ICPAC Accountancy Cyprus 2017

1ACCOUNTANCY CYPRUS No. 124 | OCTOBER 2016PLUS: 10 LEADING •  Marios AndreouACCOUNTING & CYPRIOT TAX •  Nicos CharalambidesAUDIT, BUSINESS, PROFESSIONALS •  Ioannis DemetriadesECONOMY, ICT, GIVE THEIR VIEWS •  George KaravisINSTITUTE NEWS, •  George MarkidesINTERVIEWS, ON A BROAD •  Pieris MarkouPROFESSIONAL RANGE OF •  Petros RialasSERVICES, REAL •  Loizos TiminisESTATE, TAXATION CURRENT LOCAL •  Alexis Tsielepis& MORE AND GLOBAL •  Karlos Zangoulos TAXATION ISSUES The Journal of the DISTRICT POST OFFICE Institute of Certified Public CY-1901 NICOSIA, CYPRUS Accountants of Cyprus POSTAGE PAID LICENCE no.33 SEALED UNDER PERMIT no. 133 ΠΕΡΙΟΔΙΚΟwww.icpac.org.cy ΤΑΧΥΔΡΟΜΙΚΟ ΚΛΕΙΣΤΟ ΕΝΤΥΠΟ ΤΕΛΟΣ ΠΛΗΡΩΜΕΝΟ ΑΔΕΙΑ ΑΡ. 133 ΑΔΕΙΑ ΑΡ. 239

2 ACCOUNTANCY CYPRUS

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4 ACCOUNTANCY CYPRUS CONTENTS THE IMPACT OF IFRS 16 64 72 MERITOCRACY, RELIABILITY, ‘Leases’ on shipping CREDIBILITY By Tasos N Nolas, Partner, Assurance 76 Interview with Haris Stavrinides, Invest- and Andreas Avraam, Director, 80 ment Manager and Analyst at OSYS Glob- Assurance Services, PwC Cyprus. 82 al Diversified Investment Fund (OGDIF). THE FINANCIAL CRISIS AS A 67 VIEW FROM THE INSIDE DRIVER OF MANAGEMENT The events surrounding the March 2013 ACCOUNTING CHANGE Eurogroup meetings on Cyprus, as seen by Former Minister of Finance Michael By Loukia Sergiou, Assistant Professor Sarris. of Accounting, P.A. College. MISSED OPPORTUNITIES accounting & audit 84 Why past efforts aimed at expanding the economic boundaries of Cyprus often IMAGE AND REPUTATION 68 86 failed. By Dr Iacovos Aristidou. REMAIN KEY FACTORS 88 Interview with George Savvides, ENSURING PENSIONS FOR AN Managing Director of Fiducenter AGEING POPULATION (Cyprus) Ltd By Marios Mavrides, MP. professional services 90 CETA: A FREE TRADE DEAL FIT 92 FOR THE 21ST CENTURY10institute 08 By George Markopouliotis news THINKING AHEAD AIMING FOR THE STARS By Marina Ioannou PROBLEMS FROM WITHIN By Jim Leontiades TOWARDS A NEW COMPETITION POLICY LANDSCAPE By Dr. Panayiotis Agisilaou PRIVATIZATIONS AND THEIR SIGNIFICANCE TO THE STATE By Andreas Sfikouris, Manager, Deal Advi- sory, KPMG Ltd economy06 cover FROM THE story EDITOR-IN-CHIEF THE TAX ISSUE Ten leading Cypriot tax professionals answer a dozen wide-ranging questions covering the full spectrum of current tax issues in Cyprus and elsewhere

5ACCOUNTANCY CYPRUS issue 124 october 2016 DIFFICULTIES EFFECTIVE ENERGY 100 CYPRUS AS A INESTABLISHING THE REGULATION 104 VAT TREATMENT OF By Dr. Andreas Poullikkas, 108 TECHNOLOGICALLY FINANCIAL SERVICES Chairman, Cyprus Energy UNDER THE COMMON EU Regulatory Authority. DRIVEN TOURISM VAT System94 By Michael C. Grekas, Principal, 26 GUERRILLA DESTINATION96 Indirect Tax Services, KPMG Ltd MARKETING TACTICS98 THAT REALLY WORK! By Dr. Sotiroula Liasidou, TAX AVOIDANCE: MEPS By Demetris Stylianides, CALL FOR MINIMUM Internationally Certified NLP Lecturer, Cyprus University CORPORATE TAX RATE Trainer. IN THE EU OF 15% of Technology. By Andreas Kettis, Head, Eu- TIME FOR A NEW ropean Parliament Information STRATEGY 116 Office, Cyprus. By Andreas Antoniades, Director of Industry, Nicosia CREATE STRONG 118 Chamber of Commerce and PASSWORDS... AND Industry. REMEMBER THEM! By George Agathangelou, Professional Services Director, IBSCY Ltd. THE CURIOUS CASE OF THE IMPORTANCE 110 ict the ‘non-Dom’ RuLes OF EMOTIONAL By Veronika Tikhomirova, Senior INTELLIGENCE AT Consultant, International Tax WORK Services, EY Cyprus. By Michael Karasavvas RELAX SMARTLY TO NEW ONLINE WORK EFFICIENTLY By Dr. Irene Lokhtina CONTENT FROM IFAC Antoniou. 112 / ACCOUNTANTS taxation REMAIN MOST TRUSTED ADVISORS / RESTORING TRUST, INCREASING business in cyprus TRANSPARENCY IS CRUCIAL / IFRS FOUNDATION MONITORING BOARD LOSING ADMITS CHINA, PROPOSITION By George Mouskides, AND MORE. 120 Chairman, Cyprus Association of Property 114 Owners. professional news real estate TAX, LEGAL AND...TRIATHLON Theo Parperis, Partner, Head of Tax & Legal services, PwC Cyprus, talks 122about testing his physical limits and raising money for charity. out of officeSTRENGTHENING THE EUROPEAN ECONOMY Interview with the Slovak Ambassador 2interview0toCyprus,Dr.OksanaTomova

