LEGISLATION & TAXATION 

Legislation
Year 2003 has been a landmark for the insurance industry in Cyprus as it marked the enactment of the new insurance legislation that complies fully with the European Union Directives. The new legislation has brought about marked changes as regards the regulatory framework of the insurance industry and has introduced additional burdens for insurers including stricter solvency requirements.

One of the most discussed aspects of the law, was that of insurance mediation, as this transforms fundamentally the framework concerning the distribution methods of insurance products. This law was the subject of numerous discussions between the industry and the government until a compromise solution was found.

 Insurance Services Law (available only in Greek)


Taxation
Income tax law states that life insurance companies' gross premiums are subject to a minimum tax of 1,5% of gross premium income, if the corporation tax rate applicable on operating profits amounts to a lower sum.

Data held by the Insurance Association indicates that the application of the minimum tax during the period 1996 - 2000, resulted in a tax liability broadly 25% higher than the tax payable if the normal corporation tax had been applied.

This effect has been further aggravated in the period 2001 - 2002, when life companies, although they have incurred operating losses as a result of the negative investment performance, they incurred a heavy tax bill because of the application of minimum tax.

With the tax reform introduced in 2002, the corporation tax rate was reduced from 25% to 10%, but despite lobbying efforts of the Insurance Association to abolish the minimum tax, the request was denied by the government. This in effect has exacerbated the unfair treatment of life insurance companies in comparison to other sectors of the economy.



Indirect taxation on insurance contracts in Cyprus


At policy issue or renewal

CLASS OF INSURANCE	STAMP DUTY (3)	PREMIUM TAX (3)	PARAFISCAL TAXES (3)
			Fire Brigade Tax	Motor Guarantee Fund
Life		1,5% (1)
- if sum assured < EUR 854,30 (CY£500)	EUR 1,71 (CY£1)
- if EUR 854,30 (CY£500) < sum assured < EUR 1.708,60 (CY£1.000)	EUR 3,42 (CY£2)
- if EUR 1.708,60 (CY£1.000) < sum assured < EUR 8.543,01 (CY£5.000)	EUR 6,83 (CY£4)
- if sum assured > EUR 8.543,01 (CY£5.000)	EUR 17,09 (CY£10)
Health	EUR 1,71 (CY£1)
Accident	EUR 1,71 (CY£1)
Motor Liability	EUR 1,71 (CY£1)			5% (2)
Hail (including destruction of glasshouses and forcing frames in market gardening and horticulture)	EUR 1,71 (CY£1)
Fire - if sum assured < EUR 1.708,60 (CY£1.000)	EUR 0,85 (CY£0,5)
- if sum assured ≥ EUR 1.708,60 (CY£1.000)	EUR 1,71 (CY£1)
Other insurance for damage to goods	EUR 1,71 (CY£1)
Cross-frontier goods in transit	EUR 1,71 (CY£1)
Marine hull - if sum assured < EUR 341,72 (CY£200)	EUR 0,85 (CY£0,5)
- if sum assured > EUR 341,72 (CY£200)	EUR 1,71 (CY£1)
Other classes	EUR 1,71 (CY£1)