Executive summary

On 9 December 2021, Cyprus Finance Minister, Mr. Constantinos Petrides, presented the 2022 Budget to the House of Representatives and announced the Government’s priorities for the Cypriot economy in the coming year.

One of the Government’s priorities is to reform the country’s tax framework in order to strengthen the competitiveness of the Cypriot economy and enhance Cyprus’s position as a business center. The Minister also said the objectives of the tax reform are to reduce tax inequality, enhance transparency, simplify the tax system, and reduce the administrative compliance burden.

This Alert summarizes the proposed pillars on which the tax reform will be based.

Detailed discussion

In his speech, the Minister referenced the international agreement reached for the imposition of a minimum global corporate tax rate of 15% on large multinational corporations and the relevant Directive from the European Commission that is expected to follow as the impetus for revisiting the Cypriot tax framework and reducing administrative burdens associated with compliance.

Moreover, the Minister stated that the increase of the corporate tax in Cyprus from 12.5% to 15%, will not substantially affect the foreign investments in Cyprus as the country has other comparative advantages as an investment destination that balance this small increase in the corporate tax rate.

In order to achieve the Government’s aims in relation to the tax reform, the Minister announced the Government’s intention to examine the following matters as part of the reform:

Increase of the corporate tax rate

Reduction or abolition of the special defense contribution on the deemed and/or actual distribution of dividends

Reduction of the rate of special defense contribution on interest income

Reduction or abolition of the annual fee of €350 payable by companies to the Registrar of Companies

Introduction of a carbon tax with a gradual increase of taxes on fossil fuels as well as the imposition of environmental taxes to achieve environmental objectives

Adjustment of value-added tax rates based on the recent ECOFIN decision, especially for products or services related to public health and the green and digital transition

Finally, the Minister emphasized that the objective is to have a fairer and fiscally neutral tax reform which will be completed within 2022.

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For additional information with respect to this Alert, please contact one of the following:

Ernst & Young Cyprus Limited, Limassol

• Philippos Raptopoulos, Head of Tax & Legal Services | philippos.raptopoulos@cy.ey.com 

Ernst & Young Cyprus Limited, Nicosia

Petros Krasaris, International Tax and Transaction Services | petros.p.krasaris@cy.ey.com

Petros Liassides, Tax Services | petros.liassides@cy.ey.com 

George Liasis, Indirect Tax | george.liasis@cy.ey.com