The Cypriot House of Representatives passed tax amendments for the improvement of public finance
On the 26th of August 2011, the House of Representatives of the Republic of Cyprus approved the first package of austerity measures aiming at fiscal consolidation.
These measures regard taxation matters and it aims at the reduction of public spending and to boosting government revenues.
The new measures include the following:
Public sector employees
A permanent contribution from the pension funds of public sector and broader public sector employees was set to 3% on the gross income.
Public sector employees will make progressive contributions at rates ranging from 1,5% to 3,5% for incomes above €1.500 per month for a period of two years as a temporary measure towards the reduction of the budget deficit. This contribution is not deductible for Income Tax purposes. The measure came into effect on 1 September 2011.
New rate for personal income tax
All individuals who reside in Cyprus or who exercise an employment or profession in Cyprus, will be taxed at the rate of 35% on their taxable income exceeding €60.000 per annum, as from the tax year 2011.
Tax incentives to attract highly-paid employees
Employees who take up residence in Cyprus and whose annual remuneration is in excess of €100,000 will enjoy an exemption from income tax of 50% of their employment income for a period of 5 years. The exemption applies from the year of commencement of the employment for years starting 1 January 2012.
Increase on Special Defense Contribution on dividends and interest
The rate of Special Defense Contribution on dividends is increased from 15% to 17% with immediate effect. This will mostly affect individuals resident in Cyprus earning or deemed to be earning dividends, and groups of companies ultimately held by Cyprus tax resident individuals.
The rate of Special Defense Contribution on interest increased from 10% to 15% with immediate effect. This measure will affect individuals resident in Cyprus earning bank interest. Individuals whose total income does not exceed €12.000 per annum, as well as Provident Funds continues to be taxed at 3%. Special Defense Contribution on interest earned by individuals from government debt also remains at 3%.
Annual payment for all companies
All companies are required to pay an annual fixed duty of €350 to the Registrar of Companies. For groups of companies the total duty is capped at €20.000. The duty for 2011 is due by 31 December 2011 and for subsequent years by 30 June.
Immovable Property Tax
There is also been an increase on the Immovable Property Tax paid by a legal or physical person for property owned in Cyprus and at the same time there is a reduction of the amount which is not taxable. The tax is imposed on the value of the property and the new rates are up to €120.000 -0%, from €120.001-€170.000-4%, from €300.001-€500.000- 6%, from €500.001-€800.000–7% and over €800.000- 8%. These amendments will come into force as from 2012.
Decreased VAT on purchase of first residence
Furthermore, the House has amended the 15% VAT on the purchase price of the first property for residence by physical persons to 5%, bearing in mind that the property should not exceed 200s.q. The reduced rate of 5% will be applied from 1 November 2011. The reduced rate applies only for property which will be used as a primary and permanent place of residence.