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We would like to bring to your attention the deemed dividend distribution (DDD) rules of the Special Contribution for the Defence Law that apply to the 2020 tax year.
Profits subject to deemed dividend distribution
After taxes and other changes, corporations are deemed to have allocated 70 percent of their accounting profits to their resident shareholders as of the end of the second year after the year to which the profits pertain. Any actual dividend payments made from such profits, whether made as interim dividends during the applicable tax year or during the two years following the year's end, diminish the profits depending upon the deemed distribution rules.
The profits of Cypriot tax resident companies that are either indirectly or directly attributable to Cypriot tax residents and/or domiciled shareholders are subject to the DDD provisions (i.e., the portion of profits which are indirectly or directly attributable to non-Cypriot tax residents and/or non-domiciled shareholders is excluded from the DDD provisions).
Special defence contribution
If the Cypriot tax resident company does not disperse at least 70 percent of its accounting profits after tax (as adjusted for DDD purposes) within 2 years of the end of the tax year to which these profits are associate, a special defence contribution at the applicable rate of 17 percent is due for payment on these deemed dividends.
In this regard, the gains of the year 2020 are subjected to a deemed distribution on December 31, 2022, and a company must make the payment for the special defence contribution as representative of its shareholders by January 31, 2023.
General Health System contribution
It's vital to remember that the General Healthcare Scheme (GHS) must be contributed at the applicable rate of 2.65 percent before any real or deemed dividends are distributed to Cypriot tax resident shareholders (regardless of their domicile status).
By the 31st of January 2023, a company must pay the GHS contribution as the representation of its shareholders for the deemed dividend distribution of profits for the year 2020.
If you want help with the determination of the profits subject to the DDD, the creation and submission of the applicable tax form (TD603), which must be completed by January 31, 2023, or any additional help relating to the aforementioned, please contact the tax team at C. Savva & Associates.
Changes to the policy for acquiring a visitor's temporary residency permit in Cyprus
The procedure for issuing or renewing visitor's visas for citizens of third countries has undergone a lot of changes recently, as indicated by the Civil Registry and Migration Department ("CRMD"). The most recent adjustments primarily have an impact on the financial requirements that interested parties must meet in order to submit the appropriate application.
Background
The Aliens and Immigration Regulations state that foreign nationals who wish to stay in Cyprus for a longer amount of time than is permitted (i.e., 90 days for every 180 days period) by a Cyprus tourist visa may be awarded a residency permit In fact, this particular form of visa is suited for pensioners who want to stay in Cyprus in addition to anyone who wants to live Cyprus for a prolonged period of time.
It must be highlighted that the holder is not permitted to engage in any economic activity in Cyprus in accordance with the conditions of granting of the temporary residence permit for visitors ("Visitor's permit"). Additionally, since the essential permit is transitory in nature, the individual cannot live outside Cyprus for longer than 3 months consecutively. Otherwise, there will be a risk of the cancellation of the permit.
The visitor's permit is valid for one (1) year and may be extended once a year as long as the necessary conditions and requirements are met.
Amendments that will affect first-time applications
Revised financial criteria
The applicant must have enough funds acquired from reliable or acceptable sources of income. According to the amended policy, specific examples of such "income" comprise salaries, pensions, deposits made in foreign banks, Interests, dividends, rental income, etc.
The pertinent requirement can also be satisfied in situations in which the applicant receives income from sources located in Cyprus, like dividends from a Cyprus company, rental income from immovable property located there, or even Cyprus bank deposits derived from salaries associated with the applicant's prior employment there in a corporation with foreign interests.
The pertinent income criterion must not be lower than €2.000 per month or €24.000 per year, according to the revised policy. The minimal need goes up by 20 percent for the applicant's spouse and by 15 percent for every child.
People who are seeking visitor's permits for the very first time must meet the CRMD application requirements by providing a cash transfer (carrying the necessary proof from Customs) or an initial bank transfer from abroad of at least €10.000.
Previous policy
According to the prior policy, there was no set monetary income criterion, but the applicant was still required to provide proof of a steady or sufficient income.
Additional requirements/criteria according to the amended policy
According to the revised policy, first-time visitors applying for a visitor's permit are subject to the new requirements listed below:
Introduced changes affecting renewals of applications
Revised financial criteria
According to the revised policy, applicants for Visitor's permit renewals must provide the CRMD with a thorough bank statement (of a Cypriot bank) for the latest 12 months that shows foreign transfers made in the applicant's name in accordance with the relevant thresholds noted above (i.e., not less than €2.000 per month or €24.000 per year).
Furthermore, the applicant must submit a bank statement (from a Cypriot bank) indicating a balance of at least €6,000 as a component of the application for the renewal of the visitor's permit.
Previous policy
In accordance with the former regulations for visitor's permits, the applicant was required to submit supporting evidence to the CRMD that showed stable and substantial foreign income that had been sent to the Cypriot bank account of the applicant.
Entry into force
The revised policy for first-time visitor permit applications becomes effective on January 1, 2023.
On May 1, 2023, the revised policy regarding applications to renew visitor permits became effective. In this regard, all renewal applications submitted before May 1, 2023, will be evaluated in accordance with the financial standards in effect before the policy adjustment.
General Healthcare System (GHS) amending law On 25 November 2022
(No.180), which deals with amendments to article 2 of the GHS Law, was released in the Republic's official gazette.
Amendments in Article 2
1) In order to exempt the emoluments of seafarers who are not permanent residents of the Republic from GHS contributions, the amended GHS Law modifies the definition of the term "emoluments." As a result, the following is the revised definition of "emoluments":
..
The word "emoluments."
