Tax Newsletter. Amendments to the tax legislation LAW AMENDING THE INCOME TAX LAWS

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1 Tax Newsletter Cyprus August 2014 Issue 1 For additional information please call: Philippos Raptopoulos Phone: Philippos.Raptopoulos@cy.ey.com Petros Liassides Phone: Petros.Liassides@cy.ey.com Amendments to the tax legislation During the months of June and July 2014, the House of Representatives voted a number of legislative amendments in relation to taxation matters and which have been published in the Official Gazette of the Republic of Cyprus. We set out an explanation of these changes herein below. LAW AMENDING THE INCOME TAX LAWS Innovative Business The Income Tax laws were amended in order for costs which were incurred by a person for the purchase of shares in an innovative business to be deductible from this person s taxable income. According to the law, the term innovative business means the business: (a) which can demonstrate, through a comprehensive study performed by a special external expert, that it may in the near future, develop new or substantially improved products, services or processes in relation to highly improved products services or market operations and which pose the risk of technological or industrial failure, or (b) of which its research and development expenses, represent at least the 10% of its aggregate operational expenses, in at least one out of the three last years prior to the granting of the aid or in the case of a business which is currently in the start-up phase and has no financial history, to the audit of the current tax year, as certified by an external auditor; Furthermore, the law was amended so that, in order to ascertain the taxable income of every person, all costs which the person incurred wholly and exclusively for generating the income will be deductible, including expenditure for scientific research, research and development carried out by innovative businesses, incurred by a person who operates a business, provided that the Commissioner is satisfied that these expenditure were incurred for the use and benefit of the business. Capital gain expenditure which does not qualify for capital allowances will be distributed equally between the tax year in which these were made and in the immediate following five years. This amending law comes into force from the date of its publication in the Official Gazette of the Republic of Cyprus, that is, as of the 25 th July 2014.

2 LAW AMENDING THE ASSESSMENT AND COLLECTION OF TAXES LAWS Payment of taxes via self assessment by employees The Assessment and Collection of Taxes laws were amended in order that from the year 2014, the submission of taxes via selfassessment by all taxpayers is made obligatory including employees. In such a case, the taxpayer is obliged to pay the assessed tax within two months from the date of expiration of the deadline upon which the said person is obliged to submit his tax return. Therefore, the deadline for the payment of tax is until the 30 th June of the year following the tax year for which the return relates to. In the case of electronic filing of the return, the deadline for the payment of the tax could possibly be extended by three months, that is, until the 30 th September of the year following the tax year for which the return is being submitted for. In the event where payment of the tax owed is not made in due time, then interest and charges are imposed. In the event where the taxpayer is entitled to a tax refund, the amending law provides that the tax which was paid in excess is refundable within two months from the end of the month within which the tax return was submitted. False declarations The Assessment and Collection of Taxes laws were amended so that in the event where a person fraudulently or deliberately submitted an inaccurate declaration/inaccurate accounts/information as well as in the event where a person who collaborates/assists/advises/abets/urg es in submitting such information is a legal person, then the executive director, the members of the board of directors and any other officer which has duties relating to the financial control of the legal person or any person who appears to be acting under such capacity, are deemed to participate in the commission of an offence and are guilty of such provided that it is proved that they fraudulently collaborated in the commission of the offence. Under the existing law, a person who commits any offence as described above is liable, upon conviction, to a fine not exceeding Euros and/or to a prison sentence for a period not exceeding five years. In case of conviction of a person who intentionally or knowingly submits inaccurate declaration/inaccurate accounts/information, that person is obliged to pay the taxable amount due and a fine not exceeding four times the amount of the additional tax. This amending law comes into force from the date of its publication in the Official Gazette of the Republic of Cyprus, that is, as of 20 th July Fraudulent omission or delay in the payment of taxes A person, who omits or delays in paying the tax amount due from him, which is withheld pursuant to the Taxation of Income Laws, the Special Contribution to the Defence laws, the Special Contribution of Employed, Pensioners and Self-Employed Persons in the Private Sector law, is guilty of an offence, and in the event of conviction is liable, in the case of a company, to a fine not exceeding five thousand euros and in the case of a natural person to a fine not exceeding five thousand euros or to a prison sentence not exceeding two years or to both of these sentences. When the offence is committed by a legal person, the liability for this offence, in addition to the legal person, is also placed upon the members of the board of directors and any other officer having responsibilities in connection with the financial control of the legal person or any person appearing to act under any such capacity and in the event of conviction is liable: (i) (ii) For a total amount of tax due of and below, to a monetary penalty of up to 20% of the due tax; and For due tax over the amount of 1.700, in addition to the sentence provided in subsection (i), to a prison sentence not exceeding two years or to both of these sentences. News and Views from EY - August 2014 [2]

