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Cyprus: Tax law changes concerning capital gains, carried interest, funds

Cyprus: Tax law changes

Cyprus amended its laws concerning the tax treatment of certain capital gains and “carried interest” of individuals working in the funds industry.

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Capital gains

The capital gains tax law was amended to clarify that the disposal of property does not include the donation of immovable property to a political party, effective 30 July 2018. The amendments further clarifies the term “political party” (as defined under the law governing political parties law, for entities registered with the relevant body of the central elections service).

 

Read an August 2018 report prepared by the KPMG member firm in Cyprus

Carried interest

The tax laws that apply for individuals working in the fund industry were amended, with a new provision concerning the tax treatment of “carried interest.”

In general, an individual with carried interest income from certain employment in Cyprus may elect to be subject to tax at a flat rate of 8%, with a minimum tax payable of €10,000 per year, for a total period of 10 years. If the individual taxpayer does not make the election, the amount of carried interest would be subject to tax under the normal rules and rates of individual (personal) income tax (the minimum tax payable would not apply).

The new measures define what is carried interest, and anti-avoidance provisions.

Contractual funds (common funds and partnerships)

Under new provisions, no permanent establishment is formed by investors for their investments in common funds established under the Open-Ended Undertakings for Collective Investment (UCI) Law of 2012 and common funds and partnerships established under the Alternative Investment Funds Law of 2014. As a result, common funds and partnerships are tax transparent with income from the funds being apportioned to the investors and taxed accordingly.

Deemed dividends for Cyprus tax residents, investors

Under new provisions, Cyprus tax resident and domiciled individual investors will be subject to tax on a deemed dividend distribution at the rate of 17% (instead of 3% as previously applicable). The amendment will have no effect on investors (individuals or companies) that are neither Cyprus tax residents nor Cyprus domiciled as these investors are exempt. The provision only applies to funds set up in a legal entity/company form and does not apply for common funds or partnerships.

 

Read an August 2018 report prepared by the KPMG member firm in Cyprus

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