(a) has the definition given to this term by the Social Insurance Law with respect to an employee but does not include the emoluments received by seafarers who are temporary residents of the Republic:
Given that, for the specific purpose of this Law, seafarers are likewise regarded as workers in inland navigation …»
2) The aforementioned amending GHS law also modifies the definition of "income" to exclude, among other things, gratuities or lump sums paid to staff in the general public, public, or private sector by plans, pension funds, or provident funds, in addition to any income derived from the sources listed in paragraphs (b) of subsections (1) and (2) of article 5 of the Income Tax Law in connection to salaried services of non-permanent resident seafarers of the Republic
For this reason, the latest definition of "income" is as follows:
« "Income" refers to any natural person's earnings from the sources listed in Article 5 of the Income Tax Law that are not emoluments or pensions. It also includes dividends as defined by the Special Defense Contribution Law but excludes any gratuity or lump sum paid to staff in the general public, public, or private sectors from Pension funds, Schemes, or Provident Funds, Schemes. It also contains any earnings from the sources listed or Article 5's paragraph (b) of subsections (1) and (2), respectively, of the Income Tax Law in connection to salaried services of Republic's non-permanent resident seafarers:
Taking that into account, for this Law's purpose, seafarers are also regarded as workers in inland navigation·…»
At last, the particular amending GHS law explains the term "seafarer" as «… anyone who serves as a worker on board a ship. This includes the captain as well∙.»
The deadline for the following is December 31, 2022:
The submission of an updated Temporary Tax Return for the year 2022:
Upwards revision of the Temporary Tax return for the year 2022:
Downwards revision of the Temporary Tax return for the year 2022:
Temporary Tax return for the year 2022 for the companies incorporated during 2022:
No revision of the Temporary Tax return for the year 2022:
SDC and GHS for the 2nd semester of 2022:
Special Contribution for Defence for the distributable profits of the year 2020 for deemed distribution purposes:
Note: Deemed distribution will not be applicable to profits that are indirectly or directly attributed to shareholders who do not live in Cyprus or to individual shareholders who are not determined to be tax residents or have a domicile in Cyprus.
The bilateral Competent Authority Arrangement (CAA) for the exchange of Country-by-Country (CbC) Reports among both The United States as well as Cyprus, which is presently under negotiation, is anticipated to take effect for Reporting Fiscal Years beginning on or after January 1, 2022, according to a notice issued by the Cyprus Tax Department on October 13, 2022, across all legal entities and their representatives. Therefore, the secondary filing mechanism must be activated for Reporting Fiscal Years beginning on or after January 1, 2021, but before January 1, 2022, in the event that the Ultimate Parent Entity of a Multinational Group of Enterprises (MNE) is a tax resident in the United States of America
For instance, even though a CbC Report has been or is to be submitted in the United States of America, a local filing obligation still should exist in Cyprus with regard to an MNE Group's CbC report for the Reporting Fiscal Year ending on December 31, 2021.
Furthermore, Cypriot Constituent Entities of MNE Groups that are impacted by this announcement should revise their notifications (as necessary) in conformance with this official statement in situations where they have filed notifications in Cyprus for reporting fiscal years beginning on or after January 1, 2021, and prior to January 1, 2022. No fines will be charged for the Reporting Fiscal Year beginning on or after January 1, 2021, and before January 1, 2022, provided that such notifications are corrected by December 31, 2022.
To find the relevant announcement, click here
The bilateral Competent Authority Arrangement (CAA) for the exchange of Country-by-Country (CbC) Reports among both The United States as well as Cyprus, which is presently under negotiation, is anticipated to take effect for Reporting Fiscal Years beginning on or after January 1, 2022, according to a notice issued by the Cyprus Tax Department on October 13, 2022, across all legal entities and their representatives. Therefore, the secondary filing mechanism must be activated for Reporting Fiscal Years beginning on or after January 1, 2021, but before January 1, 2022, in the event that the Ultimate Parent Entity of a Multinational Group of Enterprises (MNE) is a tax resident in the United States of America
For instance, even though a CbC Report has been or is to be submitted in the United States of America, a local filing obligation still should exist in Cyprus with regard to an MNE Group's CbC report for the Reporting Fiscal Year ending on December 31, 2021.
Furthermore, Cypriot Constituent Entities of MNE Groups that are impacted by this announcement should revise their notifications (as necessary) in conformance with this official statement in situations where they have filed notifications in Cyprus for reporting fiscal years beginning on or after January 1, 2021, and prior to January 1, 2022. No fines will be charged for the Reporting Fiscal Year beginning on or after January 1, 2021, and before January 1, 2022, provided that such notifications are corrected by December 31, 2022.
To find the relevant announcement, click here
Circular 10/2022 ("Circular"), titled "Exemption from income tax of remuneration relating to first employment exercised in the Republic," and applicable to articles 8(21A) and 8(23A) of the Income Tax Law, was released by the Ministry of Finance's Tax Department on November 1, 2022.
The Circular particularly clarifies how the exemptions specified under articles 8(21A) and 8(23A) of the Income Tax Law should be applied and discusses how to do so in practice with a number of examples and instructions.
All taxpayers who fall under the terms of articles 8(21A) and 8(23A) are advised to reassess their stance in light of the publication of Circular 10/2022 and the new instructions given by the Tax Department.
In a statement, the Ministry of Labour and Social Insurance acknowledged the following:
It should also be noted that insured persons must have already created as well as verified a profile on the CY Login service (https://cge.cyprus.gov.cy/cyloginregistratin/register) in order to submit the application online for the Maternity Allowance and Unemployment Benefit.
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