Month: March 2023

The Nicosia Municipality, by exercising its rights pursuant to articles 104 and 105 of the Municipalities Law (Law 111/1985), has recently announced that the applicable rates for the 2020 annual professional license fees that will be imposed to legal entities having their registered office and/or their work performed and/or managed by law firms and/or accounting/audit firms and/or other firms providing secretarial services within the municipal boundaries of Nicosia.

More specifically, the relevant announcement provides for the imposition of a professional license fee as follows:

i. Annual fee of EUR 200,00 to active legal entities (with the exception of regulated companies providing secretarial/fiduciary services and companies being part of a group of companies – ref: point iii and iv below);

ii. Annual fee of EUR 100,00 to inactive/dormant legal entities;

iii. Annual fee of EUR 100,00 to regulated companies providing secretarial/fiduciary services pursuant to Law 196(I)/2012; and

iv. Annual fee of EUR 100,00 to legal entities being part of a group of companies.

Based on which of the above categories each company falls, an invoice will be issued in the name of the company which is payable by 11^th of December 2020 to the Nicosia Municipality.

It must further be noted that, pursuant to section 108 of the Law, in case a legal entity  fails and/or otherwise neglects to proceed with the relevant payment, it shall be liable for a criminal offence and be subject to a fine of 10% of the chargeable amount.

In light of the above, we strongly advise that companies arrange for the settlement of the aforementioned fee, as per the methods of payment and within the timeframes indicated on the relevant invoices issued by the Municipality. 

Should you require any clarifications and/or any support on the above, please do not hesitate to contact us by email. 

The exclusive purpose of a Pure Holding company is the acquisition and holding of shares as an investment activity with the intention of receiving dividend income. For VAT purposes, this does not qualify as an economic activity and consequently the company does not have the status of a taxable person.

Pure Holding Companies, by definition are not performing economic activities and have neither the obligation nor the right to register for VAT purposes and consequently they cannot claim back input VAT.

However, the minute a holding company starts to be involved in additional taxable economic activities such as:

• direct or indirect involvement in the management of its subsidiaries for a consideration. The economic activity involves not only supplying services for consideration but also for the purposes of obtaining income on a regular basis. We note that management services are very widely defined and usually are of administrative nature, accounting or information technology services or even property management of its subsidiary such as leasing;
• provision of interest-bearing financing to its subsidiaries (unless the financing is sourced from dividends distributed by the subsidiaries to which finance is granted);
• trading in shares i.e. purchasing and selling shares on a frequent basis with the intention to profit from the fluctuations of the share price;

then the Pure Holding Company becomes a Mixed Holding Company that may create an obligation or have a right to register for VAT purposes.

Much is written on VAT and Mixed Holding Companies partly because of the plethora of cases, and partly because, the area brings out some important principles, relevant not only to holding companies but to input VAT recoverability in general.

Criteria for recovery of Input VAT

There are three questions which must be answered affirmatively for a holding company to recover the VAT on its costs:

• Is the holding company a taxable person carrying on an economic activity?
• Is the holding company the recipient of a supply service?
• Is there a ‘direct and immediate’ link between the costs incurred and a taxable economic activity?

When dealing in shares, the consequences in terms of input VAT deduction are not always consistent and instead they depend on the taxable status of the person holding them.

The following summarizes the grounds on which a holding company may entitled to claim back input VAT.

Holding of shares – Deductible as overhead cost if the holding company meets the ‘direct and indirect involvement test’ and supplies taxable transactions. Partial attribution applies if the holding company manages some of its subsidiaries.

Receipt of dividends – Exempt income and they should be excluded from the denominator of the fraction used to calculate the deductible proportion.

Interest on loans – Exempt income and it should be excluded from the denominator of the fraction used to calculate the deductible proportion. Exemption to this rule is interest income deriving from loans from non-EU countries.

New issue of shares – They are deductible if there is a ‘direct and immediate link’ to the overall business activity, thus treated as overhead costs. When the company performs taxable and non-taxable activities, the apportionment calculation is required.

Disposal of shares – No entitlement since costs are related to an exempt transaction. Costs can be recovered if there is a ‘direct and immediate link’ or when the sale is regarded as a transfer of going concerned.

