TaxLegi 18.12.2020

On 3 December 2020, a proposal of amending the tax laws has been approved by the House of Representatives, which in effect extends the application of the loan restructuring provisions to 31 December 2021.

We note that the extension relates to the following tax laws:

• The (Corporate) Income Tax Law;
• The Capital Gains Tax Law;
• The Special Contribution to the Defence Fund Law;
• The Stamp Duty Law;
• The Collection of Taxes Law;
• Value Added Tax Law; and
• The Department of Lands and Surveys (Fees and Charges) Law.

For VAT purposes, the tax incentives do not apply and hence the normal rules continue to be applicable. This, together with upcoming changes concerning VAT on land and application of the reverse charge for loan restructures renders careful consideration, and hence advanced planning is of paramount importance.

The amendments shall be in effect from the day of publication of the amended Laws in the Official Gazette until 31 December 2021.

The Minister of Finance issued a decree (562/2020) extending the deadline for the electronic submission of personal income tax returns and the settlement of the relevant income tax liability for the tax year 2019. The decree was published in the official gazette of the Republic on 27th November 2020.

The decree provides that the deadline for the electronic submission of the 2019 personal income tax return (Form T.D.1) for employees and pensioners, whose total gross annual income exceeds €19,500, is extended from 30 November 2020 to 15 December 2020. The extension also applies to the payment of the related income tax due, as per the submitted TD1, via self-assessment.

Additionally, the deadline for the electronic submission of the 2019 income tax returns for self-employed persons (Form T.D.1 self-employed) with turnover below EUR 70,000 and who do not have the obligation to submit audited accounts, is extended from 30 November 2020 to 15 December 2020. The extension also applies to the payment of the relevant income tax due, as per the submitted return, via self-assessment.

Petros Liassides, Partner, Direct Tax

Myria Saparilla, Associate Partner, Direct Tax

Herodotos Hadjipavlou, Assistant Manager, Direct Tax

e would like to inform you that as part of the Tax Department’s initiative for the electronic submission of the majority of tax declarations and tax forms, an additional change has recently been implemented which relates to Special Defence Contribution (“SDC”) and contributions to the General Healthcare System (“GHS”) in relation to interest and dividends paid.

Specifically, Forms T.D.61AM (Statement of Defence and GHS Withheld on Dividends) and T.D.61AT (Statement of Defence and GHS Withheld on Interest) shall no longer be filed manually with the Tax Department.

The said forms have been replaced with electronic forms, accessible through the Taxisnet portal and through the account of each Taxpayer as follows:

1.           Form T.D.602 - Declaration of SDC and GHS withheld on interest paid;

2.           Form T.D.603 - Declaration of SDC and GHS withheld on dividends paid.

• Who has the obligation to submit such forms:

Any taxpayer who has the obligation to withhold SDC and GHS contributions upon payment of interest/dividends (after taking into consideration the tax residency/ domiciliation status of the beneficiary), is obliged to electronically submit the abovementioned forms T.D. 602 and T.D. 603.

Should the taxpayer wish, they may grant access to their authorised representative/tax consultant, enabling them to complete and submit the said forms to the Tax Department on their behalf.

• When these forms shall need to be submitted:

The T.D. 602 and T.D. 603 forms shall need to be electronically submitted via the Taxisnet account of the taxpayer by the end of the month following the month in which the declaration of the interest / dividend was made (i.e. In case a company declared dividends to its shareholders on 25 November 2020, the T.D. 603 form should be submitted via Taxisnet by 31 December 2020).

• Failure to submit the relevant forms with the Tax Department:

The penalty for non-compliance with the submission of the above mentioned forms (including failure to submit such forms on time) will be EUR 100 for each form that ought to have been submitted (i.e. In case a company made 3 separate dividend declarations during 2020 in different months, then 3 separate T.D. 603 forms shall need to be submitted via Taxisnet).

• When the payment of the withheld SDC and GHS must be made:

Payment of SDC and GHS is due by the end of the month following the month in which the SDC and GHS were withheld.

