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Investment inducing tax measures

Investment inducing tax measures

The tax compliance of legal persons and individuals is an essential prerequisite for the harmonious operation of the economy. The provision of tax incentives is also an important tool for strengthening business activity and attracting investments.

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Board Member, Head of Tax

KPMG in Cyprus

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The tax compliance of legal persons and individuals is an essential prerequisite
for the harmonious operation of the economy. The provision of tax incentives is also an important tool for strengthening business activity and attracting
investments.

Cyprus has managed to sustain its significant competitive advantages as a financial center despite the economic crisis. The exemption of gains from the sale of shares, the fact that Cyprus does not impose any withholding tax on dividend and interest payments to non-residents, the special regime for qualified IP income and of course the low corporate tax rate are considered to be significant advantages for our country.

In an effort to enhance Cyprus' position as a financial center and attract foreign investments, a series of tax measures were approved in 2015 like for example, the exemption from capital gains tax on profits resulting from the sale of Cyprus situated real estate acquired by the end of 2016. Tax measures enacted also include provisions for the prevention of tax avoidance.

One of the new provisions of the legislation aims to attract entrepreneurs and fund administrators to permanently establish in Cyprus. In essence, individuals that take on Cyprus tax residency and whose emoluments exceed a hundred thousand euros, will be entitled to an exemption of 50% of their emoluments from taxation for the first 10 years they are reside in Cyprus. It should be noted that prior to the approval of the new measures, such exemption was provided for the first five years of residency only.

This measure relates to a prior amendment to the tax law (specifically the Special Defence Contribution Law) that took place last July. Under the Special Defence Contribution  every person who is a tax resident of Cyprus (as individual who stays in Cyprus for more than 183 in a calendar year) is subject to Special Defence Contribution on income relating to interest, dividends and rents. The amendment that took place last summer provides that a person who arrives in Cyprus and becomes a tax resident but not a Cyprus Domicile, is exempted from Special Defence Contribution for the first 17 years of his/her tax residency.

The above measures are expected to attract entrepreneurs and investors who own investments abroad through subsidiary companies. Such tax incentives also strengthen the Citizenship by Investment Program as they give more benefits.

Accelerated depreciation provisions are prolonged until 2016. As a result, 20% of the acquisition cost for any machinery bought for business purposes will be deducted from the taxable income instead of the 10% deduction which was afforded previously. Cost of Investment in business immovable property will be deducted at the rate of 7% instead of the 4% previously afforded.

Moreover, amendments to the capital gains tax law prove that gains from the sale of shares in a company that owns, directly or indirectly, immovable property in Cyprus are subject to tax (in particular if at least 50% of the share value arises from the immovable property directly or indirectly  held by the
company). The particular amendments aims to prevent tax avoidance in the
instances where two or three companies were interposed between the owner and the company holding the immovable property so as for the latter to avoid capital gains tax arising upon a subsequent sale of one of the companies interposed.

In addition to the above mentioned anti-tax avoidance measure further provisions have been introduced to ensure that the tax commissioner is entitled to impose tax in cases where company reorganizations take place without a clear business objective other than to avoid the payment of taxes. Reorganizations in this respect include mergers and transfers of assets and branches of activity within a group.

KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative ("KPMG International") a Swiss entity. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International Cooperative ("KPMG International") or KPMG member firms.

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