THE TAXATION OF BENEFITS IN KIND IN CYPRUS
The Tax Department has announced in October 2018 its intention to terminate the previous tax practice in relation to the benefits in kind, and instead provide clear guidelines as to the proper valuation of the benefits in kind, for the purpose of consistency, clarity and uniformity, clearing any ambiguities.
The broad definition of the Article 5 of the Income Tax Law in relation to the tax treatment of the benefits in kind, necessitate for a change as the previous tax practice was leaving room for the taxpayers to define and calculate the value of the Benefits in Kind in accordance to their discretion, allowing a more relaxed approach.
Based on the guidance, clear provisions for the valuation of the benefits in kind are set out, applicable as from 01.01.2019. Nevertheless, the subject provisions may be applied for previous years as well.
2. DEFINITIONS AND APPLICATION
Benefit in Kind (“BIK”) is considered to be the benefit that is, or is deemed to be, granted in connection with any employment or the holding of an office.
The benefit can be in the form of cash or any other cash equivalent received under an employee – employer relationship, or by a connected person of the employer, or by third parties. The benefit is also applicable to self-employed persons, but the tax treatment will not be covered in the present brochure.
The benefits in kind apply to the below individuals:
With or without employment contract
Under a part time or full time employment
Existing or former employees
Individuals, who are members of the family / household of the employee
Individuals who hold or considered to hold an office:
Individuals who exercise duties similar to the Directors’
Individuals who exercise control
II. Categories of benefits in kind
Benefits related to the use of cars
Benefits related to accommodation
 (a) An individual is connected with another individual if the first individual is the spouse or relative of the second individual, or the spouse if a relative of the second individual, or relative of the husband or wife if the second individual;
(b) a person is connected with any person with whom he is in partnership, and with the husband or wife or relative of any individual with whom he is in partnership;
(c) a company is connected with another company -
(i) If the same person has control of both. or a person has control of one and persons connected with him have control of the other; or
(ii) if a group of two or more persons has control of each company, and the groups either consist of the same persons or could be regarded as consisting or the same persons by treating (in one or more cases) a member of either group as replaced by a person with whom he is connected,
(d) a company is connected with another person if that person has control of it or if that person and persons connected with him together have control of it
(e) any two or more persons acting together to secure or exercise control or a company shall be treated in relation to that company as connected with one another and with any person acting on the directions or any of them to secure or exercise control of the company.
3. ANALYSIS OF CATEGORIES OF BENEFITS IN KIND
I. Benefits Related To the Use of Cars
A BIK related to the use of cars arises where there is a usual element of private use as defined below:
• The car is at the disposal of an individual, or;
• The car is used on non-working hours, or;
• The car is not kept at the premises of the employer during the night or the weekends, or;
• The car is used for private purposes;
The BIK does not arise to employees who are drivers, messengers, distributors or other persons, for whom the use of the car is necessary for the execution of their duties, provided that they use the car during working hours.
The three types of benefits in kind related to the use of cars are as follows:
a. Use of saloon car belonging to the employer
b. Reimbursements / use of cars belonging to the employee, for business purposes
c. Use of commercial car (van) belonging to the employer
a. Use of saloon car belonging to the employer
A BIK arises where there is a usual element of private use and its value is calculated as follows:
b. Reimbursements / use of cars belonging to the employees for business purposes
Reimbursements for the use of cars belonging to the employees which are used for business purposes are divided into the three following categories:
Reimbursement for the wear & tear of the use of cars
Reimbursement for both the wear & tear of the use of cars and the fuel expenditure;
Reimbursement only for the fuel expenditure;
The valuation of the BIK is further analysed in the below diagram:
Conditions for the use of the “kilometres travelled” basis
In the case that the employer compensates the employee on a “kilometres travelled” basis, then the compensations received by the employee are not considered BIK, if the below conditions apply:
If an individual receives multiple reimbursements either from the employer, or a related party of the employer, or multiple employers (if the individual has more than one employment) in relation to the use of private car or/and fuel expenditure, the deduction of 50% on the reimbursement or the € 1.500 deduction may only claimed once (i.e. in respect of only one reimbursement).
c. Use of commercial car (van) belonging to the employer
Commercial car (van) for tax purposes is considered to be:
the vehicle that is manufactured for transportation of goods (rather than for transportation of persons), and
with maximum weight 3.500 kg
Benefit is raised from the use of commercial cars in the instance that such use is being made for private purposes.