6 ACCOUNTANCY CYPRUS No. 124 | OCTOBER 2016 FROM THEEDITOR-IN-CHIEF 10 LEADING Marios Andreou CYPRIOT TAX Nicos Charalambides PROFESSIONALS Ioannis Demetriades GIVE THEIR VIEWS George Karavis George Markides ON A BROAD Pieris Markou RANGE OF Petros Rialas Loizos Timinis CURRENT LOCAL Alexis Tsielepis AND GLOBAL Karlos Zangoulos PLUS: ACCOUNTING TAXATION ISSUES & AUDIT, BUSINESS, ECONOMY, ICT, INSTITUTE NEWS, INTERVIEWS, RO ESSIONA SERVICES, REA ESTATE, TAXATION & MORE The Journal of the DISTRICT POST OFFICE In t tute of Cert e u l CY-1901 NICOSIA, CYPRUS A ountant of C ru POSTAGE PAID LICENCE no.33 SEALED UNDER PERMIT no. 133 ΠΕΡΙΟΔΙΚΟ www.icpac.org.cy ΤΑΧΥΔΡΟΜΙΚΟ ΚΛΕΙΣΤΟ ΕΝΤΥΠΟ ΤΕΛΟΣ ΠΛΗΡΩΜΕΝΟ ΑΔΕΙΑ ΑΡ. 133 ΑΔΕΙΑ ΑΡ. 239 ISSN 1450-2380 By Ninos Hadjirousos Editor-in-Chief Ninos Hadjirousos, FCAA POSITIVERESPONSE Editor Tasos Anastasiades, B.Sc., M.A. (Econ)In July, the first issue of the ‘new-look’ Accountancy The Institute Council Cyprus was published, in Demetris Vakis (Chairman) the framework of a decision Marios Skandalis (Vice-Chairman) to expand and improve the Maria Pastellopoulou (Secretary) magazine through a col- laboration between ICPAC Members and IMH, the leading Andreas Andreou, Nicos Chimarides, Odysseas publisher of business media Christodoulou, Pieris Markou, Stavros Pantzaris, in Cyprus. Philippos Raptopoulos, Spyros Spyrou, Demetris I am delighted to say that thefeedback that both organisations Taxitaris, Antonis Vasiliou, Christos Vasiliou,have reported has been extremely Kyriacos Zangoulospositive. I can assure you that we Addressshall be doing everything to ensurethat the magazine not only main- 11 Byron Avenue, 1096 Nicosia, Cyprustains the high standard that was set Mailing Addresswith the first issue under the newagreement, but becomes even better. P.O.Box 24935, 1355, Nicosia, CyprusAccountancy Cyprus is your maga- Tel: +357 22870030, Fax: +357 22766360zine and I am glad that we seem tohave found the right formula for a e-mail: [email protected] representing the Insti- www.icpac.org.cytute and its members, while givingit an attractive design and layout were truly inundated with material The publication is prepared bythat make its contents even more and simply had no room for every-interesting. thing. We have tried to resolve this Managing Director problem by including more articles George Michail The only negative comments I than we normally do in the currenthave received were from members issue. I look forward to receiving General Managerwho had submitted articles that your contributions for future issues Daphne Roditou Tangwere not included in the July issue. of Accountancy Cyprus, as well asThis was due to the fact that we your feedback and comments about Media Manager this second issue of the magazine. Elena Leontiou This issue’s cover story deals In-house Editor-in Chief with the eternally topical subject John Vickers of Tax. As you will see, ten experts responded in great detail to requests Coordination for their views and ideas on topics Voula Loizou spanning the whole tax spectrum, from the current corporate tax rate Art Direction to ways of improving collection in Anna Theodosiou Cyprus and to the controversial de- cision by the European Commission Design to view the Irish Government’s tax Alexia Petrou, George Yiamiadakis arrangements with Apple as state aid and, therefore, illegal. As you would Marketing Executive expect, several of these subjects re- Kevi Chishios veal a range of differing opinions. Sales Manager In addition to this, the magazine Irene Georgiou covers a broad spectrum of top- ics that are guaranteed to inform, Contact us for advertising educate and interest readers. I hope Stavros Epifaniou that you enjoy this issue of Accoun- tancy Cyprus as much as you did [email protected] the previous one. Tel: +357 22505555, +357 22505566, Fax: +357 22679820 Address 5 Aigaleo St., Strovolos 2057, Nicosia, Cyprus, P.O.Box 21185, 1503, Nicosia, Cyprus Accountancy Cyprus is published quarterly by the CC is sent free to all members if the Institute as well as to a large number of other persons, companies and organisations. The Institute can accept no responsibility for the ac- curacy of contributed statements or articles appearing in this publication and any views or opinions expressed are not necessarily endorsed by the Institute, its Council or by the Editors.

