The recently introduced Law 33(I)/2018 amends the Law regarding Administrative Cooperation in the Field of Taxation 2012 to 2017 in order to align domestic law with EU Directive 2016/881/EU, which amended EU Directive 2011/16/EU on administrative cooperation in the field of taxation. The new law requires ultimate parent entities of multinational enterprises resident in Cyprus for tax purposes to file country-by-country reports within 12 months of the end of each fiscal year.
In order to ensure compliance with the EU directives on the compulsory automatic exchange of information in the field of taxation – in particular, in advance cross-border rulings – the Cyprus Tax Department recently launched an initiative to gather information regarding cross-border decisions issued, modified or renewed between 2012 and 2016 (inclusive).
The double tax agreement between Cyprus and Jersey recently entered into force following completion of all the requisite ratification procedures. It will take effect with regard to taxes withheld at source in respect of amounts paid or credited on or after January 1 2018 and for other taxes in respect of tax years beginning on or after that date. The new agreement applies to taxes on income and gains from alienation of movable or immovable property.
Cyprus transposed the EU Parent-Subsidiary Directive into domestic legislation when it updated its tax laws in preparation for EU membership in 2004. The Income Tax Law and the Special Contribution for the Defence of the Republic Law provide a liberal system of double taxation avoidance, which also extends to non-EU countries, as the tax laws treat all non-residents of Cyprus in the same way.
The Inland Revenue Department recently issued a circular clarifying the practical application of the new five-year limit for carrying forward losses for relief against future profits. For the 2012 tax year and subsequent years, only losses incurred in the 2007 tax year and later years are available for relief against taxable income. Relief is no longer available for unutilised losses relating to 2006 and earlier years.
Under the arrangements for the taxation of loans to directors and shareholders, a physical person who maintains a debit balance in the books of a company in which he or she is a shareholder or director is deemed to enjoy a benefit equivalent to 9% a year on the debit balance. However, a recent tax authority ruling confirms that if the individual concerned is not resident in Cyprus, there will be no liability to tax.
One of the recent amendments to the tax and company laws was the introduction of the amending Assessment and Collection of Taxes Law, which aims to facilitate the exchange of information in the field of taxation. Among other changes, the tax authorities can now refrain from informing persons when they are the subject of any tax investigation process if they consider that it might jeopardise the effectiveness of the investigation.