Filenews 3 November 2022 - by Eleftheria Paizanou
It is not enough that they benefited with only 5% VAT when buying or building a main residence, they had/have additional financial benefit, as they rent the luxury villas and apartments, either by the method of airbnb, or otherwise. To the winners, not only Cypriot but also foreign investors, who secured Cypriot citizenship under the Cyprus Investment Program.
These and many other blatant abuses of the otherwise "social measure" for reduced VAT were identified by the officers of the Tax Department during the on-the-spot inspections they carried out in recent weeks. Almost one in ten inspected properties is not used for owner-occupation or primary residence purposes, but is rented. About half appear to be uninhabited! Specifically, the Department proceeded to 649 on-the-spot checks, finding that 67 properties, corresponding to more than 10%, were rented, resulting in the owners of the premises being required to pay taxes of €5 million, which is the difference in VAT That is, they will pay an additional 14%, so that the regulation of a VAT rate of 19% will be imposed on them.
The law provides that those who paid 5% VAT and do not use the property as their main residence, then pay the additional tax. The tax collectors identified cases of foreigners who, as soon as they benefited 5%, went abroad and rented the properties. There were also cases of real estate where they were initially declared as the main residence, but in essence it was a holiday home, as the owners lived for a short time and when they did not use it they received income through renting. Among the offenders were 5-6 investors who have purchased properties worth more than €2 million. This is confirmed by the data of the Tax Department in relation to the amount of taxation it imposed. For example, in Limassol, 34 properties were identified that were rented and the VAT imposed was €2.6 million. Moreover, in the Free Area of Famagusta, although no tenants were identified, 27 properties were rented through bookıng or airbnb, resulting in an additional VAT of €1.8 million. In Nicosia, 29 properties were identified that were rented while the tax imposed was €491,000. In the capital, most of the properties rented are for one-bedroom apartments and are located near the universities. In these cases, buyers, in order to take advantage of the reduced VAT, declare that the property belongs to their children, who do not live in it. In Larnaca, four properties with tenants were identified but two were rented through aırbnb, with the additional tax being €78 thousand.
Of the 649 on-the-spot checks, only 308 properties were found to be used by owners for owner-occupied housing. In another 341 properties, no persons were found to reside in them. This reinforces suspicions that buyers took advantage of reduced taxation, bought the property because they were obliged to obtain a passport and... they became smoke.
Significant losses
The Tax Department will continue its daily on-the-spot checks on thousands of other properties. From 2013 to 2022, 32,000 taxpayers paid 5% VAT. thousand. It is recalled that the Audit Office found that the state had a loss of €204 million from the utilization of 5% VAT by 1,298 investors. On the other hand, the Ministry of Finance estimates that in 2021 alone, the state had a loss of revenue of €203 million from the reduced VAT, which benefited 5,400 taxpayers. And all this at the same time, the infringement procedure by the Commission continues to run, while the bill for the compliance of the Republic with the Directive is still pending in Parliament.
POINT OF VIEW
To give tools to the Dept. Taxation
The audits of the Tax Department began to bring results, despite the understaffing problems it faces. The checks could have been done much earlier, but albeit belatedly they are in the right direction. If additional tools are given to the Tax Department, the state's tax-collecting capacity will be strengthened. In addition to the controls, it would be good for the Parliament to find a formula that will satisfy both the Government and the stakeholders, and the EU, in relation to the bill that will differentiate the policy on 5% VAT.
