TaxLegi 1.12.2023
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Special Defence Contribution ('SDC') rate on interest income
On December 6, 2023, the Cypriot House of Representatives approved an amendment to the Special Defence Contribution (‘SDC’) Law. This revision entails a noteworthy adjustment to the SDC rate applicable to passive interest income earned by:
- Cypriot tax resident companies; and
- Cypriot tax resident and domiciled individuals.
Specifically, the SDC rate has been diminished from 30% to 17%.
The formalization of this legislative amendment was accomplished through its publication in the Official Gazette of the Republic on December 20, 2023. As per the stipulated timeline, the revised provisions become effective starting January 1, 2024.
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Updates on the new legislation and process for Naturalization of foreign nationals
On the 30th of November, the House of Representatives approved the Amendment of the Civil Registry Law in an effort to modernize the existing legislation framework regarding qualifications and criteria for the naturalization of foreigners and to strengthen the control and the conduct of due diligence by the Civil Registry and Migration Department.
The main provisions of the new legislation are as follows:
1. Applications can be submitted by persons that have completed at least 8 years of physical stay within a period of 11 years preceding the application. Periods of absence of up to 90 days per year are not deducted from the total period of stay.
2. Applicants must have a certificate of basic knowledge of the Greek language (Level B1) and basic knowledge of the Island's history and political/social status.
3. Applicants must be of good character and financially self-sufficient.
4. Applicants must have the intention to stay in the Republic.
Special provisions for highly qualified foreign nationals working for foreign companies (will be determined by the Council of Ministers):
1. Applications can be submitted by employees that have completed at least 5 years of physical stay within a period of 11 years preceding the application. The 5 years rule applies to these applicants that have an A2 certificate of knowledge of the Greek language. The said period can be reduced to 4 years if the applicant has a B1 certificate. Periods of absence of up to 90 days per year are not deducted from the total period of stay.
2. Spouses and Civil partners of the applicants can also apply under the same conditions. Minor children that reach the age of 18 while the parents ap- plication is examined, can still apply as minors would (registration process) and receive the Cyprus citizenship.
3. Applicants must be of good character and financially self-sufficient.
4. Applicants must have the intention to stay in the Republic.
5. These applications will be examined under a fast-track process (up to 8 months), provided that an expedition fee is paid. The fee and the procedure will be determined by the Minister of Interior.
Provisions for pending applications
As per the provisions of the approved Law, all applications submitted before the new legislation entered effect will be examined following the new criteria, meaning that both knowledge of Greek and the 8-years duration of legal and physical stay (where applicable) will need to be proved before the applicant can be considered eligible for Naturalization.
For additional information, please contact our team:
Panayiotis Thrasyvoulou
Partner, People Advisory Services
Phone: +357 22 209 714
Panayiotis.Thrasyvoulou@cy.ey.com
Riginos Polydefkis
Director, Head of Immigration Services, People Advisory Services
Phone +357 22 209 862
Costas Anastasiou
Manager, Immigration Services, People Advisory Services
Phone: +357 22 209 963
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Update on Social Insurance Contributions
Social Insurance Contribution Rates
As of 1st January 2024, the Social Insurance Contribution rates for each of the employer and the employee are increased by 0,5% and for self-employed individuals by 1%.The below table summarizes the contribution rates which are applicable for the year 2024:
Self-employed individuals
16,6 %
Employee’s contribution
8,8 %
Employer’s contribution
8,8 %
Employer’s contribution to the Redundancy Fund
1,2 %
Employer’s contribution to the Human Resource Development Authority Fund
0,5 %
Employer’s contribution to the Social Cohesion Fund
2 %
Social Cohesion Fund
An employer is liable to pay a social cohesion fund contribution of 2% on the amount of the emoluments of his employees (without any restriction as to the amount of the emoluments).
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Update on Maximum Limit of emoluments for weekly employees on Social Insurance Contributions
Maximum limit of emoluments
Following our previous alert dated 29th November 2023 and considering that the 2024 annual maximum limit of insurable emoluments for weekly employees will be based on a 53 week period, the applicable annual maximum limit for weekly employees should be €64.077 and not €62.868 as initially noted.
Weekly
Monthly
Yearly
€
€
€
Weekly employees
1.209
64.077
Monthly employees
5.239
62.868
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CESOP: Less than a month to go
Council Directive (EU) 2020/284 (“the Directive”) alongside Council Regulation (EU) 2020/283 introduced new recording and reporting obligations for Payment Service Providers (PSPs) providing payment services within the EU, applicable as of 1 January 2024. In Cyprus, it is expected that an implementing legislation will be enacted in the coming weeks.
The new regulations are designed to tackle VAT fraud, enabling national authorities of each Member State to perform investigations. The information collected by different Member States will then be exchanged between them and centralized in a European database: Central Electronic System of Payment information (CESOP). This data exchange will enable tax authorities to detect potential VAT fraud, by identifying sellers behind websites or marketplaces.
Who is in scope of the CESOP obligations?
Payment Service Providers (PSPs) operating in an EU Member State, must comply with CESOP and these include:
- Credit institutions, which include banks established in Europe and European branches of credit institutions headquartered outside the EU.
