NOBODY expected auditors, lawyers and business organisations to embrace finance minister Harris Georgiades’ suggestion for an increase of corporate tax from 12.5% to 15%. Low corporate tax, which was 10% before the economic crisis and 4% for foreign businesses before entry to the EU, was arguably the main incentive for foreign companies setting up in Cyprus. For companies making good profits, relocation costs could be covered from the first tax year’s additional profit earnings, which made the move a no-brainer.
The finance ministry floated the idea of raising corporate tax on Tuesday and within 24 hours representatives of the business community met at the Cyprus Chamber of Commerce and unanimously rejected it. Not only this, but in a statement issued by all participants they demanded “an immediate end to any discussion regarding the particular issue and the express revocation of the ministry’s intention.”
It’s quite interesting how the ROC has had its arm twisted by the EU (no doubt instigated by certain other members with an agenda) to capitulate to actually cutting its own throat.
Prior to joining the EU, Cyprus had an offshore tax rate of 4%, which encouraged companies from around the world to register here, putting Cyprus on course to become the Switzerland of the Med. However, following the money grabbing haircut and successive hikes in the rate of tax, that position has been slipping and will inevitably fall further, should the rate rise again.
Why should corporations avoid tax you may ask? Well, let’s take a look at Gibraltar, which has always been a tax haven:
Corporate tax is just 10% and personal tax is low, with the tax rate on income over £700,000 falling to just 5%.
It seems to me, that this administration is making a grave error, rising tax rates are a sure way to put the economy on a downward spiral, as they gradually need to take more and more, from less and less contributors, as companies simply move elsewhere.