Cyprus has pledged to honour commitments it made to the OECD to harmonise its taxation regime alongside international standards set out by the European Union. A package of tax reforms will be implemented before the end of this year including the hiking of Cyprus' offshore corporation tax which is currently levied at 4.25 per cent.
Plans for the new tax reforms are being finalised by Finance Minister Takis Klerides. Amendments include providing incentives for mergers and acquisitions to create larger units; there will be increased charges for company formations; and an increase in road tax and tax on bank interest from deposits at source. Changes will also be made to VAT, income tax and real estate. The overall aim of the reforms is to reduce the wide gap between the offshore and the local tax regimes by stiffening the former and lessening the local tax rate.
The Cyprus Financial Mirror reports that most financial analysts are predicting that the two taxes will meet at around 10 per cent. This rate is generally regarded as a respectable levy by international financial centres so the government does not expect that the international business companies (IBCs) on the island will complain and it is likely to be a major boost for local companies.
Earlier this month Tax-news.com reported that the Cyprus authorities claimed the IBCs could continue to thrive even without the special offshore tax rate. At a seminar organised by the Cyprus International Financial Services Association (CIFSA) at the beginning of November, Cyprus Central Bank Governor Afxentis Afxentiou explained: 'These requirements are not contrary to the best interests of international business enterprises ... Cyprus' advantages are not just in the arena of tax and duty free. Cyprus has many advantages that should more than compensate higher tax. The long term interests of the international sector will be safeguarded in the best possible way.'
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