New VAT order changing treatment on the sale of new buildings
As from 11 November 2022, the supply of a new building is subject to VAT through new criteria set by an issued Council of Ministers Order. The definition of new building is restated effecting the VAT treatment.
Amended law as per the Order
As per the Order, the sale of buildings will be subject to VAT provided that:
- An application for a planning and/or buildable permit was filed with the authorities after 1/05/2004,
- The sale / sales made within a period of 5 years from the date of complete erection of the building (the building being available for its intended use), and
- Within the 5 year period noted in (ii) above, the building was not used systematically by a non-related party for period of at least 2 years.
Law applicable before this Order
Before the issue of the Order (applicable from 11/11/2022 onwards), the sale of buildings was subject to VAT provided that:
- An application for a planning and/or buildable permit was filed with the authorities after 1/05/2004, and
- The buildings was not used for any reason further to its erection (first occupation requirement.
Such development has multiple implications both from an input recovery and output VAT perspective that need to be evaluated by affected entities and individiduals. Feel free to contact us for further information.
Application of articles 8(21A) and 8(23A) o the Income Tax Law
On November 1, 2022, the Ministry of Finance – Tax Department, issued Circular 10/2022 ("Circular") “Exemption from income tax of remuneration relating to first employment exercised in the Republic”, and relevant to articles 8(21A) and 8(23A) of the Income Tax Law.
Specially, the Circular provides clarifications regarding the application of the exemptions provided for in accordance with articles 8(21A) and 8(23A) of the Income Tax Law and covers their practical application through several examples and guidance.
It is recommended that all taxpayers falling under the provisions of articles 8(21A) and 8(23A) to reconsider their position in view of the issuance of Circular 10/2022 and the guidance now provided by the Tax Department.
EY Cyprus is at your disposal for any information and/or clarifications regarding the application of articles 8(21A) and 8(23A) of the Income Tax Law.
MiCA Regulation: European Council October 2022 approval, European Parliament February 2023 expected approval and CASP operations
Just over a month ago, the European Council approved the draft Markets in Crypto Assets (“MiCA”) Regulation that was firstly introduced in 2020 by the European Commission.
The MiCA Regulation provides an EU harmonized regulatory framework for crypto assets, and is the first official supranational instrument laying down the scope within which crypto asset issuers and service providers may operate, whilst maintaining financial stability, market integrity and investor protection.
The main assets that fall outside the scope of the MiCA Regulation are instruments qualifying as financial instruments covered by the MiFID framework, electronic money (except where such qualifies as electronic money tokens), deposits, structured deposits and securitisation instruments.
Following the final version’s approval by the European Council, the MiCA Regulation must be ratified by the European lawmakers, i.e. the European Parliament, which was expected to take place during this month. The European Parliament has announced on Friday 4th November 2022 that the voting of the MiCA Regulation has been deferred in their agenda until February 2023, a delay linked to the requirement to have it translated into all 24 EU official languages.
Once adopted, as it is so expected now in February 2023, the MiCA Regulation will be directly binding on Cyprus and all EU Member States, and a timeframe of 12 to 18 months thereafter will be granted in order for relevant laws, regulations and administrative provisions to be enacted in EU Member States for its implementation.
In Cyprus, organisations intending to give investment advice and/or facilitate third party trading and/or provide safekeeping services relating to crypto assets, must obtain the prior authorisation of the Cyprus Securities and Exchange Commission. Such authorisation classifies the organisations as “crypto asset service providers” (“CASPs”) and is required pursuant to the Cyprus AML Law ¹, to ensure that CASPs’ operations are suitable for prevention of money laundering and terrorist financing purposes, in line with the EU 5th AML Directive².
Our professionals, with extensive experience in advisory and preparation for authorisation, welcome enquiries on the existing legal/regulatory requirements and proactive planning for their operations under the upcoming MiCA Regulation.
1 Prevention and Suppression of Money Laundering and Terrorist Financing Law 188(I)/2007, as amended.
² Directive (EU) 2018/843 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing.
The expansion of the digital economy and the upcoming exchange of information and tax transparency regimes
The exchange of information has been widely considered as a one of the most effective measures in tackling tax evasion and protecting the integrity of tax systems. Historically, the exchange of information was facilitated through bilateral tax treaties, the multilateral Convention on Mutual Administrative Assistance and, more recently, in the context of the Global Forum on Transparency and Exchange of Information.
