With effect from 1 January 2013 the corporate tax rate has been increased from 10% to 12,5%.

Transfer and carry forward of tax losses by credit institutions

With effect from 25 March 2013, in the event of a transfer of operations, assets, rights or obligations from one credit institution to another under the Credit Institutions Resolution Law, any accumulated losses of the transferor at the date of the transfer are transferred to the acquirer and may be used by it for up to fifteen years from the end of the year in which the transfer took place.

Increase in special contribution for defence on interest

The rate of special contribution for defence, commonly referred to as SDC tax, on interest has been increased from 15% to 30%. The increase will take effect from the date of publication of the law in the official gazette, which will no doubt take place shortly.  SDC tax is payable only by tax residents of Cyprus; non-resident individuals and companies are completely exempt. Interest on corporate financing or loan arrangements is subject to income tax rather than SDC tax.

Annual levy on bank deposits

With effect from 1 January 2013 the levy payable by banks on customer deposits has been increased from 0.11% to 0.15%. No levy is payable on inter-bank deposits. The levy is not deductible for the purpose of calculating taxable profits. It will, however, reduce the amount of profits subject to deemed dividend distribution.

Limited effect

The changes do not detract from Cyprus’s attractiveness as a holding company jurisdiction. Even after the increase, Cyprus’s corporate tax rate is one of the lowest in the EU and the increase should not materially affect most holding companies. Furthermore, the other benefits of the Cyprus holding company regime such as the tax free flow of dividends through Cyprus and the beneficial exit opportunities offered by Cyprus’s favourable national tax legislation and wide network of double tax agreements remain intact. In this connection it should be noted that a number of reports elsewhere have mistakenly referred to an increase in capital gains tax. This is due to a misinterpretation and incorrect translation of the increase in SDC tax on interest. Cyprus does not impose capital gains tax, except on gains deriving from real estate in Cyprus.

Christophoros Christophi
About the Author
Christophoros Christophi

Lawyer and Managing Partner of Christophi & Associates LLC, Lecturer (Company Law) at the European University of Nicosia.
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