3 A person who is proven to have fraudulently or delayed payment of the tax due by him and which does not fall within the category of taxes mentioned in the above paragraph is also subject to the above sentences. Furthermore, the amending law provides that in the case where an objection has been filed by a taxpayer for the purposes of re-examination and reassessment of the imposed tax which results in an agreement made between the Director and the person objecting or the Director determining the amount of the tax, the taxpayer is given a three month time limit in which he must pay the agreed or assessed amount of the tax. In the event where the agreed or assessed amount of the tax is not paid within this time limit, the person is guilty of an offence and in the event of conviction is liable, in the case of a company, to a fine not exceeding five thousand euros and in the case of a natural person, to a fine not exceeding five thousand euros or to a prison sentence not exceeding two years or to both of these sentences. This amending law comes into force three months from the date of its publication in the Official Gazette of the Republic which was the 20 th June 2014, that is, as of the 20 th September LAW AMENDING THE IMMOVABLE PROPERTY TAX LAWS Definition of the term immovable property The term immovable property was amended to include: Land, which is created after the backfilling of the sea, as well as rights and advantages thereon, Maritime space, which is declared as a marina pursuant to the provisions of the Arrangement of Marinas Law, which is to be backfilled for the creation of dry land, as well as the rights and advantages thereon. Payment of Tax For the year 2014, the deadline for payment of the tax is the 30 th of November In the event where a taxpayer proceeds with the settlement of his tax for the year 2014 up to and until the 31 st October 2014, a discount of 15% on the payable amount will be allowed. It is noted that if the payment is made after the 30 th of November 2014, an additional monetary charge of 10% upon the payable amount will be imposed plus interest and charges. Undivided shares in ownership and other cases The amending law provides that, in cases where there are undivided shares upon the immovable property, for the purposes of the Immovable Property Tax Law, it is deemed that the immovable property is owned by its owners according to their respective physical shares thereof. In cases of immovable property upon which buildings have been erected and sold and for which no title deeds have been issued or in the event where title deeds have been issued but the transfer of such has not been made into the name of the purchaser, the owner may submit to the Director by the 31 st March of every year, a list regarding each and every immovable property he has developed and for which a contract of sale exists during the 1 st January of the said year. For the year 2014, the above list is submitted within a time limit of forty five calendar days from the date that the Immovable Property (Amending) Law of 2014 comes into force, which was the 11 th of July The list mentioned above must include the following: The distinctive details of the sold building unit, The full name and address of the purchaser or assignee or beneficiary of the building unit, The date of the contract of sale or assignment deed, The date of completion of the construction, The date of delivery of possession of the sold building unit to the purchaser or to the assignee, The percentage on the total area of the constructions and the land which corresponds to the sold or assigned building unit. The Tax Department announced that it has issued circular ΤΦ for this purpose. Provided that the owner timely submits the referred to list to the Director, the obligation for the payment of tax in relation to every sold or assigned building unit is transferred to the respective purchaser, assignee or beneficiary and the Director issues the tax in the name of the purchaser or assignee or beneficiary of the building unit. In the cases where the issue of the title deed of the sold building unit is delayed due to the fault of the owner or in the case where the owner is a legal person and News and Views from EY - August 2014 [3]

