Proposal aims to shield tech firms from tax reform impact

A legislative proposal submitted by Disy and Diko aimed at providing transitional relief for legacy stock option schemes was discussed before the House Finance Committee this week.

The proposal focuses on incentive schemes implemented by Cypriot companies prior to the tax reform, during a period when the conditions for inclusion in the special taxation regime had not yet been defined.

Under the proposed framework, the Tax Commissioner would be granted discretionary authority to approve such schemes even if they do not fully meet current legislative requirements.

This provision would apply on the condition that the schemes include a minimum vesting period of three years, which must expire by the second half of 2026.

“The regulation arose following recommendations from companies, mainly in the technology sector, which already had share incentive programmes in place and found themselves outside the new framework after the tax reform,” said Tax Commissioner Sotiris Markides.

“The proposal provides flexibility until the end of June to approve older schemes that did not meet the requirements set by the legislation,” he added.

Markides highlighted that the technology sector is among the most affected, noting that such companies have greater flexibility to relocate operations outside Cyprus.

The proposed regulation was presented as a measure to enhance competitiveness and prevent business relocation, as well as to curb the outflow of highly skilled personnel.

“Whether the proposal addresses issues of constitutionality, as the House appears to be determining through law matters that fall within the executive branch,” questioned Akel MP Andreas Kafkalias.

In response, a representative of the Legal Service of the Republic clarified that the bill does not impose mandatory approvals but allows discretion to the Tax Commissioner.

“The bill does not impose mandatory approvals but grants discretionary power to the Tax Commissioner to address a specific category of companies that were unexpectedly affected by the tax reform while already operating incentive schemes,” a representative of the Legal Service of the Republic said.

The measure is intended to address companies unexpectedly impacted by tax reform changes, particularly those that had already implemented employee incentive schemes.

In essence, the proposal seeks to provide a temporary regulatory bridge for affected businesses, ensuring continuity while aligning with the updated tax framework.