In an attempt to attract more investors to join the Cyprus Stock Exchange (CSE), the income tax law has been amended to offer substantial tax incentives. The incentives aim to attract both offshore and local organizations to invest in the CSE as well as private companies.
For offshore organizations:
- all income that arises from investments in stocks and shares quoted in the CSE is exempt from income tax;
- any distribution of funds to the shareholders is not subject to withholding or any other tax;
- all income includes dividends and interest received from stocks and shares quoted in the CSE as well as profits arising from the disposal of such stocks and shares; and
- offshore companies, partnerships and branches of overseas companies are regarded as offshore organizations and can therefore take advantage of the tax incentives.
Tax allowance of 30% on investment in the CSE:
- any physical or legal person investing in stocks and shares quoted for the first time in the CSE is entitled to a tax allowance equal to 30% of the amount invested;
- this allowance cannot exceed 25% of the person's taxable income;
- in circumstances where the allowance exceeds 25% of the person's taxable income, the excess can be carried forward over the next four years; and
- the first issue of shares must represent at least 80% of the issued share capital of the newly quoted company.
Preferential tax rates for companies joining the CSE:
- the profits of local companies joining the CSE will be subject to tax at half the present tax rates;
- the present tax rates are 20% on taxable profits up to C£40,000 (US$80,000) and 25% after that;.
- the reduced rates will apply for four years after flotation;
- the flotation should be performed within four years of the amendment of the income tax law (July 2 1998);
- the issue of shares must represent at least 80% of the issued share capital of the company; and
- the tax saved should not exceed C£100,000 every tax year.
The amendments to the income tax law are effective from July 10 1998.
Costas N Petrides