Cyprus recently passed a number of tax amending laws which were published in the Government Gazette on 6.7.2012 and have effect as from 1.1.2012. These amending laws, the main provisions of which are outlined below, aim to promote development and may be of interest to international businesses considering that in Cyprus the corporate tax rate is 10% and there is no withholding tax on dividends paid to non residents, whether individuals or corporations, irrespective of whether a DTT exists with a country.

Tax issues of possible interest covered:

• intellectual property rights (IPs)
• interest deductibility on borrowings for the acquisition of 100% owned subsidiaries
• group relief for losses
• capital allowances

Intellectual property rights (IPs):
The definition of intellectual property rights (IPs) has been amended to include all rights as defined in the Intellectual Property Law, the Patent Rights Law and the Trademarks Law. This eliminates all possible uncertainties in terms of definition coverage. New taxation provisions:

• 80% exemption of the "net profit" from the exploitation of an IP.
• "Net profit" is determined after the deduction from the IP licensing income of all direct expenses associated with the generation of this income.
• Capital allowances set at 20% p.a. on the cost of acquisition of an IP.
• 80% exemption of the capital profit arising from the disposal of an IP.

Interest deductibility on borrowings for the acquisition of 100% owned subsidiaries:

• Interest incurred on borrowings to finance the acquisition of shares acquired directly or indirectly in 100% owned subsidiaries is now tax deductible provided the subsidiaries do not own assets which are not used for business purposes.
• In cases where subsidiaries do own assets that are not used for business purposes, a tax deductibility restriction on interest will apply which will be equal to the interest accruing to the non business assets.
• The new provisions are applicable for interest incurred on borrowings used for the acquisition of shares in 100% owned subsidiaries on or after 1 January 2012.

Group relief for losses:

• Before the new amendment, group loss relief provisions could only be claimed when a company was a member of a group for a complete tax year.
• The amended legislation extends the scope of the law to subsidiaries incorporated during a tax year.

Capital allowances:

• The rate of capital allowances for plant and machinery purchased in the tax years 2012, 2013 and 2014 has been increased to 20% p.a., unless the existing applicable rate is higher.
• Industrial and hotel buildings purchased in the tax years 2012, 2013 and 2014 will be entitled to 7% capital allowances instead of the existing 4%.