Goodbye, Offshore Cyprus!

by Lorys Charalambous, Tax-News.com, Cyprus

24 August 2001

According to reports from the Xak online news service, discussions have begun in earnest between government officials and foreign experts on Cyprus's tax reforms as part of the government's commitment to harmonise its tax regime with the EU before it can gain EU accession. The talks will form the basis of a round of discussions with Cyprus's Parliamentary Parties on which the final negotiations with Europe will be based; the accession chapter on tax reform must be completed before the end of the year.

Informal meetings, headed by Finance Minister, Mr Takis Clerides, will take place on a twice weekly basis and according to Xak news reports will cover subjects such as: The new situations that are created from the process of Cyprus's convergence towards Europe, the process of appeasing the OECD, the sustainability of the competitiveness of the Island for the development of large foreign Corporations, and the reform of the tax system for domestic corporations.

Documentation obtained from the Ministry of Finance offers some insight on what form Cyprus's commitments are to take. It states: 'there should be an equal treatment of the corporations with operations in Cyprus (which are taxed on normal rates) [so] the convergence of the relevant rates is necessary'. To achieve this it is expected that a lower tax rate will be levied on domestic companies and a higher rate will be imposed on the offshore companies. Currently, the domestic tax system allows for 20% corporate tax on profits up to CYP 40.000 and 25% for income in excess of CYP 40.000.

The document goes on to deal with taxation of dividends, suggesting a 20% withholding tax, regardless of the source or destination of the dividends.

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