CYPRUS 2010/2011

OASIS

ORGANIZATION OF ADVOCATES SPECIALISING IN INTERNATIONAL SERVICES

CYPRUS 2010/2011

CYPRUS DEVELOPMENTS 2010/2011

Costas Erotocritou, EROTOCRITOU & CO

A. Sale of land (Specific Performance), Chapter 232:

After discussions for some time the Parliament amended the law which was published in the Official Gazette on 29.04.2011 with the ultimate aim inter alia to protect the purchasers in acquiring immovable property. The main amendments are as follows:

Section 3: The contract for the purchase of any immovable property can be specifically enforced by the order of a District Court or of the Supreme Court, if it is a valid contract according to the law and if the following conditions have been complied with in relation thereto viz:

· The immovable property is registered in the records of the relevant District Lands Office ‘DLO’ in the name of at least one of the vendors and is the subject matter of the contract.

· The contract is in writing, includes sufficient particulars of the identity of the contracting parties, and describes in full the immovable property which is the subject matter of the contract, mentions the consideration and is signed by all the contracting parties.

· The contract is deposited or caused to be deposited within six (6) months from the date of its signature at the DLO of the district within which the property is situate.

· Irrespective of any provisions of the Contract Law, Chapter 149 or any other law it is prohibited to include in any contract or contract of assignment concluded after the date of the enforcement of the Law any provision prohibiting the deposit of the contract or the contract of assignment as any such prohibition is void and of no legal effect.

1. Obligations of the vendor:

The vendor before mortgaging the immovable property, the subject matter of the contract if it has not been deposited by the purchaser at the DLO is obliged to deposit the said contract provided that on the date of the depositing thereof the purchaser has complied with all his obligations under the contract.

If the vendor fails to comply with the above he is inter alia liable criminally and if convicted he may be imprisoned for any period up to two years, or fined up to 5.000 EURO or to both.

The depositing of the contract creates an encumbrance on the immovable property which is the subject matter of the contract and the encumbrance so created will follow the priority which takes effect upon the depositing thereof.

2. Section 7: Execution of Contract:

· Irrespective of the provisions of any other law, the Court may issue an order, ordering specific performance of the contract upon such terms it will deem fit.

· The order for specific performance may provide the taking of all necessary steps to obtain any certificates permits or approvals from the relevant authorities leading to the registration of the immovable property in the name of the purchaser. In such an event the Court may replace the vendor with another person with the authority to carry out all necessary steps for the registration of the immovable property in the name of the purchaser and also an order for all the expenses to be incurred.

· The Court may issue an order for specific performance even in the case where before the depositing of the contract there is a mortgage on the immovable property, the subject matter of the contract if it is satisfied that the purchaser has paid towards the mortgage debt his share as provided in the contract.

· Any person who obtains an order of the Court for specific performance shall apply within one year from the date of its issue to the competent DLO for the registration of the immovable property the subject matter of the contract in the name of the person mentioned in the order. The DLO upon the production of the order and all other relevant documents should proceed with the registration of the immovable property irrespective of any encumbrances.

· The said law will take effect within three (3) months from the date of the publication in the Official Gazette of the Republic being 29.04.2011. From the date that the law takes effect the previous law Chapter 232 Sales of Land (Specific Performance) shall be abolished.

B. Tax News 14 December 2010:

After discussions which lasted for several months between the political parties, the government and the business community, the Parliament enacted on the said date amendments to many tax legislations in order to combat on tax evasion and tax avoidance. For a number of proposals for which no agreement was reached, the taking of a decision was postponed and these matters are to be discussed again during 2011. Furthermore the Parliament approved the increase of the zero rate for VAT on foods and medicines to 5% as from 10 January 2011. The most significant changes in the legislation are set out hereinbelow:

1. The Income Tax Law

· Requirement of supporting documents in order to allow the deduction of expenses

Any expenses incurred for business purposes will be deducted from taxable income only if they are supported by invoices and receipts or other evidence provided by Regulations issued under the provisions of the relevant legislation.

· Tax withheld on payments to non Cyprus residents

Tax withheld on payments to non Cyprus residents should be paid to the tax authorities by the end of the following month. In case this is not paid within the deadline, in addition to the payment of interest at the applicable interest rate (currently 5,35%) an additional tax equal to 5% of the tax withheld should also be paid.

These payments relate to:

- copyrights for use within Cyprus at 10%;

- rights for cinematographic films at 5%;

- Income of an individual for professional services, artists and athletes fees at 10%.

It is noted that the above percentages of withholding may be reduced or eliminated under agreements for avoidance of double taxation or for payments to residents of EU member states.

· Notional interest on debit balance of shareholders

Notional interest under section 39 of the Law on debit balances or loans to shareholders or directors at 9% will be imposed only in cases of individuals.

