Imposition of Special Levy €350 on Cyprus Companies and other changes to Tax Legislation

The Government of Cyprus has introduced a new legislation under which a special levy has been imposed on Cyprus companies. Please find here below the following information:

  • A payment of €350 per annum must be paid before 31 December 2011 for the year 2011.
  • No payment is to be made for companies incorporated in 2011.
  • No requirement to pay for dormant companies or for companies which do not have any assets.
  • You will also see in the attached note for introduction of new amendments in the Cyprus law that there is a ceiling of the amount of the levy payable of €20.000 in respect of companies belonging to the same group. We do not know yet whether the authorities will accept as “group” all companies belonging to the same ultimate beneficial owner, irrespective of whether they are legally subsidiaries of the same holding company or they have the same ultimate beneficial owner but we expect that some directions shall be given by the Registrar in this respect.
  • Late payment of the levy will give rise to the following penalties:a. in case of up to a 2-month delay –

 a 10% penalty;
b. in case of a delay between 2 and 5 months – a 30% penalty.

  • Non-payment of the levy may result in a deregistration (strike-off) of a company by the Cyprus Registrar of Companies.

Please note that no official circular has been issued yet as to what companies will qualify as dormant companies for which the exemption will apply.

In the circumstances, please arrange payment to the below bank account timely to enable us to pay, before the 31st December 2011 the annual levy for 2011 to avoid any penalties.

Remittances should be made to our firm’s clients’ accounts as follows:

Bankers: Eurobank EFG Cyprus Ltd

Swift Code: EFGBCY2N

Account no: 2001 0000 6860

IBAN: CY24 0180 0001 0000 2001 0000 6860

Beneficiary: WCS Worldwide Corporate Services Ltd

Please inform us when you will remit funds, detailing the names of the companies covered by your remittance so that we can identify them and effect timely payment, thereby avoiding the penalties.

Brief notes on the amendments, for the matters aforesaid and some changes have also been introduced with respect to income tax, the rates of special defence contribution on dividends as well as interest have been increased, is attached hereto for your information.

AMENDMENTS TO CYPRUS TAX LAWS

On 26 August 2011 the House of Representatives of Cyprus voted a number of amending laws which were presented by the Government as a first package of austerity measures toward the increase of State revenue and reduction of State expenditure.

THE INCOME TAX LAW

  • NEW TOP RATE FOR PERSONAL INCOME TAX

A new tax band has been introduced at the rate of 35% for income above €60.000, effective from tax year 2011.

  • TAX INCENTIVE TO ATTRACT HIGHLY-PAID EMPLOYEES

50% exemption will apply to income of a non-resident person taking up residence in Cyprus to work for an employer in Cyprus and whose annual remuneration is in excess of €100.000 per annum. The exemption applies for a period of 5 years from the year of commencement of the employment starting January 2012.

THE COMPANIES LAW

FIXED ANNUAL LEVY FOR COMPANIES OF €350

Cyprus, in an effort to resolve certain problems which have affected the Government revenue, as a result of the world economic crisis, has introduced, inter alia, Law No. 117(1) 2011 (through which it has amended its Companies Law) requiring every company on i Register, with the exception of companies to which reference is made here below, to pay annual levy in the sum of €350.

The above mentioned levy is payable by all companies registered in Cyprus as follows:

(a) Existing companies, other than those to which the exemptions set out below apply, are obliged to pay the levy for the year 2011 by the 31st December 2011;

(b) With respect to the subsequent years the levy must be paid not later than the 30th June of the relevant year.

Late payment of the levy will give rise to the following penalties:

  1. in case of up to a 2-month delay – a 10% penalty;
  2. in case of a delay between 2 and 5 months – a 30% penalty.

EXEMPTIONS

A company is not obliged to pay the levy in the year of its incorporation or in respect of the year of its incorporation.

The Law further provides that in the case of companies belonging to a group of companies the total amount of levies to be paid by all the companies of the group shall not exceed €20.000. Such amount shall be equally spread between all the companies of the relevant group. At present there is no definition of what constitutes a group for the purposes of the provision and what evidence, if any, will be required to establish the relation.

All companies are required to pay the fixed annual levy of €350 except for dormant companies and companies that do not own any assets or own property not controlled by the Republic. For group of companies the total duty is capped at €20.000.

Non- payment

Non-payment of the levy may result in a deregistration (strike-off) of a company by the Cyprus Registrar of Companies.

If a company is re-instated within a 2-year period from its strike-off a fixed penalty of €500 (in addition to the outstanding amount of the levy) is imposed.

The fixed fee will be increased up to €750 where a company is re-instated after the 2-year period.

THE SPECIAL CONTRIBUTION FOR THE DEFENCE OF THE REPUBLIC LAW

  • INCREASE RATES OF SPECIAL DEFENCE CONTRIBUTION ON DIVIDENDS AND INTEREST

1. The rate of Special Defence Contribution is increased from 10% to 15% for interest income taxable under this Law, with immediate effect from the date the law is published in the Cyprus Government Gazette (31 August 2011).

2. The rate of Special Defence Contribution is increased from 15% to 17% for dividend income received by Cypriot resident persons, with immediate effect

from the date the law is published in the Cyprus Government Gazette (31 August 2011). This measure also affects Group of companies ultimately held by Cyprus tax resident individuals.

CONFIRMATION AND COLLECTION OF TAX LAW

ADMINISTRATIVE PENALTIES

Administrative penalties amounting to €100 will be imposed for late submission of declarations (Effective from 1 October 2011) for example, late submission of financial statements. A Cyprus incorporated company must file annual financial statements and income tax returns by December 31 following the end of the financial year, to the Cyprus Income Tax Authorities any late submission of the financial statements after 31 December will face €100 penalty.

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