Cyprus Tax & Legal considerations for the year ahead

New VAT order changing treatment on the sale of new buildings 

As from 11 November 2022, the supply of a new building is subject to VAT through new criteria set by an issued Council of Ministers Order. The definition of new building is restated effecting the VAT treatment.

Amended law as per the Order

As per the Order, the sale of buildings will be subject to VAT provided that:

1. An application for a planning and/or buildable permit was filed with the authorities after 1/05/2004,
2. The sale / sales made within a period of 5 years from the date of complete erection of the building (the building being available for its intended use), and
3. Within the 5 year period noted in (ii) above, the building was not used systematically by a non-related party for period of at least 2 years.

Law applicable before this Order

Before the issue of the Order (applicable from 11/11/2022 onwards), the sale of buildings was subject to VAT provided that:

1. An application for a planning and/or buildable permit was filed with the authorities after 1/05/2004, and
2. The buildings was not used for any reason further to its erection (first occupation requirement.

Such development has multiple implications both from an input recovery and output VAT perspective that need to be evaluated by affected entities and individiduals. Feel free to contact us for further information.

George Pitsillis 

Senior Manager, Indirect Tax | EY Cyprus 

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Maximum limit of emoluments for 2023

The maximum limit of contributions on emoluments for all funds (except for the Social Cohesion fund) are as follows: 

Herodotos Hadjipavlou

Manager, Global Compliance & Reporting | EY Cyprus

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50% personal income tax exemption

New provisions have been introduced which refer to the application of the 50% tax exemption for remuneration from first employment which is exercised in Cyprus by a person who was resident outside Cyprus for a period of at least ten consecutive years prior to the commencement of his employment in Cyprus and the first employment in Cyprus commenced after 1st January 2022. The tax exemption is granted for a period of seventeen tax (17) years and is granted in any year in which the remuneration from employment in Cyprus exceeds €55.000 annually. 

Petros Liassides

Partner, Global Compliance & Reporting | EY Cyprus

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20% personal income tax exemption

New provisions have been introduced which provide for a 20% tax exemption or €8.550, whichever is the lower, for remuneration derived from "first employment" in Cyprus by a person who was employed outside Cyprus for an employer not resident in Cyprus for three consecutive years prior to the commencement of his employment in Cyprus.

Herodotos Hadjipavlou

Manager, Global Compliance & Reporting | EY Cyprus

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International Business Companies (IBC) scheme

A favorable government scheme for companies wishing to relocate to Cyprus with the option of expedited employment of Third Country Nationals (TCN). The company will need to be registered with the Business Facilitation Unit and the Civil Registry and Migration Department. As a main criterion, the majority of the company's shares should be owned by third-country nationals (in the event that the percentage of the foreign participation in the share capital of the Company is equal to or below 50% of the total share capital, the Company is eligible when this percentage of the share capital represents an amount equal to or greater than the amount of €200.000).

On 30/11/2022, the Council of Ministers amended the eligibility criteria of foreign interest companies and specifically included the criterion of a company’s obligation to prove an initial investment in the Republic of at least €200,000, which should be proven by presenting the appropriate certificates.

Riginos Polydefkis

Director, Head of Immigration Services, People Advisory Services  | EY Cyprus

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MiCA Regulation: European Council October 2022 approval, European Parliament February 2022 expected approval and CASP operations

Just over a month ago, the European Council approved the draft Markets in Crypto Assets ("MiCA") Regulation that was firstly introduced in 2020 by the European Commision.
The MiCA Regulation provides an EU harmonized regulatory framework for crypto assets and is the first official supranational instrument laying down the scope within which crypto assets issuers and service providers may operate, whilst maintaining financial stability, market integrity and investor protection. 

Andria Koukounis

Partner - Head of Financial Services and Capital Markets Prountzos and Prountzos LLC  | EY Law

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Cyprus Law on a Shipping Limited Liability Company

The Cypriot Jouse of Representatives has approved the "Limited Liability Shipping Company Law of 2022". Under this law, it will be possible to establish a new corporate entity under the designation of "Shipping Limited Liability Company". The new law acts as another step towards the formation of a One-Stop-Shipping-Shop. 