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8 ACCOUNTANCY CYPRUS THINKING AHEAD By Kyriakos Iordanou, General Manager, ICPACCONSOLIDATION OR SPECIALISATION?The progress and evoluTion of The accounTancy profession, TogeTher wiThThe challenges of The surrounding business and operaTional environmenT,ineviTably render The acTual pracTice of The profession cosTlier, riskier,more demanding, more complicaTed, and in shorT, more economically and procedurally onerous Than iT used To be.Regulation and audit oversight are firms stubbornly continue to trouble the of his/her practice, either by specializing in becoming stricter, banks. Hence, liquidity in the market is still specific areas or consolidating with other requirements for rather on the low side. professionals in order to pool resources, compliance are reduce overheads and pursue synergies. surging, adherence Given the above, it should not slip our Unfortunately, the era when a single to anti-money minds that professional accountants, apart practitioner could provide a wide range from being multi-faceted professionals with of services is over. Today, expertise and a moral duty to serve the public interest, laundering rules are primarily business people trying their specialisation are essential to stay abreast of and directives best to run a solvent business. Hence, we the competition and attract new business. are of growing have to expedite for new clients (domes- Setting up associations, networks, collab-importance and international business is tically and overseas), collect from debtors, orations or undertaking any other form ofharder to attract now that transparency and promote the business, manage staff, invest cooperation with fellow professionals is thepublic interest are at the top of the agenda! in technology, facilitate efficiency, compete way to go.At the same time, in addition to tradi- in the market, avail ourselves for training Regulation and compliance are expectedtional accounting and auditing functions, and professional development, as well as to further increase. Failing to adapt tothe definition of the accountancy profession keeping up to date with all new develop- present and future challenges will lead tohas expanded to include other functions, ments in accounting, audit, tax, vat, legal, lagging behind, placing the quality of one’ssuch as the provision of administrative ser- compliance and other regulatory matters. work and competence at risk and puttingvices, insolvency, tax and business consult- All of these add significantly to the cost of one’s current practising licences in jeopardy.ing, trustee services, fund administration, maintaining a business! Our professional development andetc. It is thus evident that the role, scope For a small practice or a sole practi- commercial viability need to be carefullyand duties of a professional accountant have tioner, this might be described as “Mission assessed and, as professionals, we shouldsignificantly increased in recent years. Impossible.” It definitely puts a cap on consider our short-term business planning.We must also take into consideration the how much one is able to do and there is The workload is becoming excessivelyoverall economic environment in which we always the dilemma of chasing business and heavy, hence my belief that it is time tolive. Cyprus is still at the early stage of exit- staying compliant with all obligations. As a start thinking ahead, to decide what typeing the recent crisis but the casualties of the result of increased overheads and stagnant of professionals we want to be and to con-crisis are still there! Despite rising growth revenues, it would not be a surprise to sider the benefits of either cutting downindicators for 2015 and 2016, overall busi- observe a compromise in the quality of the on certain activities and specializing in ar-ness activity and some heavyweight sectors work delivered. eas that offer a comparative advantage, orremain at low levels of performance; the As things stand today and are forecast merging/associating with other colleagues,unemployment rate remains high, despite for the near future, it is increasingly evident rather than striving as a “lone ranger”a noticeable decrease, and the notorious that what will keep the professional accoun- with all the risks that go with being tied tonon-performing loans to individuals and tant in public practice is the optimisation one’s own horse.

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10 ACCOUNTANCY CYPRUS INSTITUTE NEWSNEWS FROM THE BOARDROOM lenges facing the accountancy profession. Both parties expressed their strong interest in cooperating, especially on issues relatingDuring the third quarter of 2016, the Council of the Institute to bills and legislation.convened three times in order to discuss and decide uponvarious matters relating to ICPAC, its activities and interests, • 12/9/2016: The General Manager and Amalia Hadjimichael,as well as matters regarding the profession and the economy Monitoring and Compliance Officer of the Institute, had ain general. The main activities and decisions of the Institute’s meeting with Irene Loizidou Nicolaidou, the CommissionerCouncil included the following: for Personal Data Protection, in order to discuss the obligations emanating from the legislation which affect the Institute as wellMEETINGS WITH OFFICIALS as audit and accounting firms.During the third quarter of pects of the accounting profes- • 22/9/2016: CyAPOB and the ICPAC Council met to discuss2016, the President, Council sion in Cyprus. the provisions of the new legislation and the points/commentsMembers and the General raised by ICPAC.Manager held a number of • 8/7/206: A delegation of themeetings with Government, Council met at the Institute’s • 26/9/2016: A detailed response to the amended bill was sentpolitical, business and other of- premises with Lefteris Christo- by ICPAC as part of the public consultation with CyPAOB.ficials including the following: forou, MEP. The purpose of The Institute is following up the issue, in anticipation of the• The proposed bill for the the meeting was to discuss the final bill.new Auditors’ Law, as a result latest developments in Brusselsof the transposition of the on the Anti-Tax Avoidance • 26-28/9/2016: The President and the General Manager at-relevant EU Directive and the Directive and the TAXE 2 tended the Members Assembly Meeting of the European Fed-Regulation regarding public Committee report. Mr Christo- eration of Accountants (FEE) in Romania.interest entities monopolised forou and ICPAC agreed tothe Council’s attention dur- maintain close cooperation and • 29/9/2016: The General Manager presented the deliberationsing the third quarter. The coordination. of the international network CPAAI EMEA’s Annual GeneralCouncil, the management Meeting in Limassol, hosted Auditchart Ltd, a member firm ofand an ad hoc committee • 18/7/2016: The Cyprus In- the network.devoted considerable time to vestment Promotion Agencyreviewing the proposed bill (CIPA) held a conference en- • 7/10/2016: A delegation of the Council led by the Presidentand preparing the Institute’s titled “Strategic Promotion of received Michael Izza, CEO of ICAEW, at the Institute’s prem-response. The bill was sent Cyprus Abroad”. ICPAC was ises for a meeting to discuss issues of mutual interest and to ex-by the Cyprus Public Audit represented by the President plore the possibility of further enhancing bilateral cooperation.Oversight Board to the Insti- and the General Manager.tute on 10 August 2016 and • 11/10/2016: A delegation of the Council led by the Presidentthe Institute replied with a • 12/9/2016: A delegation of met with Tax Commissioner Yiannis Tsangaris. The agenda ofcomprehensive report on 15 the Institute comprising the the meeting included a range of important issues concerning theSeptember 2016. President, Andreas Andreou Institute and relevant to the Tax Department. Potential ways to (Council Member) and the further facilitate cooperation between the parties were explored.• 6/7/2016: The President and General Manager, met with thethe General Manager met with General Secretary of AKEL, • 11/10/2016: A Council’s delegation met with the Chairman ofrepresentatives of the interna- Andros Kyprianou. The agenda the Democratic Rally (DISY), Averof Neophytou. The meetingtional rating agency Standard & of the meeting covered issues of covered issues of the economy, public service reform, Brexit andPoors to discuss developments the economy in general, public the challenges facing the accountancy profession and interna-in the economy and the pros- service reform and the chal- tional business. Both parties expressed their strong interest in maintaining channels of communication and cooperation. • 13/10/2016: The President and the General Manager attended a meeting chaired by the Minister of Transport, Communica- tions & Works about the reform of the Department of Mer- chant Shipping.

