Cyprus and Iran sign double tax treaty

Cyprus and Iran have concluded a Double Taxation Treaty agreement, allowing for the avoidance of double taxation and fiscal evasion in relation to taxes on income between the two countries.

The Finance Ministry affirmed on Tuesday that this development will contribute to the development of trade and economic relations between the Republic of Cyprus and the Islamic Republic of Iran, as well as with other countries.

Following the signing, Minister of Finance Harris Georgiades stated “It is with great pleasure that we signed this very important agreement which will pave the way for the expansion of business and investment opportunities between Iran and Cyprus,”

He went on to say that the time was right for such a strategic agreement between the states, following the historic Iranian nuclear agreement several weeks ago, which has created the appropriate conditions upon which to build trust between Iran and the international community.

Georgiades continued by saying that “Cyprus, through its EU membership is offering its full support to this agreement and is ready to be part of this new beginning. In fact, Cyprus, being a credible international business centre, is well-suited to act as a bridge between Iran and the European and global markets,”

Iranian deputy Finance Minister Dr. Ali Asgari also expressed his approval of this agreement being Iran’s 48th DTT, and Cyprus’ 58th.

Speaking through an interpreter, Dr. Asgari mentioned that this agreement established a platform through which relations between the countries may be developed, to the mutual benefit of both.

The position held is that the expansion and upgrade of the island’s network of Double Taxation Agreements is of high economic and political importance, and aims to attract foreign investment as well as further strengthen existing investment so as to elevate Cyprus’ position as an international business centre (IBC).


What is FATCA – The FATCA Definition

Foreign Accounts Tax Compliance Act

In March 2010, the provisions commonly known as the Foreign Account Tax Compliance Act (FATCA), became law in the United States of America. FATCA targets tax non-compliance by U.S. taxpayers with foreign accounts and focuses on reporting:

  • By U.S. taxpayers about certain foreign financial accounts and offshore assets.
  • By foreign financial institutions about financial accounts held by U.S. taxpayers or foreign entities in which US taxpayers hold a substantial ownership interest.

FATCA was enacted to prevent and detect offshore tax evasion. Based on the name and a quick reading of the rules, FATCA seems to be directed at financial institutions. Therefore, many global companies outside the financial services industry mistakenly believe that they are not affected. However, upon closer review, many realize the surprising fact that they have entities in their worldwide network falling under the purview of FATCA, or have operational areas that make or receive payments subject to FATCA.

What FACTA means for individuals that maintain financial accounts in Cyprus?

1. What information will my financial institution use to identify whether I could be subject to reporting? You may be contacted by your financial institution if one or more of the following indicia apply to you:

  • You have U.S citizenship or lawful permanent resident (green card) status
  • U.S birthplace
  • You have a U.S residence address or a U.S. correspondence address (including a U.S P.O box)
  • You have a telephone number in the U.S.
  • You repeat payment instructions to pay amounts to a U.S address or an account maintained in the U.S
  • You have granted a power of attorney to a person with a U.S. address
  • You have an In-Care-Of or Hold-Mail address in the United States that is the sole address submitted to your institution

2. Will I be required to provide any additional information to my Cyprus financial institution in order to comply with FATCA provisions?

You might be asked about your tax residency status in connection with your existing accounts (if there is information associated with your account that suggests you may be a U.S. person) or when you open a new account. You might also be asked by your financial institution to provide certain evidence to support a claim that you are not a U.S. person if information associated with your account otherwise suggests that you may be a U.S. person. Financial institutions will need this information to satisfy their obligations under Cyprus law and to determine whether they have certain tax reporting obligations to the Tax department.

3. What processes may the financial institutions follow in order to identify U.S account holders?

The participating financial institutions will need to follow one or more processes for identification of account holders such as the indicia search and the self-certification process. The participating financial institutions may obtain a self-certification from an account holder where applicable. The Tax Department will issue a self-certification form that financial institutions may use. Therefore you might be asked by your participating financial institution to fill out a self-certification form for this purpose or the participating financial institution might have proceeded to a new comprehensive form of its account opening documents or to the preparation of an additional document in respect of FATCA provisions.

4. What types of accounts will be reported?

Participating Cyprus financial institutions will have to report accounts which include most bank accounts, mutual funds, brokerage accounts, custodial accounts, annuity contracts (including segregated fund contracts), and some life insurance policies with a cash value.

An account shall not be reportable if it falls within an exempt category in the Agreement.

5. How does my citizenship affect my tax residency?

Cyprus and virtually all other countries do not tax on the basis of citizenship. The citizenship you hold is generally not relevant in determining your residency for tax purposes.

The U.S. tax system is different from most countries in that it treats all U.S. citizens as U.S. residents for tax purposes no matter where in the world they reside. Therefore, if you are a U.S. citizen, you are a resident of the U.S. for tax purposes even if you hold another citizenship or reside in Cyprus or any other country.

