TaxLegi 29.10.2021

The Cyprus government on the 15th of October presented its new strategy for attracting businesses to Cyprus with emphasis, among others, on high technology, shipping, innovation, and research and development, in a bid to turn the island into a business and trade center in the wider region and Europe. The new strategy will be implemented starting from January 2022. The main pillars of the new strategy from an Immigration perspective can be found below:

1. Amendment of the International Business Companies policy for Companies that will be part of the newly established Business Facilitation Unit – main provisions:

a) Salary/position-based categories of employment (Directors, Key Personnel, Specialists) will no longer apply and a general Minimum salary of €2.500 is introduced for all highly skilled employees, provided that they have the required academic skills or at least 2 years of experience.
b) The validity of the residence and work permit can be up to 3 years.
c) Maximum number of Non-EU Nationals can be up to 70% of the total number of employees in a 5-year period from the date of the inclusion of the Company to the Business Facilitation Unit.
d) Companies will be able to employ Non-EU Nationals as supporting staff, with salaries below €2.500, with a maximum of 30% of the total supporting staff of the entity.

2. Employment of family members:

a) Spouses of Non-EU Nationals that are employed in a Company operating under the provisions of the Business Facilitation Unit (excluding the supporting staff category) will have immediate and free access to employment (self-employment is not allowed).

3. Digital Nomad Visa (with a maximum quota of 100 applications):

a) A new type of permit will be introduced, with no employment rights for the holders of the permit.
b) The permit will be valid for one year, with the ability for a renewal for another 2 years.
c) Digital nomads can be accompanied by family members.
d) Minimum threshold of funds coming from abroad (salary, bank statements, etc.) is set to €3.500, plus an additional 20% for the spouse and 15% for any minor.

4. Naturalization of Non-EU Nationals that are employed in Cyprus:

a) The period of eligibility for applying for Naturalization will be reduced from 7 to 5 years. For holders of certification for very good knowledge of the Greek language the period will be further reduced to 4 years.
b) A political decision will be taken for expediting the process for the examination of pending applications that were submitted based on the 7 years rule.

5. Simplification of the process for obtaining Permanent Residency/Long Term status:

a) The Ministry of Interior will amend the relevant Regulations of the Aliens and Migration Law, to simplify the process and expedite the examination of the applications for Immigration Permits and Long-Term residency permits.

Riginos Polydefkis - Senior Manager, Head of Immigration Services

On 26 August 2021, the Tax Department issued Circular No. 51 (“the Circular”) which replaces Application Guidance 14/2021 dated 10 May 2021.

The Circular issued, relates to the application of Article 9(Ε)(2) of the Income Tax (“IT”) Law as well as to the application of Article 3(2)(d) of the Special Defence Contributions (“SDC”) Law and provides guidance on the available to the landlord’s IT and SDC incentives, in the case of voluntary rent reductions (of not less than 30% of the monthly rent) for the benefit of their non-related tenants. Such rent reductions should be governed by a written agreement between the parties.

The incentives relate to:

• an exemption from the obligation to pay SDC for the period during which the relevant reduction of rents has been allowed; and
• a tax credit for IT purposes equal to 50% of the amount by which the monthly rent has been reduced (not to exceed 3 months and 50% of the monthly rent).

In this respect, the Circular clarifies the following:

• Any tax credit, available for IT purposes, should only apply on rental income that is subject to SDC and not to lease or license to use income which are not subject to SDC;
• The rent reduction should relate to immovable properties which are used by businesses, the operations of which were suspended as a result of Covid-19 measures;
• The rent reduction should fall within the period between 1st January 2021 and 30 June 2021;
• The exemption from the obligation to pay SDC applies for a period not exceeding 3 months and should relate to the period between 1st January 2021 and 30 June 2021.

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

Michalis Karatzis - Senior Manager, Direct Tax

The Ministry of Finance, through the Tax Department, issued Interpretive Circular no. 54 (“Circular”), on 19 October 2021, which refers to the imposition of 10% additional tax for employees with income other than employment income.

Specifically, the circular makes reference to the provisions of article 24 of the Assessment and Collection of Taxes Law which provides that a person who derives income other than from emoluments (e.g., rental income) must declare this other income during the same year that is generated and pay temporary income tax (twice a year).
In addition, the circular makes reference to the provisions of article 26 of the Assessment and Collection of Taxes Law which provides that if the estimated chargeable income is less than 75% of the actual chargeable income as this will be declared on the submitted personal 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.

There are cases where employees generate other income (e.g, rental income), other than their employment income, and declare this other income to their employer through Form TD59. The latter takes into consideration this other income in the payroll process and calculates and withholds the relevant income tax by taking into consideration both the employment and such other income. In such cases, it is possible that there will be no income tax due or the income tax withheld may correspond to an income which constitutes at least the 75% of the chargeable income. However, since the individual did not declare the estimation of his chargeable income (e.g. rental income) and did not pay any temporary tax, as provided by the provisions of the Assessment and Collection of Taxes Law, a 10% additional tax has been imposed.