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12 ACCOUNTANCY CYPRUSINSTITUTE NEWSCOUNCIL DECISIONS FROM THE ARCHIVES Turning the clock back 30 years to the June and September 1986 issues of Accountancy Cyprus, it is evident that the Institute was at the forefront of efforts to develop Cyprus as a destination for foreign investment and attracting high earners to the island.• At its regular meetings dur- Institute, for a further five-yearing the third quarter, the period.Council discussed issues relat-ing to its cooperation with • At the same meeting, theCyPAOB, as well as matters Council approved the pro-relevant to the mandatory au- posal for cooperation with thedit of companies. International Compliance As- sociation (ICA), a UK based• At its meeting on 19/7/2016, organisation specialising inthe Council decided on the compliance issues. ICA is onerenewal of the contract with of the most renowned organ-the ACCA for audit monitor- isations in its field globally.ing visits to firms for anothersix years. • During the third quarter, the Council looked at various ways• At its meeting on 6/9/2016, of improving its effectivenessthe Council decided to renew in dealing with the increasingthe contract of Kyriakos Iorda- volume of issues involving thenou, General Manager of the Institute.OTHER IMPORTANT MEETINGS AND ACTIVITIES Although three decades have lapsed since these reports were published, we have remained consistent supporters of the• Significant time was devoted cial information in the annual strategy of making Cyprus the destination of choice for for-by ICPAC representatives to reports of firms, contributing eign investors.the National Risk Assessment significantly to the discussion.project, which is under wayin cooperation with other au- • Institute officials held variousthorities and in consultation meetings and contacts withwith the World Bank. representatives of ICEAW and ACCA visiting Cyprus.• The President and the Gen-eral Manager had various • ICPAC representatives ap-meetings during the quarter peared before the Parliamen-with officials, stakeholders and tary Finance and CommerceMembers of the Parliament on Committees regarding a num-issues relating to the Institute ber of Laws and Bills.and the profession. • The President and the Gen-• ICPAC attended the meetings eral Manager attended theheld on the transposition into Annual General Meetings ofLaw of the EU Directive regard- various professional and busi-ing the disclosure of non-finan- ness organisations.

Nicosia · LimassolTel.: 22 897 361

14 ACCOUNTANCY CYPRUSINSTITUTE NEWS TAXATION COMMITTEE PUBLIC RELATIONS COMMITTEEInstitute Committees Update During the third quarter of 2016, among other things, During the third quarterECONOMIC CRIME AND FORENSIC we met with the Commis- of 2016, the Commit-ACCOUNTING (ECFA) COMMITTEE sioner of Taxation to discuss tee formally held three a list of issues including ben- meetings. It also workedDuring the third quarter of 2016, the Committee held exten- efits in kind, fiscal memo- on the following twosive discussions on recently published economic crime and ries, the 2016/13 circular events to celebrate thecorruption cases in Cyprus and around the world. Moreover, on tax rulings, changes to Institute’s 55th anniver-Committee members assisted in the creation of the ACFE Cy- various tax returns, includ- sary:prus chapter and attended a round table discussion on financial ing the TD4 return, medical • A shooting event oninvestigations and coordination in Cyprus, organised by Euro- schemes, audited financial Saturday, 15 Octoberpean University Cyprus and the European Anti-Fraud Office statements by individuals 2016 at the Olympic(OLAF). The editorial committee published Volume 7 Issue 2 whose annual income exceeds Shooting Centre inof the e-bulletin. The main article in the issue describes the lat- €70,000 and derives from Nicosia. This was a fun-est health care fraud cases in Cyprus. As from this year, the e- interest, dividends and rents, draising event, the netbulletin will be e-mailed to all members of ICPAC. It is already and Article 33 adjustments. proceeds of which wille-mailed to almost 200 ECFA-SIG members and is published We studied, submitted our be donated to the Nico-on the ICPAC website. The Committee is working very closely comments when deemed sia Youngsters & Girlswith the Education Committee on the organisation of a num- necessary and attended par- Guesthouses.ber of seminars covering topics in the field of forensic account- liamentary meetings during • A sailing event, theing and economic crime. Several such seminars are currently at which tax bills were dis- ICPAC Regatta 2016the preparation stage. cussed. The most recent ones on Sunday, 23 OctoberSerghios Savvides, Chairman concerned the new IP re- 2016 at Limassol Ma- gime, innovation businesses, rina. This was also aINSOLVENCY COMMITTEE capital gains tax – taxation of fundraising event, the options and compensations net proceeds of whichThe Committee continued monitoring the practical imple- received relating to immov- will be donated to thementation of the new Insolvency Laws. Practical and logisti- able property – and exchange George Psaras/Roundcal difficulties regarding the functioning of the new Insol- of information. Table Association forvency Regime were identified and suggestions have been We also met with CIPA and Children with Liver Dis-made to ICPAC, the Ministry and the Registrar of Companies Government representatives eases. The event wasfor addressing and resolving such issues. Meetings were for the review of a draft paper held under the aus-held with the Cyprus Bar Association, the Association of Cy- aiming to introduce a regime pices of the Mayor ofprus Banks and Registrar of Companies officials, while a new for promoting Cyprus in the Limassol.round of discussions was initiated on how to proceed during field of audiovisual produc-the last months of the transitional period and to address is- tion. We continued to revisit Avgousta Papadopoulou,sues of training, exams and licensing for the coming years. In specific direct tax legislation Chairwomancooperation with the Education Committee, we shall be or- provisions for the purposeganising seminars/workshops in the autumn to inform ICPAC of submitting proposals tomembers about the new Laws. enhance our international competitiveness.Michalis Avraam, Chairman We continued providing technical support to the Ministry of Finance when requested and Committee members continued their involvement in DTT nego- tiations. Panicos Kaouris, Chairma

