax will be imposed. This provision will enter into force
after 6 months from the date of publication of the relevant
legislation in the Official Gazette of the Republic.

This tax public

This tax publication has been written in general terms and should be seen
as broad guidance only. The publication cannot be relied upon to cover
specific situations and you should not act, or refrain from acting, upon the
information contained herein without obtaining specific professional
advice. Please contact BDO Ltd to discuss these matters in the context of
your particular circumstances. BDO Ltd, its partners, employees and agents
do not accept or assume any liability or duty of care for any loss arising al
from any action taken or not taken by anyone in reliance on the
information in this publication or for any decision based on it. Nicosia: Karlos Zangoulos
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