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Professional Tax imposed on legal entities by the Municipalities of Cyprus

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Professional Tax imposed on legal entities by the Municipalities of Cyprus

On the basis of sections 104 and 105 of the Municipalities Law 111/1985 the Municipalities are imposing an annual professional tax on legal entities having a registered office and/or having their work performed and/or managed by law firms and/or accounting/audit firms and/or offices providing secretarial services, within their municipal boundaries.

On this, the Limassol Municipality announced on the 04th of December 2019 that following the City Council’s decision dated 26 September 2019, has implemented the provisions of the Municipalities Law 111/1985 pursuant to sections 104 and 105 and has decided to impose annual trade license fees on legal entities having a registered office and/or having their work performed and/or managed by law firms and/or accounting/audit firms and/or offices providing secretarial services to be payable by 31 March 2020, as follows: 

  • For legal entities working independently, an annual fee of €150,00. 
  • For legal entities in a group of companies, an annual fee of €85,00 per legal entity. 
  • For inactive legal entities (dormant companies), an annual fee of €50,00. 

Following the announcement of the Municipality of Limassol (as described above), the Union of Cyprus Municipalities (the “Union”), for the purpose of achieving uniformity in the imposition of the professional tax, decided a uniform policy to be adopted by all municipalities in Cyprus. For this purpose, the Union has classified the legal entities into the following categories: 

  • Active legal entities that are part of a group of companies. 
  • Active legal entities working independently. 
  • Dormant legal entities - notwithstanding if they are part of a group of companies or not (for the purpose of being sold for an immediate activation). 

1. THE MUNICIPALITES LAW 

The Municipalities in Cyprus are regulated by the Municipalities Law of 1985 (111/1985) (as amended) (the “Law”) and in the basis of this Law the local Municipalities levy municipal taxes, fees and duties (i.e. professional tax, immovable property tax, hotel accommodation tax, fees for issuing permits and licenses, fees for refuse collection, fines etc.). Such taxes, fees and duties are the main sources of the Municipalities’ revenue. 

The power to impose professional tax on legal entities is provided by section 104 of the Law which states that that the municipal council imposes professional tax on legal persons operating any business, industry, artisanship, work, trade or profession within its municipal boundaries

Following an investigation conducted by the Audit Office in 2015 it was found that the Municipalities did not impose professional tax on a large number of legal entities having a registered office and /or having their work performed and/ or managed by law firms and/ or accounting/audit firms and/or offices providing secretarial services. 

The Audit Office, taking into consideration that (a) thousands of legal entities have as their registered office the offices of law firms and/or accounting/audit firms and/or offices providing secretarial services and that their operations are managed by those offices (b) the then condition of the public finances and (c) the financial difficulties of the municipalities, whose liquidity and/or sustainability depends, to a large extent, on state sponsorship, is of the opinion that the Municipalities, for the purposes of sound administration and fiscal equality of companies operating within their municipal boundaries, are obliged, according to the relevant legislation, to impose professional tax, based on the categories and amount specified in the Law. 

Taking into consideration the findings of the Audit Office (described above) as well as the recent decision of the Administrative Court in the case Bolinov Consultancy Limited v Δήμου Λευκωσίας 170/2015, the Municipalities proceeded, with the imposition of professional tax to the legal entities that have their registered office with law firms, accounting or audit firms or with firms providing administrative/secretarial services. 

In the Bolinov case, the applicant filed a recourse to the Administrative Court, under Article 146 of the Constitution, against the decision of the Municipality of Nicosia to impose professional tax to them. By this recourse the applicants sought the annulment of the decision of the Municipality of Nicosia on the basis that the applicants do not operate any professional activities in Cyprus, apart from the holding of assets of foreign entities, they do not maintain professional establishment or premises in Cyprus nor employ any personnel. 

Following the arguments of the applicant and the responded, the Court dismissed the applicant’s arguments and held that the holding, by the applicant, of shares in other companies constitutes operation of business activity and therefore the applicant’s case falls within the scope of the provisions of section 104 of the Law. 

Taking into consideration that the Administrative Court has exclusive jurisdiction to adjudicate on first instance on a recourse made to it under Article 146 of the Constitution, its decisions can be appealed to the Supreme Court (on points of law only). 

2. OBJECTIONS 

Even though the Law does not contain such provision, the right to address and submit written objection to the competent public authorities is safeguarded by Article 29(1) of the Constitution which states that: 

"Every person has the right individually or jointly with others to address written requests or complaints to any competent public authority and to have them attended to and decided expeditiously; an immediate notice of any such decision taken duly reasoned shall be given to the person making the request or complaint and in any event within a period not exceeding thirty days.”

An objection to the decision of a Municipality to impose professional tax on a legal entity can be submitted in writing to such Municipality, within a timeframe set by the latter (that is usually any date before the payment date of the invoice).

3. RECOURSE 

Any person who objects to the imposition of the professional tax, has the right to file a recourse to the Administrative Court of the Republic of Cyprus under Article 146. 

Paragraph 3 of Article 146 of the Constitution provides that a recourse shall be made within 75 days of the date when the decision or act was published or, if not published and in the case of an omission, when it came to the knowledge of the person making the recourse. 

The content of this article is intended to provide a general guide to the subject matter. Every case is different and specialist advice should be sought about your specific circumstances.

Author: ELLI IOANNOU

 

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