international tax summaries--CYPRUS(1998)

international tax summaries--CYPRUS(1998)

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The primary amendments made during 1997 are as follows:
q    The offshore company regime has been extended by the Council of
Ministers for another ten years;
q    Inheritance tax rates have been reduced.
1. Rates
The corporate tax rates are as follows:

        Taxable Income
                    Tax on    Percentage
    Over        Not Over    Lower Amount    on Excess
    C?    0    C?0,000    C?   0    20%
    40,000        8,000    25

A minimum tax of 10% is imposed on all income that is tax exempt as a result of various incentives.
q    100% foreign-controlled companies incorporated in the Republic, irrespective of the place of their control and management, or 100% foreign-controlled companies registered in the Republic under section 347 of the Companies Law as overseas?companies and having their control and management in the Republic and, in either case, earning their income from sources outside the Republic from any business, investment, royalty, or immovable property, pay income tax at the reduced rate of 4.25%. Dividends paid from such income are not subject to additional taxes. The provisions of this law are in force until
December 31, 2006, and can be extended for any additional period at the option of the Council of Ministers.
q    Offshore banks (both companies and branches) are allowed, after obtaining the relevant permit, to lend money to local businesses. This income, however, will be taxed at the normal rate of 20%?5%. In cases where it is considered that the interests of the Republic are best served, the Minister of Finance, at his discretion, may exempt from tax any interest received.
2. Local Income Taxes
Municipal authorities impose what is called professional tax?on all business entities (including offshore entities) operating within their municipal boundaries. The tax payable is insignificant and varies among the different municipalities.
3. Capital Gains Taxes
Tax is levied at the rate of 20% on gains arising from dispositions of immovable property and shares in companies that own immovable property.
4. Branch Profits Taxes
Branch profits are taxed at the same rates that apply to corporations and the same provisions govern the computation of their chargeable income.
5. Foreign Tax Reliefs
Cyprus provides unilateral relief for tax paid in another country with which no double taxation treaty exists. The foreign tax paid abroad is allowable as a tax credit against the tax payable in Cyprus. The maximum tax credit allowed is the tax payable on the foreign income taxable in Cyprus.
  Cyprus has a number of tax treaties with other countries (see item 19). The purpose of these treaties is the avoidance of double taxation of income earned in any of these countries. Under these agreements, a credit is usually allowed against the tax levied by the country in which the taxpayer resides. The effect of these arrangements is that the taxpayer pays no more tax than the higher of the two rates. All of the treaties follow the more or less accepted pattern of similar double
taxation treaties and contain provisions as to permanent
establishments, royalties, interest, tax credits, and pensions.

9. Rates 
The individual income tax rates since January 1, 1996, are:

        Taxable Income
                    Tax on    Percentage
    Over        Not Over    Lower Amount    on Excess
    C?5,000    C?8,000    C?  0    20%
    8,000    11,000    600    30
    11,000        1,500    40

Main Allowances and Deductions. The main allowances deductible in
arriving at taxable income are:
q    Allowance for spouse?00
q    Allowances for children
    ?Child under the age of 16?00
    ?Child receiving secondary education in Cyprus?00
    ?Child receiving higher education in Cyprus?,500 (1)
    ?Child in the National Guard?00
q    Allowance for persons over 65 years old?,500 (1)    
q    Loan interest for private residence max. C?00
q    Rent allowance (when joint income of spouses and dependent
children does not exceed C?0,000 p.a.) max. C?00
q    Transportation allowance (for taxpayers living in rural areas) cost of the bus fare
q    Life insurance premiums and contributions to approved pension funds (limited to 7% of the insured amount and one-sixth of taxable income) .