15ACCOUNTANCY CYPRUSVAT COMMITTEEThe Committee continued to deal with a number of outstand- gave instructions for further ment for approval.ing issues as well as looking at new issues brought to its atten- consultation and amendments. A number of High Court casestion. Since our last report, a number of issues were discussed In addition to the examina- as well as ECJ cases were pre-with the VAT Authorities and agreed upon leading to the publi- tion of the abovementioned sented by the members assignedcation of relevant circulars. Issues resolved: pieces of legislation, the to this task to ensure that the Committee was involved findings in these cases are in line• Circular 204 clarifies that cases where directors’ fees in examining VAT return with the treatment applicablethe write-off of a debt is are treated as falling outside form 4 and making sug- by the VAT Authorities. Whereacceptable either if made the scope of VAT. gestions on how the form there is doubt as to whether theagainst the debtor’s account • The option to tax was fur- should be redrafted to make VAT Authorities apply the saidor against a separate account, ther discussed and it seems its completion easier and findings, it is brought to theprovided reference is made to that it will be put into effect understandable for both attention of the policy makingthe name of the debtor before the end of the year. taxpayers and the adminis- unit for examination and fur-• The Committee submit- The option is likely to be tration. Our comments and ther consultation.ted its recommendations granted to taxable persons recommendation were de- Christos Papamarkides,regarding the VAT section leasing immovable proper- livered to the Tax Depart- Chairmanof the IR4 form. The rec- ties to other taxable personsommendations are expected involved in taxable economic NEW MEMBERSto be adopted on the next activities.printout of the IR4 form. • An understanding was During the period July-September 2016, the following persons were• Following a number of reached with the VAT accepted as New Members of the Institutemeetings and discussions Authorities concerningwith the VAT Authorities, payments of VAT by tax- 4187 SOFOCLES NEOCLEOUS ACCACircular 205 was drafted payers not operating a bank 4188 SERGIOS SAVVA ACCAand finalized on 7 October account with a Cyprus 4189 CHRISTOS CHRISTODOULOU ACCA2016. It deals with certain financial institution. 4190 STELLA TOUMAZOU ACCA 4191 CHARALAMPIA MESARITIS ACCAPending issues: 4192 ANDRONIKI TILLYROU ACCA• Changing the objection procedure to safeguard independence 4193 AFRODITE FILIPPIDOU ACCA• Amending the legislation on legal receipts 4194 CLEA EVAGOROU ICAEW 4195 STELLA ANTONIOUDuring the third quarter, articles of the said legislation, 4196 ANDREOULA LOIZIA ACAthe Committee was called a number of corrections, 4197 MARGARITA KOULOUMPRI ICAEWupon to examine a number adjustments, comments 4198 ROVERTOS CHANATZIAS ICAEWof new pieces of legislation and recommendations were 4199 PANAYIOTIS MARINOU ICAEWand make comments on (a) made and discussed with 4200 CONSTANTINOS PATTICHIS ICAEWVAT on building land, (b) the Tax Department. The 4201 STEPHEN GEE ICAEWConfiscation of immovable majority were accepted and 4202 ERACLIS PANTELI ICAEWproperty, (c) Tax Council adjustments were made. 4203 MARIOS SHIAKALLIS ICAEWand Administrative Court, Points of difference were 4204 VEVEY CHRISTODOULOU(d) Compulsory electronic presented and discussed 4205 VASILIKI CHRISTODOULIDOU ACCAsubmission of VAT re- during a number of sessions 4206 CONSTANTINOS KYPRIOTIS FCAturns by legal and physical of the House Finance Com- 4207 SUSAN LYNDA GRUBBpersons. The Committee mittee, which representatives 4208 ILIANA SYMEOU PANAGI ACCAassigned the examination of of the Committee were 4209 RENOS IOANNIDES ACCAthe above proposed legisla- invited to attend. Most of 4210 EMILIOS HADJIHANNAS FCCAtion to different teams set our recommendations were 4211 IOANNIS MARNEROS ACCAup for this reason. Following positively received by the 4212 ANNA IOANNIDOU FCCAcareful examination of all Finance Committee which ICAEW ICAEW ICAEW