Irene Raspa

Manager- Advocate, Corporate and Digital Law Unit Prountzos and Prountzos LLC  | EY Law

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Suspension of access to the Beneficial Owners register for the general public

On November 28, 2022, the Department of Registrar of Companies and Intellectual Property announced that, following the Judgement of the Court of Justice of the European Union (CJEE) in joined cases C-37/20 and C-601/20, of November 22, 2022, access to the Register of Beneficial Owners for the general public is suspended as of the 23rd of November 2022.
According to the above-mentioned Judgement of the CJEE, Article 1, point 15(c) of Directive (EU) 2018/843 of the European Parliament and the Council, of 30th May 2018, which provides for access to the information on the beneficial ownership of legal entities to any member of the general public, is invalid as it constitutes a serious interference with the fundamental rights of respect for private life and to the protection of personal data, enshrined in Articles 7 and 8 respectively, of the Charter of Fundamental Rights of the European Union.

Antonis Karaolis

Advocate - Director, Head of Corporate and Digital Law Unit, Prountzos and Prountzos LLC  | EY Law

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Cyprus introduced Transfer Pricing rules and documentation requirements effective, as of 1 January 2022. The legislation is broadly in line with the OECD TP Guidelines and requires domestic and cross-border intra-group transactions to be documented for Cypriot TP purposes.  The TP documentation files include Local and Master file as well as the Summary Information Table.

Charalambos Palaontas

Partner, International Tax and Transaction Services  | EY Cyprus

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An additional increased deduction which will equal to 20% of the actual amount of the relevant R&D expenses, will be available for R&D expenses incurred during the tax years 2022, 2023 and 2024 (including expenses of a capital nature).
Eligible research and development expenses that will be deducted from the taxable income of the economic owner of the IP assets will equal to 120% of the actual R&D expenses incurred. 
It is clarified that this increased deduction should not be available to taxpayers that claim a deemed deduction under the provisions of the IP Box regime.

Petros Krasaris

Partner, International Tax and Transaction Services  | EY Cyprus

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Introduction of the incorporation test - a company which is incorporated or registered in Cyprus, and its management and control is exercised outside Cyprus, should be considered a resident of Cyprus for tax purposes unless it is a tax resident in another country. This test should be in addition to the management and control test aiming to capture the so-called stateless companies. Effective as of 31 December 2022.

Michalis Karatzis

Senior Manager, Direct Tax | EY Cyprus

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Withholding tax on outbound payments of interest, dividends and royalties made to companies registered/resident in jurisdictions listed by the EU as non-cooperative jurisdictions on tax matters. Effective as of 31 December 2022.

Myria Saparilla

Partner, Global Compliance and Reporting  | EY Cyprus

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As of 1 January 2022, there is a "live" 30-day reporting deadline based on specific trigger events. Penalties for non-compliance are significant, and may reach EUR 20.000 per arrangement.
On 17 March 2022, the Cypriot Tax Department (CTD) published a list of Frequently Asked Questions (FAQs) on its website, providing further clarifications regarding the interpretation of key terms of the Cypriot DAC6/MDR Law.
Meanwhile, the CTD has already commenced the first phase of the DAC6 specific audits, by sending DAC6 information requests requesting additional information on submitted reportable cross-border arrangements. Additional audits are expected to take place in the proximate future. 

Panayiotis Tziongouros

Director, International Tax and Transaction Services | EY Cyprus

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As of 1 January 2023, digital platform operators with nexus in the EU will have to identify certain sellers and report information regarding these sellers and certain relevant activities. The relevant activities include the rental of immovable property, including both residential and commercial property, personal services, the sale of goods, the rental of any mode of transport, when carried out for a consideration.
Platforms should file information in relation to the so-called reportable sellers, i.e., individuals, companies or legal arrangements, that carry out a relevant activity and are residents of other EU Member States or rent out immovable property located in an EU Member State, outside Cyprus. The provisions of the Directive should enter into force on 1 January 2023 by means of an amendment to the existing Law on Administrative Cooperation in the Field of Taxation. The first reporting is expected by 31 January 2024. 

Panayiotis Tziongouros

Director, International Tax and Transaction Services | EY Cyprus

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