Nicosia – Cyprus has decided to waive penalties and interest on Value Added Tax (VAT) for a period of time as part of its efforts to curtail the adverse effects of the coronavirus pandemic on the local economy.
The VAT measures were enacted by the House of Representatives on 27 March 2020.
The actual amendments to the legislation are made to the articles that impose penalties and interest on VAT liabilities, and on articles relating to tax offences for VAT matters.
More specifically, the following apply:
- No penalties and interest will be imposed for the late payment of any VAT due for the following three VAT quarters ending on the 29th of February 2020, the 31st of March 2020 and the 30th of April 2020, provided that:
- The relevant VAT Return is submitted on time (40 days after the end of the relevant quarter) and
- Any VAT payable is paid by the 10th of November 2020.
It is clarified that the late submission of the aforementioned VAT Returns will entail the imposition of the relevant penalty.
- The late payment of VAT, will not constitute a tax offence according to the Law if the VAT payable is paid by 10 November 2020.
The application of the amendments does not apply to certain categories of businesses as follows:
- Suppliers of electricity
- Collection and distribution of water (for water supply)
- Groceries and supermarkets that are mainly for food
- Convenience stores and mini markets
- Retailing of a variety of goods in department stores where food, beverages and tobacco are not predominant
- Retail of fruit and vegetables – fruit shops
- Retail sale of meat and meat products including poultry
- Retail sale of fish and seafood-fish and molluscs
- Retail sale of bread, other bakery and confectionery products
- Retail sales of fuel
- Retail sale of computers, peripherals and software including video games
- Retail sale of books
- Retail sales of newspapers and stationery
- Retail sales of toys of all kinds except video games
- The Cyprus Telecommunications Authority (CYTA)
- Internet services
- Satellite telecommunications services
- Other telecommunication services besides CYTA
This is a very positive step for the businesses benefiting from them, as it is anticipated they are experiencing strains on their cash flow. It is important to clarify that within the enacted measures, the initially announced conditions for benefiting for the deferral of the VAT payment based on turnover limits have been alleviated. Further, the enacted measures do not make any reference to VAT rate reductions which mainly aim at boosting consumption which during the pandemic period is not a main concern.
In our opinion, there are certain inherent problems present, as follows:
- There is a delay for the payment of the VAT but not for the submission of the VAT declaration. The problem here is that the accountancy departments are understaffed and sub-working. The accuracy and completeness of the books and records will suffer meaning that the VAT declarations that will be submitted may be incomplete. Where the net of the corrections (output less input VAT) exceeds EUR1,7k in absolute value, a taxable person has to apply for the correction in writing to the Tax Department and await the reply in writing. In such a case, where the reply of the Tax Department comes after the 10 November, it is not clear that the penalties and interest will not be imposed.Some options could be:
- either to pay the VAT that is due before the 10 November regardless of the procedure for effecting corrections;
- or for corrections on which such letter has been sent to the Tax department, no penalties and interests to be imposed, given that the taxpayer will abide by the instructions received by the Tax department
- The way the legislation has been drafted, it appears to exclude, by making reference to Article 20 of the Cyprus VAT law, and not also to Article 20A, taxable persons that supply goods subject to special excise duties, such as tobacco products, fuels, alcohol and new motor vehicles. This will need to be clarified.