TaxLegi 30.11.2024

Steps leading upwards to green transition for Cyprus

EU’s DEAL AGAINST CLIMATE CHANGE

Clean Industrial Deal was introduced by the European Union as part of the numerous green initiatives for decarbonization aiming to make European Union a global leader in industrial sector by adopting clean technologies.

While EU has the ambition for climate neutrality by 2025 through this cornerstone, Clean Industrial Deal is designed to recommend to EU member states innovative cutting mechanisms which relate to hydrogen, renewable energy, solar energy, wind power, battery storage or carbon capture storage and electrification.

In parallel, this comprehensive strategic tool works towards to ensure EU’s completeness against global players in hard-to abate sectors like aluminium, cement, steel and chemicals by proving green investment funds and regulatory/policy frameworks.

IMPACT

Despite the long-term positive outcome that Clean Industrial Deal will bring to the table such as the energy independence of Europe and the transformation of industries in green, many EU member states like Cyprus are currently facing many challenges due to their geographic location, small heavy industrial base, lack of expertized staff and knowledge in green technologies and high energy costs.

CYPRUS SLOWLY AND STEADILY CLIMBING THE STEPS

Eventually, Cyprus has started working to align with EU’s green targets, by exploring hydrogen and solar energy productivity, investing in renewable energy and gird modernization as well as  decarbonizing shipping sector by using clean fuels and electrification technologies.

Other green developments that Cyprus should adopt domestically is sustainable building materials and practices in construction sector, addressing waste management issues and promoting recycling to citizens and businesses.

As being a major hub for international shipping, Cyprus can become a leader in green technologies against other regions of Mediterranean sea but without any national strategies, collaboration with sectors and leverage of green fund opportunities from EU like Horizon Europe and Innovation Fund, this would not be achieved.

By:

Era Xenofontos

31st of December 2024 is the last date for the:

1)      Submission of upwards revision of the Temporary Tax return for the year 2024:

• In case the Taxpayer will proceed with the upward revision of the initial Temporary Tax submitted for the year 2024, such revision can be created through the Tax Portal (i.e. no requirement for the submission of the TD6 form) by the 31st of December 2024.
• It is noted that any excess amount (difference) between the initial and the revised 1st instalment can be paid via the Tax Portal (https://taxportal.mof.gov.cy/) either through the JCC smart website, via online banking from a Cypriot bank account or via wire transfer before the 31st of December 2024 in order to avoid the imposition of additional interest and penalties for the month of December 2024.
•  Upon revision, the deadline for the payment of the revised upward 2nd instalment is by 31st of December 2024 and can be paid either through Internet Banking or wire transfer. However, if the payment will be made before the 31st of January 2025, no interest and penalties will be imposed.

2)      Submission of downwards revision of the Temporary Tax return for the year 2024:

• In case the Taxpayer will proceed with the downward revision of the initial Temporary Tax submitted for the year 2024, such revision can be made through the Tax Portal (i.e. no requirement for the submission of the TD6 form) by the 31st of December 2024.
• Upon revision, the deadline for the payment of the payment of the 2nd instalment is by 31st December 2024 and can be made via the Tax Portal (https://taxportal.mof.gov.cy/) either through the JCC smart website, via online banking from a Cypriot bank account or via wire transfer.
• However, if the payment will be made before the 31st of January 2025, no interest and penalties will be imposed. 

3)    In case of a no revision of the Temporary Tax return for the year 2024:

• The payment of the 2nd instalment of the 2024 Provisional tax can be made via the Tax Portal (https://taxportal.mof.gov.cy/) either through the JCC smart website, via online banking from a Cypriot bank account or via wire transfer by the 31^st of December 2024. However, the payment can be made by 31^st of January 2025, without any interest or penalties.

4)    SDC and GHS for the 2nd semester of 2024:

• Payment of the Special Defence contribution ("SDC") and General Healthcare System contributions ("GHS") for the 2nd semester of 2024 on rental income which has not been withheld by the tenant, on overseas bank interest income and on any dividend income which may be subject to SDC and GHS shall need to be made no later than the 31st of December 2024.

Note: In case any payment will be made via wire transfer, the said transfer should reach the bank account of the Cypriot Tax Authorities before the payment deadline.

31st of January 2025 is the last date for the:

• SDC and GHS contributions (where applicable) for the distributable profits of the year 2022 for deemed distribution purposes:

The payment of SDC and GHS (where applicable) contributions for the distributable profits of the year 2022 for deemed distribution purposes shall need to be made by the 31st of January 2025.

