Big bad COVID-19 has led to an unprecedented standstill of the world’s economy. Many countries throughout the world were under lockdown for several months, having to shut down entire economic sectors to placate the pandemic’s advancement.
This was especially true in Europe, where many countries such as Spain, Italy, and France were heavily affected by COVID-19.
Governments in the region have limited funds stashed away to offer financial assistance to troubled businesses in times of crisis, and many are concerned they will not be able to support them in the long term. In Cyprus’s case, for instance, analysts suggest that the island’s GDP may contract by 7 to 10 percent in 2020, primarily due to the pandemic’s devastating effect on its tourism sector.
This contraction is also of great concern to both investors and consumers, as it will be reflected in a potential decrease in real income, higher unemployment rates, lower levels of industrial production, and a significant decline in retail sales.
COVID-19’s economic impact globally and on Europe will be felt for a while. In response, several measures were enacted to ease the financial burden and ensure business continuity during the months of lockdown.
More specifically, the overall goal of these suggestions was to help firms alleviate cash-flow problems to help avoid escalating problems such as laying off workers, temporary inability to pay suppliers, and, in the worst cases, closure or bankruptcy.
The OECD’s suggested COVID-19 tax measures
The OECD recommended that countries implement several basic kinds of tax measures to ensure business continuity during the crisis. These included:
Extending timelines for filing of tax forms and making tax payments; Suspending or deferring penalties, interest payments, and debt recovery; Offering quicker tax refunds to individuals and companies; Accepting tax payments in installments; Temporarily changing audit processes and adding greater transparency and speed to tax policies, and; Curtailing face-to-face service and meetings and moving as many processes as possible online, which would involve developing and enhancing dedicated websites, media strategies, hotlines, and mobile applications, among others, and using alternative means of communication such as telephone, postal services, and faxes to communicate with digitally challenged taxpayers.
How do Cyprus’ tax and economic measures to counter COVID-19 compare to those suggested by the OECD? Starting on March 27, 2020, just a couple of weeks following the detection of the first COVID-19 case in Cyprus, Parliament established a series of financial measures aimed at helping families and firms weather the storm.
These measures had the ultimate objective of curtailing the long-term negative impact of COVID-19 on the economy by keeping affected businesses afloat, reducing unemployment, and stabilizing consumption during this tough period.
As seen from the summary below, the Cypriot government followed many of the OECD suggestions.
Tax measures undertaken by the Cypriot government
The government deferred VAT payments up until November 10, 2020, for February, March, and April 2020, as long as the VAT returns were submitted by April 10, May 10, and June 10 for each respective period. Additionally, the government suspended interest payments or penalties for these three months.
Not all companies were eligible for this tax break. Grocery stores, supermarkets, convenience stores, and mini markets, fruit markets, butcheries, bakeries, pharmacies, electricity companies, and telecommunication services, among others operated normally for the most part and were therefore excluded from receiving this benefit.
The Cypriot government extended the income tax return’s deadline from March 31, 2020, to June 1, 2020.
Non-tax measures undertaken by the Cypriot government
Registrar of Companies deadline extensions
The Registrar of Companies loosened its requirements in terms of payments and submission of required forms:
Payment of the annual company tax of €350 for 2020 can be completed up until December 31, 2020, without penalty. Administrative penalties for the late filing of statutory documents were suspended up until January 2021. Annual returns for the fiscal year running from January 1 to December 31, 2020, can be completed up until January 28, 2021, without the €20 penalty for late submission. Companies that had failed to comply with their Annual Returns filing obligations received a 3-month grace period to follow through with their filing requirements.
Cyprus Security & Exchange Commission (CYSEC)
CYSEC was swift to extend deadlines for all submissions of relevant reports and payments.
Social security and healthcare
The Cypriot government suspended the settlement of overdue social insurance contributions via installments for March and April 2020 and extended the deadline for repayment by two months.
Furthermore, the government suspended the increase to individuals’ contributions to GESY—the country’s general healthcare system—for April, May, and June 2020.
The government suspended ongoing eviction processes up until May 31, 2020. This did not apply to renters who failed to pay their rent up until February 29, 2020.
Loan installment suspension
For borrowers affronting economic hardship due to COVID-19, the government suspended their obligations to pay loan installments, as long as there were no overdue payments for more than 30 days as of February 29, 2020.
This measure will run from March 30, 2020, to December 31, 2020, and payments will recommence on January 1, 2021, via a revised payment schedule agreed to by both the borrower and financial institution.
The Cypriot Ministry of Labor, Welfare, and Social Insurance established a series of subsidies to help individuals and companies deal with the complete and partial suspension of business, sick leave, self-employment, and special leave for childcare purposes.
The schemes that were introduced are listed below:
Complete suspension of business. Partial suspension of business. Special sick leave allowance. Special leave for child care. Self-employed workers. Moving processes online
Special arrangements were made by the Cypriot government to move processes online. Government offices and members of the state bureaucracy were given the go-ahead to host meetings via teleconferencing to handle their affairs and accept applications online.
The Cypriot government took early and effective measures to curtail the pandemic. These measures, combined with the tireless work carried out by healthcare professionals in containing the virus and the remarkable response by the Cypriot citizenry in following the pertinent rules, allowed Cyprus, as of May 4, to relax its restrictions and slowly restart the economy.
As of June 9, airports gradually opened to a select group of countries deemed ‘safe,’ and soon enough, the country can expect renewed connectivity with the Middle East to be established.
Overall, the country’s goal is to leave this pandemic behind, open up its economy, and once again welcome international business and investment.
In part II of this series, we will be looking at the more long-term measures taken by both the EU and Cyprus to help jump start the economy and drive it forward.
In Privatus Maximus, we believe Cyprus is one of the best jurisdictions in Europe. If a similar global situation occurs again, you can rest easy that this country will take all necessary measures to keep businesses afloat. Its fantastic tax policy has become even more beneficial after COVID-19. If you want to know more about all our services in Cyprus, check out our Country Focus and contact us for more information.