Calls for other revisions to taxation
Visas “could be the final straw”
Business is being diverted from Cyprus owing to cumbersome rules on stamp duty, according the Cyprus International Business Association (CIBA), which has also called for a wide range of reforms in other areas that affect the international business sector.
The international business sector accounts for more than 6% of Cyprus’ GDP, according to the CIBA’s President Chris Koufaris (citing the Central Bank figures), and employs over 3,100 Cypriots.
Business conditions have changed profoundly as a result of Cyprus’ accession to the EU, most significantly a rise in the corporate tax rate from 4.25% to 10%. Although IBUs did not resist the increase in tax rates, other obstacles to business, including cumbersome taxation and immigration rules, are posing a serious threat.
“Large international business contracts are not being concluded through Cyprus companies, precisely because of the high amounts of stamp duties involved,” says CIBA in its regular ‘Intercom’ report for members.
Stamp duty is applied to all kinds of documents in Cyprus, such as receipts, cheques, letters of credit and bills of exchange. Although the amounts on these are small, a big deal would amount to a big increase in transaction costs.
There is also a stamp duty on contracts of 1.5-2% and stamp duty on the issue of share capital.
CIBA is therefore calling for the abolition of stamp duty on the issue of share capital and a ceiling on stamp duty liabilities in the case of contracts.
Koufaris told the Financial Mirror that the Ministry of Finance is now considering CIBA’s proposals for a ceiling on payable stamp duty.
Defence (withholding) tax should be reimbursable
CIBA has also called for the refund of the defence tax on dividends in certain cases.
At present, if a Cyprus resident company does not distribute a dividend within two years of the end of the tax year, then it is deemed to have made a dividend distribution of 70% of its profits after tax. The company pays 15% defence tax (essentially, a withholding tax) on the 70% deemed distribution.
However, CIBA notes, “If at a later stage dividends are actually paid, based on previous accumulated profits, the 15% defence/withholding tax is not “refunded”.
Other areas for tax reform
Other reforms called for include reducing the top rate of income tax to 25%; allowing the purchase and use of private motor vehicles for business purposes to be tax-deductible; and for a revision of the “90-days rule” on residency. CIBA says that the current regulation on the 90-days rule is so complicated that this important incentive for frequent travellers “is now lost in many cases” and that it “is not beneficial to companies, nor to the Republic.”
As for duty-free cars, rules have now been adjusted to equalise depreciation periods for cars regardless of residency status.
However, as reported previously in the Financial Mirror, it is still almost impossible to sell a duty-free car to another duty-free entitled owner, with the result that people can suddenly face an excise bill for thousands of pounds when they lose their duty-free status.
Visas could be the final straw
Other obstacles to doing international business include rules on reorganisation of companies that can discourage mergers or splits; the improved but still restrictive deposit requirements of CyTA for telecoms connections, and the new “burdensome process” of reporting requirements to the Central Bank.
But the biggest obstacle of all remains the time required for non-EU visas.
CIBA reports that the Minister of Labour and Social Insurance,
Christos Taliadoros, admitted to CIBA that Cyprus’ economic growth target “can only be achieved by hiring more foreign staff”, which “this country is ready to do”.
Despite this, its members find that following Cyprus’ accession to the European Union and pending the enactment of the Aliens and Immigration legislation, “many problems have emerged, due to heavy red-tape procedures, causing unacceptable delay in hiring the services on third country nationals.”
CIBA has been informed of visa applications that have been pending for more than five months, “which, in international business, is close to eternity”, it says.
One big problem is that there is still little distinction made by the authorities between workers with important skills and those hired to do low-paid, low-skilled jobs.
“The International Business Sector ha[s] swallowed the increase in corporate taxes, the obligations to contribute to social insurance and the abolition of almost all financial advantages for expatriate staff because in spite of these, the involved companies were able to continue to carry out their daily business. The present complications however could be the legendary final straw for a number of companies,” says the report.
Faster with CIBA and the CSC?
A new draft law on Aliens and Immigration is due to be submitted to the Council of Ministers within the coming weeks.
One proposal put forward by CIBA and the Cyprus Shipping Council is that they act as information-providers for their members, in order to speed up the visa approval process–thus in a sense using their good reputations and those of their members as a guarantee.
“We are trying to move forward on a positive basis, and we are open to giving any information to the government to help speed up this issue,” said Koufaris.
Fiona Mullen
