Finance ministry sources on Tuesday confirmed reports that the government is considering raising the corporate tax rate from 12.5% currently to 15%, whilst trying to alleviating economists growing concerns that the island may lose its competitive edge as a business and maritime hub.
A consultation process with key stakeholders is underway. Unnamed sources from a DIKO party group announced that an increase would be offset by several tax benefits. Meanwhile politicians state that the proposed corporate tax increase should not be viewed as a fiscal measure, given that the Cyprus government is currently operating with a stable and balanced budget.
Rather, the presented increase is correlated with issues arising in the area of international services from maintaining an overly low corporate rate of taxation. These are problems related to DTAs (double taxation agreements) and the island’s eagerness to remain out of placement on the EU blacklists.
Other cynics also commented that raising corporate tax to 15% would “severely limit” such difficulties without Cyprus losing its competitive edge.
A projected additional EUR €170 million would increase state reserves from raising the tax, although the ministry is proposing returning EUR €200 million to corporate taxpayers in other ways such as other incentives and tax breaks.
The Cyprus Ministry is likewise considering to:
Reduce tax on dividends payments from 17% to 15%.
Lower tax on interest from 30% to 15%.
Decrease CGT (capital gains tax) from 20% to 15%.
Abolish the annual levy of EUR €350 payable by all companies registered in the Republic.
Abolish stamp duty.
The statutory corporate tax rate in Cyprus has been notoriously low comparatively speaking to other nations in the European Union. The lowest rate currently stands in Hungary at 9%, then Ireland, the second lowest at 12%. On the opposite end of the spectrum, the highest rate is charged in France at 34%, followed by Portugal (31%) and Germany (29%).