Input VAT of Mixed Holding Companies, that cannot be attributed to a single activity, is required to be apportioned between business and non-business activities and then between business activities that have the right to recover the input VAT vs. the business activities that do not have such right.

Conclusion

It is evident that the treatment of VAT of Holding Companies is a grey and complex area under certain circumstances. Holding companies should therefore plan carefully as in most cases the recoverability of input VAT depends on how the costs incurred are classified.

Given the recent VAT amendments (click here to read our relevant previous article) and the increase in VAT related penalties it is advisable that all companies perform an annual VAT audit on their activities and transactions to ensure compliance but also reducing the risk of a big VAT liability in the future.

On the 31^st of July 2020 the House of Representatives voted amongst others the following amendments on Assessment and Collection of Taxes Law (the “Law”). The amendments were enacted into law on the 20^th of August 2020.

1. Obligatory submission of personal income tax returns from 2020 and onwards

As from tax year 2020 onwards, all individuals, except those who meet the criteria that will be set by the Council of Ministers, with gross income which falls   under   the provisions of Article 5 of the Income Tax Law are obliged to submit a personal income tax return.

Gross income described under Article 5, includes among others, dividends, interest and profits from share dealings which may be not taxable under any tax or not taxable under income tax. 

2. Submission of revised income tax returns

Pursuant to Article 5B of the amendment Law, the taxpayers may submit a revised tax return for tax years 2020 and onwards, within 3 years from the submission deadline of the relevant tax return and only if the revision arises:

• as a result of claiming a relief, deduction or tax credit; or
• as a result of correcting an error; or
• for the purposes of being consistent with the provisions of the tax laws.

Despite the above stated, a revised tax return cannot be submitted during a tax examination or a tax audit of the relevant tax return.

A taxpayer must settle any tax liabilities arising from the revision, within 30 days from the submission of the revised tax return.

3. Employer’s return

The deadline for the electronic submission of the Employer’s return (TD7) is amended from the 31^st of July to the 31^st of May of the year following the tax year. 

There is also a new provision that clarifies that emoluments include the deemed   benefit from loans provided by a company to the directors/shareholders and their related individuals and should be included in the Employer’s return (TD7).       

4. Accepting payments through credit cards

Article 30A of the amended Law provided that persons which exercise any economic activity will be obliged to accept credit card payments. The persons falling under this provision will be set by a Decree of the Council of Ministers.

In order to meet this requirement, they would need to have the appropriate equipment, made available from licensed credit card payment providers.

As from 21 February 2021, in case of non-compliance, an administrative fine of up to €2.000 will be imposed. No refund in case of non-compliance with VAT obligations id provided.

5. Tax refunds

The refund of any tax will be suspended in cases where the taxpayer has not submitted any VAT return due by the end of the tax year in which the examination for the refund began, until the taxpayer complies with this obligation.

The Cyprus Tax Department informed that from 27 July 2020 the procedure for stamping documents, based on the value of the contract, changes. This relates only to initial contracts (and not supplementary contracts) of real estates rentals and leases, employment contracts, and sales and purchases contracts.

Special Tool for Stamp Fee Calculation

The Tax Department has created an online tool that allows the users to calculate the stamp duty. The tool is is available by clicking here.

Procedure

1. Stamp duty over Euro 100

Using the Special Tool for calculating the stamp duty, the user prints the resulting form that needs to be submitted to the District Tax Collection Offices for payment. The resulting receipt is then presented to the competent Tax Department Officer with the document to be stamped. 

2. Stamp duty up to Euro 100

Using the Special Tool for calculating the stamp duty, the user emails the resulting form to the email address which appears on the Special Tool. The user purchases the necessary stamps from an authorised dealer (NOT from the District Tax Offices) affix and cancels the stamps (double diagonal line on the stamp, initialled by the interested party and date of cancellation).

