International businesses voice concerns over corporate tax hike

The Cyprus International Businesses’ Association (CIBA) on Thursday submitted its positions on the proposed tax reform bills as part of the government’s public consultation process.

According to CIBA, its positions are the result of extensive consultation with its member companies and thorough analysis by the association’s tax and legal committees, which are composed of experts in taxation matters.

The association emphasised that its positions focus primarily on the competitiveness of the Cypriot economy and do not merely comment on individual provisions of the draft bills.

They also include well-documented legal and economic analysis, and in several cases, provide recommendations on how the government and relevant authorities should approach tax reform.

CIBA expressed readiness to collaborate with government authorities, parliamentary parties, and all stakeholders to ensure that any tax reform would create conditions for further economic growth in Cyprus.

The association stressed that reforms should adhere to the principles of proportionality and legal certainty, while offering stability and predictability to international businesses and potential investors, taking into account the tax regimes of other countries, particularly those with highly competitive frameworks.

CIBA’s submission highlights that the association approached the authorities on March 12, 2025, requesting clarifications on the rationale, objectives, and intended outcomes of the tax reform, aiming to provide constructive input.

The association noted that six months later, it had received no response to its questions.

CIBA further highlighted that the draft bills presented for public consultation lack the customary impact assessment studies, which provide a reasoned evaluation of the consequences of each proposed measure, making it difficult to justify the necessity or proportionality of the reforms.

The association cited the United Kingdom’s approach, where similar reforms were accompanied by extensive studies, as an example of best practice.

CIBA also underlined that the absence of a comprehensive tax policy outlining the objectives and final purposes of the reform, along with supporting evidence, has caused concern among its members, who constitute a substantial part of Cyprus’ international business sector.

The association pointed to global economic research indicating that corporate tax is among the most harmful forms of taxation for economic growth.

CIBA cited the OECD study Taxation and Economic Growth, which demonstrates that corporate taxes have a significantly more negative impact on GDP, investment, and innovation compared with consumption and property taxes.

The association highlighted that the negative effects of corporate taxation are particularly pronounced in open economies such as Cyprus.

CIBA warned that raising the corporate tax rate from 12.5 per cent to 15 per cent, as proposed in the draft bills, risks undermining Cyprus’ competitiveness, especially compared with other jurisdictions with lower rates, including Malta at 5 per cent, Hungary at 9 per cent, the United Arab Emirates at 9 per cent, Bulgaria at 10 per cent, and Ireland at 12.5 per cent.

The association also pointed out that reducing shareholder-level taxation might encourage investment abroad rather than domestically, citing an example of a Cypriot investor who could achieve higher returns by investing in Luxembourg or Switzerland instead of Cyprus.

CIBA highlighted the principle of Capital Import Neutrality, used internationally to attract foreign investment, noting that no independent, internationally recognised analysis has been provided by the Cypriot government to date in this context.

The association stressed that the proposed bills, drafted based on suggestions from February 2025, do not offer legal clarity or simplification of the existing tax framework, failing to make it easier for taxpayers, citizens, and investors to navigate the system efficiently.

CIBA underlined that its positions reflect the concerns of international businesses but are intrinsically linked to the competitiveness, outlook, and sustainability of the national economy.

The association called attention to the contribution of international businesses to Cyprus’ GDP and the positive ripple effects their presence generates for domestic service providers.

CIBA requested the Ministry of Finance on August 8, 2025, to publish impact assessment reports, legal service opinions, and assessments from foreign experts to facilitate informed feedback on the six draft bills.

The association emphasised that a tax reform built on short-term dividend incentives or discriminatory treatment between foreign and local investors risks undermining long-term business growth.

On the proposed increase in corporate tax, CIBA stated that the 12.5 per cent rate has historically provided stability and predictability, warning that an increase could discourage new company registrations, prompt relocation of existing structures, and reduce demand for corporate services.

CIBA also expressed concern that the reform could disproportionately burden SMEs, which are not covered under OECD Pillar 2 rules, and called for compensatory measures to maintain the overall tax burden at current levels.

The association suggested possible measures, including targeted incentives for research and development, innovation, and green transition, adjustments to depreciation and deductible expenses, and specific support for SMEs.

CIBA also made detailed recommendations on individual draft bills, including the Law on Tax Collection of 1962, opposing the removal of certain exemptions that could allow premature seizure of movable or immovable property, which risks disproportionate harm to businesses and undermines legal certainty.

The association raised concerns over the proposed ability to pledge shares for tax debts exceeding €3,000 for only 30 days, calling for higher thresholds and longer periods with judicial oversight.

Regarding the proposed provision for transferring immovable property to the state for tax debts, CIBA argued that the €10,000 threshold is too low and that excess amounts should be returned immediately to taxpayers.

CIBA also warned that extending taxable income to include incentives, ex-gratia payments, early retirement benefits, and undefined compensations could create unfair distinctions between public and private sector employees and undermine predictability for international professionals and investments.

The association raised concerns over the taxation of stock option benefits and cryptocurrency gains, emphasising that the proposed 8 per cent rates and lack of loss carryforward provisions could discourage investment and harm Cyprus’ competitiveness in innovation and digital finance.

Finally, CIBA urged that directors should only be treated as related parties if they hold shares or exercise control over the company, ensuring independence in executing their duties and safeguarding Cyprus’ business attractiveness.