Parliament on Tuesday continued discussing a legislative proposal that would reduce the maximum fine imposed on companies for not submitting their annual financial reports on time, as MPs heard that over half of registered corporations had not complied in 2021.

Back in 2015 the fee for non-compliance was raised from a maximum of €150 to €500. In 2015 the compliance rate for filing on time was just 53 per cent, but by 2020 it rose to 63 per cent.

Now, lawmakers want to cut the penalty back down to €150, arguing that as it stands it is too punishing on most businesses.

But an official from the finance ministry said doing so would incentivise companies to break the law even more. The same official also warned that should the compliance rate drop, it might adversely impact Cyprus in terms of its assessment by the Global Forum of the Organisation for Economic Co-operation and Development.

The Global Forum consists of Oecd member countries as well as other jurisdictions that have agreed to implement tax related transparency and information exchange. Its mission is to “implement the international standard through two phases of peer review process.” The forum addresses tax evasion, tax havens, offshore financial centres, tax information exchange agreements, double taxation and money laundering.

Legislators heard that of 110,536 entities listed with the Registrar of Companies, only 48,217 filed their annual reports on time in 2021. For 2021, the state collected €859,000 in non-compliance fines.

The penalty comes to €2 per day of non-compliance (failure to file an annual report by the set deadline), rising to a maximum of €500.

Marios Tsiakkis, head of the Chamber of Commerce and Industry, said that because of the Covid situation many companies were late in filing their reports, and as a result accounting firms have a huge backlog on their hands. He suggested that non-compliant companies be given a grace period.

Kyriacos Moustakas of the Povek trade union representing small shops supported the proposed bill as it would provide some relief to businesses. He noted that most companies in Cyprus are small enterprises consisting of two to three people.

The House commerce committee will revisit the matter in two weeks’ time.