Major tax reform reveal at the Presidential Palace today

All eyes are on the Presidential Palace, where at noon today the much-anticipated reveal of a major tax reform will take place, under the watchful eye of the business community—and beyond.

From the very start of its term, the current government has made this transformation a top priority. In the presence of President Nikos Christodoulides, who will deliver an address, the preliminary framework for the tax reform—prepared by the Economics Research Centre (ERC) of the University of Cyprus—will be presented.

Finance Minister Makis Keravnos will also address the event, followed by presentations from ERC representatives, the body responsible for implementing the reform.

Today's presentation essentially marks the beginning of the countdown toward implementing this ambitious tax reform, a project deemed crucial for the future of the Cypriot economy.

It is worth noting that the last time Cyprus underwent tax reform dates back to 2002, when it was implemented to align with the European acquis.

The roadmap for implementation

The preliminary framework being presented today was developed after considering the views, positions, and various requests submitted by all relevant and interested stakeholders. These include employer and trade unions, as well as associations representing different professional groups (such as accountants, lawyers, etc.). In the coming period, these stakeholders will once again be invited to submit their final opinions and positions on the reform, which will help shape the final framework that will be translated into a legislative bill.

Following this, the bill will be put to public consultation, allowing all interested parties to submit further feedback before it takes its final form. After passing the necessary legislative and technical review, and upon Cabinet approval, it will be submitted to Parliament for debate and voting.

The government’s goal is for the tax reform bill to be approved by the end of this year, enabling full implementation of the tax transformation by 2026.

What the business community expects to hear

Ahead of today’s presentation, the business community is eager to learn whether the upcoming tax reform will align with what has long been presented as its primary goal: enhancing the investment climate. The key expectation is that Cyprus, with a revamped tax system designed to support entrepreneurship, will remain an attractive destination for both local and foreign investors.

A top priority for businesses is the complete abolition of the deemed dividend distribution rule for special defense contribution tax on dividends distributed by Cypriot companies. Additionally, there is strong interest in a reduction of the 17% defense tax on actual dividend distributions, with some proposals suggesting a drop to 5%.

Another critical question concerns whether the corporate tax rate will increase from 12.5% to 15%, a move strongly urged by the EU and the OECD as part of global tax reform efforts.

Also of great significance is the future of Cyprus’ non-dom regime and what will happen with the Notional Interest Deduction (NID) scheme, introduced in 2015 to encourage capital investments in the country. Moreover, there is concern about the preferential tax regime for intellectual property (IP) profits, which has played a key role in Cyprus’ attractiveness as a business hub.

The objective and core principles of the reform

As the country awaits today’s announcements, it is worth recalling that the government has repeatedly emphasised that the upcoming tax reform aims to make Cyprus’ tax system fairer, more efficient, and competitive, while also strengthening trust in the state among citizens and businesses.

According to government declarations, the core pillar of the reform is a fairer distribution of the tax burden while also offering incentives for businesses to continue growing and investing.

Key changes expected under the tax reform

Regarding businesses, the reform is expected to introduce tax relief measures on existing corporate taxes, along with adjustments to minimum tax rates. There is also the possibility of changes to tax brackets, which could further impact corporate taxation.

For households, tax relief measures are anticipated based on family composition, as well as tax reductions related to first-home mortgages, providing additional financial support to homeowners.

As Finance Minister Makis Keravnos recently stated, the new tax system will be business-friendly while also ensuring social fairness, aligning with European standards and principles. A key goal of the reform is to combat tax evasion and tax avoidance, ensuring a more transparent and efficient fiscal framework.

The new tax framework will also aim to enhance the economy’s competitiveness, reduce the administrative burden on both taxpayers and businesses, and ensure a fairer redistribution of the tax burden.

According to Keravnos, the key principles guiding the tax reform focus on creating a more efficient and fair tax system, based on the following fundamental pillars:

Simplification of the tax system: Reducing bureaucracy to make it easier for citizens and businesses to understand their tax obligations.

Enhancing tax compliance: Introducing new tools and technologies to improve the monitoring and enforcement of tax payments, minimising violations and tax evasion.

Fair tax distribution: Ensuring that taxation is equitably distributed, preventing disproportionate burdens on small and medium-income earners.

A business-friendly environment: Establishing a tax system that encourages investment and provides favourable conditions for business growth.

Digitalisation of the tax system: Facilitating easier access for taxpayers and ensuring faster tax return processing without bureaucratic delays.

The Advisory Committee

The Economics Research Centre (ERC) of the University of Cyprus has been tasked with overseeing the tax reform project. The ERC is an independent research centre specialising in applied economic research, focusing on economic policy issues related to both Cyprus and the European Union, and collaborating with international institutions.

With extensive scientific expertise and experience, the ERC brings together a diverse team of academic staff from the University of Cyprus, ERC experts, and a network of local and international partners.

The ERC has a proven track record in managing large-scale projects for both the Cypriot government and the European Union. A recent example is its impact study on Cyprus' Recovery and Resilience Fund.

The tax reform project is supervised by an 11-member advisory committee, consisting of:

• Andreas Zachariades, Director General, Ministry of Finance
• Soteris Markides, Tax Commissioner
• Nayia Symeonidou, Senior VAT Officer
• Clelia Papadopoulou, Senior Chief Tax Officer
• Elena Andreou, Director of ERC & Professor of Economics, University of Cyprus
• George Syrichas, Economist & ERC Consultant, University of Cyprus
• Theofanis Mamuneas, Professor, Department of Economics, University of Cyprus
• Panayiota Lyssiotou, Associate Professor, Department of Economics, University of Cyprus (until 29/08/24)
• Marios Andreou, Tax Expert
• Costas Markides, Tax Expert
• Rena Makri, Senior Audit Officer