LAWYERS warn that certain measures included by the government in its counter-proposals to international lenders would harm Cyprus’ status as an international business centre.
Specifically, lawyers object to the proposal for directors to be personally liable for a company’s tax obligations and the increase of an annual levy, currently at €350.
“We are once more sounding the alarm and call on the finance ministry to exclude companies – essentially foreign investment – because there will not be any long term benefits, but it will contribute in the further deterioration of the economy,” a Cyprus Bar Association statement said.
The association said holding directors personally liable in a bid to fight tax evasion was unacceptable and would not succeed in raising the proceeds of the Inland Revenue Department.
Doing so would deter Cypriot professionals, like lawyers, to act as directors for international businesses registered in Cyprus, thus companies would not be considered residents of the island for tax purposes.
“The majority of these companies would leave Cyprus because the main reason they are here is to use the agreements made between the Republic and other countries to avoid double taxation,” the lawyers said.
On top of losing the companies, Cyprus also stands to lose a big chunk of the around €300 million it collects in corporate tax.
The bar association also raised questions over the effectiveness of raising the annual corporate levy, introduced in 2011 as part of an austerity package.
The government proposes a revenue-based staggered raise with a €2,000 ceiling.
Companies with a turnover of up to €100,000 will continue to pay €350 while those with over €1.0 million will be charged €2,000.
The association suggested that this would make Cyprus less attractive since competitors charge either corporate tax or an annual levy but not both.
At 10 per cent, Cyprus has one of the lowest corporate rates in the EU, affording the country a comparative advantage in attracting foreign companies, especially from Russia.