CYPRUS Law and Practice Contributed by: Kyriacos Scordis, Anna Borovska and Constantinos Kazamias, Scordis, Papapetrou & Co LLC
sure are required under Cyprus’s transfer pricing rules. This ensures that transactions are conducted at arm’s length and are compliant with international tax standards. • Anti-money laundering (AML) disclosure – entities such as banks, lawyers and accountants must per- form customer due diligence and report suspicious financial transactions to the Financial Intelligence Unit (FIU). They must disclose large or suspicious transactions that may indicate money laundering or terrorist financing activities. • Disclosure of Cross-Border Financial Transactions (Directive 2018/822/EU also referred to as “DAC6”) – relates to disclosure in case of a cross-border arrangement which is indicative of tax avoidance. • Common Reporting Standard (CRS) and FATCA. Repayments of loans to the lender (whether located within or outside Cyprus, including interest repay- ments), would not be subject to Cyprus withholding tax deductions, as Cyprus does not levy withhold- ing tax on such payments. At the same time, inter- est earned (eg, from deposits or a B2B arrangement) may be subject to either Special Defence Contribu- tion (SDC) tax if passive income (at 30% from either a corporate or personal taxation perspective) or income tax (corporate stands at 12.5%; personal income tax varies depending on the tax bracket of the individual in question). 4.2 Other Taxes, Duties, Charges or Tax Considerations All agreements concerning property situated in Cyprus or involving things or acts to be done in Cyprus are subject to stamp duty, the maximum stamp duty pay- able on a single agreement (usually the loan agree- ment) being EUR20,000, with all ancillary agree- ments thereto (such as the security documents) being stamped at EUR2 each. The Commissioner for Stamp Duty has a discretion to exempt an agreement from stamp duty if the agreement is considered as referring to property which is not situated in Cyprus or is an ancillary agreement relating to transactions taking place outside of Cyprus, however, it is com- 4. Tax 4.1 Withholding Tax
mon practice for the Commissioner to impose stamp duty on security agreements if the chargor is located within Cyprus, irrespective of whether the loan facility agreement is entered into between a lender and a bor- rower, both of whom are incorporated and/or situated outside Cyprus. In such case, the loan facility agree- ment itself is not subject to stamp duty, however the security agreements are stamped with one applicable stamp duty, and the others, if in relation to the same transaction, at a fee of EUR2. Registration of a charge which is registerable with the Cyprus Registrar of Companies is subject to a flat registration fee of EUR680. 4.3 Foreign Lenders or Non-Money Centre Bank Lenders Cyprus does not apply any withholding tax on interest paid to non-residents. Any interest received by local tax residents is subject to either income tax or SDC. There are no tax concerns for foreign lenders as there are no restrictions on payment of interest to parties in other jurisdictions, beyond perhaps a volume of activity that may amount to the creation of a (taxable) permanent establishment in Cyprus or if they carry on their lending activity through a fixed place of business within the Republic or via a special purpose vehicle (Cypriot company) in the Republic to undertake the specific loan activity. There are no requirements to deduct or withhold tax from the proceeds of a claim under a guarantee or the proceeds of enforcing security.
5. Guarantees and Security 5.1 Assets and Forms of Security
Typically, the assets that are used as collateral to lenders are immovable property (real estate), tangi- ble movable property (eg, goods, stock, equipment and ships), financial instruments such as shares, bonds, receivables, present or future cash and intel- lectual property. The security usually takes the form of an encumbrance or charge/pledge over the asset depending on its nature.
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