TaxLegi 28.02.2025

The Economics Research Centre of the University of Cyprus presented its blueprint for tax reform to key stakeholders, including members of the business community, business associations and professional bodies. This proposal is expected to undergo thorough scrutiny by the Ministry of Finance, which will subsequently submit it to the Council of Ministers for approval before the draft bills are filed with the House of Representatives (HoR). It is anticipated that the Finance Committee of the HoR will evaluate the draft bills prior to their presentation to the plenary for voting. These new laws are envisaged to start taking effect as of the tax year 2025 with full effect as of tax year 2026.

Main Focus of the Blueprint

(Corporate) Income Tax Rate
The proposal includes an increase in the corporate income tax rate from 12.5% to 15% for all corporations.

Special Defence Contribution (SDC)

• The current deemed distribution rules will be annulled.
• The existing SDC on rental income will also be abolished.
• The SDC rate on dividends will be reduced from 17% to 5% for natural persons who are tax residents and domiciled in Cyprus.
• The current applicable period of non-domicile status will not alter. An option for extending the period will be provided with the imposition of an annual fee.

Stamp Duty
Stamp duty will be limited to agreements related to immovable property, as well as banking and insurance transactions.

(Personal) Income Tax
The current tax-free threshold of €19,500 will be increased to €20,500 per annum. The top tax band of 35% will apply to emoluments exceeding €80,000 (up from the current threshold of €60,000). Intermediary bands will be progressively taxed at rates of 20%, 25% and 30%, as per below:

Deductions will be granted:

• to parents with children / students based on income criteria;
• to individuals in respect of housing loans for their primary residence or rent payments;
• to families for green household upgrades.

Other recommendations

• Stock Options: To be considered whether taxable at a lower tax rate at the time of exercise (subject to conditions).
• Ex-gratia payments: The employee to be taxed subject to a capped tax free amount with the employer having the right to claim the whole amount as tax deductible.
• Golden Hellos / Handshakes: The full amount will be treated as taxable for the employee and tax-deductible expense for the employer.
• Culture related donations and contributions: to be treated as tax deductible expense based on recommendations given by the Deputy Ministry of Culture.
•  Tax residency - 60-days rule: the definition to be extended to cover individuals whose centre of business interests is Cyprus, irrespective of their physical presence.
• Expenses incurred in Green Transition and Digital Transformation to be entitled to:
  • Super deduction for expenses claimed / capital allowances;
  • Accelerated depreciation;
  • Deductions for personnel training;
  • No restriction for carried forward losses arising from such expenses.
• Extension of period for carried forward of losses from 5 to 10 years (subject to restrictions).
• Current Insurance Premium Tax provisions to be annulled.

Green tax reform details will follow in due course while environmental mitigation measures remain under consultation.

It is noted that the tax reform does not aim to have any adverse effect on some of the favorable provisions included in the Cypriot tax legislation, including provisions for Notional Interest Deduction, Intellectual Property Box Regime, application of Group Loss Relief, Shipping Regime, 50% deduction for first employment in Cyprus and Non-Domiciled status of natural persons.

Businesses should proactively assess their exposure to these proposed tax measures.

EY Cyprus remains available to assist businesses in navigating the impact of these Taxes, offering guidance on compliance and strategic adaptation to the evolving regulatory landscape.

For additional information, please contact our team:

Philippos Raptopoulos

Partner, Head of Tax & Legal Services

philippos.raptopoulos@cy.ey.com

Petros Krasaris

Partner, Head of International Tax and Transaction Services

petros.p.krasaris@cy.ey.com

Petros Liassides

Partner, Direct Tax Services

petros.liassides@cy.ey.com

George Liasis

Partner, Head of Indirect Tax Services

george.liasis@cy.ey.com

Simos Simou

Director, Green Taxes and Controversy, EY Law, Koukounis, Karaolis LLC

simos.simou@eylaw.cy.com

Τhe Council of Ministers, exerising its powers conveyed to it by the Assessment and Collection of Taxes Law, issued a decree (No.52/2025) exempting natural persons, whose total gross annual income is below €19.500, from the obligation to submit a personal income tax return (Form T.D.1) for the tax year 2025. The decree was published in the official gazette of the Republic on the 21^st of February 2025.

-----

Το Υπουργικό Συμβούλιο ασκώντας τις εξουσίες που του παρέχει ο περι Βεβαιώσεως και Εσπραξεως Φόρων Νόμος, εξέδωσε διάταγμα (Κ.Δ.Π. 52/2025) το οποίο απαλλάσει φυσικά πρόσωπα, των οποίων το συνολικό ετήσιο ακαθάριστο εισόδημα δεν ξεπερνάει τις €19.500, απο την υποχρέωση υποβολής προσωπικής φορολογικής δήλωσης (‘Εντυπο Τ.Φ.1) για το φορολογικό έτος 2025. Το εν λόγω διάταγμα δημοσιεύθηκε στην Επίσημη Εφημερίδα της Δημοκρατίας στις 21 Φεβρουαρίου 2025.