It should also be noted that payments to the Tax Department that are made on time can be executed both through the Tax Portal and via the JCCsmart website, while payments made after the respective deadline can only be made via the Tax Portal (i.e. via online banking from a Cypriot bank account or wire transfer from a foreign bank account).

In addition, the Tax Department will be able to identify through the T.D.602 & T.D.603 forms that were electronically submitted by or on behalf of the taxpayer, any payments which were not made within the specified timeframe (i.e. by the end of the next month) and as a result the relevant SDC and GHS liability is expected to be shown as due in their tax portal system.

• Should tax payers file such forms for payments / distributions made in prior periods?

It has not yet been clarified by the Tax Department as of which year such forms should apply. A tax circular is expected to be issued which will provide more guidance as of which date such forms are due for filing as well as for any penalties that may apply in case taxpayers fail to comply.  it is likely that the said forms will be due for submission as of the date of introduction of GHS (i.e. as of 1/3/2019), as a minimum.

• How can EY assist you on the above:

EY Cyprus can assist taxpayers with the completion and submission of the TD 602 and TD 603 forms with the Tax Department together with any additional calculations that may be connected with these forms.

We remain at your disposal for professional and personalized advice based on your specific case at hand. We would be delighted to be engaged in assessing current status and circumstances and evaluate potential opportunities in the context of the above

(https://emeia.ey-vx.com/2594/144121/landing-pages/new-taxisnet-declarations-tax-alert-nov2020.pdf)

Philippos Raptopoulos,Partner, Head of Tax and Legal Services

Petros Liassides, Partner, Direct Tax

Myria Saparilla, Associate Partner, Direct Tax 

Panayiotis Gregoriou, Senior Manager, Direct Tax

Marios Iacovou , Manager, Direct Tax

Michalis Karatzis, Manager, Direct Tax

As a result of the Covid-19 pandemic, special measures have been taken at a global level, including restrictions on travelling, compulsory self-isolation, working from home and the suspension of employment. Such measures restrict the physical presence of individuals at their place of work. 

It is within this context that the Cypriot Tax Department (“TD”) issued on 27th of October 2020, Circular 4/2020  (“Circular”) which relates to the implementation of the provisions on tax residency and permanent establishment  in accordance with article 2 of the Income Tax Law, aiming to provide guidance to taxpayers with regards to the potential impact of such special measures on the tax residency status of individuals and companies as well as on the permanent establishment status of businesses.

It is noted that the Organisation of Economic Cooperation and Development (“OECD”) has recently issued general guidance on tax matters triggered as a result of such measures.

The TD has indicated that although such guidance is not binding, the intention of the TD is to follow such guidance as deemed appropriate. It has further been noted that the provisions of the Circular will be applied on the condition that the taxpayer elects to do so, otherwise the provisions of the relevant tax law will apply.  It has been further clarified that the circular does not take into consideration the possible different tax treatment of the matters raised by other jurisdictions and focuses exclusively on Cypriot tax related considerations.

(https://emeia.ey-vx.com/2594/144121/landing-pages/tax-newsletter-tax-residency-and-pe-risks--covid-19-f.pdf)

Philippos Raptopoulos, Partner, Head of Tax and Legal Services

Petros Liassides, Partner, Tax Services

Myria Saparilla, Associate Partner, Tax Services

31st of December 2020 is the last date for:

• Submission of a revised Temporary Tax return for the year 2020.

Upwards revision: The additional tax liability shall need to be created through the Tax Portal and any excess amount between the initial and the revised 1st instalment should only be paid through Internet Banking to the Tax Authorities via the Tax Portal. Upon revision, the 2nd Instalment can be paid either via JCC or through Internet Banking via the Tax Portal.

Downwards revision: A revised Provisional Tax return, (Form TD.5 for natural persons and Form TD.6 for legal persons), shall need to be submitted to the Tax Authorities various District Tax Offices via email, depending on the taxpayer’s District Tax Office. The payment of the 2nd instalment can be made via JCC or through Internet Banking via the Tax Portal.

