Cyprus aims for tax changes that protect offshore companies

The Cypriot government is currently considering the legal framework which will allow for harmonization of the island republic’s tax regulations with the EU without jeopardizing its particularly profitable sector of offshore companies, officials of CLR Financial Services told reporters in Thessaloniki yesterday. Speaking at a conference on «The Cypriot Economy and the Stock Market: Present and Future,» the officials said tax reform is expected to be completed as soon as the government makes a commitment to submitting the relevant guidelines to the European Commission by March 31 and finalizing the details within three months. According to the proposed changes, the tax rate for all companies will be set at 10 percent, in contrast to today’s 4.25 percent for offshore and 25 percent for onshore firms, which also pay an additional 3 percent to the defense budget. The arrangement is expected to induce the withdrawal of the so-called «shell» (or phantom) companies and attract serious firms that want to do business based in Cyprus. According to CLR, of the about 40,000 offshore companies licensed in Cyprus, 23,000 have registered and 1,000 have a physical presence, while their contribution to the country’s GDP is estimated at 5-6 percent. Cyprus’s GDP is 10 billion euros, while the high rate of savings, combined with a low-interest rate policy, is projected to lead funds to alternative forms of investment.

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