Cyprus Parliament Approves the MoU

30 Apr 2013

Cyprus Parliament approves the MοU

The Parliament of the Republic of Cyprus confirmed on Tuesday 30th April, 2013 the Memorandum of Understanding (MoU)which was signed between the government and the Troika as well as the terms of the relevant Loan Agreement to govern financial support to Cyprus in the amount of €10 billion.

The Parliament’s approval has put an end to the rumours and uncertainty as to whether Cyprus would approve the MoU and proceed with the restructuring of its economy in accordance with the terms of the MoU.

Amendments to the tax legislation:

Income tax

In compliance with the provisions of the MoU the Parliament approved an amendment to the Income Tax laws under which the corporation tax applicable to companies which are tax residents of Cyprus as well as to the income of a permanent establishment in Cyprus earned by a company which is not itself a tax resident of Cyprus, has been increased from 10% to 12.5%. The increased corporation tax rate will be applicable for the entire year of assessment 2013.

Special defence contribution

The rate of special defence contribution on interest earned by persons, individuals or corporations, who are residents of Cyprus is increased from 15% to 30%. The increased rate is applicable to interest which is received or deemed received or credited as of the date of publication of the amendment law in the official gazette of the Republic, that is to say as of 29th of April, 2013.

Increase of special levy on credit institutions

The special levy imposed on credit institutions in 2011, at the rate of 0.11% has been increased to 0.15%. The increase will be applicable with effect from 1st January, 2013.

Annual levy on owners of real estate

The Parliament has also amended the law for the imposition of annual levy on the owners of real estate situated in Cyprus. New levies are scaled from 0.6% to 1.9% for amounts from €40.000 value of property to €3m and upwards, as per the general valuation of properties applicable in 1980. The minimum annual levy is €75.


The above changes are in the taxation laws of Cyprus and are in line with the provisions of the MoU imposed on Cyprus by the Troika and it is important to mention that no more changes are envisaged under the MoU as regards corporation tax, special defence contribution or capital gains tax.

It is important to note that corporation tax is imposed on companies which are tax residents of Cyprus on their business profits or on permanent establishments in Cyprus of companies which may not tax residents of Cyprus. The corporation tax is not imposed on any profits of a permanent establishment abroad of a company which is a tax resident of Cyprus. In addition in case any such taxation is payable in Cyprus any tax paid on the relevant income out of Cyprus, whether there is a double tax treaty in place or not, will be valid against any Cyprus tax payable.

Dividends earned by Cyprus companies from their participation in other Cyprus companies or in foreign companies are still, as before, in almost all cases fully exempt from tax or special defence contribution in Cyprus. Furthermore, always as before, dividends payable by a Cyprus company which is a tax resident of Cyprus to its shareholders, individuals or corporations who are not tax residents of Cyprus are fully tax exempt in Cyprus.
Capital gains or profits on the disposal of securities or even real estate situated out of Cyprus remains fully exempt from any kind of tax in Cyprus.

In essence, even after the changes in the taxation laws of Cyprus, Cyprus remains the most advantageous jurisdiction for holding companies and it cannot be said that even in the case of trading companies the extra 2.5% corporation tax would make Cyprus a less attractive jurisdiction for this type of business as well.

As regards the increase in the special defence contribution payable on interest earned by an individual or corporation who is a tax resident of Cyprus it should be clarified that if the interest is earned in the ordinary course of business of the recipient or it is closely connected with the recipient’s ordinary business such interest is not subject to special defence contribution but remains subject to corporation tax, if it is received by a company, at the rate of 12.5%. Of course in such case any interest paid would be deductible, something which as before leaves space for group financing with negligible tax exposure in Cyprus.

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