Note: Deemed distribution does not apply in respect to profits that are directly or indirectly attributable to shareholders that are non-resident in Cyprus or in the case of Individual shareholders not considered to be tax resident and domiciled in Cyprus.

By:

Glykeria Terpizi

Τhe Council of Ministers, exerising its powers conveyed to it by the Assessment and Collection of Taxes Law, issued a decree (No.384/2024) exempting natural persons, whose total gross annual income is below €19.500, from the obligation to submit a personal income tax return (Form T.D.1) for the tax year 2024. The decree was published in the official gazette of the Republic on the 15th of November 2024.

By:

Herodotos Hadjipavlou

Cyprus’s efforts for transition to alternative fuels upon discoveries in natural gas in the Eastern Mediterranean and oil and gas companies’ interest to invest

IN GENERAL

Fossil fuels like natural gas, oil and coal can be characterized as drivers of climate change as they are being used to burn energy, something that does not contribute to greenhouse gas emissions of European Union and its green targets for climate neutrality by 2050.

FOSSIL FUEL DISCOVERIES

Cyprus as part of Eastern Mediterranean region is becoming increasingly a dynamic player in regard to exploration and extraction of natural gas discoveries in its Exclusive Economic Zone. Natural gas discoveries position Cyprus as a potential contributor to global and European energy markets and will significantly boost its economy and infrastructure investment sector.

Environmental and energy transition concerns are raised as Cyprus aims to transit towards to cleaner energy sources and implement the green and ambitious regulations of EU for decarbonization.

ENVIRONMENTAL CONCERNS

Climate change in a global level and fossil fuels have indeed a direct relationship between them as fossil fuels can impact air, water, land and therefore can create negative consequences in the earth’s atmosphere.

Global warming, water and air pollution, biodiversity loss, ocean acidification, extreme weather conditions, destruction of marine life and ecosystem are some of the major consequences for Cyprus to consider.

CYPRUS’s STRATEGIES AND NEXT STEPS

At the moment, Cyprus is under pressure and that is because the country must not only focus but to invest in renewable energy and policies and phase out fossil fuels.

The enforcement of EU’s environmental regulations which relate to the drilling, oil and gas transportation and exploration, reporting and monitoring of emissions, adoption of clean technologies to reduce methane leaks, investing in renewable energy like solar and wind energy and cooperating with neighbouring countries like Egypt, Jordan etc. to establish an environmental framework in Eastern Mediterranean region are one-way steps to take.

Energy landscape can be transformed significantly as the biggest oil and gas companies and its neighbour countries have shown interest to invest and from that Cyprus will have an extraordinary economic and energy development in the near future.

Cyprus needs to adopt a balanced approach from both energy needs and ecological sustainability perspective. However, achieving this balance remains a critical challenge for Cyprus.

By:

Era Xenofontos

On 5 November 2024, the Cypriot Tax Department (“CTD”) issued a Circular 05/2024 (the “Circular”), which provides important clarifications and guidance regarding the reorganization of companies (Part VI of the Income Tax Law). Below is a summarized version of the key points covered in the Circular.

Issuance of Tax Ruling for a contemplated reorganization

• Companies can submit to the CTD a request via a tax ruling to confirm that their reorganization plan falls under the provisions of Part VI of the Income Tax Law, which allow for taxes to be exempt due to the reorganization. Requests for such rulings should follow the procedures outlined in Circulars 2015/13 and 2016/12.
• It should be noted that a confirmation for an approved reorganization and exemption of taxes due to reorganization shall only be issued by the CTD upon the submission of  form TD88 (regardless of whether a tax ruling has  been submitted or not), along with the necessary documents as provided in Circular 2008/12, concerning reorganizations. 

Application process and deadlines for approved reorganizations

• Companies involved in a reorganization can claim relevant tax exemptions in their income tax return (form TD4) provided that they have submitted form TD88 along with the necessary documents to the CTD, even if the examination process has not been finalized by the authorities by the income tax return submission deadline. The Circular clarifies that the tax exemptions due to reorganization will only be applicable on the proviso that the CTD will ultimately issue a confirmation for an approved reorganization.
• The confirmation will be issued once the CTD has examined the companies involved and all taxes due have been settled.
• Applications must be submitted not later than the company income tax return (form TD4) submission deadline for the tax year in which the reorganization took place. Late applications may be accepted if there is a reasonable cause for the delay.

