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12 January 2018
Interpretative Circular 14, issued by the Tax Department on November 14 2017, clarifies the application of Article 5(2)(g) of the Income Tax Law.(1) The law provides for a deemed benefit to be assessed on any drawings, loan or other financial facilities granted by a company to a non-resident director or shareholder or their spouse or close relatives. This provision, together with a corresponding provision for resident individuals, was introduced by the Income Tax Amendment Law of 2011(2) and took effect on December 1 2012.
The new circular resolves the issue of whether the full amount of the deemed benefit is taxable, or whether the taxable benefit should be determined on the basis of the number of days that the recipient was a resident in Cyprus during the relevant tax year.
Although there was previously no formal guidance on the issue, tax authority practice has been to calculate the taxable amount based on the number of days spent in Cyprus during the tax year.
However, the new circular clarifies that the deemed benefit is taxable in full, regardless of the period of residence of the individual in question. Like the corresponding benefit applicable to individuals who are tax residents in Cyprus, the benefit is deemed to originate in Cyprus; therefore, liability to tax in relation to the benefit derives from its creation, irrespective of the residence of the recipient.
For further information on this topic please contact Philippos Aristotelous at Elias Neocleous & Co LLC by telephone (+357 25 110 110) or email (firstname.lastname@example.org). The Elias Neocleous & Co LLC website can be accessed at www.neo.law.
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