Executive summary

Beginning 1 July 2018, each lightweight plastic carrier bag sold in Cyprus is now subject to a minimum of €0.05 environmental tax plus 19% Value Added Tax (VAT). Further to the European Union (EU) Directive on harmonization, sellers of goods providing lightweight plastic carrier bags to their customers are no longer allowed to freely distribute these bags. Businesses responsible for the collection of the newly imposed charges that are not in compliance may be subject to strict criminal and administrative penalties.

Detailed discussion

Implementation of plastic bag taxation

1 July 2018 marks the commencement of the plastic bag environmental taxation in Cyprus whereby plastic carrier bags with a wall thickness below 50 microns (mm) are subject to €0.05 each with 19% VAT imposed on top. The Cyprus Department of Environment emphasizes that invoicing and costing of lightweight plastic carrier bags should be demonstrated discretely in relevant receipts.

From the above date forward, such bags must not be freely distributed and any non-compliance with the new measure carries heavy penalties. Beyond any potential VAT liability, non-compliant businesses can face substantial fines after Ministry of Agriculture, Rural Development and Environment inspections. It is also worth noting that per the Packaging and Packaging Waste Law, an act or omission in failing to comply with the lightweight plastic carrier bag taxation is of a strict liability criminal nature and both non-compliant companies and their management teams can be penalized with criminal sanctions.

The sole exemption from the plastic bag taxation covers those bag categories (very lightweight plastic carrier bags) with a wall thickness below 15 mm which are required for hygiene purposes or provided as primary packaging for loose food, helping to prevent food wastage.

Business considerations

Entities affected by implementation of the recent plastic bag taxation in an attempt to ensure VAT – Environmental Tax compliance with the new rules and restrict arising exposure will need to:

• Ensure that tax and VAT on lightweight plastic bags are correctly evidenced in the receipt/invoice provided to the consumer
• Abide by the rules of input VAT recovery and output VAT accounting on distribution of plastic bags
• Evaluate decision-making from a cost perspective and if necessary seek packaging alternatives

———————————————
CONTACTS

For additional information with respect to this Alert, please contact the following:

• Ernst & Young Cyprus Limited, Nicosia
• George Liasis
  george.liasis@cy.ey.com
• Maria P. Raspa
  maria.raspa@cy.ey.com
• Elpida Papachristodoulou
  elpida.papachristodoulou@cy.ey.com
• Simos Simou
  simos.simou@cy.ey.com

Ernst & Young Cyprus Limited, Limassol

• Soteroula Rossidou
  soteroula.rossidou@cy.ey.com

———————————————
ATTACHMENT

PDF version of this Tax Alert