Filenews 30 July 2025 - by Eleftheria Paizanou
Even with a random check on the tax files of natural and legal companies, the Audit Service included things and miracles in its report on the Tax Department, which it made public yesterday.
A sample of 134 tax files and portions of taxpayers registered in the system of the Tax Department were selected. Of these, 100 concerned companies and 34 were natural persons.
The audits found that 50% of the audited companies and 32% of the individuals either did not submit tax returns for two or more years, or submitted them late.
In addition, according to data provided by the Department of Taxation, for 2021 and 2022, 51% of companies registered in the Department's Register did not submit their tax returns, even though the date has passed. In addition, not even 60% of natural persons in the direct tax register submitted returns, as their incomes do not exceed the tax-free allowance of €19,500.
They died but were not deleted
According to data obtained by the Tax Department (through the Central Information Warehouse), for 6,705 natural persons who have died until 2023 (6,865 until the preparation of the report), the relevant Tax Register, in which more than 740,000 natural persons are registered (percentage of deceased persons who remain registered in the Register: approximately 1%, has not been updated).
Among other things, the Audit Service calls on the Tax Department to request the submission of income declarations for the tax years that have not been filed and at the same time to receive the financial statements from the Registrar of Companies in order to impose the taxes. Also, to proceed with the updating of the database of the computerized system, deleting the taxpayers who have died but also those who are no longer active.
No taxes were imposed
At the same time, the Audit Service found that for 12% of the companies in the sample, the Tax Department delayed for one or more years to impose taxes, resulting in the expiration of the six-year period within which an additional tax can be imposed.
At another point, the Audit Service points out that more than 80% of the sample taxes imposed by the Tax Department were issued on the basis of the return, without the adjustment of the taxable income, which shows that no investigation was carried out by the competent department.
Millionaire in Dubai... poor in Cyprus
Also important is the case of a company for which in the tax returns of the parent company for the years 2017-2020 there are significant credit balances with a specific natural person, ranging from a total of €18.3 million up to €34.9 million for each year.
According to the tax returns of the natural person for the years 2017-2020, his/her income in Cyprus amounts to an average of €4,590 per year and he/she declares as a non-tax resident of Cyprus.
According to reports on the internet, his professional obligations are in Dubai, United Arab Emirates. The Audit Office invited the Tax Department to investigate the significant financial assistance of the natural person to the above two companies in relation to declared income and/or to take the necessary actions depending on the findings and, where necessary, to inform MOKAS.
The property in Ayia Napa
Finally, there was the case of another company where its main activity is real estate investments and bought real estate for investment purposes in 2016, for an amount of €10 million. And until 2022, no revenue or change in the cost of these properties was recognized.
According to the Land Registry, the only properties owned by the company in question are a plot of land in Ayia Napa, on which six two-storey houses with a swimming pool have been erected and their construction year appears to be 2019 (three years after the purchase of the land). Any relevant information is not included in the company's financial statements, nor in its income tax returns (for 2019 and/or subsequent years) regarding the construction/existence of the above residences, nor data on their possible commercial use from 2019 onwards.
The above seems not to have been investigated by the Department and, in particular, the issue of the construction and/or use of the houses has not been investigated, whether they are actual transactions between third parties based on the principle of commercial transactions or whether they are transactions between related persons of the type of interest-free borrowing and/or undeclared income related to the construction of the houses and/or their commercial use and whether the issue of additional taxes arises.
It is reported that the FT imposed taxes on the company in question from the year of its establishment (2015) until the tax year 2022, based on the company's declarations and without any adjustment of income.
Others in Income Tax and others in VAT
During the audit, the Service found that 29% of the audited cases declare a different turnover in Income Tax and another for VAT purposes. There were cases where the difference was more than 15%.
In some cases, companies, according to the report, filed VAT returns with a significant turnover for a number of years and, either did not file an income tax return, or the turnover declared for income tax purposes was zero/much lower than the VAT return.
In fact, in some cases the difference in turnover amounts to millions of euros. Companies were also found that until May last year did not submit their financial statements to the Department of the Registrar of Companies.
Many companies have also been identified that the terms they set between related parties/businesses in any transactions differ from the terms that would exist between independent parties and it is noted that any profits/benefits resulting from the difference in these terms (additional notional income) can be included in the benefits/income of the company that would carry them out if these conditions did not exist and be taxed accordingly.
Based on the findings of the report, the company had receivables from affiliated parties in excess of €4.5 million, which do not bear interest. In fact, this company wrote off an amount of €2.6 million, without the competent department examining whether it was a real act.
In another case, a company had receivable balances from related persons in excess of €38 million each year, based on the financial statements and tax returns for 2017-2019. Also, during the same period, the company presented loans and liabilities with related parties, ranging from €48 million up to €66 million for each year.
According to the calculations of the Service, for this company there is an additional benefit (notional) from operations in addition to the benefit and the limitation of the interest recorded by the company in its declarations, which amounts to a total amount of more than €1.4 million.
In another case, a company had taxes due of €11 million, without taking the necessary collection measures. The Tax Department attempted to freeze amounts from the company's bank accounts to no avail, while it did not have any real estate for the placement of MEMOs. Its only assets consist of claims from affiliated companies, which amount to just €1.7 million.