Cyprus Government Plans for TAX Reform in 2022
On 9 December 2021, Cyprus Finance Minister, Mr. Constantinos Petrides, announced the Government’s decision regarding the corporate income tax reform in the coming year.
According to the finance minister, the corporate tax in Cyprus will increase from 12.5% to 15% in 2022 aiming to strengthen the competitiveness of the Cypriot economy and improve Cyprus’s position as a business centre.
The objectives of the tax reform are to reduce the administrative compliance burden, to reduce tax inequality, enhance transparency and simplify the tax system, the minister added.
Moreover, Mr. Petrides stated that Cyprus is part of a global agreement for 15% taxation on global multinational companies and in our estimates the increase of the corporate tax in Cyprus from 12.5% to 15%, will not markedly affect the foreign investments in Cyprus, as the country has other comparative advantages as an investment destination, that balance this small increase in the corporate tax rate.
As stated by the minister, apart from the increase in corporate taxation and, in order to achieve the Government’s objectives in relation to the tax reform, the following tax reforms will be examined as well:
- Reduction or abolition of the €350 annual company levy to the Registrar of Companies;
- Reducing the rate of special defense contribution on interest income;
- Reduction or abolition of the special defense contribution on the deemed and/or actual distribution of dividends;
- Introducing a carbon taxation with a gradual increase of taxes on fossil fuels as well as the imposition of environmental levies;
- Adjustment of VAT rates based on the recent ECOFIN (Economic and Financial Affairs Council) decision, particularly on products or services associated with public health and, the green and digital transition.
Finally, Mr. Petrides emphasized that the tax reforms would be fairer and fiscally neutral, and, will be completed within 2022. He also stressed the importance of absorbing EU funds, especially from the EU Recovery and Resilience Facility.