Filenews 12 March 2023 - by Eleftheria Paizanou
"Business" was set up by 150 foreigners in Larnaca, who bought seaside luxury villas, paying reduced VAT on the first 200 square metres of real estate (displaying them as their permanent residence) and then rented them through Airbnb and other online platforms, making a financial profit. Among the foreigners found to be misleading the state is a large number of investors, who were naturalized as Cypriots under the Cyprus Investment Program.
According to information from "F", these foreigners were playing hide-and-seek with the tax collectors of the Tax Department, as, due to the fact that they did not live in the properties, which they christened "main residences", it was not easy to locate them during the on-the-spot checks carried out by the state officials to determine whether the measure of the reduced VAT rate of 5% was correctly applied when buying or building a primary residence. However, the Tax Department did not stand idly by, and as part of the campaign to comply with the VAT law, they managed to track them down and tax them. Their identification was achieved after specialized analyses carried out by the officers of the Tax Department and based on the degree of risk of non-compliance with the legislation. The 150 foreigners will be required to pay the Republic additional taxes of €7 to €8 million. This amount corresponds to 14% of the VAT that the offenders will pay in addition, since, due to the fact that the properties are not used as their main residence, from the beginning they would have to pay 19% VAT and not 5%.
The amount of €8 million will be added to €26.3 million. which another 391 persons are required to pay as they also violated the law.
The competent Department began its campaign last October and by the end of 2022, 2,171 on-the-spot checks were carried out on properties for which reduced VAT had been imposed but their owners did not use them as their first homes. From the total of the checks, 1,039 persons were found to reside in the properties, of which 391, although they stated that the properties would be used by them as a permanent place of residence, in the process either rented them or used them as holiday homes.
The intensive efforts made by the Tax Department have borne fruit and at the same time the message is sent that such behaviours are no longer tolerated. Compliance campaigns will be continued and strengthened.
The Superintendent of Taxation, Sotiris Markides, told "F" that the Department is not complacent about the good results that the campaigns have brought. He assured that the controls would continue and be intensified. The results of the inspections prove that for years there was unaccountability with the reduced VAT on real estate, which also confirms the Commission's findings on abuse of the social measure set by the European Directive.
And all this, at a time when an effort is being made by the Ministry of Finance to find a new formula in the bill pending in Parliament, which will satisfy the Government, the Parliament and Brussels. It is recalled that the EU had given a deadline of February 15 to the Republic to change the legal framework, which it did not do and there is a risk of referring the country to the Court of Justice of the European Union.