The BIK is valued at the fixed amount of €500 per year, regardless of the type, model or year of manufacture/registration of the relevant commercial car.
II. Benefits related to accommodation
The provision of assets to the employee when they belong to the employer and/or leased and/or rented by the employer, can be considered as benefits in kind.
The private use of the below assets, falls within the scope of benefits related to accommodation:
The BIK arises:
On the date that the individual moves into the property, if the benefit is related to immovable property
On the first day at which the asset is put to the disposal of the individual, if the benefit is related to assets other than immovable property
The annual value of the benefits in kind for the use of assets applies for as long as the asset is at the disposal of the beneficiary and is determined as follows:
The amount paid by the employee in relation to the use of the assets (rent/lease/bills or other expenses) is deducted from the calculation of the BIK.
III. Other benefits
Any other BIK that does not fall within the Use of Car or Accommodation categories mentioned above, is considered to fall into this category.
In general, the value of the benefits in kind in this category is the market value (normal selling price less discounts provided to the general public) reduced by the price paid by the employee. However, the guidance issued by the Tax Authorities provides for specific treatment for the following cases:
There are various cases where the employee receives a benefit which is not considered to be taxable as a BIK. It is important however to stress out that as a general principle, exemptions apply only to the extent where the payment or reimbursement to the employee is made against actual costs supported by payment receipts.
Exemptions do not apply where the relevant BIK takes the form of cash.
Any payment receipts which are reimbursed must be kept by the employer for future assessment carried out by the Tax Department.
5. TAX TREATMENT
The benefits are taxed in accordance to Article 5 of the Income Tax Law, by which the value of the benefit is added to the income of the individual. The value of the benefit is calculated according to the guidance as analysed in the present brochure.
The BIK added to the income of the individual is taxed under the progressive tax bands, and the respective tax is withheld via the Pay As You Earn system on a monthly basis.
The individuals are responsible for informing the employer for any benefits in kind received. Failure to declare the benefits in kind entails to additional taxation in accordance to the Assessment and Collection of Taxes Law of 1978.
6. HOW KINANIS LLC CAN ASSIST
Kinanis LLC is in a position to assist you with the provision of the following services:
Assistance to the computation and the tax treatment of benefits in kind
Payroll and Accounting Services
Completion and submission of annual tax returns
Assistance to tax and legal related matters
This publication has been prepared as a general guide and for information purposes only. It is not a substitution for professional advice. One must not rely on it without receiving independent advice based on the particular facts of his/her own case. No responsibility can be accepted by the authors or the publishers for any loss.
Partner – Tax Department
Tax Advisor - Tax Department
Accountant I - Accounting & VAT Department
Kinanis Law Firm, is a Law and Fiduciary Firm with offices in Cyprus and Malta and a representative office in Shanghai China. The Firm advises for over 35 years international investors and private clients offering legal and consulting services since 1983.
Experience and practice over the years brought forward the need for transformation from a traditional law firm to a more innovative multidisciplinary firm providing a full range of services combining law and accounting with extensive expertise in corporate, tax and vat advice to ensure that our clients will obtain the best possible spherical advice adopting the principle as to the services offered "All in one place", so that the clients will find a quick, correct and efficient solution to their daily legal, accounting, vat and tax issues in a trustworthy environment.
The Firm employs approximately 80 lawyers, accountants and other professionals.
Our clients benefit from a complete range of legal, accounting, tax, vat and advisory services from a highly specialized team of professionals.
We consider ourselves as ‘traditional pioneers’ and our motto is to foresee and anticipate any issues that may potentially impact our clients’ business and to offer effective advice and solutions proactively.
This combination of legal, accounting, vat and tax services through our well qualified personnel and our involvement and participation in international transactions over the years, have established our firm as one of the key players in the field. Our involvement in international financial transactions has also provided us with the extensive expertise in representing groups, corporations, funds as well as the private client.
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Kinanis Law Firm
Kinanis Fiduciaries Limited
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