Government Officials Reassure Cyprus' Offshore Sector On Harmonisation Of Company Taxation

by Lorys Charambolous, Tax-news.com, Cyprus

23 April 2001

In an address to the Annual General Meeting of the Cyprus International Business Association (CIBA) last week, George Vassiliou, Cyprus's chief EU negotiator, stressed that the country's offshore corporations will continue to enjoy a competitive tax rate within Europe despite the government's decision to bring it into line with international standards.

Vassilou said that the commitments it made to the EU and OECD will force Cyprus to harmonise its business tax rates for both onshore and offshore companies, stating: 'We have no other choice but to raise the offshore tax rate, but we shall make sure that it is competitive and attractive enough to ensure you stay here.'

Not only will Cyprus harmonise its tax regime to appease the EU, it also intends to meet the demands of the OECD in order to secure its removal from the organisation's blacklist of harmful tax havens and has been under pressure from the multilaterals to make its tax regime, which is in favour of offshore companies, less discriminatory. Currently International Business Companies (IBCs) enjoy a corporate tax rate of 4.25 per cent compared to local companies which pay 20 - 25 per cent.

Also addressing the CIBA meeting was finance minister, Takis Klerides, who said that Cyprus's international business sector was vital to the economy and also pledged that the new taxation system would still be attractive to IBCs. He said: 'Our strategic vision is to strengthen and continuously upgrade the role of Cyprus as a centre of excellence for export-oriented reputable international businesses, engaged in the production of high quality services.'

He added: 'We will continue to expand our network of International Treaties for the Avoidance of Double Taxation and continue to improve the infrastructure of our economy in the globalised marketplace.'

In response, CIBA president Mehran Eftekhar welcomed the government's assurances but called for the personal tax that is applicable to expatriate personnel to remain at the same rate. He also said that the government's plans to implement withholding taxes on dividend, interest and royalties in an attempt to placate the international agencies was troubling for CIBA. 'This is particularly worrying as withholding taxes have never been an issue with the EU or the OECD,' argued Eftekhar.

He explained that CIBA would be agreeable to pay for a foreign expert to travel to Cyprus to assist the government, saying: 'Perhaps if we were more formally consulted, we could come up with suggestions to convince the EU that relief for exports in such a small country such as Cyprus is not an aid, but a strategy to maintain the service industry.'

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