Cyprus’s two largest professional associations have submitted over 432 objections to the government’s proposed tax reform, effectively rejecting the administration’s entire fiscal transformation plan through the public consultation process.
The Cyprus Bar Association and the Institute of Certified Public Accountants of Cyprus (ICPAC) have filed comprehensive objections to six draft tax bills, demanding substantial modifications to the proposed legislation that would overhaul the country’s tax system.
Professional associations submit over 432 objections to tax legislation
The professional bodies have commented article by article on the proposed legislation through the public consultation framework, seeking extensive amendments to what the government considers a completed social dialogue process that preceded the public consultation phase.
The Bar Association’s submission has particularly alarmed government officials, as it challenges both the legitimacy of the consultation process and questions the University of Cyprus study that underpinned the reforms.
The association argues that economic impact studies and scenarios supporting the specific measures remain undisclosed.
The Bar Association has raised concerns about potential violations of Cyprus’s Constitution and European Union law, warning that adopting the proposed tax measures could lead to legal challenges.
The association has threatened to pursue court action if the legislation proceeds unchanged.
Corporate tax increase from 12.5% to 15% faces strong opposition
Among the 200 observations submitted by the Cyprus Bar Association, key objections include outright opposition to increasing corporate tax from the current 12.5% to 15%.
The association suggests examining models from other European countries, including Estonia’s zero tax rate with taxation only upon distribution.
The lawyers’ group disputes the definition of tax residency, arguing it falls outside the scope of tax transformation and conflicts with constitutional provisions and case law.
Under the government’s draft, a tax resident would be someone who does not remain in another state for periods exceeding 183 days within a tax year, provided they meet specific cumulative criteria.
Both associations object to provisions that would make companies tax residents of Cyprus even if they are tax residents elsewhere, citing risks of double taxation and time-consuming resolution procedures.
The Bar Association opposes taxation of bonuses and gratuities received by employees through various schemes upon retirement, arguing this conflicts with constitutional provisions. The draft proposes 20% taxation on charitable compensation exceeding €20,000.
ICPAC has indicated it might accept the corporate tax increase only if accompanied by specific modifications to maintain Cyprus’s international competitiveness through preserving the current effective corporate tax rate.
The accountants’ association opposes the exclusion of expenses to related parties when transfer pricing principles exist in Cyprus, questioning why the Tax Department proposes this exclusion only for the additional 20% deduction and not all research and development expenses.
Business groups express additional concerns
The Cyprus Employers and Industrialists Federation (OEV) and the Cyprus Chamber of Commerce and Industry (KEVE) have also raised concerns about the proposed reforms.
KEVE warns that removing provisions preventing dual tax residency could create serious problems, increasing double taxation risks and potentially deterring foreign investors.
The organisation also expresses reservations about the 17% rate for deemed dividend distribution, requesting a reduction to 10%.
OEV supports effective tax collection mechanisms but seeks balanced implementation with predetermined criteria to avoid subjective interpretations that increase administrative costs.
The federation opposes the taxation of gratuities granted upon retirement and considers the 0.2% stamp duty law on banking contracts outdated in the digital age.
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