TaxLegi 1.1.2024

The Tax Department has now released the form “Claim for Allowances” (Form T.D.59) for the tax year 2024.

All employers are required to distribute the form to their employees and the latter must promptly fill out and return the signed form to their employer. Cypriot tax resident employees should declare on this form their worldwide income (other than Cypriot employment income) and deductions claimed. However, non-tax resident employees should declare only Cypriot sourced income together with any personal deductions relevant to that income.

Lastly, it is noted that employers should retain the signed T.D.59 forms in their records in case this is requested by the Tax Authorities.

Click here for the form in English

Read the alert in Greek

• On 22 December 2023, the Cyprus Tax Department published a guide for taxpayers in relation the registration and data submission related to DAC7 reporting.
• The guide provides step-by-step instructions and is available on the Cyprus Tax Department’s website.
• Moreover, in a communication issued on 15 January 2024, the Cyprus Tax Department has clarified that sellers resident in Cyprus for tax purposes should also fall within the scope of DAC7 reporting. 
• On 17 January 2024, the Cyprus Tax Department announced an extension to the DAC 7  reporting deadline to 16 February 2024.

Executive summary

Following the implementation of Council Directive (EU) 2021/514 of 22 March 2021 (DAC 7), amending Directive 2011/16/EU on administrative cooperation in the field of taxation (DAC), Platform Operators have the obligation to register with the Cyprus Tax Department, collect data on certain types of sales (so-called relevant activities) and perform submission of certain determined information on the Sellers using their platforms as foreseen in the Law to the Cyprus Tax Department.

Moreover, the first DAC 7 reporting deadline has been extended to 16 February 2024.
 

Detailed discussion

Obligations for Platform Operators

The Law provides for an automatic exchange of information on certain data to be reported by the platform operators. However, the platform operators should only have to collect data on certain types of sales (so-called relevant activities). Specifically, the following activities are covered: (1) renting of immovable property; (2) personal services; (3) sale of goods; and (4) rental of any mode of transport.

Platform Operators, as defined in the Law, must:

• Register with the Cypriot Tax Department (‘’CTD’’) or notify the CTD if they are already registered in another EU Member State.
• Carry out specific due diligence procedures and report to the CTD certain determined information on the Sellers as foreseen in the Law.
• Failure to perform the prescribed due diligence and reporting obligations may amount to monetary penalties and reputational damage.
• It should be mentioned that Platform Operators that may prove to the CTD that as per their business model no reportable Sellers perform any relevant activities through the Platforms, should be considered as excluded Platform Operators.

It should be noted that based on a communication issued by the CTD on 15 January 2024, Cyprus tax resident sellers are also included in the reportable seller population. The Law is expected to be amended to reflect this in the following weeks.

For more information on DAC 7, please refer to our relevant tax alert or contact the following:
 

Petros Krasaris

Partner | Head of International Tax and Transaction Services

Phone: +357 22 209 790

Petros.P.Krasaris@cy.ey.com

Panayiotis Tziongouros

Partner | International Tax and Transaction Services

Phone: +357 22 209 740

Panayiotis.Tziongouros@cy.ey.com

Stavros Karamitros

Manager | International Tax and Transaction Services

Phone: +357 22 209 781

Stavros.Karamitros@cy.ey.com

Tax experts Philippos Raptopoulos and George Liasis, the respective Committee Heads of Tax Planning & Policy and VAT at the Institute of Certified Public Accountants of Cyprus (ICPAC), discuss how the upcoming and long overdue overhaul of the country’s tax system should facilitate the Government’s ambition to create a modern, resilient and green economy.
 

Ever since Cyprus’ accession to the EU in 2004, the country’s tax framework has remained static, despite back-to-back macroeconomic tremors, from the financial shock in 2013 to the supply chain crunch catalysed by the COVID-19 restrictions and then to recent record-high inflation. Emerging economic models, notably the rise of platformisation - digital platforms facilitating transactions and interactions between users - that are controlling an increasing slice of the global economy also underscore the urgency for new tax strategies. Against this backdrop, Cyprus’ tax architecture not only breeds inefficiencies but also threatens the country’s competitive edge in the era of green economies. To rectify the situation, Nicosia has pledged a comprehensive overhaul within the next two years. In the meantime, the Economics Research Centre of the University of Cyprus (CypERC) has been enlisted by the Ministry of Finance, in tandem with industry bodies like ICPAC, to structure the blueprint of the new integrated tax system, slated to be completed by March 2024.
 

Cyprus is in the process of revamping its tax regime. How should the new tax framework align with the country’s aspirations outlined in the ‘Vision 2035’ strategy to foster a sustainable and green economy?

Philippos Raptopoulos: One of the three pillars of ‘Vision 2035’ focuses on developing an innovative, resilient, and diversified economy. At the same time, it aligns with the energy transition goals and strives to become a true green economy. The tax reform should aim precisely at this goal by providing incentives for green investments and sustainable business operations, offering tax credits for adopting green practices and technologies, as well as imposing taxes on activities with high carbon footprints. With green tax neutrality and ‘the polluter pays’ as corner- stones, any new pieces of taxation should be adequately accompanied by counter- measures. A focus on renewable resources, energy storage, vulnerability subsidies and sustainable finance can be incorporated into the upcoming tax reform. Any generation of green tax revenues can be injected into reducing other tax burdens where environmentally friendly activities are observed. With the introduction of sustainability- led tax reform, new processes will have to be devised for the efficient collection, handling and management of new taxes and respective deductions. An upgraded system of tax administration and justice will also be needed to address the resolution of potential tax issues and taxpayer disputes. continuous focus on its enhancement, the Tax Department is surely moving in the right direction, showing what dedication, perseverance and good management can bring. We need, nonetheless, to start considering additional uses of technology and processes for better data analysis, quality audits and better coordination between departments. Examples from other countries can shed light and guide us through this. A final point I would like to touch upon concerns tax jus tice, which of course is not restricted to the Tax Tribunal and the Courts but starts within the Finance Ministry and the Tax Department itself. Although it is not part of the upcoming tax reform, modernising the tax justice experience of taxpayers will also enhance the image and perception of the country.
 