New VAT amendments have been recently voted by the Parliament and are in force since  their publication in the Official Gazette of the Republic on the 20^th of August  2020. The amendments include, inter alia, the following changes:

–MEASURES MOST LIKELY TO AFFECT INTERNATIONAL AND LOCAL BUSINESSES:

A. Credit balance VAT

• The TAX Commissioner has the right to suspend the payment of VAT credit balance in case where a taxable person cases where taxpayers have failed to comply with the obligation to submit income tax returns. The refund is suspended until the taxpayer complies with the relevant obligations. In case of such suspension, no default interest is calculated on the credit balance.
• The right to request refund of a VAT credit balance can be submitted after the lapse of six (6) years from the end of the VAT period in which it arose. Any requests submitted after the six-year deadline has elapsed will be examined at the discretion of the Tax Commissioner.

B. Change and increase of penalties

The financial charges of article 45 are amended as follows:

1. the penalty for late submission of VAT returns is increased from €51 to €100;
2. non-compliance with a reverse charge under Articles 11, 11A, 11B, 11C, 11D, 11E and 12A will result in the imposition of €200 per VAT return which may not exceed a total of € 4,000. The penalties in relation to the non-application of the reverse charge mechanism will apply as of 1st July 2021.

C. Obligations for VAT registration of Non-resident taxpayers in the Republic

Taxpayers who are not established in Cyprus but are engaged or expect to be engaged in taxable activities in Cyprus in the course of their business, will have the obligation to register for VAT purposes, without a VAT registration threshold.

D. Deadline for submitting an objection to the Tax Commissioner

The deadline for submitting an objection to the Tax Commissioner is set at 60 days from the date of the notification of the decision of the Commissioner to the taxpayer.

–MEASURES MOST LIKELY TO AFFECT LOCAL BUSINESSES:

A. Extension of reverse charge under Article 11B for construction

• Article 11B which shifts the obligation to account for VAT on construction services from the supplier to the recipient of the services, widens in scope to capture transactions that are supplied by non-taxable persons.
• This means that even if the supplier is not a taxable person registered for VAT purposes, the recipient (himself being a taxable person) would still have an obligation to self-account for VAT on services or services together with goods in relation to construction, modification, demolition, repair or maintenance of a property in the course of business.

B. Reverse charge for local electronic goods transactions (e.g. mobile phones).

• As from 1 October 2020, new provisions are being adopted (Article 11E) where VAT is now imposed by the recipient by the method of reverse charge on local deliveries of goods fall into the categories such mobile phones, other devices operating in networks, microprocessors, central processing units, gaming consoles, tablets and laptops.
• The reverse charge is mandatory where the recipient is a taxable person at the time of the transaction and receives the goods in the course of an exercise or for the purposes of promoting a company’s business activity.

C. Passenger Transportation Services

Passenger transportation services to and from the Republic are subject to the zero rate VAT to the extent the transport takes place within the Republic.

The Government of Cyprus made certain amendments to the Cyprus Investment Program (CIP) in order to maintain its momentum and to safeguard its continuation.  

The main revisions are the following:   

1)    High risk persons that are part of the below categories are not eligible to apply: 

1. persons whose assets are under a freezing order within the European Union (EU);
2. persons that have been categorized as Politically Exposed Persons (PEPs) as defined by the Anti-Money Laundering Law 12 months prior to the application; 
3. persons who have been convicted or are subject to an investigation fora serious criminal offense which results in a prison sentence of five years; 
4. persons or related persons or related entities that are or have been subject toEU sanctions; 
5. persons or related persons or related entities who are or have been sanctioned by the EU or United Nations (UN) during the twelve months prior to the submission of the application; 
6. Personswho are wanted across Europe by EUROPOL or internationally by INTERPOL. 

 2) Parents of the main applicant’s spouse can now also apply as dependents provided that they purchase an additional real estate for a minimum of EUR 500,000 plus VAT in Cyprus.  

3) The family members of the investor can now apply simultaneously with the main applicant. Thus, all family members are examined simultaneously.

4) The clean criminal record from the investor’s country of residence that is submitted with the application needs to be less than six months old. It used to be three months. 

5)  The total amount of donation increases by €50,000, from €150,000 to €200,000. The donation can be made to the following government approved funds: 

1. Research & Innovation Foundation
2. Industry & Technology Service
3. Renewable Energy Fund (RES) and Energy Saving
4. Cyprus Land Development Corporation
5. National Solidarity

It is important to note that the donation of €200,000 must be made in the period after the approval of the application and before the issue of the citizenship certificate. 

