Cyprus Works on the Development of Tax Reforms for Individuals and Businesses

On February 26, Economic Research Centre (CypERC) of the University of Cyprus presented its suggestions on future potential tax reforms during a meeting with stakeholders, the development of which were appointed to the University by the Ministry of Finance.

Based on standard models and CIT tools, reforms and policies are being developed for:

➢ the impact on natural and legal persons;

➢ the impact on the tax competitiveness of the Cypriot economy.

The institution suggested the introduction of the following tax reforms:

– Increasing tax-free income limit by EUR 1,000 to EUR 20,500; opening of tax brackets, transfer of the highest tax rate of 35% to taxable income greater than EUR 80,000;

– Increasing the standard corporate tax rate from 12.5% to 15%;

– Introduction of new personal income tax rates:

⦿ up to EUR 20,500 – 0%;

⦿ EUR 20,501 to 30,000 – 20%;

⦿ EUR 30,001 to EUR 40,000 – 25%;

⦿ EUR 40,001 to 80,000 – 30%;

⦿ over EUR 80,000 – 35%;

– Introduction of tax deductions for households with total gross income up to EUR 80,000 with two working spouses;

– Imposition of 5% withholding tax on actual dividend distribution for tax residents of Cyprus who are domiciled in Cyprus;

– Tax residency (180 days) is extended to cover individuals whose centre of business interests is Cyprus, regardless of their physical presence;

– Extending the loss carryforward limit from 5 years to 10 years with certain percentage of profits limits after the fifth year;

– Abolishing the 1.5% insurance premium tax;

– Abolishing the deemed dividend distribution provisions;

– Taxation of cryptocurrencies, unless they are of a capital nature;

– Reducing the Special Defence Contribution (SDC) rate on actual dividend income from 17% to 5% for tax residents. If the payer tries to conceal dividends, an SDC rate over 5% will be applied;

– Abolishing the SDC on rental income;

– Introduction of incentives for green transition and digital transformation, such as enhanced deductions, accelerated depreciation, and no-limit loss carryforward.

More details will be published later when more discussions with experts are held and the final proposals for specific measures are drawn.

Description of the proposed measures