In case there are debit balances or loans to shareholders which are companies, the provisions of section 33 would apply (related party transactions). Under the provisions of section 33, if no interest is imposed using the market interest rates, then the Commissioner has the right to impute notional interest on these balances or loans.

2. The Special Contribution for the Defence of the Republic Law

· Amendment to the provisions for deemed distribution

- In case no dividend is paid by a company within two years from the end of the tax year, the provisions of deemed distribution apply, where 70% of the profits after taxation are considered to have been distributed to the shareholders as dividend and defence contribution is paid at 15%. Until today the term ‘taxation’ included only the income tax paid in Cyprus. The law has been amended in order for the term to include special defence contribution, capital gains tax and taxes paid abroad.

- In case of a company which is placed into voluntary liquidation, deemed distribution forms regarding the year the decision for liquidation is made and the last two years (i.e. the years for which the provisions for deemed distribution were not applied) should be submitted and any contribution due should be paid within one month after taking the decision for liquidation.

- Further, if during the liquidation of a company profits arise, no defence contribution is paid for deemed distribution if the assets of the company under liquidation are not adequate for the repayment of the company’s creditors and any defence contribution cannot exceed the net value of the assets distributed to the shareholders.

- In case of capital reduction of the company, any amount paid to a shareholder who is individual in excess of the amount of the share capital which was actually paid by the shareholder will be deemed as dividend and defence contribution should be paid at 15%. Until today, in case of capital reduction all undistributed taxable profits of all years were subject o the provisions of deemed distribution.

- It is noted that the provisions regarding deemed distribution are not applicable if the shareholders of the company are not Cyprus tax residents.

3. Rents

A provision is introduced for withholding of defence contribution on rents paid by a company, partnership, the Republic or local administration authority. The contribution is imposed at 3% on the 75% of the rents paid and should be paid to the tax authorities six-monthly.

4. Administrative penalties

Various administrative penalties are imposed in case of not timely submission of tax returns or provision of information (€100 - €200 depending on the omission) or the not timely payment of the defence contribution (5% of the defence due) in addition to the applicable interest.

5. The Assessment and Collection of taxes Law

· Obtaining a Tax Identification Code

Following the registration or the incorporation of a company with the Registrar of Companies, the company is obliged to submit an application for registration with the tax Department and obtain a Tax Identification Code (‘TIC’) within 60 days. For companies which have been registered before the commencement of the law, transitional provisions of six months for obtaining a TIC have been granted.

· Submission of returns, tax assessments and objections

- Provisions for the submission of electronic tax returns are introduced in cases of tax returns of taxable persons which are prepared based on audited accounts or their return is submitted by a professional accountant. An extension of three months is granted for the submission of an electronic tax return, i.e. instead of twelve months, the tax return which is submitted (based on audited accounts) may be submitted within fifteen months from the end of the tax year.

- If the taxable person does not submit a tax return within the specified timeframe, the Commissioner is allowed to issue a tax assessment based on available information including findings from a tax audit conducted for a previous tax year.

- The right of a taxable person for an objection on a tax assessment issued in December is extended for one month, i.e. it may be submitted by the end of the following February, instead by the end of January, that was applicable until today.

- In the objection, the taxable person must precisely set out the reasons for the objection, determine the amount of tax that is considered payable and attach any documents or evidence to support this.

6. Books and records to be kept – Power of Commissioner for a field audit

· For businesses which are obliged to keep accounting books, the books should be updated no later than four months from the month the transaction was made.

· The issuance of invoices must be made within thirty days from the date the transaction was made, unless the taxable person requests in writing from the Commissioner for an extension and an extension of the deadline is granted to him.

· A business which has inventory must perform an annual stock-take and the records of such a stock-take should be available to the Inland Revenue Department upon request.

· The Commissioner has the right to enter and inspect buildings used for the purpose of the business (except the private residence), documents and goods of a business, provided that the business which is housed in these buildings is operating during its normal working hours. A reasonable notice must be given for such inspection.

7. Administrative penalties

Various administrative penalties are imposed in case of non timely submission of a return or submission of evidence requested (€100 - €200 depending on the omission) or non timely payment of the taxes due (5% of the tax due) in addition to the applicable interest.

8. The Capital Gains Tax Law

Administrative penalties

9. The Immovable Property Tax Law

Administrative penalties

10. Date of commencement of relevant Laws

The aforementioned amendments will come into force six months after their publication in the official Gazette of the Republic.

11. Value Added Tax

In addition, the Parliament passed a Law with which the VAT rate on food and medicines is increased from zero, which was applicable since the introduction of VAT in 1992, to 5%. The increase is made within the context of Community Acquis and will be effective as of 10 January 2011.

