Accountants and lawyers have drawn a red line over the government’s plan to raise corporate tax from 12.5% to 15%, warning the move will damage Cyprus’s competitiveness even though parliament has yet to debate the measure.
The Institute of Certified Public Accountants of Cyprus (ICPAC) and the Cyprus Bar Association linked their opposition to the tax rise with the abolition of deemed dividend distribution and the reduction of special defence contribution on dividend distribution from 17% to 5% for profits after 1 January 2026.
The measure will be discussed extensively from next week in parliament’s finance committee, but during Monday’s debate on the bill for the special defence contribution, affected parties made their opposition clear.
ICPAC argued the corporate tax should not rise because it would affect Cyprus’s competitiveness. The institute called on the government to clarify its reasons for raising corporate tax, noting that if parliament agrees to the increase, additional measures are needed to maintain the economy’s competitiveness.
Lawyers also demanded removal of the provision from the bill, arguing it would have consequences for businesses. They questioned the Economics Research Centre’s estimates that the tax increase would generate €240 million in revenue.
The defence contribution bill provides for reducing the contribution on income from potential dividends to 5%.
Dividends issued by 31 December 2031 from profits up to and including 2025 will be subject to special defence contribution at a rate of 17%, so that profits taxed under the 12.5% corporate tax rate remain linked to that regime.
The withholding rate for defence contribution on dividends paid to companies resident in low-tax jurisdictions will be reduced to 5%.
Tax Commissioner Sotiris Markides told the committee that anti-abuse provisions should be included in the bills due to the abolition of dividend taxation.
ICPAC made ten observations on the defence contribution bill, with much of the discussion focused on introducing deemed dividends.
The accountants argued the current taxation system works adequately, warning the proposed change would deliver low additional financial benefit for the government. Lawyers consider it a complex process, requiring a unified text so citizens know what they will be taxed on.
Markides said he understands the legislation is complex, stressing that businesses choose to provide houses and loans to directors when they could alternatively pay them dividends.
Stamp duty abolition push
DISY is pushing to abolish stamp duty fees. The stamp duty bill included in the reform provides for deleting provisions that make stamping of documents mandatory, except for contracts in financial services sectors, insurance contracts, property transfer contracts and property leases valued above €50,000.
The state collected €38 million from stamp duty fees in 2024 and according to the Economics Research Centre, the state will lose €8-10 million in revenue from the bill.
DISY MP Haris Georgiades said maintaining bureaucratic legislation is not justified in 2025, stressing that DISY will raise the issue of complete stamp duty abolition.
“It makes no sense to maintain complex legislation to bring in €20 million in revenue when last year the tax department’s revenue was €7.4 billion and this year it will be €8 billion,” he added.
Tax Commissioner Markides said the way stamp duties are collected makes it difficult to estimate revenues. He said it is an anachronistic fee that will be submitted electronically.
On DISY’s intention, he said he would convey the position to the finance minister, adding that if there is a revenue reduction, he would expect proposals to offset the loss of income.
Affected parties, including ICPAC, lawyers, insurance companies, business organisations and banks, expressed reservations about the bill and demanded complete abolition of the fee.
Provident fund concerns
Members of provident funds run by SEK, PEO, semi-governmental organisations, the construction industry and the hotel industry expressed concern over regulations affecting provident funds.
Under the current legal framework, approved provident funds are exempt from income tax to avoid limiting fund income. Under the government’s proposal, from 1 January 2026 the tax treatment of funds will change in cases where their income comes from business activity or property exploitation. From 2031, profits from redemption of units or shares will be taxed.
Trade unionists argued the regulation would reduce funds’ net income and members’ benefits. Affected parties demanded withdrawal of the provision to protect the value of members’ pension rights.
Race to meet deadlines
The finance committee accelerated its pace to complete the examination of the bills within deadlines. Of six bills, article-by-article discussion has been completed on three, whilst remaining open issues will be brought back before the committee.
At Thursday’s emergency session, an attempt will be made to complete article-by-article discussion of the other two bills, so that next Monday efforts can be made to find solutions for the income tax bill.
Finance minister Makis Keravnos is expected to attend the finance committee’s final session to take a political position on issues raised by the parties.
After the session, DISY MP Onoufrios Koulla said tax uncertainty must end. DISY’s goal is strengthening low and middle incomes, supporting families with children and students, improving entrepreneurship, and simplifying and ensuring predictability of the tax system, he said.
Koulla added that the tax reform should not be fiscally neutral, expressing the belief that “there is scope for considered tax relief for businesses and households”.
AKEL MP Christos Christofides, referring to the proposal to raise tax-free income from €19,500 to €20,500, said President Christodoulides promised tax-free income of €24,500 before the election. He stressed that the tax reform fails to address widening social inequalities.
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