6. Am I obliged to provide the information?

Cyprus financial institutions are committed to become fully FATCA compliant and hence your financial institution is entitled to ask you to provide the required documentation. In cases where customers fail to provide the appropriate documentation your participating financial institution must treat your account as a U.S. reportable account and report the account to the Tax Department.

7. What type of information will be reported to the U.S.?

Participating Cyprus financial institutions will generally have to report the following type of information:

  • Identifying information about the account holder (e.g. name, address, tax identification number)
  • Account number
  • Account balance or value at end of the year
  • certain amounts paid or credited to the account

8. Do I have to provide my U.S. Taxpayer Identification Number?

Yes. Cyprus financial institutions will be obliged to ask for your U.S. TIN in connection with certain accounts. If you are a U.S. resident or U.S. citizen, you have to provide your U.S. TIN to your financial institution when asked.

9. I am not a U.S. person, but I have a joint account with a U.S. person. How does FATCA affect me?

A joint account which has one U.S owner shall be treated as a U.S account by a participating Cyprus financial institution. The participating financial institution will then report the full value of the account to the Tax Department. Identifying information (e.g. name, address, Taxpayer Identification Number) associated with
U.S. owner will be reported. No information will be reported for the non U.S joint account holder.

10. I am a Cyprus resident and I hold accounts in the U.S. How does the Agreement affect me?

If your account is identified as a reportable account by your U.S. financial institution, then the account will be reported by the U.S financial institution to the IRS, which will transmit the information to the Cyprus Tax Department.

11. If I maintain several financial accounts in a financial institution, how will they be reported?

If you are identified as a U.S. person, your Cyprus financial institution will report each of your accounts individually to the Tax Department.

12. Could financial institutions be exempted from FATCA provisions?

Under the Agreement, a number of Cyprus financial institutions could be partially or fully exempted from the requirements to undertake due diligence and to report on U.S. account holders. For instance, smaller Cyprus deposit-taking institutions, such as credit unions, with assets under $175 million, may be exempted.
A partial exemption is available for a Cyprus financial institution if it is not part of a multinational group (i.e., it is not related to any entities organized outside of Cyprus) and at least 98 percent of its financial accounts are held by residents of Cyprus or other EU member states. These financial institutions will not be obliged to apply due diligence or report on accounts held by individuals who are Cyprus residents.

If you would like to know the status and obligations of a particular financial institution under the Agreement, please contact the financial institution directly.

13. I am a U.S. citizen living in Cyprus and I was not aware that the U.S. wants me to file tax returns. Does the signing of the Agreement mean that I now have to pay U.S. tax?

The Agreement is strictly an information-sharing agreement and does not involve any new or higher taxes.

FATCA does not replace the existing US tax regimes, as imposed to U.S citizens Unlike Cyprus, the U.S. taxes its citizens who reside in other countries on their worldwide income. The U.S. citizenship-based tax regime has been in place for many years and is not altered by the Agreement. For more information, please contact us and the U.S. IRS Instructions for New Streamlined Filing Compliance Procedures for Non-Resident, Non-Filer U.S. Taxpayers.

14. Does the Agreement require Cyprus financial institutions to report to the Tax Department the accounts of individuals who relinquished their U.S. citizenship when they became Cyprus citizens?

The Agreement does not require Cyprus financial institutions to report on any individuals who have relinquished their U.S. citizenship and are no longer considered as citizens of the U.S.

Individuals who have relinquished their U.S. citizenship may be asked by their financial institution for documentation to support their claim.


Cyprus Compliance with the Foreign Account Tax Compliance Act

This intergovernmental agreement is activated between the Cyprus Government and the Government of the United States to improve the International Tax Compliance and implementation of FATCA – (Foreign Account Tax Compliance Act) and was signed on 2 December 2014. Under the Inter-Governmental Agreement all participating Cyprus financial institutions are required to report all FATCA related information to the Tax Department in Cyprus.

The participating Cyprus financial institutions had to start collecting certain information about new clients’ accounts from 1st July 2014 and will have to report information on their existing and new U.S. account holders to the Tax Department of Cyprus in 2015.

The Department of Taxation announced that it has issued and published in the Official Gazette of the Government dated 08.28.2015 the Assessment and Collection of Taxes ( Exchange of information under the Agreement for the Tax Accounts Compliance Abroad ) Order 2015 ( SI P . 281/2015 ) .

According to the announcement, the decree specified that the inter alia accounts that are exempt from FATCA Agreement are persons exercising control, the consequences of failure to comply etc.



Cyprus – Interesting tax changes on the horizon

Yesterday the Cyprus government announced a major tax reform aimed at significantly modernising and strengthening our domestic tax system.

Cyprus President, Nicos Anastasiades, confirmed this week at the 54th Annual General Assembly of the Institute of Certified Public Accountants of Cyprus (ICPAC) that a series of new tax measures were ratified by the Council of Ministers that will make the island’s tax system more fair, simple and competitive.

