Business in turmoil over corporate tax hike

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Business is in turmoil over the government’s move to increase corporate tax from 12.5% to 15%, fearing Cyprus losing an advantage over competitors as an investment destination.

Business lobby groups argue the government needs to offer “generous” compensatory measures so the competitive advantage of the Cyprus economy is protected.

In comments to Stockwatch, the General Secretary of the Cyprus Chamber of Commerce and Industry, Marios Tsiakkis, said: “We must not kill off the country’s dynamic when it comes to attracting foreign companies”.

Tsiakkis said a structured dialogue involving all social partners and stakeholders of the economy with the Ministry of Finance should take place.

“Incentives and compensatory measures should be given to local and international companies based in Cyprus, to balance the increase of the corporate tax rate to 15%.”

Federation of Employers and Industrialists (OEB), Director General Michalis Antoniou said not providing compensatory measures will deliver another blow to the business world recovering from the coronavirus pandemic.

“We are going through an extremely difficult period due to the pandemic crisis, and any tax reform will have to weigh the negative effects borne by all local businesses since March 2020.”

He added the Federation had sent several suggestions to the Finance Ministry including, the increase of the ceiling on tax-free income from €19,000 and the reduction of the employer’s contribution to the Redundancy Fund, from 1.2% on the insurable earnings to 0.6%.

The government’s intention to increase corporate tax from 12.5% to 15% was announced by Finance Minister Constantinos Petrides earlier this week, following a global agreement on increasing it.

The Organization for Economic Cooperation and Development (OECD) announced on 8 October that its members have agreed to set a global corporate minimum tax rate of 15%, effective in 2023.

“The landmark deal, agreed by 136 countries and jurisdictions representing more than 90% of global GDP, will also reallocate more than $125 bln of profits from around 100 of the world’s largest and most profitable MNEs [multinational enterprises, or multinational corporations] to countries worldwide,” the OECD said.

Petrides said the corporate tax hike would be introduced in 2022.