In EU accession talks last week Cyprus closed three more chapters, taking its tally to 27 chapters out of 30, and putting it back in the lead among the class of 2003. The chapters closed were those on taxation, regional policy and institutional affairs. Both Cypriot and EIU negotiators expressed satisfaction at the progress that had been achieved.
The taxation chapter had seemed one of the most difficult, yet Brussels agreed to the retention of a 5% VAT rate for restaurants (important to Cyprus's tourist trade) and zero rates for food and medicine. The EU is raising no objection to Cyprus's proposed unified 10% rate of corporate taxation, to apply to offshore and onshore companies alike, which will be the lowest rate in the EU. The existing 4.5% rate of corporate taxation for offshore companies will be allowed to continue until 2006.
International companies have given qualified support to the proposed new tax regime, but they are keen to see personal taxes on expatriate employees kept low.
Although the taxation chapter has been closed with the EU, legislation setting up the new regime is still making its convoluted way through the House of Representatives.
On Wednesday Finance Minister Takis Klerides underlined the importance the government attaches to maintaining a favourable financial and tax environment for international business. A low uniform corporate tax rate and abolition of the restrictions currently in force regarding the activities of foreign companies should maintain Cyprus’s attractiveness as an international business centre, he added.
Klerides also pledged that the government would continue to expand Cyprus’s network of double tax agreements, which are a key part of the island's attraction for international companies wanting to base regional or investment HQs in a low-tax region. Currently Cyprus has 32 such treaties and another nine are under negotiation.
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