Major tax reforms aimed at ‘non-doms’, FDIs, property
The government has introduced radical tax reforms that aim to attract foreign direct investments and nondomiciled individuals, simplify levies for properties, return tax-collection to local municipalities and encourage taxbreaks for direct injections where local companies are strained for cash-flow.
Finance Minister Haris Georghiades said that the set of five tax packages approved by the Cabinet on Wednesday and submitted to parliament on Thursday aim to make Cyprus as “attractive and competitive” as ever before, and make taxation, and subsequently investments, “fairer, simplified and more effective.”
Property transfer fees have been reduced by 50% to the end of 2016, there will be no capital gains tax for purchases up to the end of 2016, property taxes are simplified, municipal property levies are abolished and merged into a single tax of 0.1% of the last available valuation.
Early birds will benefit from a 10% discount and a rebate of up to EUR 25, which affects some 12% of all property owners.
These tax breaks will deprive the state of some EUR 20-21 mln in annual earnings, “which is within fiscal budget allowances, but will generate multiple benefits from an increase in transactions and growth.”
The Ministers said that the loss of EUR 14 mln that will be incurred by the local administration will be replaced by a direct grant of EUR 15 mln to municipalities, as decided by the Cabinet, which will develop through the wider plans for municipal reforms and autonomy.
To encourage a revival of the private sector, the government is introducing the “allowance for new equity/notional interest deduction” to allow fresh funding in the form of investing in equity for businesses that have difficulty borrowing. This will be retrospective from January 1, 2015 and aims to encourage investments in capital.
Cyprus already has one highest national borrowing 140-150% of GDP.
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The reforms include further tax discounts on depreciatisn of equipment, facilities and buildings until the end of 2016.
High-net worth non-domiciled individuals (non-doms) will need to declare Cyprus as their taxable jurisdiction and receive an exemption on defence tax on rents, interest and dividends. Also, to lure executives to the island, a 50% discount will be afforded on wages earned prior to their employment here, where the salary is above EUR 100,000, while this break will be extended from five to ten years.
Georghiades said that the fivepackage tax reforms fully harmonise the Cyprus tax regime with that of the EU, self-declaration is introduced, and a new framework is introduced for investments and activities by oil and gas exploration and prodyction companies operating with the Exclusive Economic Zone (EEZ).
However, the minister admitted that the tax reforms will have an initial negative impact as revenues will revert back to pre-2012 levels.