6) The investment option of establishing or acquiring or participating in a business in Cyprus has also been modified to employ nine Cypriot or EU citizens instead of five. 

We believe the changes are further shielding the CIP and should maintain its position as the most desirable Investment Program in EU and one of the top programs around the world. 

On the 10th of August 2020, Cyprus and Russia have agreed on a revised Double Tax Treaty (DTT), that is expected to become effective on the 1st of January 2021. 

The revised DTT, most importantly raises the withholding tax rate for dividends and interest paid out from Russia to 15%. However, interest payments from Corporate and Government Bonds as well as Eurobonds are excluded from the 15% withholding tax. In addition, dividends received from regulated entities, such as pension funds, insurance companies and listed companies will also be exempted from the 15% withholding tax. Cyprus will provide for a tax credit on the withholding tax paid in Russia thus avoiding double taxation.   

The Russian government is imposing the same tax rates with DTTs with Malta, Netherlands and Luxembourg. Therefore, it was extremely important for Cyprus to agree to the new Russian terms as a different approach would have resulted to an end of the current DTT with much worse consequences.  

The swift movement of the Russian government is a result of the current economic downturn and measures to increase its revenues. 

The Corona Virus pandemic has affected all economies around the world; however, Russia was particularly affected as the pandemic had a knock-on effect on crude oil and natural gas prices as Russia’s biggest revenue sector. 

The Russian government expects that the changes in the DTT will increase annual tax revenues by approximately Euro1.5 billion. 

French President Emmanuel Macron’s show of strength had a catalytic effect in reaching a consensus among the 27 EU member state leaders.  

The agreed recovery plan it involves Euro 750 billion in loans and grants to be shared by EU member states to fight the economic effects of the corona virus pandemic. Euro 390 billion will be provided to member states in the form of grants and the rest Euro 360 billion as low-interest loans. 

It is a huge joint borrowing and the biggest by far ever agreed by the EU.  

The EU member state leaders summit started on Friday the 17^th of July 2020 and lasted for more than 4 days until the early hours of Tuesday the 21^st of July 2020.  

The agreed recovery package will undergo a technocratic review and agreement and will be put for voting by the EU parliament.

“We have reached a deal on the recovery package and the European budget. These were, of course, difficult negotiations in very difficult times for all Europeans. A marathon which ended in success for all 27 member states, but especially for the people. This is a good deal. This is a strong deal. And most importantly, this is the right deal for Europe, right now.” – President Charles Michel at the press conference of the European Council.

CLICK HERE for President Charles Michel’s remarks after the Special European Council, 17-21 July 2020

The “Cyprus Startup Visa” programme allows talented entrepreneurs from third countries, outside the European Union (EU) and outside the European Economic Area (EEA), individuals or in a team, to enter, reside and work in Cyprus in order to establish, operate  and develop a startup with a high growth potential. The programme consists of two schemes: (i) individual and (ii) team.

Individual Scheme

Who can benefit:

Non-EU country nationals who:

• Is the only founder and meets the requirements of the enterprise below.
• Has access to €20,000, which may include venture capital funding, crowdfunding or other sources of funding.
• Has very good knowledge of the Greek and/or English language.

Requirements of the Enterprise:

• The enterprise must be innovative. The enterprise will be considered as innovative if its research and development costs represent at least 10% of its operating costs, in at least one of the three years preceding the submission of the application, as certified by an external auditor, on the basis of international accounting standards.  In the case of a new enterprise without any financial history, the evaluation will be based on the Business Plan submitted by the applicant.
• The Business Plan must provide that the enterprise’s head offices and tax domicile be established in Cyprus. The head offices may be common co-working spaces (e.g. business accelerators, incubators, digital hubs etc.) or co-location with other enterprises.

