Cyprus Notional Interest (NID) Deduction

PREFACE

Companies can be financed via debt, equity or a combination of both. Debt – mostly in the form of loans – generates interest expense, which is usually a tax-deductible expense for the borrower. Equity on the other hand is associated with dividends, which are not deductible for tax purposes. This creates an incentive for companies to be funded via debt as opposed to equity. The Cypriot Notional Interest Deduction provisions (NID) introduced on 18 July 2016 aim to equalize this imbalance by introducing a servicing cost for equity. In simple terms, a Cyprus company financed with new equity is eligible to an annual notional deduction like interest. This deduction, if properly structured, can significantly reduce the taxable profits of a Cyprus company to an effective tax rate as low as 2,5%

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Cyprus Tax Residence Certificate

PREFACE

Set out below is a summary of the main requirements and conditions that must be met for an individual to obtain a tax residency certificate from the Cyprus Tax Department. Such certificate is usually needed by foreign tax authorities in order to apply the provisions of a double tax treaty with Cyprus (e.g. apply lower or eliminated withholding taxes on payments to Cyprus residents) and/or confirm that an individual is indeed tax resident in Cyprus. It is noted that the issuance of a tax residency certificate attracts a stamp duty of €80.

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Individuals Relocating To Cyprus (Non-Dom)

Preface

Cypriot tax legislation includes several tax incentives for individuals who seek to relocate and become Cyprus tax residents.
The non-domiciled provisions, exempt high net worth individuals and entrepreneurs from Cyprus taxes on any dividends and passive interest earned from any source. At the same time, the absence of capital gains tax on the disposal of shares and the absence of wealth and inheritance tax make Cyprus a very promising alternative for people looking for a tax friendly home.

Moreover, in order for companies to enhance their corporate presence in Cyprus, the law includes several provisions facilitating the relocation of employees, a notable example the exemption of 50% of the income for any executive earning more than €100.000 per annum.

WHY CYPRUS

Cyprus’ offers a wonderful living experience combining a stress-free and relaxed way of life in a safe environment with a contemporary character, ideal for people who seek balance between work and pleasure.


HIGHLIGHTS 

  • The safest country in the World for countries with less than 5 million population (ValuePenguin.com, 2015)
  • Multicultural environment, over 20% of the population in Cyprus are non-Cypriots (Population Census, 2011) 
  • Clean waters with the highest number of Blue Flag beaches per capita in the world (EU Blue Flag ranking, 2015) 
  • The 5th best relocation destination worldwide (Knight Frank Global Lifestyle Review, 2013) ▪
  • Limassol, the second biggest city has been ranked 4th best retirement destination globally (Knight Frank Global Lifestyle Review, 2016)

Cyprus International Trusts

PREFACE

Cyprus International Trusts are widely used for a variety of purposes. We set out below the various uses of trust, the key characteristics of Cyprus International Trusts and the tax treatment of trusts in Cyprus.

WHAT IS A TRUST

A trust is an arrangement, a legal agreement, whereby a person (the trustee) holds and deals with property (trust property) as its nominal owner for the benefit of persons (the beneficiaries). In simple terms, a trust is created when a settlor transfers ownership of certain assets to a trustee and the trustee then manages them for the benefit of the beneficiary/ies in accordance with the wishes of the settlor.

USES OF A TRUST

There are various reasons for establishing a trust. It could be for charitable or personal reasons as well as for commercial and business purposes. For example, a trust may be created:

For estate planning purposes e.g. for one to arrange the management and disposal of his/her estate after death and to name specific beneficiaries for which the trustee will provide benefits

For asset protection purposes e.g. the trust property becomes property of the trustee and is no longer in the possession of the settlor who may operate in a litigious employment

To holding property for which the settlor does not wish to hold ownership ▪ For tax planning purposes, e.g. elimination of inheritance tax, capital gains tax, transfer fees and other

  • For confidentiality reasons e.g. a person may not want his/her name to appear as owner of an asset
  • To protect property against spendthrift people
  • To enable charitable objects to be carried out
  • To hold property for minors or successive generations of a family
  • To provide pensions for employees and dependents
  • To provide an incentive to the workforce: e.g. via employee trusts of various kinds
  • To provide secretly for others
  • As the top holding investment vehicle for a group of companies
  • As part of commercial arrangements to protect certain interests
  • To establish a fund for the benefit of family members according to future needs as and when they arise
  • To make provision for abstract purposes which are not charitable through a purpose trust