* This article was updated to reflect 2024 tax rules. This article is relevant for the tax year ending 31 December 2024.
1. CYPRUS TAX RULING: AN INTRODUCTION
It is often said that businesses thrive in environments with a high degree of certainty, stability, and predictability. However, tax laws are not always clear and straightforward.
Taxpayers (whether companies or physical persons) often seek certainty, before they commit to paying their taxes in a specific tax jurisdiction.
For example, before an individual sells an asset, he wants to make sure of how he will be taxed on the disposal of the asset. And before a company invests capital to develop a patent, they often seek assurance that the tax department will accept the investment as a patent.
A common problem is that the application of tax laws in such future transactions is often a gray area, and the decisions of the Cyprus tax department cannot be guaranteed in advance, just by reading the relevant tax laws.
To assist the decision making of taxpayers, the Cyprus tax department offers tax rulings in advance, on any tax question.
2. WHAT EXACTLY IS A TAX RULING?
A tax ruling is a formal response from the Cyprus tax authorities to a tax-related question. Essentially it is clarification of how the tax laws will be applied in the specific (future) circumstances of a taxpayer.
The response is in the form of a letter, signed by a senior official of the Ministry of Finance (tax department), which clarifies what will be the application of tax laws, based on the facts described by the taxpayer.
3. IS A TAX RULING BINDING?
Yes, a ruling is binding for the taxpayer who requested it, on the conditions that:
- the facts and circumstances were accurately and honestly provided to the tax department.
- There is no subsequent change in the tax laws which renders the ruling inapplicable.
The purpose of tax rulings is to enhance the transparency of the Cyprus tax system.
4. WHO CAN APPLY FOR A RULING?
Both companies and natural persons are free to request a tax ruling, on any tax subject.
5. WHAT ARE THE TIMEFRAMES AND COSTS?
- A tax ruling costs €1.000 (tax department fees). Response time is usually 3-5 months.
- An expediated tax ruling (guaranteed response from the tax authorities within 21 business days) costs €2.000 (tax department fees).
Our firm’s fees for handling a tax-ruling application: quoted on a case-by-case basis, subject to complexity.
6. WHAT ARE SOME EXAMPLES OF RULINGS?
- Client A (a physical person) wanted to be taxed in Cyprus for a specific tax year, and he was ready to spend 183 days in Cyprus during the next 12 months. Before taking the decision to relocate himself and his family, Client A wanted to be exactly sure of how the tax department would tax his worldwide income, so for his peace of mind he requested a tax ruling.
- Client B (a company) wanted to sell an asset, and expected to make a profit on the sale. However, it was not clear if the profit would be classified as a capital gain, or as trading income. Taxation is very different in each case. Client B wanted to be 100% certain of how the tax department will treat the transaction, so before selling the asset, a tax ruling was requested to clarify the future tax position.
- Client C (a company) was going to execute a significant cross-border transaction with a company in another EU country. There was disagreement between our (CBU) interpretation of a relevant tax law, and the Client’s legal department’s interpretation of the tax law. Client C decided to request a tax ruling. The facts of a hypothetical scenario involving the cross-border transaction were presented to the tax department, which issued a ruling clarifying how the law should be applied in the specific circumstances of the client.
7. HOW CBU CAN HELP YOU
Our firm has extensive experience in handling tax ruling applications, both for companies and high net worth individuals. A senior member of our team will handle your application from start to finish.
Feel free to contact us today for more details about ways we can help you.