(1)The tax savings resulting from the allowance given for children receiving higher education in Cyprus or to persons more than 65 years old is restricted to C?00.
  Life policies issued after January 1, 1988, that are surrendered before their expiration are subject to a 30% adjustment to income on the premiums previously allowed if surrendered within a three-year period. If a policy is surrendered between the fourth and sixth year, the adjustment is 20%.
  Allowances on Investment Income. The following amounts of
investment income are exempt from tax:

    Limited to

    Interest from Government bonds    ?
    Interest from bank deposits and public company debentures C?00
    Dividends from public companies    C?,200
    Interest received by individuals and companies from deposits
      with the Housing Finance Corporation    ?
    Interest received from certain government savings certificates

Other Allowances. Thirty percent of the amount invested by individuals and companies to acquire first-issue shares of a public company is tax deductible, provided the shares are kept at least until the end of the year following the year of acquisition and the amount deducted is not more than one-quarter of the company taxable income or of the individual income before the deduction of personal allowances.
Individual shareholders of a private company, which is converted into a public company, can also claim this allowance. Furthermore, the shareholder can carry forward for four years any unrelieved amount arising out of the last restriction above. For the purposes of this section, wholly owned subsidiaries of public companies are not classified as public companies. In addition, 40% of the amount deposited under the save-as-you-earn scheme of the Housing Finance Corporation is tax deductible under certain conditions.
10. Local Income Taxes
Municipal authorities impose what is called a professional tax?on all salaried or self-employed individuals working within their municipal boundaries. The tax payable is insignificant and varies among the different municipalities.
11. Capital Gains Taxes
Tax is levied at the rate of 20% on gains in excess of:
q    C?0,000 from the disposal of the taxpayer own house;
q    C?5,000 from the disposal of agricultural land;
q    C?0,000 from the disposal of any immovable property.

The above exempt amounts apply for all disposals made during an
individual lifetime, not for every disposal. There also is an
indexation allowance.
12. Foreign Tax Reliefs
SpeCIAl provisions in the Cyprus tax law provide unilateral relief for tax paid in any other country with which no double taxation treaty exists. The foreign tax paid abroad in respect of income brought into charge in Cyprus is allowed as a tax credit against the tax payable in Cyprus. The tax credit is restricted to a maximum of the tax payable on the foreign income taxable in Cyprus.
13. Tax Period
The tax period begins January 1 and ends on December 31 each year. However, both corporate and unincorporated businesses are allowed to prepare accounts at any other date provided they continue to draw up their accounts on the same date in the future. Profits in these cases are time apportioned to coincide with the fiscal year.

15. Liability to Tax
Any body of persons,?corporate or unincorporated, which carries on a business in Cyprus is liable to Cyprus income tax at the rates
described in items 1 and 9. Unilateral relief, as well as the
provisions of the double taxation treaties described in items 5 and 12 is also applicable.
16. Rates
Foreign professionals and entertainers earning income in Cyprus are taxed at the flat rate of 15%. Gross royalties for copyrights, patents, know-how, or technical assistance are taxed at the rate of 10%.
Foreigners employed outside Cyprus by a 100% foreign-controlled Cyprus company and who receive their remuneration from Cyprus are exempt from taxation. Where the remuneration is not paid through Cyprus, it is taxed at one-tenth the normal rates (up to a maximum rate of 4%). If their services are performed in Cyprus, they are taxed at half the normal rates (up to a maximum rate of 20%). For persons partly employed in Cyprus and partly abroad, tax is apportioned on a strict time basis
and they are entitled to all of the allowances under item 9.
  Foreign investment income remitted to Cyprus or pensions received from abroad by an individual who is not a permanent resident is taxed at zero percent on the first C?,000 and at 5% thereafter. The individual can opt to be taxed at the rates under item 9.
  Persons that pay income to a nonresident must deduct tax (in the absence of a double tax treaty) at the standard rate of 20%?5%. The nonresident has the option of filing a tax return for his total income and, if warranted, any over-withholding will be refunded. The tax withheld on dividends (see item 28) is credited against the final tax liability and any excess is refunded. Taxation of payments to treaty country residents is determined by the provisions of the relevant treaty.
  There is no capital gains tax upon the disposition of foreign-situs property by an alien residing in Cyprus or a Cyprus offshore company. In addition, no capital gains tax liability arises on the disposition of property held in Cyprus and acquired with foreign currency between August 1, 1980, and July 13, 1990, by a nonresident individual.
  Immovable property acquired in Cyprus at any other time is subject to capital gains tax.
17. Withholding Tax Rates
Offshore company dividends, interest, and royalties are paid without any withholding tax. However, see item 19 for more detailed information on the treatment of dividends, interest, and royalties by countries with which Cyprus has a tax treaty and by countries with which Cyprus does not have a tax treaty.
19. Tax Treaties
The following table summarizes the withholding taxes provided by treaties entered into by Cyprus that were in force as of July 31, 1997. Negotiations for treaties with Belgium, Singapore, and Thailand have not yet been completed. See item 17 for the treatment of payments by Cyprus offshore companies.

