We are highlighting 10 changes in laws and regulations that came into force this year or are expected soon.
1. Introduction of 15% Global Minimum Tax
At the end 2022, the Council of the EU adopted the Directive ensuring a global minimum level of taxation -15%, for multinational enterprise groups and large-scale domestic groups.
The global minimum tax rules set out in the Directive were expected to be transposed into the domestic legislation of the EU Member States and be in effect as of 31 December 2023. Cyprus is expected to do transpose the rules into the domestic legislation during 2024 with a retroactive effect as of 31 December 2023.
The rules introduce a minimum effective tax rate of 15% to MNE or large-scale domestic groups with consolidated annual revenues of €750 million in at least two of the four fiscal years immediately preceding the tested fiscal year.
More information will follow soon.
2. Exchange of information and tax transparency – uder DAC6 and DAC7 rules
Rules on the automatic exchange of information on reportable cross border arrangements under the DAC6/MDR legislation are already in full effect. Intermediaries and relevant taxpayers should in principle be in a position to identify, assess and report reportable arrangements but also should be in a position to document their compliance efforts by maintaining appropriate books and records for their cross-border arrangements.
In November 2023, the so-called DAC7 -the law requiring the automatic and mandatory exchange of information reported by platform operators came into force. In January 2024, the Cyprus Tax Department has clarified that sellers residing in Cyprus for tax purposes should also fall within the scope of DAC7 reporting.
The first DAC 7 reporting deadline was finally extended to 16 February 2024.
3. Transfer pricing
Transfer pricing rules and documentation requirements are applicable in Cyprus as from January 2022 – all in line with the OECD TP Guidelines. The new rules require domestic and cross-border intra-group transactions to be documented for Cypriot TP purposes.
The TP rules are effectively applicable for the tax year 2022, which means that the affected businesses should have the TP study ready by the Income Tax Return submission deadline (i.e., for the tax year 2022 – it is 31 March 2024).
Also, on 1 February 2024, the Cyprus Tax Department announced the increase of the threshold for the preparation of a Cyprus Local File for the tax year 2022 onwards, as follows:
- €5.000.000 for related party transactions in the category of financing transactions; and
- €1.000.000 for the rest categories of related party transactions, i.e., goods, services, intellectual property and other (before the threshold was €750,000 for any category).
More in our recent article: Transfer Pricing rules in Cyprus
4. Green Taxes
Cyprus like other EU Members, needs to respond to the EU policies around environmental sustainability. On 1 October 2023, the transitional period of the Carbon Border Adjustment Mechanism (CBAM) entered into force.
During 2024, a CY tax transformation project is expected to be presented. Several environmental taxes are under consultation, such as taxes to combat air/water pollution & climate change and taxes to enhance management and circular economy.
5. Reduction of fine to companies for Annual Reports
In February the House of Representatives approved a bill to amend the Companies Law, aiming to reduce the maximum financial penalty imposed on a company for failing to submit its annual report to the Registrar of Companies and Intellectual Property within the specified deadline.
In consequence, the total charge for late submission of annual reports (HE 32) shall not exceed one hundred and fifty euros (€150) for each violation instead of the five hundred euros (€500) currently in force.
6. The Special Defense Contribution rate reduced
The reduction introduced in the Special Defence Contribution (“SDC”) Law with effect as of January 2024, brought the SDC tax rate on interest from 30% down to 17%.
This revision entails an adjustment to the SDC rate applicable to passive interest income earned by:
- Cypriot tax resident companies; and
- Cypriot tax resident and domiciled individuals.
Let’s also remind that from June 2023, the obligation to pay the SDC withheld on rents in two semi-annual installments instead of monthly payments. Every person who is obliged to pay special contribution for defence on rental payments should pay until 30th of June and until 31st of December of each year.
We were writing about it here:Amendment to the special defence contribution law
7. Increase in Social Insurance Contributions
From January 1st, 2024, both employer and employee are required to contribute an additional 0.5% to the Social Insurance Fund.
Therefore, contributions will increase from the current 8.3% to 8.8% on employees’ Insurable earnings. The rate for self-employed persons increased from 15,6% to 16,6% in 2024.
Details under the link: Increase in social insurance contributions
8. UBO reporting
Back in November 2023 Registrar of Companies in Cyprus announced the start of the application of the final solution for the Register of Beneficial Owners.
All Companies registered as per the Companies Law Cap. 113, all European Companies (SE), or their Officers/Partners need to verify the information submitted with the Register or update it if changes have occurred in the meantime.
After the feedback from the industry and the delays at the Registrar of Companies caused by the increased number of resignations of the companies’ officers, the ROC granted another extension period. Therefore, the final deadline for re-submitting for the Register of Beneficial Owners is 31 March 2024.
More information about the reporting and penalties: Register of beneficial owners
9. New provisions in naturalization law
On November 30th 2023, Cyprus Parliament approved important changes on the Population Register Law of 2002.
The amendment allows highly skilled professionals to apply for Cypriot citizenship already after residing in Cyprus for a period of 4 years (in case of the proven knowledge of the Greek language, B1 or A2). The special provisions of the naturalization process are addressed to expats with high qualifications and skills in the technology sector and employed by certain foreign interest companies. We are waiting for clarification on that matter.
At the same time, the main provisions of the new legislation are less beneficial for standard applicants. Applications can be submitted by residents who have completed at least 8 years of physical stay (instead of 7 as it was before). Applicants must have a certificate of basic knowledge of the Greek language (Level B1).
Information about the new scheme: Cyprus citizenship
10. Digitalization of the Tax Department
The application to obtain Tax Identification Number (TIN) is now carried out only through the Tax For All Portal.
By 2025 all the functionalities of Tax For All Portal shall be delivered into productive operation, aiming for the Tax Department to be fully digitalized.
IBCCS TAX – we are at your disposal
If you seek immediate guidance to ensure compliance with new rules or need assistance in implementation of potential benefits, we are ready to advise.
For further enquiries, please contact us by email on [email protected] or call our office in Cyprus on +357 222 58 777.
