Tax Reform in Cyprus: What Changes and Why It Matters for Businesses?

On Wednesday, February 26^th, the President of Cyprus was presented with the key proposed tax changes, which will form the foundation of the upcoming tax reform.

Here are the most significant updates:

Dividends & Corporate Tax:

• Abolition of the “deemed dividend distribution” system. If you need a refresher on what this means, check our post (https://t.me/mainpartnertrust/1057).
• 5% withholding tax on actual dividend distributions for Cypriot tax residents with domicile in Cyprus.
• Stricter rules and a higher tax rate for disguised profit distributions (based on the Estonian model).
• Corporate tax increase from 12.5% to 15%.
• Enhanced scrutiny of “closed structures”: Possibility of lifting the corporate veil and taxing shareholders as individuals.

Personal Taxation:

• Retention of the 183-day tax residency rule, with stricter criteria for the 60-day rule.
• Expanded tax residency definition to include individuals with significant business interests in Cyprus (following the French model).
• In cases of dual residency, tax matters will be resolved based on double taxation treaties (DTTs).

Other Taxes:

• Stamp Duty:
• General stamp duty tax has been abolished; it will now only apply to the real estate, financial, and insurance sectors.
• Capital Gains Tax:
• Remains applicable only to Cypriot real estate, with legislative modernization.

Loss Carryforward:

• Extension of carryforward period from 5 to 10 years (with limitations after the 5th year).
• No carryback of losses is proposed.

Other Amendments:

• Abolition of the defense tax on rental income.
• Abolition of the 1.5% levy on insurance companies.
• Taxation of cryptocurrencies, except in cases related to capital appreciation (to be determined in consultation with experts).

Incentives for Businesses & Employees:

• Stock Options: Considering preferential tax treatment on stock option exercises.
• Severance Payments:

• Employees – Tax – free up to a certain amount.
• Employers – Full tax deduction.
• “Golden handshake” bonuses (one-time payments to new employees): Fully taxable for employees, deductible for employers.

Donations & Cultural Contributions

• Eligibility for tax deductions

Reminder: Experts of Main Partner Trust are actively involved in the Committee discussing new legislation.

If you have suggestions or concerns, feel free to share them with us.

Remark: The content of this article was accurate at the time of the first publication. It provides general information on the subject matter and is not intended as legal advice. For specific advice on your situation, we recommend seeking professional counsel. If you have any questions or need further information, please contact our experts at contact@mainpartner.com.

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