On 26 August 2011, the House of Representatives passed a package of austerity measures (called the first package of measures). This package includes a number of amendments to the tax legislation as well as the Company’s Law the most important of which are the following:

Ø Increase in the maximum personal income tax rate from 30% to 35% for taxable income over €60.000. The effective date is 1 January 2011.

Ø Increase on the rate of defence tax on interest received by Cypriot tax residents from 10% to 15%.

Ø Increase on the rate of defence tax on dividends received by Cypriot tax residents from 15% to 17%. This applies also on deemed dividend distributions.

Ø The above changes came into force on 31 August 2011, the date they were published in the Gazzette.

Ø New increased rates will apply from 2012 onwards, however these will continue to be levied on the assessed value of the property as at 1 January 1980.

Ø A levy of €350 is introduced for all companies registered in Cyprus, excluding dormant companies.

Ø Dormant companies are companies with no assets or with no income.

Ø In assessing whether a company has income, income interest income and investment income such as dividends is taken into consideration.

Ø The Government refund of VAT in case of first residence is abolished and is replaced by a reduced rate of 5%.

Ø The reduced rate applies for the purchase and construction of a house or flat to be used as the private main residence by a “rightful person”.

Ø The reduced rate applies on maximum area of 200 sq. m. . provided that the total area of the property does not exceed 363 sq. m..

Ø Effective date: 1 October 2011.

A second package of measures is currently under negotiation between the Government and the social partners.