EU Embracing green energy investments

The European Union, a global leader in green energy, creates an exceptional investment landscape for companies in that sector. With robust incentives, streamlined procedures, and a regulatory framework that stimulates a continuous rise in demand for renewable energy, the EU is a particularly attractive destination for investors. Central to this framework is the Renewable Energy Directive (RED), which sets ambitious targets and mechanisms for green energy growth.

Attractive Investment conditions

The EU offers a stable financial support system for renewable energy projects, with Member States required to publish long-term schedules for support allocation over at least five years. This transparency significantly fosters investors’ confidence. Various schemes, such as auctions for renewable energy (for example in Germany, France, Ireland, and the Netherlands) and feed-in tariffs (Germany, Italy, Spain), provide additional incentives. Subsidy programs to stimulate green energy production exist in countries like, for instance, Denmark, Netherlands or Spain.

Joint projects between Member States, such as the Kriegers Flak Combined Grid Solution between Denmark and Germany or the Baltica 2 offshore wind project between Poland and Denmark, further enhance collaboration and investment opportunities. In addition, the EU's Trans-European Networks for Energy (TEN-E) promotes cross-border renewable energy projects, ensuring a cohesive approach to energy production. Examples include joint projects to be operational between Estonia and Latvia in the offshore and onshore energy, as well as between Czechia and Poland for climate-neutral district heating. In Spain, the Cross-Border European Green Hydrogen Value Chain will focus on green hydrogen and ammonia production and supply to Netherlands and Germany.

What is more, by 21 May 2025, Member States must carry out mapping of areas necessary for national contributions, identifying suitable sites for renewable energy plants and infrastructure.  Apart from that, by February 2026, they must also designate renewable acceleration areas (RAAs). An interesting solution have been established in countries like Belgium, Germany, Hungary, Poland, and Slovenia, where solar farms were installed in former mines. The European Commission also encourages designating RAAs, in places such as rooftops as well as alongside roads and railways.

Streamlined Procedures

The EU has significantly simplified the permit-granting process, especially for projects in Renewables Acceleration Areas, where the permit process is exceeded to 12 months (2 years for offshore projects). Solar energy equipment benefit process not longer than 3 months, while installations of 100 kW or less – not more than 1 month.

Moreover, EU countries must ensure that the development of renewable energy projects and their infrastructure is recognized as the overriding public interest, thus significantly facilitating business operations.

Guaranteed by the Directive, access to data in each bidding zone, along with upgrading smart grids to improve monitoring, enhances transparency and reliability for investors in the renewable energy sector.

Certainty and growth

The EU's Directive sets legally binding targets for renewable energy, what helps to ensure stability and growth in the green energy sector.

RED mandates an annual increase of at least 1.6 percentage points in the share of renewable sources in industry and requires that 42% of hydrogen comes from RFNBO (renewable fuels of non- biological origin) by 2030. In the heating and cooling, for the period from 2026 to 2030, Member States must raise the share of renewable energy by an average of 1.1 percentage points an annual average. The transport sector is also under strict obligations, with a target of at least 29% renewable energy share by 2030 or alternatively - a significant reduction in greenhouse gas intensity of at least 14,5 % by 2030. In addition, the combined share of advanced biofuels, biogas and RFNBO supplied to the transport must be at least 5,5 % in 2030, of which at least 1% is RFNBO. Member States shall endeavour to ensure that the share of RFNBO in the total energy supplied to the maritime transport is at least 1,2 %.

These legally established targets create a predictable environment for investors, ensuring a sustained demand for renewable energy solutions across various sectors.

 Way forward

The EU provides an outstanding set of conditions for investment in the renewable energy sector. With attractive financial support, streamlined procedures, and a stable regulatory environment, it is an ideal landscape for companies looking to capitalize on the growing demand for sustainable energy solutions. The future of green energy in the EU is bright, making it a prime destination for forward-thinking investors.

By:

Martyna Szlufik | Green Tax

• Cyprus has announced the 10-year government bond yield rates for various countries as of 31 December 2024, to be used for purposes of the Notional Interest Deduction (NID) on equity for the 2025 tax year.
• Cyprus tax-resident companies and foreign companies with permanent establishments in Cyprus can claim NID on new equity introduced on or after 1 January 2015.

On 14 February 2025, the Cypriot Tax Department issued an announcement that lists the 10-year government bond yield rates as of 31 December 2024 for a number of countries (listed in the table below) with respect to the Notional Interest Deduction (NID) on equity. These yield rates should be used to determine the reference interest rate for claiming NID for the 2025 tax year.

