Country by Country Reporting (CbC)
The Ministry of Finance in late December 2016 issued a decree to align provisions of Cypriot tax law with the requirements of EU Council Directive (EU) 2016/881 adopting the recommendations of the OECD base erosion and profit shifting (BEPS) Action Plan 13 on country-by-country (CbC) reporting.
Cyprus CbCR requirements took effect on 1 January 2016. The Cyprus CbCR requirements require certain Cyprus parented groups, and in specific instances, domestic subsidiaries of foreign parented groups, to report data on revenues, profits, taxes paid/accrued, capital, accumulated earnings and employee numbers, along with other data on a CbC basis for the group to the Cyprus Tax Department (the Tax Department).
The Decree also includes an obligation for Cypriot constituent entities to make an annual notification confirming the identity and jurisdiction of tax residence of the CbC reporting entity.
The deadline for the notification for the year 2016 has been extended to 20 October 2017 and requires Cypriot companies to notify the Tax Department electronically to confirm the name, identity and tax residence of the CbC reporting entity.
Reporting entity of MNE Group
The CbC report must be prepared and submitted to the Tax Department for the year starting on 1 January 2016, if the annual consolidated group revenue exceeds €750 million by:
- Ultimate Parent Entity (UPE) of an MNE Group which is tax resident in Cyprus.
- Surrogate Parent Entity (SPE) of an MNE Group which is tax resident in Cyprus and has been appointed by the MNE Group as the reporting entity for CbCR.
The deadline to file the CbC report with the Tax Department is 12 months from the end of the relevant accounting period (e.g., for groups with year-end 31 December 2016, the reporting deadline is by 31 December 2017).
Maintenance of books and records
The Decree provides that the Tax Department may request books and records from the Reporting Entity explaining and supporting the information disclosed in the CbC report, no matter if the records are kept in Cyprus or outside Cyprus. The Reporting Entity is required to maintain the books and records for a period of six years.
The submission of both the notification and the CbC report shall be completed annually in the English language and submitted electronically via Ariadne. Detailed guidance regarding the electronic submission of the notification and of the CbC report is expected to be issued shortly by the Tax Department.
Penalties will introduce in Cyprus Companies with respect to non-compliance with CbCR.
A new market called the Emerging Companies Market (“ECM”) of the Cyprus Stock Exchange (“CSE”) benefits from a simplified regulatory regime specifically designed for small and emerging companies. ECM of CSE is considered as a Multilateral Trading Facility (MTF) according to “the provision of Investment Services, the exercise of investment activities, the operation of regulated markets and other related matters” Law 144(I)/ 2007, and is aimed at:
- Private companies seeking funding and easy access to the secondary market;
- Investors seeking a new type of investment;
- Public companies reluctant to incur the higher costs of regulated markets.
When the decision to float has been taken, a critical appraisal of the company’s business is required, to identify whether it meets the ECM admission requirements, as follows:
- General suitability – preparation and planning;
- Eligibility for admission;
- Continuing obligations and filing requirements.
A Nominated Advisor (“NOMAD”) is the Legal Entity appointed by you, and which must be retained at all times to advise you and to ensure that your company complies with the relevant ECM rules on an ongoing basis.
We can offer you the following NOMAD services:
1.During the admission procedure
- facilitating the company’s admission to ECM;
- appraising the appropriateness of the company for listing to the CSE;
- ensuring compliance with the ECM rules;
- preparing the admission document; and
- project management of the overall process leading to a listing.
2.After the admission procedure
- evaluating and presenting you to the CSE ensuring that the listing requirements are fulfilled;
- representing the issuer through the listing procedure;
- advising you in respect of the compliance of the continuous obligations:
- Monitoring and assisting you according to the rules and regulations of the ECM in fulfilling your obligations;
- Advising you in respect of your obligations and taking any appropriate measures for the fulfilment of these obligations;
- If you do not comply with your obligations, the NOMAD will take any necessary actions in order to remedy any failure, while informing the CSE on the nature of the failure and the measures that you have undertaken.
- assisting with comfort letters and related procedures;
- risk management advice; and
- market practice input.
As of 1st July 2017, the tax treatment of intra-group financing arrangements has been amended in Cyprus. Intra-group financing transactions refers to finance activities between related parties (as defined in Section 33 of the Income Tax Law), including permanent establishments in Cyprus. Based on the Interpretative Circular issued by the Cyprus Tax Department, intra-group financing arrangements must be taxed from 1st July 2017 onwards under the arm’s length principals (transfer pricing rules).
