Comprehensive Guide to the Municipality Professional License Fee in Cyprus
In Cyprus, the Municipality Professional License Fee is an annual levy imposed on legal entities with a registered office within a municipality. This tax is governed by the Municipalities Law 111/1985 and has been implemented across various municipalities, including Limassol, to support the operation and development of municipal services. Below, we provide an in-depth exploration of this tax, its applicability, recent updates, and specific considerations for dormant companies.
What Is the Municipality Professional License Fee?
The Municipality Professional License Fee is a statutory obligation for businesses registered within Cyprus municipalities. This tax applies to all types of legal entities and is separate from any other corporate tax obligations or professional services fees. It is collected by the municipality where the company’s registered office is located, with the purpose of funding local administrative and developmental projects.
Key Legislative Basis
The legal foundation for the Municipality Professional License Fee can be found in Sections 104 and 105 of the Municipalities Law (111/1985). Municipal councils are granted the authority to impose such taxes to ensure adequate funding for public services and infrastructure within their jurisdictions.
Recent Developments
On 4 December 2019, the Limassol Municipality announced an updated resolution dated 26 September 2019 to revise its professional license fee structure. This resolution led to a uniform policy adopted by the Union of Cyprus Municipalities, which standardised the tax across municipalities as of 2021. The fee is now set at €250 annually for most legal entities operating in Limassol, irrespective of their business size or activity level.
- €150 for active legal entities that are part of a group of companies;
- €250 for active legal entities that are not part of a group of companies;
- No fee is payable for Dormant legal entities.
Applicability of the Professional License Fee
Active Companies
All companies actively engaged in business operations within a municipality must pay the professional license fee. This obligation extends to companies regardless of whether they generate profits, as long as they maintain an active registration.
Dormant Companies
Dormant companies are treated differently under the law. A company is classified as dormant if it:
- Does not conduct any business activity generating income, profit, or loss (whether taxable or exempt).
- Holds no assets other than cash, reflecting the initial share capital.
- Has no obligations other than those necessary for maintaining its legal status.
Dormant companies may be exempt from paying the Municipality Professional License Fee, provided they:
- Submit a declaration of dormancy from a certified public accountant.
- Provide supporting documents to the municipality confirming their dormant status.
Failure to meet these conditions may result in the company being liable for the full tax amount.
Administration and Compliance
Payment Deadlines
The Municipality Professional License Fee is typically due annually and must be paid promptly to avoid penalties. Companies should ensure they are aware of the deadlines set by their respective municipalities.
Penalties for Non-Compliance
Late payment or non-compliance can result in financial penalties, including interest on the outstanding amount. Continued non-payment may lead to enforcement actions by the municipality.
Practical Considerations
Key Points for Businesses
- All Companies Must Pay: Any company with a registered office in Limassol or other municipalities must comply with this tax, unless classified as dormant.
- Additional Fees Are Not Legal Fees: It is essential to clarify to clients that this tax is a municipal obligation and not a legal or professional fee charged by service providers.
- Transparent Communication: Businesses should inform clients about this tax during the registration process to avoid misunderstandings regarding additional costs.
Exemptions and Discounts
Certain municipalities may offer discounts or exemptions under specific circumstances. For example, non-profit organisations or entities that meet certain criteria may qualify for reduced rates. Businesses should verify eligibility directly with their local municipality.
Conclusion
The Municipality Professional License Fee is a critical compliance obligation for companies registered in Cyprus municipalities. Active companies are required to pay the annual fee, while dormant companies may qualify for exemptions if they meet the necessary criteria. Understanding and adhering to these requirements ensures that businesses avoid unnecessary penalties and maintain good standing with local authorities.
For further assistance with understanding or managing the Municipality Professional License Fee, including classification as a dormant company, contact our experienced legal team at Chambers & Co. We provide comprehensive guidance on compliance with municipal and national tax obligations in Cyprus.
