Cyprus' Tax Reform: A Catalyst for Economic Growth

Cyprus is poised to undergo a significant tax reform, as outlined by experts from the Centre of Economic Studies at the University of Cyprus and its advisory committee. This reform aims to enhance the competitiveness of the Cypriot economy by transforming its tax framework to attract high-quality foreign investments and stimulate domestic business growth.

What Are the Key Components of Cyprus' Tax Reform?

The proposed tax reform includes several strategic adjustments to the corporate tax framework. These involve increasing the corporate tax rate from 12.5% to 15% and managing tax incentives to maintain Cyprus' appeal as a reliable international business hub. This reform is designed to ensure fiscal stability while attracting foreign capital.

Significant changes also include:

• Elimination of Notional Dividend Distribution: This change allows Cypriot businesses to benefit from a lower withholding tax on actual dividend distribution, dropping from 17% to 5% for tax residents and domiciled in Cyprus.

• Maintain the IP Box Regime: The favourable tax treatment for intellectual property income remains unchanged, ensuring continued support for innovation and the technology sector.

  
  

How Will These Changes Impact Cyprus' Business Landscape?

The reform is set to correct long-standing imbalances affecting local companies with shareholders resident in Cyprus. By implementing these changes, local businesses will face less tax burden, fostering a more competitive environment. Furthermore, by preserving existing incentives, such as the Notional Interest Deduction, the reform continues to encourage new investments and the inflow of capital to existing enterprises.

Cyprus remains steadfast in retaining its attractive non-dom regime, a key advantage for high-income individuals considering relocating their tax residence to Cyprus. This is seen as pivotal in light of the UK's recent abolition of its equivalent regime, providing Cyprus with a unique opportunity to draw affluent individuals to its shores.

Who Benefits from the Proposed Tax Reform?

The tax reform offers substantial benefits to a variety of stakeholders:

• Businesses: Both foreign and domestic companies stand to gain from reduced tax burdens, increased flexibility in stock options, and a prolonged period for offsetting losses, potentially extending up to ten years.

• Investors: The reform's balanced approach aims to sustain and improve Cyprus' reputation as a reliable investment destination.

• High Net-Worth Individuals: The continuation of the non-dom regime and its expansion further establish Cyprus as a lucrative option for residency and investment.

  
  

What Are the Next Steps for Cyprus' Tax Reform?

Following public consultations, the drafting of relevant legislation is underway, with plans to implement the reform by January 1, 2026. Stakeholders emphasize the importance of maintaining the core principles and philosophy of the reform to avoid unnecessary delays and to ensure its successful execution.

This reform presents a significant step forward in enhancing Cyprus' economic landscape, fostering growth, and strengthening its position on the global investment map. As the nation prepares for this transition, it's crucial for businesses and individuals to stay informed and engaged.

For further information or to discuss how these changes might affect your business or investment plans, contact Tsitsios & Associates LLC at info@klztlaw.com.

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