TaxLegi 8.6.2023

The Council of Ministers issued a decree (183/2023)  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 2022. The decree was published in the official gazette of the Republic on 09th June 2023.

The decree provides that the deadline for the electronic submission of the 2022 personal income tax return (Form T.D.1) for employees and pensioners, whose total gross annual income exceeds €19.500, is extended from 31 July 2023 to 02 October 2023. The extension also applies to the payment of the related income tax due via self-assessment, as per the submitted T.D.1. Additionally, the deadline for the electronic submission of the 2022 income tax return for self-employed persons (Form T.D.1 self-employed) with turnover below EUR 70,000 and who do not have an obligation to submit audited accounts, is extended from 31 July 2023 to 02 October 2023. The extension also applies to the payment of the relevant income tax due, as per the submitted return, via self-assessment.

EY Cyprus is at your disposal for any information and/or clarifications required.

Contacts:

Further to continuous discussions, on 8th June 2023, the Cyprus Parliament approved the new legislation with regards to the application of 5% VAT rate on the purchase or construction of a building to be used as a main and permanent residence by individuals.

:: The legislation as it currently stands

Under the current legislation, individuals are eligible for a reduced VAT rate of 5% (instead of the standard VAT rate of 19%) to be applied on the first 200 square meters of their main residence’s buildable area (purchased or constructed). The buildable area is based on the architectural building plans submitted to secure planning permission. The reduced 5% VAT rate needs to be approved by the Cyprus Tax Authorities by the submission of the relevant application form.

The current legislation will continue to apply for residences where a planning permit / building permit1 application has been duly submitted or a planning permit/ building permit (in case a planning permit is not required) obtained up to the end of October 2023 and a 5% VAT application is duly submitted within 3 years from the legislation enactment date.

:: The new legislation enacted 8th June 2023

New eligibility conditions

The newly enacted legislation sets out 2 conditions that both need to be fulfilled simultaneously for a reduced 5% VAT rate eligibility. The first condition concerns the square meters area and the second condition is the value.

• First condition: For apartments/houses up to 130 square meters, a VAT rate of 5% shall be imposed. For apartments/houses that exceed 130 square meters and are up to 190 square meters, a VAT rate of 19% shall apply on the square meters exceeding 130 square meters. For apartments/houses that exceed 190 square meters, a VAT rate of 19% shall apply to the whole value.

• Second condition: For apartments/houses with a value up to €350.000, a VAT rate of 5% shall be imposed. For apartments/houses with a value that exceeds €350.000 and is up to €475.000, VAT of 19% shall apply on the amount exceeding the threshold of €350.000. For apartments/houses with a value that exceeds €475.000, VAT of 19% shall apply on the whole value. Hence, for apartments/houses over 190 square meters and/or with a value exceeding €475.000, the standard VAT rate of 19% VAT shall apply to the whole value.

Special provisions apply to disabled persons and large families.

1 Expected to be clarified via Circular

Contacts:

On 16 May 2023, the Council of the European Union (“the Council”) held an Economic and Financial Affairs Council (“ECOFIN”) meeting where the EU finance ministers reached political agreement (general approach) on compromise text for the Directive on administrative cooperation implementing the Organisation for Economic Co-operation and Development's (“OECD”) rules on reporting for crypto assets and amendments to the Common Reporting Standard (“CRS”) (the Directive or DAC8).

DAC8 introduces reporting requirements for crypto assets related to transactions carried out by European Union (“EU”) resident clients of reporting crypto-asset service providers. DAC8 also extends the scope for exchanging advance cross-border rulings to those concerning natural persons in certain situations and introduces the possibility of exchanging information received under the DAC framework for non-tax-related purposes.

The compromise text, published by the Swedish Council presidency in advance of the ECOFIN meeting, is the result of negotiations among the Member States that amended the European Commission's (“the Commission”) initial proposal published on 8 December 2022.

As for next steps, it is expected that the Directive will be formally adopted in early June, after the parliamentary consultation process is completed on 30 May 2023. Following the Council's formal adoption of DAC8, Member States will generally have until 31 December 2025 to transpose the main rules into national law; the provisions will apply as of 1 January 2026 with some exceptions.

