Cyprus is closing loopholes that have allowed some taxpayers to dodge their obligations by hiding wealth in company shares whilst claiming no personal assets.
The Finance Ministry has introduced legislation giving tax authorities new powers to freeze shares in companies when taxpayers owe more than €100,000, adding another tool to existing enforcement measures that allow liens on property and bank account seizures.
The move targets taxpayers who own shares in companies with substantial assets but show no personal property or bank deposits in their own names, making it impossible for tax authorities to collect what they owe.
How share freezing will work
Under the new Tax Collection Bill, the tax commissioner can freeze any shareholdings when unpaid taxes exceed €100,000 and remain outstanding for 30 days after the payment deadline.
The Finance Ministry said the measure is necessary because some taxpayers hold no assets in their own names that can be targeted by enforcement action, yet own shares in companies that control significant wealth.
Tax authorities can activate the freeze when they have reason to believe taxes cannot be collected or when debtors have a history of late filings or delayed payments.
The freeze serves as security for the unpaid tax. The tax commissioner deposits a dated and signed notice with the registrar of companies demanding that the taxpayer’s interest in the shares remain frozen until the debt is settled.
After shares are frozen, taxpayers have 30 days to file an objection, which the commissioner must decide within one month.
Taxpayers can also ask the court to lift the freeze after settling their debts, or argue that other enforcement measures such as property liens or bank account seizures would cause them less harm than freezing their shares.
Once debts are paid, the tax commissioner has 15 days to request the registrar of companies to unfreeze the shares.
Property transfers to the state
The legislation also allows taxpayers who owe more than €10,000 to request transferring property to the state in exchange for settling their tax debts. The finance minister receives the request, but the cabinet makes the final decision on whether to accept the transfer.
The property must be free of additional encumbrances or other charges.
Authorities will proceed with property transfers when the assessed value is within 20% of the total debt, including any additional taxes, charges and interest.
If the property is worth more than the debt, the difference is returned to the owner. However, if the taxpayer has a history of late filings or payments, the state can hold the credit on their account to settle future debts. Any remaining credit is returned after five years.
If the property is worth less than the debt, the taxpayer must cover the difference before the state will accept the transfer.
Existing measures fell short
The tax reform package also strengthens existing enforcement powers for freezing and seizing bank accounts when taxpayers have a history of non-compliance or when authorities have reason to believe taxes might not be collected.
A new provision allows enforcement measures even before administrative and judicial procedures for determining the tax are exhausted, aiming to make collection more effective.
Authorities strengthened these measures because enforcement powers introduced in 2014 have not proved as effective as expected over the past 11 years.
In 2024, the tax department froze bank accounts worth €1.39 million belonging to 337 taxpayers. In 2023, authorities seized accounts worth just €141,000 from 225 taxpayers. In 2022, frozen accounts totalled €510,000 from 510 taxpayers.
Property liens showed higher numbers. In 2024, authorities placed liens on properties belonging to 5,293 debtors with total debts of €442 million.
In 2023, liens were placed on properties of 5,841 taxpayers with total debts of €647.6 million. In 2022, liens were placed on properties of 820 debtors owing €44 million.
Alternative settlement method
The tax reform also gives taxpayers the option to transfer property to the state in exchange for settling their tax debts, subject to approval by the finance minister. Banks use a similar measure to settle borrowers’ loan obligations.