Cyprus and Egypt have a Double Tax Treaty agreement in force that was signed in 1993 and is in force as from 14/3/1995.
The main provisions that apply to each country are summed up as follows:
- Cyprus corporation tax is 12.5% while in Egypt is 22.5/27.5%.
- Capital gains tax in Cyprus only applies for immovable property situated in Cyprus were in Egypt it also applies on sale of shares.
- Standard VAT rate in Cyprus is 19% and in Egypt ranges from 10% -up to 45%.
- Dividend Income is exempt from Corporation tax in Cyprus with any participation requirements needed to be met.
- Active (business related) interest income is taxed at 12.5% in Cyprus and 25% in Egypt.
- Passive interest income is taxed at 30% in Cyprus and 30% in Egypt.
- Royalty income is taxed at 12.5% after the 80% IP allowance is given for an effective rate of 2.5% (provided asset meets the requirements) and 25/30% in Egypt.
In addition to these provisions each country implements additional incentives in order to attract foreign investments and high net worth individuals into the country.
In the case of Cyprus, the main incentives implemented in the last few years are as follows:
Based on the new tax law effective as from January 1st 2015, a Cyprus tax resident company and Cyprus permanent establishments are entitled to a Notional interest Deduction – NID, on the introduction of new capital in the company used for the production of taxable income.
As per the above law new equity includes the following:
- New equity introduces in the company as from January 1st 2015, in the form of paid up share capital and share premium.
- Loans payable converted into issued share capital.
- Shareholders credit balances converted into issued share capital.
- Non- refundable capital contribution converted into issued share capital.
- Old equity that will be used to finance new business activities.
The NID is calculated by multiplying the new equity by the 10- year government bond (as at 31 December of the prior tax year) of the country where the funds are employed, plus a 3% premium, subject to a minimum rate, equal to the yield of the 10-year Cyprus government bond plus a 3% premium. The NID is restricted to 80% of the taxable profit generated by the new equity.
Based on this provision an amount equal to 50% of remuneration over €100.000, from any employment exercised in Cyprus is exempt for a period of 10 years. This new measure is effective as from 1 January 2012 onwards, provided that the individual was not a tax resident of Cyprus before the commencement of the employment. This exemption can also be used in case the individual became a CY tax resident mid – year but his gross income if calculated on a yearly basis exceeds €100.000.
The term “domiciled in Cyprus” is defined by the law as a person who has either his/her domicile of origin or domicile of choice in Cyprus. Domicile of Origin is given based on the place of birth while Domicile of choice is earned by establishing a home with the intention to reside in Cyprus permanently or indefinitely.
As such a Non – Domicile individual is someone who became a Cyprus Tax resident but:
- Does not have his domicile of origin in Cyprus.
- Has his domicile of origin in Cyprus but:
- He has and maintains his domicile of choice in a country other than Cyprus and was a Non -CY tax resident for any period of at least 20 consecutive years or
- He was a Cyprus tax resident for less than 17 out of the last 20 years prior to the year in question.
Individuals who intend to live in Cyprus and become Cyprus tax residents qualifying as non-domicile, will immediately enjoy the following tax benefits for 17 years from the date of their relocation in the country:
- No Cyprus tax on receipt of dividend income from any company registered anywhere in the world;
- No Cyprus tax on receipt of interest income from anywhere in the world;
- No Special Defence Tax on rental income;
In addition to the above as already mentioned Cyprus will enact in force incentives to attract film productions into the island. The production companies that opt to film in Cyprus will be able to choose between cash rebate – partial refund of the amount invested on the film – or tax credit and can also benefit from tax discounts on investments made on equipment and infrastructure, and VAT returns on expenditure in scope. The cash rebate may reach up to 35% of expenditure made in Cyprus and is capped at €650,000 for each production. The scheme includes the production of films, TV series, documentaries and cartoons.
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