Finance ministry sources on Tuesday confirmed reports that the government is considering raising the corporate tax rate from 12.5 per cent currently to 15 per cent, at the same time allaying concerns that the island might lose its competitive edge in this area.
Unnamed sources told the Cyprus News Agency that should the increase occur it would be offset by a number of tax benefits.
They said the proposed corporate tax hike is not intended as a fiscal measure, given that the government is operating with a balanced budget.
Rather, the mooted increase is “related to problems arising in the area of international services from maintaining an overly low corporate tax. These are problems related to double taxation agreements and the country’s placement on ‘black lists’.”
Raising corporate tax to 15 per cent would “drastically limit” these problems without Cyprus losing its competitive edge, the same sources added.
A consultation process with stakeholders is underway.
An estimated extra €170 million would flow into state coffers from raising the tax, although the ministry is proposing returning €200 million to corporate taxpayers in various ways.
These might include cutting tax on dividends payments from 17 per cent to 15 per cent, lowering tax on interest from 30 per cent to 15 per cent, and decreasing capital gains tax from 20 per cent to 15 per cent.
The ministry is likewise considering scrapping the annual levy of €350 payable by all companies registered in the Republic, and abolishing stamp duties.
The statutory corporate tax rate in Cyprus is among the lowest in the European Union. The lowest rate is in Hungary at 9 per cent, then the Republic of Ireland at 12.5 per cent.
The highest rate is levied in France at 34.4 per cent, followed by Portugal (31.5 per cent) and Germany (29.8 per cent).