• Payment of the Special Defence contribution (‘SDC’) and General Healthcare System contributions (‘GHS’) for the 2nd semester of 2020 on rental income which has not been withheld by the tenant, on overseas bank interest income and on any dividend income which may be subject to SDC and/or GHS.

31st of January 2021 is the last payment date for:

• 2nd instalment of the 2020 Provisional tax (in case the Temporary Tax calculation is not revised)
• Special Contribution for Defence for the distributable profits of the year 2018 for deemed distribution purposes.

Note: Deemed distribution does not apply in respect to profits that are directly or indirectly attributable to shareholders that are non-resident in Cyprus or in the case of Individual shareholders not considered to be tax resident and domiciled in Cyprus.

Philippos Raptopoulos, Partner, Head of Tax and Legal Services

Petros Liassides, Partner, Direct Tax

Myria Saparilla, Associate Partner, Direct Tax 

Panayiotis Gregoriou, Senior Manager, Direct Tax

Marios Iacovou, Manager, Direct Tax

Michalis Karatzis, Manager, Direct Tax

On 15/12/2020 the Income Tax amending No.7 Law of 2020, which relates to amendments in Article 8(21) of the Income Tax Law, was published in the Official Gazette of the Republic.

The purpose of the amendment of article 8(21) of the Income Tax Law is to extend the application of the 20% tax exemption for remuneration from employment which is exercised in the Republic from a person resident outside the Republic prior to the commencement of his employment in the Republic or the amount of €8.550, whichever is the lower, for a further period of five years, so the provisions of article 8(21) to apply in relation to employment which commenced up and until the tax year 2025. The maximum period for which the exemption is granted remains the five years following the year of employment.

Further to this new amendment, the provision of article 8(21) which was limiting the application of the 20% tax exemption until the tax year 2020 has been abolished.

Therefore, a person whose employment in the Republic commenced up to the year 2025, has the right to claim the relevant tax exemption for a period of five (5) years (i.e. up to the year 2030 inclusive). 

Lastly, the said amendment applies as of 1st January 2020.

Our team remains at your disposal for any information and/or clarifications required

Petros Liassides, Partner, Direct Tax

Herodotos Hadjipavlou, Assistant Manager, Direct Tax

A new legislation has been recently voted, addressing the residency rights of UK nationals in Cyprus after the end of the interim period (31st of December 2020).

Main provisions of the new legislation:

• UK nationals and their family members who have already exercised or will exercise free movement to Cyprus before 1 January 2021 but haven’t registered yet, will be eligible for residence under a new type of permit that is to be announced by a Decree issued by the Minister of Interior.
• Holders of a valid Certificate of Registration, without expiration date, will be eligible to maintain the said document without any other administrative procedure. Only holders of Certificates with expiration date (Non-EU family members) will be obliged to follow the new procedure for the new type of permit (upon expiration).
• Those who complete five years of continuous residence in Cyprus before 31 December 2020 will be eligible to acquire permanent residence.
• Those who will not complete five years of continuous residence in Cyprus, will be able to remain in Cyprus to build-up five years continuous residence. Commencement of this five-year period starts at the moment of exercising free movement rights, which may be at any time before and during the transition period.
• UK citizens who want to come to Cyprus after the 31 December 2020 (end of the transition period), will need to meet Cyprus’ immigration rules.

How it works for UK nationals’ family members:

• Existing family members of UK nationals covered by the Withdrawal Agreement, who are living in a country other than Cyprus on 31 December 2020 (end of the transition period), will be able to reunite in Cyprus with the UK national as a family member at any time in the future. They will then be eligible to qualify for permanent residence after completing five years of continuous residence.
• Children born or adopted after the transition period by a UK national or their spouse/ partner in a civil union covered by the Withdrawal Agreement will enjoy the same rights as pre-existing family members. Future spouses and partners of UK citizens who want to come to Cyprus after the 31 December 2020 (end of the transition period), will need to meet Cyprus immigration rules.

Riginos Polydefkis, Senior Manager, People Advisory Services