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Science and Technology Park Incentives in Cyprus

 

Science and Technology Park Incentives

         Existing Tax Incentives:

  • For employees earning less than €100.000 thousand and have not been resident in the Republic of Cyprus prior to commencement of their employment an exemption of 20% of their remuneration is provided or an exemption of an amount of €8.550 whichever is lower.

Proposed Amendment: Extension of the three year period to five years up to the year 2020.

Why set up in Cyprus

  • Geographical Position;

  • Ease of Doing Business;

  • Highly skilled personnel;

  • Attractive and transparent tax regime;

  • Sound legal system;

  • Low operational costs;

  • EU & Eurozone Member.

 

Existing Tax Incentives

  • Exemption from income tax, for a period of five years, of 50% of the individual's remuneration from his employment in the Republic of Cyprus. The individual should not have been a resident of the Republic of Cyprus prior to commencement of his employment and his/her annual earnings should exceed € 100.000.

 

Proposed Amendment: extension of the five year period to a 10 year period. At the same time, provisions will be introduced for clarifications in order for that incentive not to be abused.

  • For employees earning less than €100.000 thousand and have not been resident in the Republic of Cyprus prior to commencement of their employment an exemption of 20% of their remuneration is provided or an exemption of an amount of €8.550 whichever is lower.

Proposed Amendment: Extension of the three year period to five years up to the year 2020.

  •  Domicile  Status

Non Domicile Cypriot tax residents are exempt from the Special Contribution for the defence tax on income from dividends, interest and rents.

Low Payroll Contributions

Country

Payroll Contributions

 

(Employee and Employer)

Cyprus

19,30%

Israel

Up to 26,2%

Malta

20%

Greece

43,96%

Italy

40% to 45%

Spain

36,30%

UK

Up to 27,8%

Germany

38,65%

Slovakia

Up to 49,6%

 

  • All expenditure incurred wholly and exclusively for acquisition of income is tax deductible (the term "expenditure" refers to expenditures of an income and not of a capital nature).

  • The Cypriot income tax Law stipulates that tax losses of any person in a particular year may be transferred and set off with the taxable income of such person for the next five years.

  • All expenses incurred for the acquisition or development of intangible assets as these are defined in the Patents, Copyright, and Trademark Laws are tax deductible. Such expenditure of a capital nature is deducted from taxable income, after it has been equally apportioned between the fiscal year in which it took place and the immediately next four years.

  • Further a deduction of 80% is provided as an expense from profits generated by intellectual property.  Same limitation applies in respect of damages (new insertion).

Note: New enterprises may not join existing schemes after June 30th, 2016. After that date, Member States (EU countries) may introduce new schemes. The tax benefits of the existing schemes will expire no later than 30th June 2021.

  • Acquisition costs for the purchase of shares of an innovative enterprise are wholly deductible from taxable income.

  • Proposed Amendments:  A draft law has been proposed to the Ministry of Finance which includes the following:

  • The definition of Innovative business and startups;

  • Shares should only include investments which have been made on the basis of a new share issue;

  • The percentage of the deduction should be adjusted according to the taxable income of the investor.

  • Companies are able to deduct an expense in the form of interest which will be calculated based on a percentage of the new share capital of the company.

  • The deduction will be calculated on the basis of a reference interest rate on new equity held by the company and used in the business after 1st January 2015.

  • The reference interest is defined as the interest rate of the 10 year government bond yield of the country in which the new equity is invested or of the Republic of Cyprus (as at 31st December of the previous tax year), whichever is the highest, increased by 3%.

  • Draft legislation providing for the deduction of the total expenditure incurred for the acquisition of fixed assets used for business purposes-falling within the fields of research, innovation, information technology, communications, renewable energy and green growth- from the taxable income.

  • Draft law awaits further consideration after decision by the Parliamentary Committee on Budget and Finance.

  • Provision of tax incentives for each new job position created is under consideration.

  • Grant amount to be determined by the total number of staff employed with the companies based in the STP.

  • Draft law already submitted to the House of Representatives foresees deemed tax deduction of 25% on the cost of employment for people who prior to their employment had been registered as unemployed.

  •  A specific proposal is under consideration as to weather by way of a ruling to be issued by the Inland Revenue the pre-operational expenses of a company to be set up in the STP can be capitalized by election and written off in the following five years in order to avoid the restriction of the five years loss carry forward.