In light of the above, it has been clarified through the issuance of the Circular that, when the amount of income tax, corresponding to that other income exceeds 75% of the tax attributable to that income and is paid as part of the withholding tax by the employer through the PAYE process, then the 10% additional tax will not be imposed.

In cases where the individual suffered, through payroll withholding, the income tax corresponding to such other income which exceeds 75% of the actual final tax on such other income then:

a) During the examination of the individual’s income tax return, for the purposes of issuing an Income Tax assessment, the 10% additional tax will not be imposed.

b) In cases where tax assessment has been issued and the 10% additional tax has been imposed then the individual can submit an objection for the 10% additional tax to be waived.

The Ministry of Finance, through the Tax Department, issued Interpretive Circular no. 54 (“Circular”), on 19 October 2021, which refers to the imposition of 10% additional tax for employees with income other than employment income.

Specifically, the circular makes reference to the provisions of article 24 of the Assessment and Collection of Taxes Law which provides that a person who derives income other than from emoluments (e.g., rental income) must declare this other income during the same year that is generated and pay temporary income tax (twice a year).
In addition, the circular makes reference to the provisions of article 26 of the Assessment and Collection of Taxes Law which provides that if the estimated chargeable income is less than 75% of the actual chargeable income as this will be declared on the submitted personal 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.

There are cases where employees generate other income (e.g, rental income), other than their employment income, and declare this other income to their employer through Form TD59. The latter takes into consideration this other income in the payroll process and calculates and withholds the relevant income tax by taking into consideration both the employment and such other income. In such cases, it is possible that there will be no income tax due or the income tax withheld may correspond to an income which constitutes at least the 75% of the chargeable income. However, since the individual did not declare the estimation of his chargeable income (e.g. rental income) and did not pay any temporary tax, as provided by the provisions of the Assessment and Collection of Taxes Law, a 10% additional tax has been imposed.

In light of the above, it has been clarified through the issuance of the Circular that, when the amount of income tax, corresponding to that other income exceeds 75% of the tax attributable to that income and is paid as part of the withholding tax by the employer through the PAYE process, then the 10% additional tax will not be imposed.

In cases where the individual suffered, through payroll withholding, the income tax corresponding to such other income which exceeds 75% of the actual final tax on such other income then:

a) During the examination of the individual’s income tax return, for the purposes of issuing an Income Tax assessment, the 10% additional tax will not be imposed.

b) In cases where tax assessment has been issued and the 10% additional tax has been imposed then the individual can submit an objection for the 10% additional tax to be waived.

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

Herodotos Hadjipavlou - Manager | Direct Tax Services

The Ministry of Finance, through the Tax Department, has recently issued a new interpretative circular (IC 53 – “the Circular”) in relation to the taxability of profits, for enterprises engaged in real estate development and construction. The Circular effectively replaces as of 1 January 2022 circular 1987/21 titled ‘Real Estate Developers & Contractors’. Furthermore, paragraph C1 of circular 2009/13 titled ‘Tax Treatment of Enterprises Operating in Time-sharing’, which governed the recognition of profits for tax purposes in relation to enterprises operating in time-sharing (as the tax treatment was based on the guidance of circular 1987/21) has been deleted.

The Circular states that as of 1 January 2022 the taxability of profits for enterprises engaged in real estate development and construction will be governed by circular 15/2021, issued by the Tax Department on 17 May 2021, which provides guidance to taxpayers in relation to the tax treatment of the impact on the Financial Statements upon adoption of the new accounting standards IFRS 9, IFRS 15 and IFRS 16.

In more detail:

• Profit recognition for income tax purposes in relation to ‘new construction projects’ (i.e. projects commencing after 31 December 2021) must be made in accordance with the provisions of IFRS 15 - Revenues from Contracts with Customers. Effectively, the income tax treatment should follow the accounting treatment;
• Profit recognition for income tax purposes in relation to ‘old construction projects’ (i.e. projects which commenced before or at 31 December 2021 the profits of which have not been fully subjected to income tax) should also be in-line with IFRS 15, and any profit which was recognised for financial reporting purposes in prior years, but not recognised for income tax purposes based on circular 1987/21, should be included in the 2022 income tax return and taxed cumulatively in that year.

Notwithstanding the above, the Circular provides for transitional rules about ‘old construction projects’, applicable for tax years 2022 and 2023. In effect, taxpayers may continue to apply the provisions of Circular 1987/21 for tax years 2022 and 2023 but in any case, the taxpayers must follow the IFRS treatment as of tax year 2024 onwards. In other words, profits on ‘old construction contracts’ which have not been taxed as at 31 December 2023 must be included on a cumulative basis in the 2024 income tax return. It is noted that if taxpayers can elect to apply the transitional rules on ‘old construction contracts’ only for tax year 2022, then those profits not taxed as at 31 December 2022 would have to be included in the 2023 income tax return.

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

Marios Iacovou
Phone: +357 22 209 789
E-mail:
Marios.Iacovou@cy.ey.com