For the purposes of the transactions under the scope of the Circular issued, it must be determined for each intra-group transaction whether it complies with the arm’s length principles. A comparability analysis must be performed in order to determine whether the transaction between independent entities is comparable to transactions between related entities.
The comparability analysis mentioned above should consist of the two following parts:
- Identification of the commercial financial relationship between entities and determining the conditions and economically relevant circumstances attached to those relations in order to accurately delineate the controlled transaction.
- Comparison of the accurately delineated conditions and economically relevant circumstances of the controlled transaction with those of the comparable transactions between independent entities.
It should be noted that the group financing company should be controlling the risk if it has the decision-making power to enter into a risk-bearing commercial relationship. In order to justify the risk control and further validate that the management and control are exercised in Cyprus, it is essential that the group financing company has an actual presence in Cyprus.
In case of companies with a profile comparable to the entities subject to Regulation (EU) No 5/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) NO 64/2012, a return on equity of 10% after-tax can be observed in the market and be considered as reflecting arm’s length remuneration for the financing and treasure functions in question.
Simplified procedures exist, according to which the transactions of financing companies pursuing a purely intermediary activity are deemed to comply with the arm’s length principle if the company under review receives a minimum return of 2% after tax on assets. In order to benefit from this simplification measure, the use of it should be communicated to the Tax Department.
The above-mentioned percentages are valid as of the date of issuance of the Circular and will be reviewed by the Tax Department based on relevant market analysis and – if required – will be changed accordingly.
Minimum requirements for the transfer pricing analysis exist and are necessary in order for the analysis to be in compliance with the principles of the new circular.
The above changes will have an immediate impact on all Cyprus financing companies with intra-group financing transactions and it is imperative that such structures are examined so as to ensure that their tax treatment is correct and their tax risk exposure is mitigated.
Extension of the deadline for settlement of Tax arrears
On 29 September 2017, the House of Representatives of Cyprus passed a law extending the deadline for submission of a claim for the payment of tax arrears from 3 October 2017 to 3 January 2018. The new law limits the time by which tax returns up to the tax year 2015 which have not been filed, may be filed. Now all such tax returns must be filed by 30 June 2018 in order to benefit from the provisions of the law.
The regulation relates to the following tax liabilities:
- All tax arrears up to and including 31 December 2015, which at the date of the application have been assessed by the Tax Department and appear as payable, irrespective of the manner in which they are repaid, whether by agreement with the Tax Department or pursuant to a court order.
- Amounts which become payable as a result of the submission of a self-assessment in respect of tax years up to 31 December 2015, where the tax returns for the relevant tax year have already been submitted by 3 July 2017, but without payment of the tax due.
- Tax liabilities which are assessed after 3 July 2017 by the Tax Commissioner for the tax years to 31 December 2015, as long as these tax returns [are filed] by 30 June 2018. In such cases, an application for regulation[?] shall be made within three months from the date on which the tax becomes payable, on the basis of the tax assessment which has been issued.
For further information please contact our Financial Controller
The Income Tax Law has been amended so that an individual who does not remain in any state for one or more periods which together exceed 183 days in the same tax year and who is not tax resident in any other state for the same tax year, be considered to be a tax resident of Cyprus, provided that they meet the following conditions:
- Remain in Cyprus for at least 60 days during the tax year;
- Pursue a business in Cyprus and/or work in Cyprus and/or are a director of a company which is tax resident in Cyprus, at any time during the tax year;
- Maintain a permanent residence in Cyprus, which can be either owned or rented.
To be considered as Cyprus tax resident in the tax year, the taxable person’s involvement in the business and/or employment in Cyprus and/ or the holding of a post in Cyprus must not have not have ceased.
For the purposes of calculating the days of stay in Cyprus the following rules apply:
- the day of departure from Cyprus is considered as a day outside Cyprus;
- the day of arrival in Cyprus is considered as a day in Cyprus;
- arrival in Cyprus and departure from Cyprus within the same day is counted as one day in Cyprus;
- departure from Cyprus and return to Cyprus within the same day is counted as one day outside Cyprus.
Thus, under the new provisions, an incentive is given to an individual who is not a tax resident in any other state for the same tax year to transfer his tax residence to Cyprus and to be taxed only on income from the activities the individual undertakes in Cyprus.
The revised European Union Markets in Financial Instruments Directive (MiFID II) has been transposed into Cyprus law, as published in the Official Gazette of Cyprus on 7 July 2017. The new law, which will apply in Cyprus from 3 January 2018, introduces significant changes to the Investment Services and Activities and Regulated Markets Law of 2007 to 2016. It aims to increase transparency and afford investors greater protection through increased regulation and enhancement of powers of regulators