Contacts:

Payment of temporary tax for 2023 

As per the Assessment and Collection of Taxes Law, every company    or individual (who derives income other than from emoluments) must pay by 31st of July 2023 an estimate of the taxable profit for (corporate) income tax purposes and the resulting tax liability for the year 2023.

Even though according to the law, the due date for the payment of the 1st instalment is 31 July 2023, as long as the 1st instalment is paid before 31 August 2023, there should neither be a monetary charge nor any interest for late payment of tax.

1. The temporary tax on such income is payable in two equal instalments as follows:

- 31 July 2023;

- 31 December 2023.

If the tax is not paid before the end of the month following the month the instalment is due (i.e. 31 August 2023 and 31 January 2024, respectively),  Interest is payable at the rate in force which is currently 2,25% per annum.  Interest is calculated on the basis of completed months of delay. 

2. Furthermore, failure to pay the due tax by 31st of July and 31st of December will result to a monetary charge of 5% on the tax due for each instalment (in addition to the 2,25% per annum interest). However, in practice the imposition of the 5% monetary charge will be made only if the tax is not paid by the end of the following month to which it relates (i.e. 31 August 2023 and 31 January 2024 respectively for each instalment). 

3. The estimate of chargeable income may be revised (upwards or downwards) at any time before 31 December 2023. If the estimate is revised upwards, interest is payable on the difference between the revised amount payable for each instalment due and the amount initially declared and paid. The interest is calculated for each completed month of delay for the period the instalment was due (e.g. if a revised estimation is prepared in September, the interest will be imposed only for the 1st instalment for one complete month). No monetary charge is imposed on therevised estimates on the provision that the incremental tax liability is paid on the date the temporary tax is revised.

If the estimate is revised downwards, the lowest amount that can be declared as temporary tax should equal the amount of the previous payment made.

4. If the estimated chargeable income (as finally revised) is less than 75% of the actual chargeable income as this will be declared on the submitted income tax return for the year, then there will be an additional tax of 10% on the difference between actual tax payable and the temporary tax paid.

5. Any difference between the actual tax payable and the temporary tax paid for year 2023 is payable by 1st of August 2024. 

Payment of 2022 final tax and 2023 
Provisional tax payments can be made 
via the Tax Portal System

The Tax Department announced that the payment of Provisional tax (Code 200) and Final Income tax (Code 300) can be made via the Tax Portal  (https://taxportal.mof.gov.cy/), provided that a self-assessment form for the respective tax payment has been entered into the system. 

In addition, any payments that are subject to interest and penalties or relating to revised provisional tax, can also be made either at any District Income Tax Office or through the Tax Portal, provided again that a self-assessment form for the respective tax payment has been entered into the system.

Repercussions of late payment of tax for Companies and Self-Employed individuals preparing audited financial statements for the year 2022. 

1. Any difference between the actual income tax payable for the year 2022 and the temporary tax paid during that year is payable by 1 August 2023.  As explained above, in cases where the temporary tax paid was less than 75% of the actual tax liability, a 10% additional tax is imposed on the outstanding balance. If payment is not made by 31 August 2023, interest will accrue at the applicable rate in force (currently 2,25% per annum) as from 1 August 2023 on the basis of completed months of delay.

2. Furthermore, failure to pay the outstanding balance in respect of the 2022 income tax by 31 August 2023 will result to a fixed monetary charge of 5% on the tax due. In addition, any outstanding tax (as this is declared on the income tax return) is subject to an additional monetary charge of 5% in case it is not paid within 60 days after the last day of the deadline for the payment of the relevant tax liability for that specific tax year (i.e. Failure to pay for tax year 2022 by 1 October 2023 will result in a 5% monetary charge).  

Final remarks

The information in this memorandum is only intended to provide general guidelines and is not intended to be complete or exhaustive.    This memorandum is distributed with the understanding that EY Cyprus Advisory Services Ltd is not responsible for the result of any actions taken on the basis of information included therein. EY Cyprus Advisory Services Ltd is not attempting through this memorandum to render any tax or legal advice. It is recommended to consult with professional advisors for advice concerning specific matters before making any decision. This memorandum reflects current information as of   1 July 2023 based on tax laws currently in force and tax circulars issued by the Cypriot tax authorities.  

Contacts:

• Philippos Raptopoulos - Partner, Head of Tax and Legal Services
• Petros Liassides - Partner, Direct Tax
• Myria Saparilla - Partner, Direct Tax