On 9 December 2021, Finance Minister Constantinos Petrides, as part of his 2022 Budget presentation to the House of Representatives, announced the intention of the Cyprus government to proceed with the first major overhaul of the country's corporate taxation system for 20 years. The proposals follow hard on the heels of the global agreement made recently to impose a minimum 15% corporate tax rate on multinational companies. The necessary increase in Cyprus' rate of Corporate tax from 12.5% to 15% is regarded as a catalyst for reforming the current system in order to simplify it, reduce the administrative burden associated with it and in doing so, to enhance the standing of Cyprus as an international business centre.
The exact reform measures will be finalised in early 2022 but alongside the increase to the corporate tax rate the following proposals are under discussion:
- The abolition or reduction of Special Defence Contribution on actual and/or deemed dividend distributions.
- The abolition or reduction of Special Defence Contribution on interest received.
- The abolition or reduction of the annual ?350 company levy payable to the Registrar of Companies.
- Proposals to encourage the 'greening' of Cyprus including a gradual increase of tax on fossil fuels and the imposition of environmental taxes for specific environmental objectives.
- Adjustment of VAT rates in a manner favourable to the promotion of public health and the greening and digitalization of the Cyprus economy.
The Minister has expressed confidence that the proposed measures, taken alongside existing policies such as the IP Box regime and other advantages of Cyprus as a business location, should offset any potentially negative impacts of the increased corporate tax rate on foreign investment. Certainly, the abolition of Special Defence Contribution per se would be a significant simplification of the current system for all parties concerned although the benefits of a reduction might be less clear. The abolition of the annual company levy might make a slight positive difference to small companies and start ups but is likely to be of negligible interest to larger concerns.
With its suggestions on fossil fuel taxes, environmental taxes and VAT adjustments the government is, however, providing a strong reinforcement of its earlier statements of intent regarding foreign investment. All are proposals which will work to the benefit of enterprises and investment which it aims to attract, namely those concerned with clean shipping and transportation, digitalization and the development of modern technology and processes.
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