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.
Cyprus and the United Kingdom recently signed a new double tax agreement. Once it has been ratified by both parties, it will replace the current agreement, which dates back to 1974 and is one of the oldest tax agreements still in force in Cyprus. The changes introduced will have little direct effect on the tax liability of most taxpayers, but the modernisation of the agreement will provide clarity.
Cyprus holding companies are widely used in the context of international business structuring to optimise the channelling of inbound and outbound investments with countries that have signed a double tax treaty with Cyprus. The Tax Department recently issued a circular on the value added tax treatment of holding companies, which aims to provide clarity regarding the circumstances in which Cyprus holding companies can be deemed to be earning income that may constitute taxable income.
The Tax Department recently announced that companies and self-employed individuals that are required to submit annual accounts will be given an additional three months to file their tax returns for the year ended December 31 2016. The department has also issued a circular clarifying the requirement to produce audited financial statements to support tax returns.
Article 9(B) of the Income Tax Law 2002 (as amended) provides for a notional interest deduction for tax purposes on new equity capital injected into companies and permanent establishments of foreign companies on or after January 1 2015 to finance business assets, calculated by applying a reference rate to the new equity. The Tax Department recently announced the 10-year government bond yields for December 31 2017, which will be used as the basis for the notional interest deduction for the 2018 tax year.