tax reform — Objections to the proposed tax reform could significantly alter the government’s plans. A wave of lawyers and accountants have raised concerns about the six bills currently under public consultation, which aim to overhaul the tax system in Cyprus.
According to a report by Philelefheros, the Bar Association and the Institute of Certified Public Accountants jointly submitted 432 comments. These influential groups meticulously analysed each article in the draft legislation and raised serious reservations.
Tax reform: Concerns About Legal and Financial Implications
The Bar Association expressed doubts about the legality and constitutionality of several clauses within the proposed bills. They also highlighted a lack of transparency surrounding financial impact studies conducted by the University of Cyprus, which they claim have not been made public. Lawyers warned of potential legal action should the legislation be passed in its current form.
Among their numerous objections, the Bar Association firmly rejected the proposal to increase corporate tax from the current rate of 12.5% to 15%. They referenced other nations, such as Estonia, which only tax distributed profits, including dividends and gifts.
Tax Residency Redefined
A major point of contention revolves around the government’s attempt to redefine tax residency. Under the proposed changes, a tax resident would be defined as someone who does not spend more than 183 days outside Cyprus within the same tax year. Lawyers argue that this expansion could lead to double taxation and uncertainty for individuals and businesses.
Tax Deductions and Business Operations
The proposed calculation method for taxable income also faced backlash. The government plan suggests that families with incomes up to €80,000 could receive tax deductions, while single parents would have a threshold of €40,000. This proposal has not been well received by legal experts.
Moreover, the Bar Association opposes granting the tax commissioner the authority to suspend businesses with tax arrears, labelling this power as unconstitutional. The government’s intention to tax bonuses or gratuities linked to retirement schemes at a rate of 20% for amounts exceeding €20,000 has also drawn criticism.
Opposition from Accountants and Business Leaders
Accountants have echoed similar sentiments, particularly regarding the increase in corporate tax and stricter fines on tax debtors. Their concerns align with those of the Chamber of Commerce and Industry (Keve), which fears that the proposed changes could create dual tax residency, potentially discouraging foreign investment.
The government, in collaboration with the Economic Research Centre at the University of Cyprus, has pitched this comprehensive tax overhaul as a means to broaden the tax base, improve enforcement, and ease the financial burden on households and businesses.
Projected Tax Benefits
Finance Minister Makis Keravnos stated that under the proposed changes, 60% of individuals would no longer be liable for income tax, a significant increase from the current 45%. Additionally, Cyprus is set to raise its tax-free threshold from €19,500 to €20,500, reinforcing its position as having the highest tax-free rate in the European Union.
