Intensive consultations on tax reform are beginning to bear fruit, as authorities revisit controversial provisions of the draft legislation following strong objections from business groups.
According to information obtained by Politis, provisions allowing the Tax Commissioner to adjust salaries to “market rates” are now under review, with a suspension of implementation and re-submission of the measure under discussion.
The proposal, along with provisions for lifting the corporate veil and taxing shareholders as individuals running businesses, originated from the University of Cyprus’ Economics Research Centre. They were framed as anti-abuse measures targeting so-called “close-structured companies.”
Director salary cap under review
As drafted, from the 2028 tax year onward, the maximum annual remuneration for directors holding over 25% of shares in a company would be capped at €500,000. Authorities are now leaning towards suspending this clause, with plans to reintroduce it alongside specific criteria and safeguards.
Business groups have also objected to provisions allowing court-ordered closure of premises for 48 hours if a company fails to issue three invoices. Following consultations, the government is now considering a system of three written warnings before any court order is issued. Each warning would allow 15 days for compliance before the next stage is triggered.
Meanwhile, one proposal from the Economics Research Centre that did not make it into the government’s draft laws was the taxation of immovable property.
Consultations with stakeholders
Explanations and clarifications given during consultations appear to have brought stakeholders closer together. Discussions have already been held with KEVE, OEB, TechIsland, the Insurance Companies Association, Invest Cyprus, and further technical talks are planned with the Institute of Certified Public Accountants (SELK). Meetings are also scheduled with the Cyprus Investment Funds Association (CIFA), the Association of Banks, and the Professional Insurance Intermediaries Association.
Positive signals from the Tax Commissioner
Speaking on the podcast A Look at the Economy, KEVE secretary general Philokypros Rousounides said one of the chamber’s major concerns was the “excessive powers” granted to the Tax Commissioner. He noted that these were raised directly with Commissioner Sotiris Markides and his team: “They were not dogmatic, they wanted to listen, and they did. I believe we reached agreement on several points.”
Rousounides stressed that Cyprus must remain attractive as an investment destination: “We must avoid the mistakes made with AML and banking compliance, where the pendulum swung from one extreme to the other, creating dysfunctions.”
Common ground with employers
The Employers and Industrialists Federation (OEB) also reported significant convergence with the Tax Commissioner. After a two-hour meeting, OEB president Giorgos Pantelides said: “We identified several areas of agreement. The differences between the business community and the intentions of the competent authority are minimal.”