Labor work/residence Permits

As of 25/08/2014 work and residence permits, are granted to third country nationals as regards international business companies. In this case, the majority of shares should be owned by third country nationals.In the case that the participation of third-country nationals is less or equal to 50% of the share capital, for the company to be considered potential beneficiary, it should hold a percentage representing an amount equal to or greater than €171.000.Possible for the company to employ 5 senior managers of third country nationality at a lower wage (+ benefits) of €41,000 as well as 10 middle management officers of third-country nationality with a salary in the range of €21,000 - €40.999.

Conditions are currently under review - submission expected in 2015/2016.

Past practice: The Government has given relaxations for strategic projects (Expansion of Vassiliko Cement Works plant, construction of Limassol - Pafos motorway, exploitation of hydrocarbons). This is also the intention of the Ministry in the context of STP.

Granting of the Cypriot citizenship:

The right to apply for the Cypriot citizenship, can be exercised according to the existing regulations. These regulations stipulate that the applicant invests €5 m in a Cyprus registered company that operates in Cyprus and employs at least 5 people.

In the case of collective investment of at least €12.5m, each person would have to invest at least €2.5m.

Permit of residence:

The granting of a residence permit requires the applicant to have purchased a property of a €300.000 as well as to have bank deposits of € 30.000.

A special arrangement will be put into place allowing employees of foreign nationality whose annual salary exceeds €100,000 and they have obtained a three year contract to be eligible for a residence permit.

Work Permit - Researchers Card:

It is necessary to establish a mechanism for the issuance of work permit without restrictions for third country nationals being employed by organisations/enterprises operating in the Park.

Furthermore, the "researchers" card should be granted on strict criteria, so that the provision of specific facilities at transit points (airports and ports) would be enabled, as well as the utilization of Research Centers/Universities facilities at low or no charge. This card is also expected to facilitate implementation of access regulations.

Lease Hold Property

Successful Tenderer will not pay rent under the Lease agreement for the first five years.

 Investment Aid

A State aid of 10% for the eligible costs on buildings and equipment (maximum of €3m) will be granted to the Strategic Investor for his investments for the first five years on the condition of full compliance with the Development Time Schedule that will be agreed for the implementation of the STP.

The investment aid to be made available will be granted in the form of deduction from the rental of the leasehold property after the 5 year grace.

Notes:

The eligible costs for buildings and equipment will include: 

Buildings and rearrangement of building space including but not limited to:

Construction or/ and extension and/or renovation and rearrangement of building space. Ιt is noted that the cost of acquisition of the land is not considered as eligible cost;

Infrastructure for electromechanical and hydraulic installations, fire safety measures, air-conditioning and ventilation;

Infrastructure for the installation of systems for the protection of the environment, the reduction of pollution, water and energy saving, hygiene and health systems;

Expenditure for external services such as the construction of roads, walkway pavements, (including the curbs), constitute eligible costs. The maximum eligible cost for roads is €20/m2 and the maximum eligible cost for walkways is €40/running meter.

Does not include:

The purchase and installation of photovoltaic systems;

The costs for the studies, design and supervision of Architects, Civil Engineers, Mechanical Engineers, costs for the installation of equipment for any other studies and other similar costs.

Investments in new buildings or additions which increase or modify the covered area, require the submission of a building permit.

In cases of construction or extension of buildings/premises, the eligible cost will be calculated on the basis of the covered space of the buildings. The maximum eligible cost is €700/m2 of covered space. In cases of renovation and rearrangement of building space, the maximum eligible cost is €250/m2 of covered space.

New machinery/equipment:

This category of expenditure includes expenditure for NEW machinery and ICT equipment such as computers, computer software, servers, printers, scanners, and photocopiers;

For the purposes of the determination of the amount of aid for the above eligible costs, the actual costs incurred should be taken into account on the basis of documented and supporting financial documents such as invoices, receipts, attestations etc.

Renewable Energy Sources

The Strategic Investor can install a Renewable Energy Power system (REP) of a capacity of up to 5MW, which will work with the Auto production method using the electricity generated by the system exclusively for the purposes of own consumption

The consumption of net electricity produced will be measured and will be charged by the vendor, (at this stage the Cyprus Electricity Authority) at the applicable rates. Telemetry system installation and data capture for both producing and consuming separately is mandatory, and the cost of this including the cost for the purchase and installation of the meters will fully fall on the Strategic Investor.

In Conclusion

The Government through the Ministry is committed to provide all necessary facilities to the Strategic Investor regarding the authorization procedures as well as any other issues in which the Government Departments/agencies may be involved.

For more information and/or advice, please contact us via email at (info@hpa.com.cy)

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