The House of Representatives passed legislation which amends the Cypriot Income Tax Law and the Special Contribution for the Defence of the Republic Law.
The main purpose of these amendments is to encourage the establishment of funds in Cyprus and to attract foreign investors as well as senior executives of fund administrators in order to relocate to Cyprus and become Cypriot tax residents.
Income Tax Law
The amendments to the Income Tax Law are such that the investment by persons in a mutual fund or partnership established under the Alternative Investment Funds (“AIF”) Law and the Collective Investment Schemes (“CIS”) Law will not be considered as a permanent establishment in the Republic. As a result, the income that these persons earn from these investments will be taxed in their country of residence.
The second amendment to the Income Tax Law provides for the introduction of a special mode of taxation for the variable remuneration received by the senior executives of the administrators/managers of AIFs which constitutes a participation in the profits of an AIF. The special mode of taxation provides for taxation at the rate of 8%, with a minimum tax payable of €10.000 per year (subject to certain conditions being satisfied) and the partners of self-managed AIFs to file a declaration, for the purposes of taxing the beneficiaries for the income that they receive from these undertakings.
Special Contribution for the Defence of the Republic Law
The amendments to the Special Contribution for the Defence of the Republic Law remove the special tax rate of 3% imposed on deemed dividend distributions by the CIS. Thus in case the deemed distributions rules would apply, to the proportion of profits attributable to Cypriot tax resident companies and Cypriot tax resident domiciled individuals the rate to apply will be the same as in all other cases, ie 17%.