16 ACCOUNTANCY CYPRUSINSTITUTE NEWSCPAAI EMEA ANNUAL CONFERENCE 2016 ICPAC AND THE INTERNATIONAL COMPLIANCE ASSOCIATION (ICA) JOINAuditchart Limited hosted ing in Cyprus. The General FORCES TO PROMOTE THE PROFESSIONALISMthe 2016 CPAAI EMEA An- Manager of ICPAC, Kyriacos OF COMPLIANCE OFFICERSnual Conference in Cyprus on Iordanou, analysed the evolu-29-30 September. During the tion of the accountancy pro- On Friday, 14 October 2016, the Institute of Certified Public Ac-two-day meeting, the delegates fession in Cyprus. Delegates countants of Cyprus (ICPAC) and the International Compliancediscussed a variety of topics, also had the opportunity to Association (ICA) signed a cooperation agreement to promoteincluding the implications of visit various sites in Cyprus to their mutual objective of enhancing the professionalism of com-the financial crisis in Europe, discover a little more about pliance officers. Through the agreement, ICA and ICPAC seekthreats and/or opportunities the history and culture of the to establish an educational and research partnership as well asarising from the UK’s vote to country. The official closing of broader cooperation and further collaboration.leave the EU, transfer pricing the conference took place at a This agreement covers, inter alia,and doing business and invest- spectacular gala dinner. • Joint educational events and activities promoting the professionalism of compliance officers. • Educational consultancy services and studies. • Joint participation in research and development programmes (National-European-International) • Exchange of information and know-how on topics of common interest. The results of the cooperation and collaboration between the two bodies will be presented via conferences-seminars, announce- ments, publications, consultations and website announcements. The Institute, in its capacity as a competent authority under the Law for the Prevention and Suppression of Money Laundering Activities, is committed to the effective and qualitative profession- al training for its members, availing them of all necessary tools in order to perform their tasks in the best possible way. ICPAC believes that the collaboration with an internationally renowned organisation such as ICA is pivotal to its goal of raisinf the bar of professionalism and competence of compliance officers in Cy- prus. The signing of the agreement took place on the sidelines of the 2nd International Compliance Forum, organised by IMH under the auspices of ICPAC. Kyriakos Iordanou, General Manager of ICPAC, and Philip Ryan, Chief Executive Officer of ICA, who signed the agreement on behalf of their respective organisations, were both delighted by the conclusion of the agreement and ex- pressed their optimism that this cooperation will be beneficial for both parties and especially for the continuous improvement of the expertise of Cypriot compliance officers.



FINANCIAL FREE PARTICIPATION Registration is necessary Investigation Coordination in CyprusRe-enforcing the Anti-Fraud Infrastructure: Best Practice InitiativesThe conference is addressed to professionals from the following sectors: Police Customs Office Banks and other financial Institutes Accounting, Audit and Tax firms Law firms Online payment system companies Audit Office of the Republic of CyprusFeaturing SpeakersDavid Clarke, Director of the Fraud Advisory Panel, UKLeonidas Doukakis, Assistant Professor in Financial Accounting, University of Lausanne, SwitzerlandKonstantinos Christou, Special Secretary Financial and Economic Crime Unit (SDOE), GreeceAlexander Apostolides, Managing Director of the project, Chair of the Department of Accounting,Finance and Economics, European University Cyprus, CyprusChristos Christou, Customs Officer - Investigation Section, Customs and Excise Department, CyprusOdysseas Ph. Michaelides, Auditor General of the Republic, Audit Office of the Republic of Cyprus, CyprusGeorgre Georgiou, VAT Officer A, Fraud Investigation Section, TAX Department, CyprusChristos Christodoulou, Inspector, Assistant Head Officer of Economic Crime Investigation Office,Cyprus Police, CyprusAlexis Kythreotis, Assistant Professor in Accounting, European University Cyprus, CyprusThursday, 8 December 2016 | European University Cyprus | Nicosia For further details and registration contact: IMH, Tel: +357 22 505555, Fax: +357 22 679820 e-mail: [email protected], website: www.imhbusiness.comOrganizers The conference is implemented with the support of Hercule III Programme:

Co-funded by:Υπουργείο EΘΝΙΚΟΣ ΜΗΧΑΝΙΣΜΟΣ Γραφείο Επιτρόπου ΥπουργείοΔικαιοσύνης και ΓΙΑ ΤΑ ΔΙΚΑΙΩΜΑΤΑ ΤΗΣ ΓΥΝΑΙΚΑΣ Ισότητας των Φύλων Παιδείας καιΔημοσίας Τάξεως Πολιτισμού

20 ACCOUNTANCY CYPRUS interview Strengthening the european economy Slovakia holdS the PreSidency of the council of the euroPean union until the end of 2016. the Slovak ambaSSador to cyPruS, dr. okSana tomova, SPoke to accountancy cyPruS editor-in-chief ninoS hadjirouSoS and editor taSoS anaStaSiadeS about her country’S PrioritieS for the remainder of the year, aS well aS her viewS on current Schengen area ProblemS, migration and brexit How would you describe economic relations between the Slovak Republic and Cyprus? Economic relations between Slovakia and Cyprus are good, although there is potential for improve- ment. The figures indicate that bilateral trade between Slovakia and Cyprus reached a record €95 million in 2015 but this represents only 0.01% - 0.02% of our total trade, so it is still very low. Last year, Cyprus imported goods worth €57 million from my country and significantly increased its exports to Slovakia to almost €39 million. Just for comparison, in 2013 and 2014 Cypriot exports to Slovakia were around €15-€17 million each year, while in the period between 2008 and 2012, the figure oscillated between only €4 million and €8 million per year. At first glance, it may appear that Cyprus´ economy is mainly service-based, while Slovakia´s is based on industrial production – the au- tomotive industry, metallurgy, chemical and paper processing industries, electrical engineering, glass manufacturing – while trading also in textiles and food. However, there is potential for cooperation in areas such as trade, water management, construction materials, renewable energy, software applica- tions for banks and the shipping industry and industrial parks. Two areas where it is worth exploring potential cooperation are Research & Development and start-ups in the IT sector.

