On Thursday 12th December members of the Cypriot parliament voted unanimously to extend tax breaks for those who agree to restructure their non-performing loans until 31st December 2025.
Holders of troubled loans have been given the opportunity to reduce their financial burden and Cypriot banks have been given the opportunity to reduce the amount of overdue debt on their balance sheets.
Thus, until the end of next year, there will be no special defence levy on accounting profits or notional interest, no property registration tax and no stamp duty in the context of loan restructuring.
For income tax purposes, any gain or loss arising from a restructuring will not be included in the tax base. Similarly, capital gains tax will not be levied on transactions in connection with a restructuring. Any tax burden on property sold in exchange for loan repayment will be transferred from the debtor to the lending institution.
Remember that a restructuring is a change in the terms of an existing loan.
The loan agreement remains in force and all issues are settled with the organisation that issued it. It is not possible to switch to another bank. The aim of this programme is to improve the financial situation of the borrower who has had difficulties in repaying the debt.
Restructuring is carried out according to one of the following options
- Reduce the interest rate - each month the debtor will spend less on servicing the loan;
- Stretching" the term of the loan - the term is increased, but the amount of monthly payments on the loan is reduced;
- give the borrower a credit holiday - for some time it is possible to pay only the interest on the loan;
- You can pay only the interest on the loan;
- Write off the accrued interest.
It is important to note that the terms of the loan are not fundamentally better - it is just an opportunity for the debtor to 'get a break', to avoid a difficult situation, not to spoil relations with the creditor. Banks agree to restructuring in order not to be burdened with bad debts and to get their money without judicial execution and seizure of property.
It is worth noting that in practice banks often restructure bad loans by issuing new ones. The IRS has many cases pending in which loans were deemed non-performing and then repaid with other loans, without either the bank or the borrower taking advantage of the opportunity to obtain tax benefits for restructuring the loan.