C. Introduction of a levy on deposits taken by credit Institutions

On 14 April 2011 the Parliament enacted a law which provides for the imposition of a levy on all banks and cooperative credit institutions operating within the Republic of Cyprus.

1. Who is liable to the levy?

- All banks licensed under the Cyprus Banking Law (excluding their subsidiaries and branches established outside Cyprus).

- Branches in Cyprus of banks established in other EU member states or third countries.

- Cooperative credit institutions licensed under the Cooperative Societies Law of Cyprus.

2. Taxable deposits and rate of levy

The levy is imposed at the rate of 0.095% on all customer deposits as at 31 December of the previous year e.g. 31 December 2010 for the levy due in 2011. Interbank deposits (Including deposits by a bank operating outside Cyprus and any deposits by the Central Bank of Cyprus) are excluded from the calculation of the deposits on which the levy is imposed. The levy is restricted to the maximum of 20% of the sum of the taxable income, as computed for income tax purposes, for the two years 2011 and 2012.

3. Payment of the levy

A declaration of the levy payable on deposits as at 31 December 2010 should be submitted to the Director of Inland Revenue by 31 May 2011. The levy is payable in four equal installments on 31 May, 30 June, 30 September and 31^st December of the year 2011.

The declaration of the levy payable on deposits at 31 December 2011 should be submitted by 31 March 2012, and is payable in four equal installments on 31 March, 30 June, 30 September and 31 December 2012. If after filing the Income tax return for the year 2012, the total levy paid for the two years 2011 and 2012, exceeds 20% of the total taxable income for these two years, the excess will be refunded within six months from the filing of the Tax return for 2012.

Overdue installments carry interest at the rate of interest for late taxes published from time to time by the Ministry of Finance (currently 5%).

4. Use of the proceeds from the levy for the years 2011 and 2012

The law provides that 25/60ths of the levy for the year 2011 and 2012 will be deposited in a special account with the Central Bank of Cyprus, as a contribution to the Fund for Financial Stability (‘the Fund’).

The Fund will be used to provide financial support to credit institutions. The set up and operation of the Fund will be governed by Regulations to be published by the Council of Ministers and submitted for approval by the Parliament, within six months from the enactment of the law. If the Regulations are not submitted within six months, any levy collected will be refunded and no further payments will be required.

5. Levy after 2012

The law provides that the levy will continue to be imposed after 2012, calculated on the same basis as for 2011 and 2012, however all proceeds subsequent to 2012 will be deposited directly to the Fund. The rate of levy is subject to change.

6. Other provisions

The levy is not deductible for income tax purposes, however it is taken into account in calculating the profits subject to the deemed distribution rules.

The law requires that levy should not be passed on to the customers of the credit institution. Breach of this rule could result in a penalty of up to €100.000.

D. News – Air Accident dated 14.08.2005 - Helios

· The civil claims of the deceased passengers have been settled save nine which we believe that shortly they will be settled as well.

· Criminal proceedings have been issued against four high officials of Helios and A Jet Aviation Ltd ex Helios Airways Ltd. At some stage of the proceedings the prosecution applied to Court for leave to take the evidence of two employees of Boeing being James Murphy and Mark Lord via videoconference as they were unable to fly to Cyprus and give their evidence before the Court. The said application was dismissed as there was no provision at the time in the law to allow live links in criminal or civil proceedings. Thereafter the Parliament amended the Evidence Law, Section 36A which reads as follows:

· 36A.1: In any criminal and civil proceedings the Court may, if it considers that it is for the benefit of justice to allow a witness who is out of the Republic of Cyprus to give evidence through a live link.

· 36A.2: For the purposes of this section live link means the use of technology for transmission of picture and sound or any other arrangement whereby the witness although he is out of the Court room can see and hear the persons that are in the Court room and vise versa the persons that are in the room to see and hear the witness.

Provided that, for the purposes of this section, persons that are ‘in the Court room’ are considered to be the Court, the accused, the lawyers of the parties, the interpreter or other persons appointed to assist the witness or the accused.

· 36A.3: The Court may impose such terms as it may deem necessary for the giving of evidence through a live link and which are not incompatible with the commitments of the Cyprus Government through bilateral or international agreements in respect of this issue.

· After the enactments of the above law the prosecution filed an application on 25.01.2011 for an order and/or directions allowing the two witnesses to give their evidence through a live link. The application was heard and on 05.04.2011 and an interim judgment was given in favor of the prosecution.

· The Court in giving the interim judgment and/or directions under this section considered all the circumstances of the case and in particular:

(a) the availability of the witness,

(b) the need for the witness to attend in person,

(d) the views of the witness,

(e) the suitability of the facilities at the place where the witness would give evidence through a live link.

In the premises the evidence of the two aforesaid witnesses can be given through a live link most probably within this month.

• Home • Up • Members •

Copyright © 2011 Organization of Advocates Specialising in International Services