By Antonis Antoniou

The tax environment is a factor of particular importance in shaping the competitiveness of any country. And in countries like Cyprus, with limited natural resources and relying mainly on foreign investment and services, an efficient, investment-friendly tax system becomes even more important for growth and overall prosperity.

For the last 20 years or so, Cyprus has had a tax regime that has enabled it to take advantage of international opportunities and has also boosted the appetite for domestic investment. From the last tax reform back in 2002 until now, the country has gone through a 20-year period during which it has experienced a wide spectrum of challenges: from high growth after joining the European Union through the bankruptcy a few years later, followed by the pandemic and the wars in Ukraine and Israel with the familiar economic repercussions.

The dynamic Cypriot business community in all these phases – whatever the challenges and difficulties before it – has managed each time to deliver the maximum possible under the circumstances. This has been achieved in cooperation with the state, which, particularly in difficult times demonstrated admirable reflexes, was also enabled by the positive tax environment in which business operated and to which various adjustments were made from time to time to speed up the recovery of the economy.

Now, some 20 years later, the time has come for reform, upgrading and modernisation and the state has rightly set in motion the relevant processes. The Cyprus Employers and Industrialists Federation (OEB), using the expertise and experience of its members from all sectors of the economy, is working on the proposals it will submit to the authorities in autumn.

The main axes around which OEB’s proposals revolve are the preservation of the competitive advantages of the corporate tax rate, the simplification of the system by abolishing or limiting anachronistic taxes, the reduction of corporate charges that are either labour-related (e.g. social cohesion fund tax) or place Cypriot investors at a disadvantage compared to foreign investors (e.g. defence tax on deemed dividend distribution) and the introduction of incentives that enhance the country’s investment attractiveness, accelerate the digitalisation of the economy and assist in the green transition of enterprises.

A key request expressed by the business community and which we have already communicated to the finance minister and the president is that the whole reform project must be completed in as short a time as possible in order to ensure tax stability, which could be harmed by a prolonged period for the shaping of a new tax ecosystem.

A parallel priority set by OEB is for the government to support the tax authorities by providing them with the necessary human resources and technological capabilities, so that the country’s tax collection capacity can be strengthened to an even greater extent.

Ever since the tax services have been consolidated under the single umbrella of the office of the tax commissioner, we have witnessed a substantial growth in their efficiency and an unprecedented increase of productivity rates have been recorded.

Despite our occasional disagreements with the tax commissioner on isolated issues (such as recently with regard to the taxation of a portion of employer contributions to health funds as a “benefit in kind” for the employee), there is recognition on the part of OEB and the business community at large of the hard work, high sense of responsibility and impeccable professionalism of the entire tax department. Similarly, I hope that OEB has also on its side gained the trust of the tax authorities as a prudent and reliable partner.

By supporting the tax authorities, we will also be able to reduce the black economy in the medium term, a phenomenon that not only deprives the state of resources but also puts legitimate businesses at a competitive disadvantage for the benefit of those who break the law. Furthermore, it will add one more step to restore the true picture of Cypriot businesses, which overwhelmingly comply with their tax and other obligations and whose image is often tarnished due to the few that do not follow due process.

In the fight against tax evasion, the finance ministry, the tax commissioner and the state as a whole are on the right direction and OEB stands by to support them.

Antonis Antoniou is president of the Cyprus Employers & Industrialists Federation (OEB)