Understanding Proposed Tax Compliance Measures in Cyprus

What are the Proposed Tax Department Powers?

In recent legislative discussions, the Cyprus Tax Department has suggested a contentious provision to seal premises of non-compliant businesses. This proposal forms part of an extensive tax reform aimed at enhancing tax compliance in Cyprus. The measure targets firms with significant lapses such as failing to submit tax returns for two years or owing substantial unpaid taxes. The intent is to enhance visibility of tax compliance enforcement and ensure fair competition among businesses.

How are Stakeholders Responding to the Proposed Measures?

Despite its aims, the proposal has encountered significant resistance from professional bodies such as the Cyprus Bar Association and the Institute of Certified Public Accountants of Cyprus (ICPAC). They argue that the framework isn't legally sound and unfairly impacts businesses. The 10+10+5 day compliance period is deemed unrealistic, especially for businesses preparing audited accounts. There's concern that sealing could hinder businesses from accessing critical files necessary for compliance.

What Are the Implications for Cyprus Businesses?

For companies operating in Cyprus, the proposed powers represent a fundamental shift in compliance expectations. Business owners must now navigate stricter measures while ensuring timely submission of tax returns and payments. While the measure intends to protect public revenue and encourage fair competition, concerns remain about potential disruption to business operations and the need for clear, fair processes.

How Do the Proposed Powers Compare to Other EU Countries?

When benchmarking against other EU countries, only Greece and Bulgaria implement similar business sealing measures, albeit limited to VAT violations. Greece introduced such measures to address failures in transmitting retail data electronically, while Bulgaria focuses on VAT non-compliance. This positions Cyprus as pioneering extensive direct taxation enforcement, yet raises questions about harmonisation with broader European tax compliance practices.

What is the Role of Compliance in Strengthening Business Trust?

The Tax Department stresses that visible compliance actions, such as sealing, serve as a powerful deterrent against violations, bolstering compliant businesses' confidence in a fair tax system. Implementing these measures is seen as a restoration of justice, promoting a culture of tax compliance that enhances trust among businesses and the public.

Cyprus businesses must stay informed about these developments and consider necessary compliance adjustments. Should you have questions on the evolving tax landscape, feel free to reach out by email at info@klztlaw.com.

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