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Now is the time for tax compliance
Since December 2016, Cyprus has incorporated to its tax legislation, the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information between the countries that have signed the agreement. The number of countries that will be exchanging information is approximately 100, a number that continues to increase. Some of the countries will start exchanging information associated to the calendar year 2016, whereas the rest of the countries for the calendar year 2017. Information on previous years will not be disregarded, but will be given as part of the opening balance of the bank account, irrespective of whether the account was closed before the 1st January of either 2016 or 2017. Apart from the bank balance, information on dividends, interest, investment product transactions, insurance products and other will also be exchanged.
The exchange of information relates to individuals and companies that have assets in one jurisdiction but are tax residents to another, with the information being sent to the jurisdiction in which the owner of the assets is tax resident.
Cyprus tax residents, both individuals and companies that have included their worldwide income in their tax declarations are not going to be negatively affected from the provisions of the agreement.
On the other hand individuals and companies that have failed or omitted to complete their tax declaration form correctly, have a chance to do it now, in a relatively favorable way outlined below.
Companies managed and controlled in Cyprus will be subject to Cyprus taxation not only on the income sourced in Cyprus but also on their worldwide income, irrespective of their country of incorporation or registered office.
Individuals Cyprus residents are often unaware that they are subject to tax in their worldwide income and not only in their income from sources in the Republic.
The law that has passed through the Cyprus Parliament for the settlement of tax liabilities that have been outstanding for all the years including the tax year ending 31 December 2015, entered into force on 3rd July 2017.
As per this law, taxable persons that contact the Inland Revenue by the 3rd October 2017 (i.e. within three months from the date of enforcement of the legislation), declare and pay their tax liabilities will benefit from significant tax savings on interest and penalties. The only requirement for the application to be made is that the applicant submits by that date, all tax declarations provided by the law.
If tax is paid once-off then a 95% interest and penalties exemption applies. If the payment is made in monthly installments, the exemption to the penalty and interest is respectively reduced, depending on the number of installments. If the payment occurs in 60 monthly installments, which is the highest number of installments allowed, the exemption is reduced to 50%.
We encourage individuals and companies that have failed or omitted to declare their overseas and Cyprus income to make use of their time until October 3rd, 2017 by submitting their tax returns on time and requesting relief from penalties and interest that would otherwise apply.
The submission of tax returns by October 3rd, 2017 and subsequently the request for significant reduction of penalties/interest is the right opportunity for those who have incorrect tax declarations. Hence now is the time for tax compliance.