The Lawyer, a leading weekly British magazine for commercial lawyers and in-house counsel, recently published an analysis of the current state of the Cyprus legal services sector and of its prospects in the new climate of increased scrutiny of tax planning and mitigation. The article featured an extensive interview with Elias Neocleous, vice-chairman of our firm and head of the corporate and commercial department. Extracts are reproduced below.
Q: What are the issues around corporate tax in Cyprus at the moment?
A: The big issue for Cyprus, as for other financial centres, is defining its role in a climate of increasing scrutiny of companies' and individuals' financial arrangements, particularly those relating to taxation. Unlike some tax havens, which are used to illegally conceal assets and income for the purposes of tax evasion and other criminal activities, Cyprus has sought to position itself as a reliable, secure jurisdiction providing investors with protection of their investments and personal privacy. It aims to strike a balance between preventing abuse of the financial system on the one hand and maintaining investors' right to privacy – and therefore personal safety – on the other.
Q: What progress has been made?
A: Cyprus has a competitive tax and business environment aimed at attracting investment from overseas. It has an attractive 'economic citizenship' programme, with safeguards against abuse. It also has a 'non-domiciled' regime providing exemption of investment income from tax.
To prevent abuse of these and other benefits of the tax regime, Cyprus has implemented all international best practice in regulation, registration and information exchange. There are requirements to discourage 'brass plate' companies and ensure companies that are tax-resident in Cyprus have a real presence.
There is a robust regulatory system, with financial registers accessible to law enforcement and tax authorities, and full exchange of information with overseas tax authorities.
Q: What are the obstacles to further progress?
A: There are no substantial obstacles to progress as the main regulatory framework already exists. What is important now is rigorous implementation. Unscrupulous service providers and their prospective clients must be made to learn that they will be unable to operate in Cyprus, and that no exceptions will be made.
On the other hand, any regulation needs to be proportionate to risk and avoid an excess of bureaucratic intervention.
Finally, clients must be assured their investments are secure and their personal privacy is maintained within the context of the law.
Q: How do Cyprus' corporate tax laws compare with others in the Balkans?
A: Cyprus has a modern, simple tax system offering consistency, predictability and reliability so investors can predict the tax implications of their decisions with confidence. If desired, advance tax rulings can be obtained on proposed transactions or structures.
As befits a financial services centre, Cyprus's tax system does not impose further taxation on financial transactions taking place through Cyprus. It has a wide network of double tax agreements covering 55 countries and, regardless of whether a double tax agreement is in force or not, imposes no withholding taxes on interest or dividends and no taxation of capital gains on financial securities.
Q: What has been the reaction to the Panama Papers leak?
A: In our firm at least, the reaction has not been one of schadenfreude. Rather, the leak confirmed our view that everything we do should withstand scrutiny.
Like Caesar's wife we must be above suspicion, not only in form but in substance too. I hope others in Cyprus share this view. As individuals, as firms and as a country our reputation for integrity is fundamental to our success – indeed, to our survival – as an international financial and business centre. We must treasure it and never put it at risk.
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