The Cyprus Stock Exchange has expressed concern and disappointment over the exclusion of proposals that could strengthen the capital market from the planned tax reform, calling on the government to reconsider the issue.

Despite submitting well-documented recommendations to both the government and the technical team at the University of Cyprus’ Centre for Economic Research, the final draft bills now under public consultation contain “no meaningful provisions to support the capital market”, the exchange said.

Instead, the reforms include measures that could weaken existing tax incentives, particularly affecting the Emerging Companies Market and the New Market of the Cyprus Stock Exchange (CSE), which operates as a multilateral trading facility, the statement added.

The exchange said the tax reform represents a unique opportunity to stimulate business activity by encouraging companies to list on the exchange, raise new capital in a transparent and reliable framework, and attract strategic investment to Cyprus.

“Rather than taking advantage of this moment, the proposed measures restrict the role and mission of the stock exchange during a period when its privatisation process is ongoing”, the statement highlighted.

“Strengthening the market is crucial to increase its appeal and attract a credible strategic investor with the experience and capacity to support its further growth,” it added.

Since the CSE’s first comments in August, the exchange submitted its own positions during the public consultation phase and actively participated in parliamentary discussions, urging both the government and the House of Representatives to revise the rules and include necessary market-boosting incentives aligned with current and future economic needs.

Internationally, the CSE said, many countries apply policies that support their capital markets through tax incentives, recognising their role as engines of growth, the exchange noted.

In the European Union, coordinated efforts are underway to harmonise and strengthen markets, with initiatives such as the Securities and Investment Union aimed at fostering stronger and more competitive corporate growth, it said.

“Development through the capital market should be a long-term, transparent, and strategic national objective with vision and perspective, not a restrictive technocratic exercise”, the exchange concluded.

Specifically, the exchange has submitted a series of proposals during the public consultation phase on six bills related to the tax reform, focusing on newly listed and profitable companies as well as on boosting the exchange’s New Market.

A particular source of concern is the introduction of capital gains tax on the sale of shares of companies active in real estate and listed on the New Market.

“This measure would affect companies already listed on the New Market and is expected to reduce interest in future listings,” the exchange warned.

The exchange recommended maintaining the current 50 per cent threshold for taxation on companies holding real estate in Cyprus, instead of reducing it to 20 per cent, as proposed.

It said the new provision would otherwise apply even to companies not primarily in real estate but holding at least 20 per cent of their value in property in Cyprus, potentially imposing capital gains tax on their share sales.

The exchange suggested that companies listed on the New Market should either remain under the existing 50 per cent rule or, alternatively, be exempt from the tax if property holdings are not their main business, using industry classification as the basis.

In addition, the exchange highlighted that the New Market, the most active segment of the Cyprus Stock Exchange in recent years, attracts small and medium-sized enterprises with lower listing costs and simplified requirements.

Treating it as an unrecognised market undermines incentives for companies and investors, discouraging listings and retention of securities, the exchange said.

Beyond its positions on the tax reform bills, the exchange proposed a range of measures to support market growth.

These include a full or significant reduction of the 17 per cent tax on dividends paid to individuals from listed companies, encouraging investment and boosting market activity.

It also proposed a tax credit of up to 50 per cent for investors acquiring shares in newly listed companies through public offerings or capital increases, subject to holding the shares for a defined period.

Moreover, a lower corporate tax rate for newly listed companies for two years after listing, provided main shareholders do not exceed 50 per cent ownership, is another suggested measure.

The exchange also recommended exemptions or deferrals of taxes for companies involved in mergers or acquisitions through the Cyprus Stock Exchange, supporting corporate growth and competitiveness.

“Full or partial tax relief on the issue of listed green bonds or other sustainable investments would encourage environmentally friendly and long-term investment,” the exchange said.

“Tax incentives for investments in innovative listed companies, covering the cost of listing shares or bonds, would support market participation and development,” it added.

The exchange also proposed accelerated depreciation for listed companies to reduce their tax burden, and incentives for individual investors to encourage long-term investment in domestic listed securities with risk diversification.

“These measures, already applied in Greece in recent years, would support domestic companies in research, development, and sustainable growth while enhancing small and medium-sized enterprise investment opportunities,” the CSE concluded.