Lawyers and financiers lash out at the tax reform

Lawyers and accountants in Cyprus have submitted numerous objections to the proposed tax reform, which, if considered, could significantly alter the government’s plan. The discussion concerns six bills prepared by the Ministry of Finance as part of a comprehensive tax system reform expected to take effect early next year.

The Bar Association and the Institute of Certified Accountants jointly sent 432 comments on the bills to the government. These organizations, representing business interests, carefully analyzed every provision of the proposals.

The Bar Association expressed doubts about the constitutionality of several provisions and noted that the study of financial implications prepared by the University of Cyprus has not yet been published. According to lawyers, this violates the principle of transparency and could lead to lawsuits if the law is adopted in its current form.

The most debated issue is the increase of the corporate tax rate from 12.5% to 15%. Lawyers consider this measure excessive and cite Estonia as an example, where only distributed profits and certain types of expenses are taxed.

Equally controversial is the proposed expansion of the definition of tax residency. The bill suggests considering as tax residents those who spend fewer than 183 days outside Cyprus in a year, even if the person has no strong ties to the island. Experts warn that this may lead to uncertainty and the risk of double taxation, especially in countries with which Cyprus has no double taxation agreement.

The method of providing tax deductions is also questioned. In particular, it is proposed that families with an income up to €80,000 and single parents with an income up to €40,000 be eligible for benefits.

The legal community also criticized the provision allowing the tax commissioner to close companies with debts, deeming it unconstitutional. A separate objection was raised regarding the initiative to tax bonuses and payments made through pension schemes at a 20% rate if they exceed €20,000.

The Cyprus Chamber of Commerce and Industry (KEVE) has also joined the criticism. Its representatives stated that the new rules may lead to a situation of double tax residency and negatively affect the country’s investment attractiveness.

The government, in turn, insists that the reform aims to broaden the tax base, strengthen control over tax payments, and simultaneously ease the burden for households and businesses. Finance Minister Makis Keravnos noted that after the reform, about 60% of the population will not pay tax compared to the current 45%. In addition, the tax-free threshold will increase from €19,500 to €20,500.

Thus, the tax reform, designed as a tool to simplify and fairly redistribute the tax burden, has faced serious resistance from professional communities. The final fate of the bills will largely depend on whether the government can take the comments into account and find a balance between the interests of the state, business, and citizens.