21ACCOUNTANCY CYPRUS

22 ACCOUNTANCY CYPRUSinterview What almost every country in the world. the first time. Nevertheless, we were are the The Slovak Republic was not one of able to reach several tangible achieve- prevailing the main countries to be affected in ments, including the opening of new economic con- terms of timing and intensity but this chapters (23 and 24) in the accession ditions in your does not mean that we were not nega- negotiations with Serbia, approval of country today? tively affected by it. We went through the draft budget proposal for 2017 Slovakia has, for many the tough period of 2009-2010 when in a record time of just 18 days, and years, been one of the EU the goal to maintain the Government’s reach agreement on the revision of countries with the highest social policy and to minimize the the presidency rotation following the GDP growth rates. In 2015 we negative impact of the crisis on ordi- UK´s decision to give up its term. Our recorded a GDP growth of 3.6% nary citizens required a higher state programme does not pretend to con-and we expect such growth to con- budget deficit than usual. Since then, tain a miraculous prescription for all oftinue in 2016 (estimated at 3.7%, however, the economy has started to the EU’s problems but the Europeanwhich is double the EU28 average). grow again and we have not witnessed citizen is at its heart. We are aware thatSlovakia is also the biggest car pro- another serious economic crisis. The the current situation requires us to beducer per capita in the world and, in pragmatic – because it is high time2015, it reached the 1 million mark It is not possible to deliver very concrete and tangiblefor the first time. The economy in a that some form results – uniting – since we mustrelatively good state, with strict bud- overcome fragmentation and individ-getary discipline guaranteed by the of close ual approaches in Europe – and theMinistry of Finance. Since 2014, the cooperation people´s voice, as we have to deal withleading rating agencies (Standard and with the biggest the real problems of our people. WePoor´s, Moody´s, Fitch) have rated European are working hard to achieve progressour economy as A+/A2 level with a military power in four priority areas:stable outlook. The unemployment and the second (1) To make the European economyrate has been on a decreasing trajec- biggest European stronger through support for Euro-tory for several years – it is currently economy will not pean level investments; (2) To mod-9.8% (June 2016), whereas, in 2014, be agreed ernize and broaden the Single Marketit was above 13%. Unemployment, by achieving a safe and functionalespecially among young people, is a best indicator of this is the fact that digital economy and safeguardinghuge and complex problem in most Slovakia’s general government debt is energy security; (3) To work towardsEU member states, including Slova- one of the lowest in the EU (52.9% of a sustainable migration and asylumkia. Despite the post-crisis signs of GDP in 2015). policy based on the effective manage-recovery of the European economy, ment of our external borders withfull recovery needs significant invest- The Slovak Republic currently holds a fully operational Schengen agree-ment incentives to support sustain- the EU Council presidency. What are ment. Migration is certainly our topable economic growth and create new the main priorities your Government Presidency priority. We intend tojob opportunities. Our first priority has pursued since July? approach it as an honest broker inarea thus focuses on initiatives aimed Three months of our presidency is order to find common and sustainableat creating a supportive environment already behind us. The first Slovak European solutions; and (4), we wantfor investment and the further devel- presidency of the EU Council started to support a globally engaged Europe,opment of the Union. The Slovak off well, although its beginning was including free trade as a significantPresidency is convinced that efficient marked by an unprecedented situa- contributor to the internal and exter-use of investment instruments, pursu- tion in which the EU had to deal with nal stability of the EU. We are hopefuling structural reforms and promoting the problem of its disintegration for of progress in all these areas to reducea responsible approach to public fi- the gap between ordinary people andnances are at the heart of an economi- the elite. This should also reduce thecally strong Europe. fear of losing jobs, cultural identity and personal safety.Since the 2008 global financial crisis,has the Slovak Republic faced any How does the Slovak Republic in-other serious economic crisis and, if tend to deal with Brexit?yes, how was it dealt with? Slovakia is all for preserving goodThe international economic crisis hit relations with the UK following its