Special provisions for dissolved companies

• Applications for an approved reorganization involving dissolved companies can be submitted by the acquiring/surviving company, if such application is submitted before the income tax return deadline for the year which the reorganization took place, without the possibility of late submission of the application.

Transitional provisions

• Applications for approved reorganizations executed up to and including the year 2022 can be submitted until 30 June 2025.

Next steps and recommendations

We encourage all clients involved in or considering a company reorganization to review these provisions carefully and ensure timely submission of the necessary applications required by the CTD so as to benefit from the available tax exemptions for approved reorganizations.

Companies that have undergone reorganization without obtaining approval from the CTD (via the submission of form TD88 for approved reorganization and tax exemption) should consider submitting such application before the transitional deadline of 30 June 2025. This will ensure that the reorganization is not viewed as “non-approved” and that any taxes arising from the reorganization are eligible for tax exemptions.

By:

Irene Laperta

Overview

The FuelEU Maritime, which aims to reduce the greenhouse gases (GHG) emissions from the shipping sector covering vessels over 5000 gross tonnage (GT) calling the European Economic Area (EEA) ports, will be applicable from January 2025. Thus, it is high time to prepare your business.

What your company should know is that while the regulation presents challenges, it also offers opportunities for financial gains for shipping companies which approach it with sufficient climate ambition. Discover below how your company can leverage these opportunities.

What is Pooling of Compliance and how can you benefit it?

Pooling is a flexibility mechanism that allows the over-compliance of one ship to compensate for the under-performance of other ships, provided that the total pooled compliance is positive. This mechanism rewards over-compliance and encourages investment in more advanced technologies. In essence, it serves a dual purpose: rewards overachievers with positive compliance balances and allows ships that are less able to find technical compliance options to meet FuelEU targets. Additionally, since excess allowances can be sold or used for other vessels within the pool, they can be recognized as assets.

The FuelEU Maritime Regulation does not set any costs for companies to create the pool. Arrangements for pooling are not governed by the Regulation and are left to private contracts.

Rules to Establish the Pool

• Composition of the Pool: A pool can consist of ships from the same or different shipping companies. The validity of a pool depends on ensuring that a ship with a compliance deficit does not end up with a higher deficit.
• Single Group Membership: A ship cannot be part of more than one group for meeting the rules in the same reporting period. However, two separate pools may be used for the GHG intensity target and the renewable fuels of non-biological origin (RFNBO) subtarget.
• Registration and Validation: To establish a pool, a company must register its intention in the FuelEU database. Pool details, including verifier selection, must be validated by all participating companies.

VAT Angle Comes in play

It is indeed a fact that a pooling mechanism can create a variety of implications considering the format of a pool as well as the contractual parties involved among different jurisdictions.

What do you need to consider from a VAT perspective before entering a pooling agreement? Whether:

• transaction is a domestic or cross-border transaction.
• a supply exists under VAT law or an exemption from VAT based on jurisdictions’ regulations.
• the place of supply cross-border pooling transactions is established.
• Contractual parties have the right to recover any input VAT on expenses related to such transaction and its business activities.
• Reverse charge mechanism for cross-border pooling transactions is applicable
• Contractual parties are part of VAT group and any intra-group transactions.

Conclusion

With the right climate ambition and proactive steps towards decarbonization, shipping companies can achieve financial benefits. The pooling mechanism offers a strategic approach to compliance, rewarding those who exceed the targets.  By leveraging this mechanism and implementing correctly contractual aspects,  the various VAT principles of treatment - reporting , accounting considerations and invoicing, companies can turn regulatory challenges into profitable opportunities.

By:

Martyna Szlufik

Era Xenofontos

E-invoices must be issued in a structured electronic format (in compliance with EU standards). Summary invoices will be allowed under certain conditions.

In addition, under the new digital reporting regime which will be implemented as of 2030, the information relating to the EU cross-border transactions must be automatically reported on a transaction-by-transaction basis within a prescribed deadline from the e-invoice issuance date (or from the date the e-invoice had to be issued), replacing the recapitulative statements.

Businesses will be required to automatically report e-invoice data on the following transactions:

Ø   Intracommunity supplies and acquisitions of goods

Ø   Transfer of own goods not reported via the new one-stop-shop (OSS) regime (discussed below)

Ø   Supplies and acquisitions of goods and services (not exempt from VAT) subject to the (domestic) reverse-charge mechanism

(1)          Platform Economy

As per current practice, some suppliers of online short-term accommodation and passenger transportation do not pay VAT on their supplies due to their status as individuals or small businesses. Under the new “deemed supplier” model, platform operators will be obliged, under certain conditions, to account for VAT when the suppliers do not pay themselves.

