Efforts are being made around the world to reduce tax evasion. We believe these efforts can be helped to some extent by providing some incentive to taxpayers.
In the current state of affairs, expenses are tax deductible only if they are part of an income generating procedure. So, if someone rents out a house, the cost of repairs, maintenance, etc., etc. is deducted from their earned income (rent), but if the house is occupied by the owner, there is no benefit, so many prefer pay from under the table, avoiding VAT Charges and paying less.
It is very important to keep a record of your property receipts, especially if you plan to sell your property in the future. These expenses are tax deductible and you may receive a 20 percent tax credit. Keep in mind that for any expense that requires a building permit, such as building a garage, you must provide permits when you file your application with the tax authorities.
Receipts must include the recipient’s identification number and address, as well as details of the work done. If payments are made to a contractor, make sure the contractor is licensed to do the work. If this is not the case, the tax authorities may not accept your payment as an eligible deductible expense.
There is a major problem with holiday home rentals both locally and from abroad (via websites). Finding the recipient and sender of the payment is almost impossible.Airbnb’s system is a major headache and while very recent legislation on the subject has helped, according to the chairman of the hotel association, about 17% of tourists (local and international) do not declare their permit. On the one hand, if these rentals are declared, the recipients will bear the income tax, and on the other hand, any repair, improvement and replacement of furniture and equipment will be exempt from taxes.
Of course, doctors, especially those who work in Cyprus on a visitor visa from abroad (with operations usually in hotel rooms), will be the first to be major tax evaders, followed by lawyers and real estate agents.
In order for expenditures to be encouraged to be declared, the payee must have some benefit, be it a deduction of a percentage of the payment from their income (say 20 percent of the payment), but then the tax authorities would benefit from VAT and, of course, the undeclared income of the recipients.
The tax authorities are not very efficient, giving taxpayers the impression that they can do without declarations. But then we have strange situations, such as the one that surfaced 10 years ago with a barbecue in the center of Nicosia, which works almost 12 hours a day, but declares almost no income. The then Economy Minister Sarris, who was a client of the establishment, sent his employees to investigate and came up with the most ingenious way to measure sales: by counting the amount of kebab wrapping paper they bought. They rated 1.000 sales per day! In another case, a beer supplier was invited to a restaurant, and based on the volume of beer supplied, they calculated the income of the restaurant.
Antonis Loizou & Associates EPE – Real Estate Appraisers, Real Estate Agents and Real Estate Consultants