Cyprus: Taxpayers must submit a temporary tax return before 31st July

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All companies that are Cyprus tax residents and taxed in accordance with the Cyprus Income Tax Laws and Regulations are required to submit a temporary tax return Form T.D.6 by 31 July 2017. Temporary tax for 2017 is payable in two equal installments, on 31st of July 2017 and 31st of December 2017. The final tax for tax year 2017 should be settled by 1st August 2018. Taxpayers can also submit this form electronically via by paying the amounts under code 0200 for 2017.

If the taxable income declared for temporary tax purposes is less than three quarters (3/4) of the taxable income as finally determined, the taxpayer must pay, in addition to the normal tax, an amount equal to one-tenth (10%) of the difference between the final and the temporary tax.

Cyprus: Tax Authority issues guidance on revised transfer pricing framework

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On 30 June 2017, the Cyprus Tax Authorities (CTA) published a Circular revising the transfer pricing framework for companies carrying out intra-group financing activities in Cyprus. The Circular defines intra-group financing transactions as all activities of granting loans or advances to related entities that are remunerated by interest (or should be remunerated by interest) and funding them through public debt issuance, private loans, advances, or bank loans, among others.

The Circular provides additional guidance in terms of substance and transfer pricing requirements in line with the Organisation for Economic Co-operation and Development (OECD) Guidelines, as well as guidance as to the required content of a Transfer Pricing study. The Circular is effective from 1 July 2017 and replaces the Minimum Margin Scheme regime applicable until 30 June 2017.

It is required that all intra-group transactions should be conducted in compliance with the arm’s length principle. As such, it is necessary to prepare a comparability analysis testing the group transaction with a similar transaction between unrelated entities. Comparability analysis will need to consist of two parts. First, an identification of the commercial/financial relationship between the related entities and determination of the conditions and economically relevant circumstances applicable to those relations in order to accurately delineate the controlled transaction. Second, a comparison of the accurately delineated conditions and economically relevant circumstances of the controlled transaction with those of comparable transactions between independent entities.

Cyprus signs OECD Multilateral Instrument

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Cyprus has signed the Multilateral Convention to implement tax treaty related measures to prevent Base Erosion and Profit Shifting (“Multilateral Instrument” or “MLI”). More than 68 countries, including Cyprus, signed the Convention on 7 June 2017 at Paris.

The convention is a key outcome of the OECD/G20 Base Erosion and Profit Shifting (BEPS) project, which aims to offers concrete solutions for governments to close the gaps in existing international tax rules by transposing results from the OECD/G20 BEPS project into bilateral tax treaties worldwide.

The convention enables all signatories, inter alia, to meet treaty-related minimum standards that were agreed as part of the final BEPS package, including the minimum standard for the prevention of treaty abuse under Action 6.

The convention will enter into force after signatories have completed their domestic requirements and deposited their instruments of ratification with the OECD.

Cyprus: FATCA data submission begins for 2017

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The Cyprus Tax Department has notified financial institutions and their representatives that the data submission under the FATCA Intergovernmental Agreement for the year 2016 has started. This process will be performed through the Government Gateway Portal ‘Ariadni’ using XML files.

The submission process requires the following steps:

  • Register with the Government Gateway Portal ‘Ariadni’ ( following the relevant procedures.
  • Register with the FATCA / CRS e-service using the option ‘Financial Institution Registration’ or ‘Representative Registration’.
  • Submit the information selecting the option ‘Submit XML Files’.

With the submission of every XML file a validation check will be performed (against the XSD files) and the user will be informed immediately. Additional checks will be performed regarding the content of each file, at a later stage, with the user to be informed through the email address stated during the FATCA/CRS e-service registration.

Cyprus signs Protocol to amend the double tax agreement with San Marino

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A Protocol amending the Convention for the Avoidance of Double Taxation with respect to Taxes on Income was signed on May 19th 2017 in Nicosia. On behalf of the Republic of Cyprus Mr. Ioannis Kasoulidis, Minister of Foreign Affairs of the Republic of Cyprus signed the Protocol and on behalf of the Republic of San Marino the Protocol was signed by Mr. Nicola Renzi, Minister of Foreign Affairs.

The text agreed between the two Contracting States, will contribute to further developing trade and economic links between Cyprus and San Marino while enabling the enhancement of links with other Jurisdictions. The Government will continue to actively expand the already wide tax treaty network of Cyprus, thereby enhancing the attractiveness of doing business from Cyprus.

Cyprus: Finance Ministry issues revised decree on country-by-country reporting

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On 26 May 2017 the Ministry issued a revised decree on Country-by-Country (CbC) Reporting, under the powers conferred by Section 6(16) of the Assessment and Collection of Taxes Law.

The obligation of a Cyprus tax resident Constituent Entity of a Multinational Enterprise (MNE) Group, which is not the Ultimate Parent Entity (UPE) or the Surrogate Parent Entity (SPE), to file locally a CbC Report under the secondary mechanism, will not apply for fiscal years commencing before 1 January 2017. Therefore, a Cyprus tax resident Constituent Entity subject to CbC as per the above, will be obliged to start reporting for fiscal years commencing on or after 1 January 2017.

The concept of Equivalent CbC Report has been introduced which requires a Cyprus tax resident Constituent Entity of an MNE Group to file a partial CbC Report under the secondary mechanism (e.g. where there is no UPE or SPE filing), in cases where the UPE has refused to provide all required information to the Cyprus tax resident Constituent Entity. Since the Equivalent CbC Report filing falls under the secondary mechanism, it also applies with respect to Fiscal Years beginning on or after 1 January 2017. A requirement to maintain books and records supporting the information disclosed in the CbC Report is introduced.

MNE Groups should be taking steps to assess whether they are in scope of CbC Reporting based on the €750m consolidated group revenue threshold. MNE should ensure that they have the necessary systems in place to collect the information required to be included in the CbC Report. Determine which entity of the group will be the Reporting Entity. MNE should consider any implications related to the information to be reported such as those concerning Transfer Pricing.

Currently, no specific penalties have been introduced in Cyprus with respect to non-compliance with CbCR. In this respect, the general fines provided for in the Assessment and Collection of Taxes Law will apply (e.g., administrative penalties of €100). But specific penalties are likely to be introduced in the near future of a higher amount to provide a more effective disincentive for non-compliance. The submission of both the notification and the CbC report shall be completed annually in the English language and submitted electronically via Ariadne.

Cyprus: Double tax agreement with Luxembourg

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The governments of Cyprus and Luxembourg have signed a convention for the elimination of double taxation with respect to taxes on income and on capital and the prevention of tax evasion and avoidance. The agreement was signed on 8 May 2017 in Nicosia.

The agreement is based on the OECD Model Convention for the Avoidance of Double Taxation on Income and on Capital and incorporates all the minimum standards of the Base Erosion Profit Shifting (BEPS) project, as issued by the OECD /G20 in October 2015, those of BEPS Action 6 (Treaty Abuse) and BEPS Action 14 (Making Dispute Resolution Mechanisms More Effective). Furthermore it includes the exchange of financial and other information in accordance with the relevant Article of the Model Convention.

Under the agreement, there is no withholding tax rate on dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 10 per cent of the capital of the company paying the dividends; otherwise 5%. Interest arising in a contracting state and paid to a resident of the other contracting state shall be taxable only in that other state. Royalties arising in a contracting state and beneficially owned by a resident of the other contracting state shall be taxable only in that other state.