Being the EU Member State has advantages and disadvantages. In the past, Cyprus has an attractive tax system that has lured a lot of international companies to conduct business through it. Nowadays, the EU has the upper hand to dictate how the tax system of the bloc will be moulded, with a limited margin of appreciation given to the individual Member States.
In July 2020, Cyprus has transposed two EU Directives namely the Council Directive (EU) 2016/1164 of 12 July 2016 and the Council Directive (EU) 2017/952 of 29 May 2017 into local law. The former Directive lays out the provisions to combat tax avoidance within the EU while the latter focuses on combating the hybrid mismatches involving countries outside of the EU.
The Council Directive (EU) 2017/952 of 29 May 2017 covers the types of mismatches as hybrid financial instrument mismatches, hybrid entity mismatches, hybrid transfers, hybrid Permanent Establishes (PE) mismatches, imported mismatches, and tax residency mismatches.