EXPERTS are confident that Cyprus’ strong services infrastructure will prevent the international business sector being scared off by an inevitable end to special tax breaks.
While international or offshore enterprises now pay a tax rate of 4.25 per cent compared to the 20 and 25 per cent tax paid by domestic companies, pressure is being put on Cyprus to equalise tax for all companies.
Even though this would make it less attractive in terms of tax incentives, experts maintain that Cyprus’ significant business-related services sector will keep it high on the list for offshore company locations.
Cyprus Chief EU negotiator George Vassiliou told The Sunday Mail that the tax change would not depend on Cyprus joining the European Union (EU).
“Until now, people were under the impression that it is the EU that makes the difference,” he said. It is in fact the Organisation for Economic Co-operation and Development (OECD) which has been putting pressure on Cyprus to tax all corporations, whether local or international, equally.
Any countries which refuse to co-operate to meet OECD banking and other criteria, Vassiliou said, “will be denounced… and boycotted by the OECD” in the same way it already blacklists countries judged to be tax havens.
Bank of Cyprus International Business Unit Manager Dinos Constantinou said that Cyprus took the right road when it became an offshore centre more than 20 years ago.
He said that at the time Cyprus had to choose between becoming a tax haven or a tax incentive country, and opted for the latter.
This decision resulted in a boom in international, or offshore, companies currently registered in Cyprus.
There are now 41,751 international businesses registered in Cyprus, according to Spiros Stavrinakis, a Central Bank assistant manager specialising in international businesses: 1,082 of these are fully fledged businesses.
Vassiliou said he did not believe these figures would be much disturbed by a higher tax rate.
He said that while he could not forecast what rate would be used to harmonise international and domestic corporate taxes, “What I do know is (whatever rates are adopted), I should not be worried that the international business sector will disappear.”
He said that the adopted rates should “maintain the (island’s) considerable attractiveness for international companies… and at the same time… not reduce significantly the inland revenue”.
He said that “probably up to 90 per cent” of the companies would remain on the island after foreign corporate tax rose, “because the days when companies were only interested in tax advantages are numbered, if not over”.
