Ma­jor tax re­forms aimed at ‘non-doms’, FDIs, prop­erty

Financial Mirror (Cyprus) - - FRONT PAGE -

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.

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