The upcoming tax reform in Cyprus will include key provisions aimed at significantly enhancing the effectiveness of income tax collection. These legislative changes are expected to be part of draft bills that will soon complete public consultation, potentially being presented to social partners within the framework of the Economic Advisory Committee as early as next week.

According to information obtained by Brief, the bills propose a series of collection-focused measures designed to modernize the Tax Department’s procedures and overcome limitations posed by outdated practices.

One major provision will allow the Tax Commissioner to proceed with tax collection even in cases where an objection or appeal has been filed—under specific conditions. This would include enforcement actions such as freezing and seizing funds from bank accounts, confiscating movable assets, and registering liens on real estate before the expiry of objection or appeal deadlines.

This measure is targeted at high-value and time-consuming tax cases with substantial outstanding liabilities. Under the current legislation, such enforcement actions are often restricted—highlighted recently by the high-profile case involving Russian tycoon Roman Abramovich.

Another significant enforcement measure to be introduced is the freezing of company shares if tax debts exceed €3,000 and remain unpaid for more than 30 days after the due date. This targets businesses that generate turnover and investment but lack other tangible assets suitable for conventional enforcement methods.

Additionally, the law will introduce a provision allowing taxpayers to voluntarily transfer real estate to the state in lieu of paying off tax debts exceeding €10,000, subject to approval by the Ministry of Finance. This measure will require regulatory approval from the Council of Ministers.

Furthermore, the Tax Commissioner will be empowered to temporarily suspend business operations and seal commercial premises for up to 48 hours, following a court order. This sanction may be extended in cases of repeated tax violations, issuance of false or no invoices/receipts, or obstruction of tax audits. Notably, in Greece, such closures are typically imposed directly by tax authorities without the need for a court order.

According to the Ministry of Finance, administrative fines have a strong deterrent effect against non-compliance. Therefore, the reform proposes higher penalties, including:

• Failure to comply with statutory tax deadlines:

  • Fine increase from €100 to €200 for individuals

  • Fine increase from €100 to €1,000 for legal entities with turnover or assets over €1 million

  • Fine increase to €500 for other legal entities

• Violation of a Council of Ministers Decree:

  • Fine increase from €4,000 to €6,000

To address potential tax evasion in the rental sector—especially following the proposed abolition of the Defence Contribution on rental income—a new rule will require all rental payments over €500 per month to be made via bank transfer, card, or other electronic payment methods.

An incentive of a €10 tax credit will be offered for individuals who file their income tax return at least one month before the submission deadline. This aims to reduce pressure on IT systems close to deadline dates, enhance service efficiency, and reward taxpayers for early compliance.

With the rollout of the Tax Department’s new IT infrastructure, tax certificates and legal notifications (such as indictments) will be delivered electronically. Taxpayers will be responsible for keeping their contact information updated with the Tax Department to ensure timely notifications and to safeguard their legal rights.