On February 9, 2018 the Cyprus Tax Department (CTD) issued Interpretative Circular 18, Income Tax, interpreting the obligations arising for individuals under the provisions of the Assessment and Collection of Taxes Law to maintain books and records and prepare audited financial statements.
As per s.30 of the Assessment and Collection of Taxes Law, “any person who derives income from the sources prescribed in paragraphs (a) (c) (e) and (f) of subsection (1) of section 5 or in paragraphs (a) (d) and (e) of subsection (2) of section 5 of the Income Tax Law, shall for every year of assessment-
(a) Issue invoices and receipts in connection with his transactions and collections as prescribed in regulations issued by the Council of Ministers and published in the Official Gazette of the Republic;
(b) Keep accounting books and records, on the basis of which he prepares accounts in accordance with accepted accounting principles, which shall be audited in accordance with accepted accounting principles by a person having a permit to be appointed auditor of a company under the Companies Law”.
Furthermore, only physical persons (individuals) whose annual turnover does not exceed the amount of EUR70.000 shall be exempted from the provisions of the aforementioned paragraph (b).
The Circular clarifies that for the purposes of the exemption, “annual turnover” includes, only the income that accrues from the carrying out of a business activity, irrespective of the nature of the income. If the taxpayer in question derives interest, dividends or rents in excess of the income derived by the carrying out of a business activity, these will be taken into account in his/her total income for the purposes of preparing financial statements for the submission of his/her tax return.
The carrying out of a business activity for the taxpayer in question is an absolute condition for the preparation of financial statements; if the taxpayer in question is an employee or a pensioner, and in above of his/her emoluments deriving from salaried services receives interest, dividends or rents, then the taxpayer is under NO obligation to prepare financial statements under s.30(1)(b) irrespective of his/her total income amount.
It should be stressed that all prescribed books and records would need to be maintained and provided to the CTD upon request in the context of a tax audit.
KPMG Limited may offer further assistance in the determination of a taxpayer’s obligation to prepare audited financial statements via an assessment of the taxpayer’s tax position.