4 which is under liquidation, the obligation for the payment of the immovable property tax is placed upon the owner. The above provisions of this amending law come into force from the 1 st of January We realise that the Government s intention is the imposition of immovable property tax from the year 2015 and onwards on the basis of the new general price valuation as at We note that for the year 2014, the imposition of immovable property tax will be on the basis of the valuation prices as at For this purpose, the Department of Lands and Surveys has proceeded with new valuations with prices as at In the event where a mistake or omission has been found in the details of the property, such as the area, year when it was built, access, town planning zone etc, the owner will be able to file an application for the correction of the mistake without paying any amount. The owners of immovable property, who disagree with the new value of the general valuation and not with the details of their property, will be able to submit an objection with any District Lands Registry Office by paying the respective fees. The said objection must be submitted in writing to the Director of the Department of Lands and Surveys within six months from the date of publication of the relevant announcement in the Official Gazette of the Republic, which was on the 25 th of July LAW AMENDING THE COLLECTION OF TAXES LAW The Collection of Taxes law has been amended in order to reinforce the Republic s collection of taxes capacity providing additional powers to the Tax Department. Seizure and confiscation of amounts which are in bank accounts and seizure of movable property In the event where any person refuses or omits or delays or neglects to submit the due tax owed by him to the Director and which exceeds three thousand euros, excluding the tax for which: The deadlines have not lapsed or for which the objection procedures or judicial review procedures have not been completed, or The instalments as determined by the Director have been duly paid, or The Council of Ministers have decided that the tax be granted or written off pursuant to the provisions of the Assessment and Collection of Taxes law or proceedings are pending as foreseen by these sections, or Security has been given for the payment of the tax due and which satisfies the Director, then the Director, notwithstanding any other provision of any law in force including any statutory provision in relation to compliance with bank secrecy, and upon written consent of the Attorney General, may apply to credit institutions and seek for the immediate seizure of any free and available amount belonging to the person in default and which is deposited in bank accounts in one or more credit institutions and which amount does not exceed the amount of the payable tax plus interest and charges. In the event where the total amount which is seized in one or more credit institutions exceeds the amount of the payable tax, the Director is obliged, within one working day from the date of seizure of this amount, to direct the credit institutions to release the additional amount, keeping only the amount which corresponds to the payable tax plus interest and charges. The Director is not permitted to keep any free and available amount owned by the defaulting person, leaving the total amount of the bank accounts of the said person to be less than two thousand euros. In the event where a seized (blocked) amount is placed on an account of the defaulting person which is a common account with other persons, then the credit institution must inform such persons regarding the seizure (blocking) of the amount. In the event where an amount has been seized (blocked) then the defaulting person has a right within fifteen calendar days from the date of being informed about the seizure of the amount to either: file a written objection to the Director requesting for a reassessment of his decision. The Director shall decide on the objection within fifteen calendar days from the date of submission of the objection, or (a) directly apply to the Court requesting for a decision to lift the seizure of all or part of the amount being seized (under conditions). In addition, the Director may confiscate movable property of such person up to twice the payable tax due plus interest and charges. News and Views from EY - August 2014 [4]

5 Registration of encumbrance upon immovable property In the event where any person refuses or omits or delays or neglects to pay the payable tax due by him and which exceeds five thousand euros for a duration over thirty calendar days from the date of when the tax became due, excluding tax for which: (a) The deadlines have not lapsed or for which the objection procedures or judicial review procedures have not been completed or the instalments as determined by the Director have been duly paid, or (b) The Council of Ministers have decided that the tax be granted or written off pursuant to the provisions of the Assessment and Collection of Taxes law or proceedings are pending as foreseen by these sections, or (c) Security has been given for the payment of the tax due and which satisfies the Director, then the Director may render any immovable property of such a person, with a value twice the amount of the payable tax due plus interest and charges and which is registered in his name in the records of the District Lands Registry as guarantee for the payment of the tax due. In the event where an encumbrance has been registered against immovable property, the defaulting person has a right, within thirty calendar days from the date of notification of registration of the encumbrance, to either: (a) file a written objection to the Director requesting for a reassessment of his decision. The Director shall decide on the objection within fifteen calendar days from the date of submission of the objection, or (b) directly apply to the Court requesting for a decision to lift the encumbrance (under conditions). The above provisions of this amending law come into force from the date of their publication in the Official Gazette of the Republic, that is, the 20 th of June 2014, and are applied in relation to taxes due and which have been assessed either before or after the coming into force of this amending law. LAW AMENDING THE VAT LAW The VAT law has been amended in order to reinforce the Republic s collection of taxes capacity providing additional powers to the Tax Department in relation to the seizure and confiscation of amounts in bank accounts, the confiscation of movable property as well as the registration of encumbrances upon immovable property. The amendments made are similar to those which were explained above in relation to the amendments to the Collection of Taxes Law. The provisions of this amending law come into force from the date of their publication in the Official Gazette of the Republic, that is, the 20 th of June 2014, and are applied in relation to taxes due and which have been assessed either before or after the coming into force of this amending law. The tax consultants of EY Cyprus would be glad to answer any questions you may have relating to the above legislative tax changes and assist you in complying with relevant provisions in the tax laws. EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com 2014 Ernst & Young Cyprus Ltd All rights reserved. This material has been prepared for general informational purposes only and is not intended be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice ey.com News and Views from EY - August 2014 [5]