The key NID provisions and the applicability of the 10-year government bond yield rates are summarized below.

Notional Interest Deduction

As of 1 January 2015, Cyprus tax-resident companies (as well as foreign companies with permanent establishments in Cyprus) are entitled to claim a NID on their equity capital introduced on or after 1 January 2015 (referred to as “new equity”).

The NID is deducted from the company’s taxable income for the relevant tax year (subject to any restrictions) for the period of time during which the company used the equity in carrying on its activities. The NID is subject to a number of conditions, including a taxable-income limitation.

The NID equals the multiple of the reference interest rate (as defined below) and new equity. “Reference interest rate” means the 10-year government bond yield of the country in which the new equity is invested, as of 31 December of the year preceding the tax year, increased by 5%. 

10-year government bond yield rates¹ as of 31 December 2024 (applicable for 2025 tax year)^[i]2

* There are currently no government bond yield rates for the above indicated countries.

Endnotes

¹ The 10-year government bond yield rate of each country is in local currency unless otherwise denoted in the table.

² The Cypriot Tax Department may update the list during the year. As such, it is advisable to check their website for any changes or new additions to the list. Please visit: Tax Department | Announcements (mof.gov.cy).

For additional information with respect to this Alert, please contact the following

• Petros Krasaris | petros.p.krasaris@cy.ey.com
• Philippos Raptopoulos | Philippos.Raptopoulos@cy.ey.com
• Petros Liassides | Petros.Liassides@cy.ey.com
• Myria Saparilla | Myria.Saparilla@cy.ey.com
• Anna Papamichael | Anna.Papamichael@cy.ey.com
• Panayiotis Tziongouros | Panayiotis.Tziongouros@cy.ey.com
• Eleni Sofocleous | Eleni.Sofocleous@cy.ey.com

EU’s Green Shipping Fund

In alignment with the SDG 7 (Affordable and Clean Energy) and SDG 13 (Climate Action) of the United Nations Sustainable Development Goals, the Green Shipping Fund, managed by PROW Capital, is a 420 million private financing initiative with an average investment size of 15-45 million for short- and deep-sea vessel owners and operators located in Europe.

Primary objectives

The Green Shipping Fund as part of EU’s endless race for the decarbonization of the shipping industry through the implementation of the green regulations among others Emissions Trading System (ETS) and FuelEU Maritime Regulation (FuelEU Maritime) is introduced to European countries with primary objectives being the reduction of greenhouse gas emissions, the increase of energy efficiency and the adoption of cleaner fuels in the relevant sector.

This Fund is dedicated to promoting green sustainable practices such as hybrid technologies, low-emission fuels and electric propulsion and to providing tailor-made capital to shipowners and operators for existing and new vessels which are following certain eligibility criteria as provided by PROW Capital.

PROW Capital’s eligibility criteria

Vessels powered by low-emission fuels such as LNG, LPG, Methanol, ammonia and hydrogen, fully electric vessels, hybrid eco vessels combined with MGO or low emission fuels, emissions-reducing retrofits, such as wind-assist are eligible for the Green Shipping Fund.

However, crude tankers, vessels dedicated to the transportation of coal and vessels running on HFO are excluded.

Relationship with green regulations

The direct relationship between the Green Shipping Fund which is providing accessible financing options to shipowners  by contributing as well to the global climate change mitigation efforts of EU, can enhance greener operations in shipping industry.

• EU ETS: Reduction of shipowner’s shipping expenses by financing investments in greener technologies.
• FuelEU Maritime: Adoption of alternative fuels by funding and ensuring compliance with regulation’s guidelines.

Benefits for stakeholders

• Compliance with EU’s regulations for green sustainability in shipping industry without bearing the full cost to transit to greener technologies.
• Competitive edge as green sustainability is playing an important role for global trade sector and shipping companies.
• Market Opportunities and business attractiveness as green sustainability is key criterion for eco-conscious partners, businesses and markets within the sector.

By:

Era Xenofontos

ESG Taxes | EY Cyprus

The Cyprus Tax Department issued an announcement on 13 February 2025 informing taxpayers that as per the Assessment and Collection of Taxes Law (N4/1978), the due date for the submission of a Company’s Income Tax Return (Form T.D.4) and Self-Employed Income Tax Return for individuals with an obligation to prepare audited Financial Statements (Form T.D.1) for the tax year 2022 was on 31 March 2024.

The announcement clarifies that the Commissioner of Taxation has decided that no imposition of penalties for late submission will be made by the Tax Department on the proviso that any such due tax returns for the tax year 2022 are submitted by 31 May 2025.

Any such returns for the tax year 2022 that are submitted after 31 May 2025 will be subject to a fixed monetary charge of EUR 100.