In a nutshell, the new tax legislation is as follows:
Capital gains tax (Law 59(I)/2015)
100% exemption from capital gains tax in Cyprus for the disposal of real estate located in Cyprus, provided the real estate in question has been purchased within the period between this law coming into effect and December 31 2016. This amendment is very important as the previously applicable regime imposed a 20% capital gains tax on the seller of real estate located in Cyprus.
Land registry duties and enhancement of procedures (Law 90(I)/2015)
A 50% discount has been introduced on the duties for the transfer of real estate from the effective date of this law up until December 31 2016. New procedures have also been introduced to protect investors purchasing Cyprus real estate subjected to an earlier mortgage.
Special defence contribution tax (Law 29(I)/2013)
An ingenious and radical amendment introducing for the first time the concept of the non-domiciled individual. Previous SDC obligations for individuals who could qualify as tax resident of Cyprus (183 days rule) will now no longer be applicable, if it can be proved that the individual in question is not domiciled in Cyprus.
A Cypriot tax resident domiciled outside of Cyprus will no longer be subjected to, for example, 30% SDC on bank deposits in Cyprus and/or 3% SDC on rental income arising in Cyprus and/or 17% SDC on dividends received by a Cypriot company.
Notional interest (Law 170(I)/2015)
This is probably the most important amendment allowing for significant tax deductions for new equity investments. 'New equity capitals' are to be given a notional interest deduction (NID) for a period of one year. The NID will apply on 80% of the taxable profit of a Cypriot entity or permanent establishment of a non-Cypriot entity. It should be noted, however, that the deduction will not be applicable in loss-making scenarios.
The notional interest will be equal to the interest yield of a 10 year Cyprus Government bond, increased by 3%; with the lowest interest of the 10 year government bond on the last day of the year preceding the tax year in question increased by 3%.
It should be noted that the interest of the Republic of Cyprus 10-year bond on December 31 2014 stood at 5.02%.
It really looks like Cyprus has established itself at the forefront of international tax planning and investments. There is much depth in these amendments. Substance requirements have also been taken into consideration, thus driving forward the investment in Cypriot real estate. Fresh capital is expected to arrive in Cyprus following the new amendment on notional interest. This is only the beginning; at the moment new tax laws are under discussion in the Cypriot House of Representatives and are expected to be finalised within the next month.