Initiatives being discussed with Cyprus’s ministry of finance that are expected to become statute at the end of the year include the amendment of conditions surrounding the tax exemption of foreign dividends on Cypriot companies or funds and clarity over the taxation of interest. Currently,Cypriot leg- islation imposes conditions on the exemption of foreign dividends while domestic dividends are generally unconditionally exempt.
The corporate tax rate in Cyprus is 10 per cent on profits after expenses. Funds are considered to earn interest in their ordinary course of business, which would be subject to the tax.
Deloitte head of tax services partner Pieris Markou says the changes will result in virtually zero tax on profits of Cypriot-domiciled tax-resident funds and qualification under the jurisdiction’s double tax treaties.
Cyprus International Financial Services Association chairman Kevin Mudd says: “Clearly, Cyprus is aggressively positioning itself to compete with its more established rivals such as Luxemburg and Dublin.”
AES International managing director Sam Instone says: “Regardless of what they do with internal treatment of foreign overseas dividends, Cyprus is not a domicile of choice to start a reputable fund. It has a very poor regulatory history and is known as being a centre for money laundering.”