The proposed scope for such “deemed supplier” model relates to online short-term uninterrupted accommodation (maximum 30 nights to the same person) and passenger transport services by road within the EU, facilitated by a taxable person through the use of an electronic interface or platform (the facilitator).

(3)          Single EU registration

The new measures expand the scope of the existing one-stop-shop regime (“OSS”) to certain other intra-Community business-to-consumer (B2C) supplies, including (i) supplies of electricity, gas, heat and cooling energy, (ii) on the supplies of goods that are installed or assembled and (iii) on certain domestic supplies of goods and services.

In addition, under the new measures, the reverse charge mechanism for business-to-business (B2B) supplies will be extended, shifting the liability for VAT payment to the buyer of the supplies, when the supplier is neither established nor VAT registered  in the EU Member State where the VAT is due and the buyer is.

As it regards the non-Union OSS scheme, it has been extended to all B2C supplies of services and not only to supplies of services to EU established customers.

The expansion of OSS scheme for B2C supplies in combination with the extended application of the reverse charge mechanism to B2B supplies provides a great opportunity to taxpayers to review their VAT compliance obligations and to revisit their VAT flows. 

B.            Next steps

The ViDA changes will have a broad impact on the VAT landscape and businesses engaged in EU cross-border transactions are likely to be affected by them. Businesses should assess the impact of ViDA for their organizations and make the necessary changes to systems and processes, well in advance of the adoption of the new rules. 

By:

Kika Christodoulou

The Regulation on deforestation-free products (EUDR) came into force in June 2023. Its goal is to minimize the EU's impact on global forest degradation. To achieve this, the economy is to be based on "deforestation-free" products, meaning those containing goods produced on lands not affected by deforestation after December 31, 2020.

What your business needs to prepare for?

Operators and traders that place on the EU market or export from the EU wood, rubber, cattle, coffee, cocoa, palm oil, soy and their derivatives will be required to demonstrate due diligence. They will need to do this by:

a)      collecting information (like among others the geolocation of all plots where the relevant goods contained in the product were produced or used),

b)      assessing risks, and

c)      implementing risk mitigation measures.

A due diligence statement will need to be submitted. Small and medium-sized enterprises (SMEs) are exempted from the obligation to conduct due diligence for products that have already undergone such examination and for which a statement has been submitted.

Obligated entities need to conduct an assessment to determine whether there is a risk that the relevant products intended for placing on the market or export are non-compliant with the new requirements. Only if such assessment shows that there is no risk or only negligible risk, the product can be placed on the EU market or exported from it.

Country- risk classification

It should be noted that the level of obligations of entities in scope is influenced by the deforestation risk indicator system. The first version of the regulation introduced a three-category system in which countries are classified as high, low, or standard risk. However, the amendment proposed by the Parliament this month added forth, “no risk” category, defined as countries with stable or increasing forest area development, in which all EU Member States are included.  Currently, all other countries are assigned a standard risk level, but by 30 June 2025 (originally 30 December 2024) the Commission will classify them accordingly through implementing act.

Penalties for non-compliance

Compliance with the regulation will be monitored by authorities, including due diligence analysis, documentation review, on-site inspections, and using the scientific techniques like Earth observation data. In high-risk situations the authorities can suspend the trade of customs. Non-compliance can lead to severe penalties (where the maximum amount of such a fine, set by each Member State must be at least 4% of the total annual turnover achieved by the penalized entity throughout the Union), product confiscation and exclusion from public procurement.

The Deforestation Due Diligence Statement Registry

Starting November 2024, economic operators can register in the Information System to declare due diligence for the import, export, or domestic production of goods. The Deforestation Due Diligence Statement Registry is an online platform enabling operators, traders, and their representatives to create and submit electronic due diligence statements to comply with the Deforestation Regulation. The system facilitates bulk submission of location coordinates and product details and offers a dashboard for managing statements.

Application date

EUDR was initially set to apply from December 30, 2024 (for SMEs from June 2025). Due to low preparedness, the European Commission announced a one-year delay to 30 December 2025 (for SMEs from June 2026) and both Parliament and the Council of the EU have agreed.

By:

Martyna Szlufik