At a European level, the exchange of information was institutionalized with the introduction of the European Directive in administrative cooperation in the field of taxation (DAC) in 2011¹. The scope of application of the Directive was significantly expanded in 2014 with the recast of the Directive and the introduction of DAC2, encompassing the rules of the OECD’s Common Reporting Standard, introducing a system of automatic exchange of financial account information. In 2018, through DAC6² , the EU introduced reporting obligations on intermediaries to disclose reportable cross border arrangements, that trigger certain hallmarks and may potentially entail elements of aggressive tax planning.
Over the last years, the expansion of the digital economy and the new types of services relating to e-commerce gave rise to new additional streams of income and new types of digital assets. The need to adjust the framework for the exchange of information in order to accommodate the recent trends and developments emerged.
The rise of the sharing and gig economy, powered by digital platforms, has created new economic actors which carry their activities in non-conventional ways. Under the DAC7 Directive³ digital platform operators with nexus in the EU will have to identify certain sellers and report information regarding sellers and certain relevant activities. The Relevant Activities include the rental of immovable property, including both residential and commercial property, personal services, the sale of goods, the rental of any mode of transport, when carried out for a consideration. Platforms should file information in relation to the so-called reportable sellers, i.e. individuals, companies or legal arrangements, that carry out a relevant activity and either are resident in the EU or rent out immovable property located in a Member State. The provisions of the Directive should enter into force on 1 January 2023 and the first reporting is expected by 31 January 2024.
Aiming to tackle yet another form of tax evasion, and in this specific case VAT fraud, the EU has introduced rules⁴ to establish a Central Electronic System of Payments (CESOP), requiring payment service providers (PSPs - as defined under the Payment Services Directive 2). Though an amendment to the VAT Directive, CESOP may be seen as yet another DAC-like initiative. PSPs will need to report payment data to their local tax authorities on a quarterly basis, who will share this data with other EU countries in a central database called CESOP (Central Electronic System of Payment information). CESOP will enter into force on 1 January 2024.
Notwithstanding the recent so-called ‘’crypto crash’’ given the sizeable increase in investing in crypto assets and e-money in recent years, there were concerns of taxpayers not understanding the tax obligations accompanying cryptos and e-money. This obviously led to growing risks for uncollected tax revenue through intended or even unintended means. The EU is responding through another link in the DAC chain, the expected DAC8 Directive, which introduces new rules that will require all financial institutions, such as crypto exchanges, e-money institutions and other platforms to report transactions on an annual basis. The proposed rules are admittedly broad in scope, especially as far as the types of digital assets that fall within the ambit of the proposed set of rules. At the same time, in October 2022, the OECD published their final report for a new Crypto Assets Reporting Framework, which details new and amended reporting requirements covering the reporting of crypto-assets and e-money. In addition, broader revisions to the existing Common Reporting Standard (CRS) are also proposed. OECD is expected to push for adoption globally from 2024 onwards.
While the specifics of each of the aforementioned frameworks will differ, a common modus operandi is expected to exist. Information will be shared automatically between tax authorities to allow them to target under-declared or even non-declared income. From a procedural standpoint, affected organisations will need to adjust their existing procedures or even adopt new ones in order to collect, validate documentation, identify, classify and monitor their clientele and through a process of data control, to report specific data to the respective tax authorities.
¹ Council Directive EU 2011/16/EU
² Council Directive (EU) 2018/822
³ Council Directive (EU) 2021/514
⁴ Directive 2020/284 and Commission Implementing Regulation (EU) 2022/1504
Implementation of the Directive (EU) 2019/1158 on work-life balance for parents and carers
On Friday 02/12/2022, the legislative bill on Leave (Paternity, Parental, Care, Force Majeure) and Flexible Working Conditions on Work-Life Balance of 2022 will be set before the House of Representatives for voting.
The main provisions of the bill provide for the granting of a) leave and paternity allowance of two (2) weeks, b) eighteen (18) weeks of parental leave to parents with children up to 8 years of age, of which eight (8) weeks will be paid parental leave allowance, c) five (5) days of care leave, per year, without pay and d) seven (7) days of absence, per year, without pay, for reasons of force majeure related to urgent family reasons.
All eligible employees of the above types of leave must, by the bill's provisions, provide their employer with the required notice. Also, flexible working arrangements, including teleworking, for parents or carers of a child up to the age of 8 are being instituted for the first time. That is, it will be possible to submit a relevant request to the employer who will have to examine it and inform the employee within a specified time, with a right to reject it with adequate justification.
If the House of Representatives votes on the bill, businesses will have to revise and update their Employee Handbooks/Manuals to comply with its provisions.