Simplification Of Tax On Interest

Cyprus has made a number of important changes in its tax laws relating to the participation exemption, the taxation of mutual funds and the taxation of interest. The changes were made by Laws 110(I)/2009 and 111(I)/2009, respectively amending the Income Tax Law and the Special Contribution for Defence Law.

While the main aim of the changes was to increase the attractiveness of the taxation regime for mutual funds and collective investment schemes, the authorities have also taken the opportunity to simplify the taxation of interest generally. Prior to the changes, interest was subject to income tax and possibly to Special Defence Contribution ("SDC tax"), according to whether the interest was active or passive in nature. In general terms, active interest was effectively taxed at 10% and passive interest at 15%. This basis of taxation will continue to apply to interest earned up to 31 December 2008.