We consider these measures to be of particular importance given that they will significantly modernise and strengthen the competitiveness of the Cyprus domestic tax system. We are awaiting for the release of the relevant draft legislation before we are able to offer further details, and we will, as always, keep you informed of all updates purporting to this matter.

The measures announced are:

(1) A deemed tax deduction will be provided on new capital introduced in Cyprus. This will take the form of deemed interest deduction. This provides the incentive to introduce equity in businesses whilst at the same time receiving a tax deduction as if the capital were a loan;

(2) A new term, that of domicility, will be introduced in the Cyprus legislation. A person who qualifies as a Cyprus tax resident (based on the number of days spent in Cyprus) and at the same time will qualify as a non-domiciled person (we are awaiting for the draft legislation for the definition) will not be subject to Special Defence Contribution (SDC). SDC is the only tax that a Cyprus tax-resident physical person pays on dividends received. The current rate is a flat 17%.

This will give an advantage principally to physical persons moving to Cyprus and becoming tax residents, who are also the registered shareholders of companies that are themselves tax resident in Cyprus. These companies will be subject to the corporation tax of 12,5% on their taxable profits, which are calculated following the generous exemptions and deductions already offered in the legislation.

Any dividends from these companies to their resident non-domiciled shareholder will not be subject to any further taxes, rendering the effective tax rate at a maximum of 12,5%. This is perhaps the single most important amendment to the Cyprus tax legislation ever since the overhaul of the Cyprus tax system in 2003;

(3) Accelerated capital allowances will continue to be provided on the purchase of equipment, fixtures, fittings and buildings, up until the end of 2016;

(4) The existing tax incentive, being the tax exemption on part of the income of a person who starts employment in Cyprus, and who was a non-Cyprus tax resident before commencing such employment, will be strengthened by increasing the period over which the exemption will apply;

(5) Land transfer fees on all immovable properties purchased will be reduced by 50% until 31 December 2016;

(6) Any properties purchased after the new legislation is put in force, and before 31 December 2016, will be exempt from any future capital gains tax;

(7) The municipal and community taxes imposed by local authorities on owners of any immovable property, will be abolished;

(8)  The way immovable property tax is calculated will be overhauled. A single tax rate of 1/1.000 will apply, instead of the current progressive tax rates, on the most recent valuation of the properties carried out by the Land Registry Office. There will be a 10% reduction of the tax for early payment and an exemption on all taxes that do not exceed €25 per owner.


Cyprus: Insolvency Framework

The six pieces of legislation forming the Insolvency Framework came into force on May 7, 2015, day of its publication in the Official Gazette [five laws and a regulatory administrative acts (regulations)]. Those provisions have been passed by the House of Representatives on April 18 2015. The following came into force:

  • The Insolvency Individuals (Personal Plans Repayment and Debt Waiver Order) Law, 2015
  • The Bankruptcy (Amendment) Law of 2015
  • The Companies (Amendment) (No. 3) Act of 2015, regarding the liquidation
  • The Companies (Amendment) (No. 2) Law of 2015, concerning the mechanism for corporate debt restructuring (Examinership)
  • The Council on Insolvency Law of 2015
  • The Council on Insolvency Regulations 2015

The first two laws concerning the procedures relating to natural persons, while the third and fourth law concerning procedures for companies.

The fifth Act and Regulations relate to the regulation of the profession of Insolvency Consultants, who have an important role to fulfill in implementing the Framework.

All six pieces of legislation came into force from the date of publication in the Official Gazette, except for the portion of the first law on the Decree Debt Waiver. This part will enter into force three months after its publication in the Official Gazette.

Purpose – objectives of the Framework Insolvency

The main objectives of the Framework for Insolvency Reform are:

  • creating appropriate incentives for debt repayment, thus contributing to the reduction of non-performing loans
  • opportunity to protect the primary residence, where possible based upon strict eligibility criteria
  • second chance for reactivation bankrupt individuals in the economy
  • introduction of a new mechanism that would provide full and rapid relief to a debtor with no income and no assets, with very low overall debt
  • incentives for the preservation and restoration companies through restructuring of companies and debt and so they have the opportunity to viable companies to reduce their debts and keep jobs, while maximizing the value of the company as it is (“as going concern “)
  • modernization of the laws concerning the liquidation and bankruptcy of natural persons, so the liquidation and bankruptcy proceedings take place in a short time and efficiently.

Application Framework for Insolvency – Inform public

Information regarding the Insolvency Framework can be found in the Department at the Registrar of Companies and Official Receiver site of the Ministry of Energy, Trade, Industry and Tourism (

Responsible for the implementation of the Framework Insolvency is undertaken by the Insolvency Service. The Office is part of the Department of Registrar of Companies and Official Receiver of the Ministry of Energy, Trade, Industry and Tourism. Branch Bankruptcy and liquidation has taken over the responsibilities of the Insolvency Service.

[authoring_member id=”106″]