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Tax Alert: amendments and clarifications

Tax Alert: Amendments and Clarifications

Changes in tax reporting

On 20/08/2020, an amendment to the Assessment and Collection of Taxes Law was published in the Official Gazette, followed by the release of relevant guidance by the Cyprus Tax Department on 03/11/2020. The amending law introduces amendments and clarifications in the filing of tax returns and the payment of tax with effect of its date of publication in the Official Gazette as follows:

Tax Registration

Obligation to register (Cyprus incorporated, non-tax resident companies)

The provisions of the Law have been extended to oblige a Cyprus incorporated entity that is not Cyprus tax resident, to inform the Tax Commissioner in respect of its business status within a period of 60 days from its incorporation.  This will provide information on the Company’s activities or of the Company’s intention not to exercise any activity.

The Tax Department is expected to release a tax form for this purpose.

Filing of income tax returns

New deadlines for the submission of income tax returns (personal and corporate)

The Law has been amended to simplify the deadline process for the filing of tax returns. Under the rules, the deadlines for the submission of tax returns remain the same for taxpayers obliged to maintain books and records and prepare accounts audited by an independent auditor.  For taxpayers that are not under the obligation to maintain books and records and prepare accounts; the deadline for the submission of tax return has been set at 31st July of the year following the year in question.

The mandate for electronic filing of tax returns remains. In this respect, the deadlines for submission of tax returns are set as follows:

 

31/7 (year +1)

31/3 (year+2)

Companies and taxpayers treated as corporate bodies

 

         ●

Individuals that are under the obligation to prepare accounts

 

         ●

Individuals not under the obligation to prepare accounts

           ●

 

Deadlines can be extended by a decree issued by the Council of Ministers where this is deemed appropriate.

Submission of tax returns by individuals

From tax year 2020, individuals will be obliged to submit a personal income tax return regardless of whether their gross income is below the tax exempt threshold of EUR€19.500.

Exceptions to the rule may be provided via a decree issued by the Council of Ministers listing categories of individuals not subject to the obligation to submit a tax return in case their gross income falls below the said threshold.

Procedure for the submission of revised tax returns

The Law has been amended to provide for the possibility to submit a revised tax return. Under the new provisions a person that has submitted a tax return as per the provisions of the Law, may submit a revised tax return for a tax year only within 3 years from the expiry of the tax return submission date for that tax year and should further settle any additional tax due within 30 days from submitting the revised return.

Further, a tax return may be revised provided that such revision:

  • Arises due to the claiming of a deduction, credit, or relief provided by law; or
  • Is necessary to correct a mistake or an error; or
  • Is necessary for the sake of consistency with the provisions of any tax imposing provision of any law.

A taxpayer cannot submit a revised tax return during a tax audit or investigation of the taxpayer’s tax affairs.

The new provisions allow for a transitional period under which revised tax returns may be submitted for tax years whose 3 year period from submission date as per hereinabove has expired; such returns may be submitted within a 6 month period from the entry into force of the amending law (i.e. by 20th February 2021).

Capital Statements

Under the new rules, the Tax Commissioner may, via written notification, demand from any natural person to submit a statement, for any period stated in the notification (not exceeding 6 years) and by the deadline stated in the notification, showing full details of the business and private assets and liabilities, either within the Republic or elsewhere, of such person, any dependent thereof and the spouse thereof.

Employer’s Return

Deadline for submission

The deadline for the submission of the Employer’s return has been revised from 30th April to the last day of February of the year following the year in question extended by 3 calendar months for electronic submission i.e. 31 May (that is in any event mandatory).

Definition of emoluments

The definition of emoluments has been amended for the purposes of the employer’s return to include the deemed monthly benefit of 9% p.a attributed to directors or shareholders individuals or their spouses or their relatives of up to the second degree of kindred, on the balance of any financial facility granted by the company to them. In this respect, the company taxpayer will be deemed as an employer and will be obliged to record such benefit on the employer’s return.

Books and Records Obligations

Possible exemption from the preparation of audited accounts

The amendments provide the Tax Commissioner with the discretion to exempt taxpayers from the obligation to prepare audited accounts and request other type of information.

Field Audits

The amendments provide the Tax Commissioner the discretion to enter and inspect, in any reasonable time during normal working hours, any premises used for business purposes but without being obliged to give reasonable notice.

Deadlines for payment of tax

Payment of Tax

Under the new rules, from tax year 2020 onwards:

  • For persons whose deadline for the submission of tax return is the 31st of July of the year following the tax year in question, final tax shall by payable together with the submission of the tax return (i.e. by 31st July of the year following the end of the tax year in question)
  • For persons whose deadline for the submission of tax return is the 31st of March of the year following the year after the year in question (i.e. 15 months from the end of the tax year in question), final tax shall be payable by August 1st of the year following the tax year in question.

Linking tax refund with VAT compliance

Under the new rules, no tax refund shall be paid to a taxpayer if the taxpayer has omitted to submit a VAT return under the provisions of s.20 of the VAT Law by the end of the tax year in which the tax refund assessment has been commenced; in such a case, the tax refund will be suspended until the taxpayer complies with such VAT obligation.

Accepting card payments and establishment of tax lottery

Card Payments

The Law has been amended to oblige all payees (defined as any individual or legal person who is the intended recipient of funds which have been the subject of a payment transaction) to accept card payments in their dealings with consumers. For this purpose, the payees shall contract with duly licensed payment services providers.

The details of any deadlines for this purpose as well as the required information to be provided to the consumer and the type of businesses falling under this obligation shall be defined by a decree to be issued by the Council of Ministers in due course.

Without prejudice to the existing penalties provided by the Law, failure to adhere to the obligation as defined in the decree will carry a penalty of EUR€2.000. The penalty is reduced in half if payment is carried out or compliance is demonstrated within a 30-day period.

Special rules have further been introduced providing for the investigation and determination of such offences and allowing for objections to the penalty.

Tax Lottery

Transactions for the purchasing of goods or the acceptance of payments carried out via card payments or other electronic payment means will be entered in public lottery schemes. The winners of such lottery shall be rewarded with prizes (monetary or non-monetary).

The details of the implementation of the lottery provisions including among others details as to process, duration, criteria for eligibility, frequency and nature of prizes be defined by a decree to be issued by the Council of Ministers in due course.