Exit Tax

Cyprus transposed into domestic legislation the rules per EU Directive 2016/1164 relating to Exit Tax, (see also Newsletter December 2019). The Directive is in line with the OECD initiative against base erosion and profit shifting (BEPS Actions).

Article 33B was introduced with Amending Income Tax Law 80(I)/2020. Article 33B comes into effect as from 1.1.2020.

Per above article the difference between the market value of transferred assets and the tax value of these assets at the time of transfer is added to the income of a resident company in Cyprus or to the income of a permanent establishment of a non-resident company, in any of the following cases:

• A resident company transfers assets to a permanent establishment in any country (EU or third), provided Cyprus has no longer the right to tax the assets, due to their transfer

• A permanent establishment in Cyprus of a non-resident company transfers assets to the head office or any other permanent establishment of the non-resident company, in any country, provided Cyprus has no longer the right to tax the assets, due to their transfer

• A resident company transfers its tax residency to another country (EU or third). Assets not transferred, that therefore remain effectively connected with a permanent establishment created in Cyprus, for which Cyprus has the right to tax, are not taken into account in the above calculation

• A non-resident company transfers the business of the permanent establishment in Cyprus to another country in so far that Cyprus has no longer the right to tax the transferred assets, due to the transfer.

In a case where assets or tax residency or the business of a permanent establishment are transferred to Cyprus, the value of the transferred assets is considered the value given by the other country, unless the value does not correspond to the market value of the transferred assets.

In case where the transferred assets are to be returned to Cyprus within 12 months, article 33B does not apply to the extent that the transfer from Cyprus was made:

i. To finance movable assets

ii. To use assets as collateral

iii. To cover prudential capital requirements or for the purpose of liquidity management.

 Per Law -

• Transfer of assets means a transaction where Cyprus loses the right of taxation of assets although these assets remain under the legal and economical power of the same person

• Market value means the amount for which the asset can be exchanged or mutual obligations can be settled between willing unrelated buyers and sellers in a direct transaction.

• Transfer of tax residency means the person stops being resident in Cyprus and becomes resident in another country

• Transfer of business of a permanent establishment means that the non-resident person is no longer taxable in Cyprus but is taxable in another country without becoming resident in that country.

Article 40A was introduced by Amending Assessment and Collection of Taxes Law 77(I)/2020 to regulate payment of exit tax. The law comes into effect as from 1.1.2020.

Per article 40A any tax due in accordance with article 33B of Income Tax Law can be paid by instalments over 5 years, if the transfer of assets is made to a member state or a country that is party to the agreement of the European Economic Area (EEA), provided the latter has signed an agreement with EU or Cyprus for the Mutual Assistance for the Recovery of Taxes per EU Directive 2010/24/EE. Countries party to the EEA agreement are Norway, Iceland and Liechtenstein.

Tax paid by instalment will carry interest. If the Commissioner thinks there is a real and provable risk of not recovering exit tax, he can request the provision of a guarantee.

The deferral of payment will terminate and tax due becomes recoverable in the following cases:

• The transferred assets or the business of the permanent establishment are sold or otherwise disposed of

• The transferred assets are subsequently transferred to a third country

• The tax residence or the business of the permanent establishment are subsequently transferred to a third country

• The person goes into bankruptcy or is wound up

• The person cannot meet their obligations per instalment plan and does not conform within reasonable time that does not exceed 12 months from the date of non-compliance.

The second and third bullet points above do not apply if the third country is a party to the agreement of the European Economic Area and has signed an agreement with EU or Cyprus for the Mutual Assistance for the Recovery of Taxes per EU Directive 2010/24/EE. 

CATA 41st Annual Technical Conference

As a result of COVID-19, the conference is postponed to the year 2021.

The 41st Annual Technical Conference will be hosted in Nicosia, Cyprus between 8th – 12th  November 2021.

Please SAVE THE DATE.