Withholding Tax Rates

    Dividends (1)    Interest    Royalties

   Nontreaty countries    20%    20%(2)    10%(3)
   Treaty countries:  
    Austria    10    nil    nil
    Bulgaria    nil    nil    nil
    Canada    15    15 (4)    10 (5)
    China    10    10    10
    Czech Republic    10    10 (6)    5 (7)
    Denmark    15 (8)    10 (6)    nil
    Egypt    15    15    10
    France    15 (9)    10 (10)    nil (3)
    Germany    10 (11)    10 (6)    nil (3)
    Greece    25    10    nil (12)
    Hungary    nil    10 (6)    nil
    India    15 (9)    10    15 (13)
    Ireland    nil    nil    nil (12)
    Italy    nil    10    nil
    Kuwait    10    10 (6)    5
    Malta    nil (14)    10    10
    Norway    nil    20 (2)    nil
    Poland    10    10 (6)    5
    Romania    10    10 (6)    5 (7)
    Russia (15)    nil    nil    nil
    Slovakia    10    10 (6)    5 (7)
    Sweden    5 (11)    10 (6)    nil

Withholding Tax Rates

    Dividends (1)    Interest    Royalties

    Syria    15 (16)    10 (4)    10
    United Kingdom    nil    10    nil (3)
    United States    nil    10 (10)    nil
    Yugoslavia (17)    10    10    10

(1) Under Cyprus legislation, the withholding tax on dividends paid by a Cyprus local company to a foreign company is fully refundable.
  In the absence of a treaty, there is a 20% withholding tax on dividends paid to foreign individual shareholders. Where a treaty applies, its provisions prevail, so that the lower treaty rate is used for withholding.
(2) 25% for any excess amount on annual payments over C?0,000.
(3) 5% on film and TV royalties.
(4)  Nil if paid to a government or for export guarantees.
(5)  Nil on literary, dramatic, musical, or artistic work.
(6)  Nil if paid to the government of the other state.
(7)  For literary, artistic, or scientific work, film, and TV
royalties, the relevant nontreaty rate applies.
(8)  10% if received by a company controlling 25% or more of the voting power.
(9)  10% if received by a company controlling 10% or more of the voting power.
(10) Nil if paid to a government, bank, or finanCIAl institution.
(11) 15% if received by a company controlling less than 25% of the voting power.
(12) 5% on film royalties.
(13) 10% for payments of a technical, managerial, or consulting
(14) 15% if paid by Cyprus to an individual resident of Malta.
(15) Most of the successor states to the former USSR are expected to honor the old Cyprus/USSR treaty. However, at present, only Russia has offiCIAlly announced its adoption of the treaty.
(16) Nil if received by a company controlling 25% or more of the voting power.
(17) The status of the treaty with Yugoslavia is uncertain.    

21. Sales (Value-Added) Taxes
VAT is charged on imports and supplies of goods and services by a registered busin

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