What key adjustments should be incorporated into the planned tax reforms to effectively cater to the needs of the services industry?

Philippos Raptopoulos: The planned tax reform should include certain adjustments that will firstly enhance the simplification of the compliance procedures and the streamlining of administrative tasks, allowing the industry to concentrate on growth rather than being slowed down by a procedural burden. Also, tax credits can be provided for investments in employee training and upskilling, which can support the further digitalisation of the services industry. It might serve a dual purpose as it can facilitate the retention of older employees, thereby addressing the challenge of workforce scarcity. Tax reform should also focus on opening new markets for the Cyprus services industry, like markets that focus on renewable energy and circular economy initiatives. There is, for example, a growing global demand for energy-efficient products and green construction materials. Cyprus can incorporate tax incentives into the planned reform, such as accelerated or increased depreciation or even notional tax deductions for attracting companies that work on the research and development of such products and technologies.
 

Considering the substantial VAT revenue losses among EU Member States and the complexities faced by businesses, particularly SMEs and cross-border companies, what modifications are essential to modernise VAT for the digital era?

George Liasis: According to the 2022 VAT Gap report, member states lost €93 billion in VAT revenues in 2020, and there are various reasons for that. Indeed, it is a valid question on how to be more practical, especially against the backdrop of the EU ViDA (VAT in the digital age) initiative. ViDA is a series of measures aiming to modernise and make the VAT system work better for businesses and be more resilient against fraud by embracing and promoting digitalisation and addressing VAT challenges raised by the development of the platform economy. It will involve three main reforms. Firstly, the Digital Reporting Requirement, which moves away from the current system of recapitulative statements reporting and moves to a somewhat real- time transaction-by-transaction system, whereby businesses will need to report B2B intracommunity transactions two days from the issuance of a standardised e-invoice. The second reform relates to new rules for the platform economy, starting from short-term accommodation and passenger transport. Currently, the interpretation of the rules is complex and not uniform among member states - the UK is also struggling with these provisions. We do have guidance from important decisions at the EU Court of Justice, such as the Fenix/OnlyFans case, giving us the analysis on a ‘deemed supplier approach’. However, more clarity and uniformity are needed, and the new rules aim to rectify this issue. The last reform is the introduction of a single VAT registration aiming to capitalise on the success and extend the application of the current one-stop-shop schemes. These reforms will surely shake up the VAT landscape, aiming to reduce or even eliminate lost VAT revenues. Affected businesses will need to stay alert for these upcoming developments. 
 

By:

Philippos Raptopoulos, Partner, Head of Tax and Legal Services Philippos.Raptopoulos@cy.ey.com

George Liasis, Partner, Head of Indirect Tax Services George.Liasis@cy.ey.com

The remote working framework has become official via the much-anticipated enactment of a new law in Cyprus effective from 1st of December 2023, which paves the way for the future of teleworking. The Remote Working Law 120(I)/2023 (“the Law”) marks a significant milestone in the context of teleworking, promising a more balanced, flexible, and progressive work environment.

The key highlights of the Law are the following:

• Flexibility: Remote working is optional and must be formalized through a written agreement at the time of hiring or by amending the existing employment agreement.
• Health and safety: Remote working can be founded on reasons of public health (for the employer), or in case of a documented health risk (by the employee).
• Employers’ obligations: Employers are responsible for providing all the necessary equipment and technical support for remote working employees.
• Financial coverage: Employers bear the costs of equipment, maintenance, and repairs relating to remote working.
• Monetary Guidelines to Come: The Minister of Labour and Social Insurance is expected to announce the minimum compensation for remote workers later this year.
• Tax and Social Insurance: The employer’s cost in relation to remote working and the minimum compensation for remote workers are not considered emoluments. These amounts are considered tax deductible expenses for the employer. Also, the said amounts are not subject to any tax, levy or social insurance contributions.
• Right to Disconnect: A crucial step for work-life balance, the law explicitly confers employees the right to disengage from work. 
• Notice: Employers must give the employees 8 days’ notice from the commencement of remote working about the availability of remote working and any related amendments to the employment terms.
• Compliance: Non-compliance with the Law can lead to fines of up to €10.000, a sentence of up to 6 months’ imprisonment, or both.
   

Our advisors will be happy to provide customized advice for your company’s adoption of the Law.
 

Andria C. Koukounis

Partner

Koukounis, Karaolis LLC | EY Law

Phone: +357 22 009 966

Andria.Koukounis@cylaw.ey.com
 

Panayiotis Thrasyvoulou

Partner

EY Cyprus

Phone: +357 22 209714

Danae.Psylla@cy.ey.com

Petros Liassides

Partner

EY Cyprus

Phone: +357 22 209 797

Petros.Liassides@cy.ey.com

Danae Psylla

Senior Manager

EY Cyprus

Phone: +357 22 209714

Danae.Psylla@cy.ey.com

Herodotos Hadjipavlou

Manager

EY Cyprus

Phone: +357 22 209 788

Herodotos.Hadjipavlou@cy.ey.com

George Marios Constantinou

Associate

Koukounis, Karaolis LLC | EY Law

Phone: +357 22 009 966

George.Marios.Constantinou@cylaw.ey.com