- E-money institutions, which can cover a wide range of PSPs providing electronic payment services such as electronic wallet providers and electronic voucher/card providers.
- Payment institutions encompass a wide spectrum of businesses that offer payment services, such as credit and debit card issuance, payment acquisition, payment processing, payment initiation, and more.
- Post office giro institutions, which provide payment services.
PSPs providing payment services within the EU must report payments on a quarterly basis when all the following criteria are met:
- The PSP provides payment services in a Member State of the European Union.
- A payment is made, which is an in-scope payment type. Broadly all payments covered by PSD2 are in scope, such as credit transfers, direct debits, credit cards, e-money and remittances.
- The payer is located in the European Union. Their location is typically determined by the country identifier, their IBAN or another relevant identifier if an IBAN is not involved.
- The payment is a cross-border transaction, either between two Member States or involving a third country.
- If over 25 cross-border payments are made to the same payee within a calendar quarter – the payments can come from anyone and go to the payee. If the payee has many accounts, the PSP must aggregate them.
In terms of reporting obligations, the CESOP report filing will have to be filed separately in every EU Member State where the PSP provides payment services (the host state). The report must be submitted electronically to the respective tax authorities in an XML format. The first reporting is due on the 30 April 2024.
Get ready for the ‘’go-live’’ period
PSPs had time to address a number of compliance tasks, which included the identification of all relevant data and the mapping of all relevant payment methods and payment channels within their organizations. Data adequacy and data quality issues arose during the process that needed to be handled with agility and efficiency from complying organizations.
In addition, PSPs needed to ascertain the ‘’cross-border’’ status of their payments, which often involved a number of other counterparties which complicated the overall exercise.
Furthermore, the aggregation rules proved to be challenging, given the state of readiness of relevant systems and procedures.
All of the above, will essentially need to be translated to an end-to-end reporting process whereby the extracted data will need to be converted into a prescribed XML file.
The CESOP report filing must be completed separately in each EU Member State where the PSPs have an establishment and where they provide their services (so-called home and host Member States). Therefore, numerous PSPs other than banks may have to make reports in various jurisdictions. In some instances, they might have to file distinct reports in all 27 Member States.
How can we help?
Considering the short time remaining before the CESOP regime is fully functional and the varying penalties imposed by the EU Member States for tardy or inaccurate reporting, it is important not only to define a target operating model but also to ensure that any compliance initiatives undertaken are in-line with the rules.
Innovative target operating models include full or partial outsourcing of the data processing and reporting. This includes identifying and filtering transactions, ensuring data quality, creating various reports, submitting to individual or multiple authorities, and more.
Relevant validations and quality assurance as part of the implementation phase of the CESOP compliance is of the essence as to reduce the risk of future penalties and minimize the costs of retrospective corrective action being required.
We may support you through validating your procedures through sampled extractions of the payment transactions as compared to generated reports and providing an independent review of scoping performed and of different reporting elements.
Consequences of non-compliance
Penalties and sanctions are left to the discretion of Member States. Some Member States have already announced severe penalties for non-compliance that can be multiple hundreds of thousands of euros per quarterly period. Non-compliance with the obligations under CESOP will become expensive due to the obligation to submit CESOP returns in each Member State.
Non-compliance with CESOP obligations can have consequences beyond financial penalties. Reputational damage and the risks associated with the incorrect reporting of personal data may also arise.
CESOP goes into full effect 1 January 2024, in all 27 Member States, including Cyprus. PSPs must establish a compliant target operating model and be in a position to file a return for the Q1 2024 in-scope payments before 30 April 2024. Time is limited, so seeking the aid of experts and considering the outsourcing of compliance tasks can be a valuable asset.
Please feel free to reach out to us in order to discuss in further detail the work performed to date and on tailor-made assistance with the above or other phased that your organisation may need help with.
Contacts:
Panayiotis Tziongouros
Partner | International Tax and Transaction Services
Phone: +357 22 209 740
Panayiotis.Tziongouros@cy.ey.com
Georgios Mavroyiakoumos
Assistant Manager | Indirect Tax Services
Phone: +357 22 209 980
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Extension of the deadline for the payment of the contribution to the Central Agency for the Equal Distribution of Burdens
Extension of the deadline for the payment of the contribution to the Central Agency for the Equal Distribution of Burdens of 0.4% relating to the transfer upon sale of immovable property and shares during the period from 22/02/2021 to 18/11/2022.
As per an announcement issued by the Tax Department on 6/12/2023 and following their announcements issued on 1/9/2023 and 7/11/2023, the deadline for the payment of the relevant contribution, without the imposition of interest and penalties, is extended to 31/03/2024. After this date, the statutory interest and penalties will be imposed until full settlement of the liability.
The announcement further notes that those who have transferred immovable property following a sale during the above-mentioned period and have not yet received a notification from the Tax Department, for the payment of the relevant contribution should either:
(a) refer to the Tax Portal - "Due amounts", and proceed with payment, or
(b) visit the local Tax Department Offices, providing all necessary information for the settlement of the liability.
Lastly the announcement notes that payments can be made through the Tax Portal (via internet banking, by using the payment reference number or via a credit/debit card).
The professionals at EY remain at your disposal to discuss your specific case at hand and advise on required next steps.
