Recent amendments on the Tax legislation

The House of Representatives of Cyprus has approved on 24 May 2012 a number of amendments on the Tax legislation. These amendments apply from the fiscal year 2012 onwards. These amendments were approved in an effort to boost the economy and to increase the attractiveness of Cyprus for foreign investments.

Summary of these amendments is stated below: 

    • Intellectual Property Rights

The meaning of Patent Rights and Intellectual Property Rights has been amended in order to coincide with the definition in the Patent Rights Law of 1998, the Intellectual Property Law of 1976 and the Law regarding Trademarks. This ensures that all types of Intellectual Properties will be covered by the new regime. Intellectual Properties include copyrights (literary works, artistic works, dramatic works, musical works, scientific works, films, broadcasts e.t.c.) patents, trademarks, designs and models that are used or applied on products.

The amendment states that 80% of the net profits generated by the exploitation or disposal of Intellectual Properties exempts from income tax (deemed deduction). The net profit is calculated by deducting from the royalties all the direct expenses incurred for the production of the royalties income including 20% amortisation as defined below.

The purchase price of acquisition of IPs or any expenses of a capital nature for the acquisition or development of IP is subject to capital allowance (amortisation) at the rate of 20% which is treated as tax deductible thus reducing further the taxable profits of the Company. Prior this amendment, the IPs were not subject to capital allowances.

Interest on acquisition of subsidiaries

Any interest on loan incurred for the acquisition of wholly owned subsidiaries either directly or indirectly is now treated as tax deductible provided that the assets of the subsidiary are business assets. If part of the assets of the subsidiary are not business one
then the part of the interest corresponds to these assets will not be treated as tax deductible.

  • Group Relief Provisions  

Under the new amendment, tax losses can be transferred between members of the group for Companies incorporated during the year as well. Prior this amendment, tax losses were
transferred if Companies were members for the whole year. 

  • Transfer Pricing – Arm’s length provision

Transactions between Cyprus Parent Company and its wholly owned subsidiaries are not subject to arm’s length principle provided the conditions for group tax loss relief are satisfied (75% direct or indirect control, both Companies are Cyprus tax resident Companies, tax losses can be set off only tax profits of the same fiscal year). 

  • Capital Allowances

Plant and Machineries: They are subject to 20% capital allowances for any new plant and machineries acquired during the fiscal years 2012, 2013 and 2014. Prior this amendment they were subject to 10% capital allowances.

Industrial and Hotel Buildings: They are subject to 7% capital allowances for any new industrial and hotel buildings acquired during the fiscal years 2012, 2013 and 2014. Prior this amendment they were subject to 4% capital allowances.

  • Special Defence Contribution on Deemed Dividends Distribution

The profits calculated for the purposes of Deemed Dividends Distribution are also reduced with any acquisition of plant and machineries during the fiscal years 2012, 2013 and 2014. This change applies for any profits generated during the fiscal years 2012, 2013 and 2014.

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