What are the benefits for the founders:

• The individuals who will be approved and participate in the Individual Scheme will benefit from the following:
• Right to economic activity and residence in the Republic for one year, and with the possibility of renewal for at least another year.
• Right to self-employment or right to paid employment in his/her registered company within the Republic.
• Prospective residence in the Republic without any maximum time restrictions, if the enterprise succeeds.
• Enjoyment of family reunification, if the enterprise succeeds.
• Prospective recruitment of specific number of personnel from non-EU countries without prior approval of the Department of Labour, in case of success of the enterprise. The success or failure of the enterprise will be assessed at the end of the second (2) year.
• For persons eligible to participate in the scheme there is no maximum period of residence in the Republic as long as they are under this scheme. As a result, these persons have the prospect of long-term residence in the Republic and directly acquire the possibility of family reunification in the case of paid employment and when the family members are already in the Republic. In the case of self-employment, immigration law allows family reunification after two years and while family members are abroad.
• It is possible to transfer to the Team Scheme, provided that the requirements for that scheme are met and provided that the number of 150 visas has been reached.
• In case the requirements for the Team Scheme are not met, and/or the founder wishes to recruit in his/her enterprise additional foreign personnel, then the existing procedures for recruiting foreign personnel should be followed by obtaining the approval of the Department of Labour. It is clarified that the Department of Labour will approve additional recruitment of foreign personnel in the cases where the total number of foreign workers in the enterprise does not exceed 30% of the total staff.

Team Scheme

Who can benefit:

Team consisting of Non-EU country nationals:

• Comprises: solely of founders that meet the requirements of the enterprise below and are of a maximum number of five (5) individuals, or; of at least one (1) founder and other senior executives that their total does not exceed five (5) individuals. The senior management must belong to the third level of the administrative hierarchy and will have the right to stock options.
• Possess, in total, more than 50% of the company’s shares.
• The founder has access to €10,000. In case the founders are more than two (2) the total capital must be €20,000 which may include venture capital funding, crowdfunding or other sources of financing.
• At least one of the team members holds an undergraduate or an equivalent professional qualification.
• All team members have a very good knowledge of Greek and/or English language.

Requirements of the Enterprise:

These are the same as with the Individual Scheme.

What are the benefits for the founders:

Τhe persons that will be approved and participate in the Team Scheme will benefit from the following:

• Right to economic activity and residence in the Republic for one year, and with the possibility of renewal for at least another year.
• For the Founders: right to paid employment in their registered company within the Republic.
• For the senior executives: right to paid employment in a company that the founders will register in the Republic.
• Prospective residence in the Republic without any maximum time restrictions, if the enterprise succeeds.
• For persons eligible to participate in the scheme there is no maximum period of residence in the Republic as long as they are under this scheme. As a result, these persons have the prospect of long-term residence in the Republic and directly acquire the possibility of family reunification in the case of paid employment and when the family members are already in the Republic. In the case of self-employment, immigration law allows family reunification after two years and while family members are abroad.
• Prospective recruitment of a specific number of personnel from non-EU countries without prior approval of the Department of Labour, in case of success of the enterprise. The success or failure of the enterprise will be assessed at the end of the second (2) year.
• At any time within the two (2) years of the Notification of Initial Approval, there is the possibility for completing the maximum number of five (5) team members, provided that the requirements of the scheme are met and provided that the number of 150 visas has been reached.
• In case the company wishes to recruit additional foreign personnel, then the existing procedures for recruiting foreign personnel should be followed by obtaining the approval of the Department of Labour. It is clarified that the Department of Labour will approve additional recruitment of foreign personnel in the cases where the total number of foreign workers in the enterprise does not exceed 30% of the total staff.

Why Cyprus:

Low Business Costs

Starting and running a business in Cyprus reduces the costs of launching, giving you a longer runway and more flexibility. The money saved on starting and running costs means that more capital can be put into the growth and development of your business.

Attractive and Simple Tax System

Cyprus has one of the lowest tax burdens in Europe and a highly competitive set of tax incentives for businesses and individuals. The Corporate Tax rate of 12.5% is one of the lowest in Europe.

Excellent Regulatory Structure

Cyprus has an efficient regulatory structure for starting and running a business, the legal system is closely aligned to the English common law legal system and with a strong protection for IP.

International Business Center

Cyprus has a wide range of services to make starting and running a business stress free.

Cyprus and EU Grants & Funding

New tech companies can apply for a range of both national and European grants and incentives.

EU Connection & Access to Markets

In 2008, Cyprus became a member of the Eurozone. As a member of the EU, companies in Cyprus have full access to the European market and EU trade agreements.