The double tax agreement between Cyprus and Luxembourg recently entered into force. It will apply to income arising from 1 January 2019 with regard to taxes deducted at source and for tax years beginning on or after that date for other taxes. The agreement includes a preamble which makes clear that it is not designed to create opportunities for double non-taxation or reduced taxation through evasion or avoidance and a principal purpose test-based general anti-avoidance rule.
The recently introduced Law 33(I)/2018 amends the Law regarding Administrative Cooperation in the Field of Taxation 2012 to 2017 in order to align domestic law with EU Directive 2016/881/EU, which amended EU Directive 2011/16/EU on administrative cooperation in the field of taxation. The new law requires ultimate parent entities of multinational enterprises resident in Cyprus for tax purposes to file country-by-country reports within 12 months of the end of each fiscal year.
Cyprus and the United Kingdom recently signed a new double tax agreement. Once it has been ratified by both parties, it will replace the current agreement, which dates back to 1974 and is one of the oldest tax agreements still in force in Cyprus. The changes introduced will have little direct effect on the tax liability of most taxpayers, but the modernisation of the agreement will provide clarity.
Cyprus holding companies are widely used in the context of international business structuring to optimise the channelling of inbound and outbound investments with countries that have signed a double tax treaty with Cyprus. The Tax Department recently issued a circular on the value added tax treatment of holding companies, which aims to provide clarity regarding the circumstances in which Cyprus holding companies can be deemed to be earning income that may constitute taxable income.
The Tax Department recently announced that companies and self-employed individuals that are required to submit annual accounts will be given an additional three months to file their tax returns for the year ended December 31 2016. The department has also issued a circular clarifying the requirement to produce audited financial statements to support tax returns.