24 ACCOUNTANCY CYPRUSdeparture from the EU. After all, the Schengen area, cooperation with trade agreements between the EUthe mutual interests that have held third countries and solidarity. How- and the USA (TTIP) and the ratifica-the Union together for four decades ever, it is obvious that migration is tion of the EU-Canadian free Tradedid not disappear on 23 June. It is not a short-term seasonal or regional Agreement?not possible that some form of close problem. It is a very complex gen- Free trade is a significant contributorcooperation with the biggest Euro- erational issue that needs true world- to the internal and external stabilitypean military power and the second wide attention. It is absolutely crucial of the EU and, as an open economy,biggest European economy will not to wake up the entire international Slovakia is supportive of soundly ne-be agreed. It would be welcome if the community to this. We have to work gotiated free trade agreements. TTIPUK could clarify as soon as possible much more actively with govern- is a major opportunity for the EU.the form of relations it is interested ments and regional organisations at We stand ready to support the EUin having with the EU. While we the origins of the migration flows. Commission to reach an ambitious,all agree that no negotiations can be We all know that migration does not comprehensive and balanced agree-launched before Article 50 notifica- have a European solution only but, ment. We are, of course, interestedtion, we cannot afford the uncer- at the same time, we must realize that in reaching an agreement quickly buttainty to last for long. Once negotia- Europe has to be a key part of any not at any cost. The final text musttions start, they must be carried out new global approach. safeguard EU’s high standards. Wein good will and with no inclination are not afraid to have discussionstowards “punishing” the UK. The How do you intend to deal with the about the risks of TTIP but suchresult must be a balanced agreement Schengen area? discussions have to be based on factswith which both parties feel comfort- The Schengen area is one of the and not on anti-globalisation senti-able and satisfied. There is no doubt greatest benefits of European integra- ment. We need global standards andthat Brexit is a reflection of voters’ tion. However, due to temporary rules of international trade. TTIP isdissatisfaction with the current EU controls introduced along some an opportunity to set those standardsbut that is not an issue for the UK internal borders, it is not currently together with the USA. We areonly. It concerns us all. We are fulfilling its essential role, which is to satisfied with the agreed text of thewitnessing similar fragmenting ten- ensure the free movement of citizens free trade agreement with Canadadencies in other member states too. and goods. For the Slovak presiden- (CETA) and the Slovak Presidency isThey might have been temporarily cy, the return to a fully functioning ready to support steps which wouldweakened after the UK referendum Schengen area is a main objective. In lead to CETA’s signing during thebut the threat of further disintegra- this respect, it is essential to make the EU-Canada summit at the end oftion persists and this is something European Border and Coast Guard October.we clearly want to avoid. Further operational. Furthermore, the effec-fragmentation into small clubs is tive cooperation with third countries Migration is not aundesirable. Both our countries have of origin and transit also needs to be short-term seasonalprofited enormously from European established. The wider use of modern or regional problem.integration and we are thus very cau- technology at the external borders is It is a very complextious when ideas like creating new needed. The Slovak presidency sup- generational issuedividing lines in Europe are floated. ports smart borders, the implementa- tion of which will facilitate the han-Do you expect consensus on how to dling of passengers, contribute to thedeal with the divisive refugee/migra- fight against irregular migration andtion problem? strengthen the internal security of theMigration is a long-term historical Union. The Presidency will encour-phenomenon. Since last year, how- age an ambitious approach to inter-ever, Europe has been facing unprec- nal security, the main preconditionsedented migratory flows which are for which are improved informationputting extra pressure on the EU’s exchange, increased operational co-external borders and the member operation and mutual coordinationstates’ asylum systems. Our Presiden- among the police and judicial au-cy intends to encourage sustainable thorities of the member states.EU migration and asylum policies,which will be based on the protection Does the Slovak Republic intend toof external borders, the restoration of pursue the finalization of the free



26 ACCOUNTANCY CYPRUS COVER STORY THE TAX ISSUE

27ACCOUNTANCY CYPRUSIF THERE IS ONE SUBJECT ON WHICH MOST PEOPLE OF THE WORLDARE IN AGREEMENT, IT IS TAXATION: THROUGHOUT HISTORY, IT HAS –UNSURPRISINGLY – BEEN CONSIDERED A BAD IDEA BY EVERYONE WHO HASTO GIVE A PROPORTION OF THEIR HARD-EARNED CASH TO THE GOVERNMENT.Taxes have been around since the beginnings of make the most of their money. Everyone knowscivilization, with the first-known system dating back that tax avoidance and tax evasion are two dif-to around 3000 BC in Ancient Egypt. The trilingual ferent things, although the line between the twotext on the famous Rosetta Stone – still the most- is becoming increasingly thin, and it us up to thevisited item in the British Museum, which led to the experts to ensure that they are not confused.deciphering hieroglyphics – turned out (disappoint- On the following pages, we present the answers ofingly) to be a tax concession issued by Ptolemy V in 10 such experts to 12 questions, covering the full196 BC. The Ancient Greeks had a tax that was used spectrum of current tax issues in Cyprus and else-to pay for wartime expenditures but, unlike most, where. They are (in alphabetical order):once an emergency was over, the tax was cancelled Marios Andreouand, eventually, refunded. Those were the days... In charge of Tax Advisory, PwC CyprusTax collectors and tax administrations have been Nicos Charalambidesthe focus of negativity and hatred for over 2,000 Director, ISOTAX Ltdyears, due to their perceived greed and personal Ioannis Demetriadeswealth, from the Bible (Saint Matthew was a tax Managing Director, Horwath DSP Lidcollector) to The Beatles (the lyrics of George Har- George Karavis Tax Partner, Grant Thornton (Cyprus) Ltdrison’s 1966 song “Taxman” include lines such as George Markides“Should five per cent appear too small/Be thankful Partner, Head of Tax, KPMG LtdI don’t take it all”) but most of us grudgingly pay Pieris Markouour dues. This is, in part, because we have a legal Partner, Tax & Legal Services Leader, Deloitte Ltdduty to do so but also because we understand Petros Rialasthe purpose of taxation: to raise revenue and fund Director, Head of International Tax Planning,government, so that we benefit from infrastructure Totalserve Management Ltdof all kinds, from roads, public transport and sani- Loizos Tiministation to education, healthcare, etc. Partner, Timkas Chartered AccountantsIn Cyprus, taxes are of even greater significance, Alexis Tsielepisgiven the huge contribution of professional Director, Head of Taxation, Costas Tsielepis & Coservices to the economy, many of which are Karlos Zangoulosconcerned with tax planning for foreign compa- Managing Partner, BDO Ltdnies and wealthy individuals. The country reliesconsiderably on its tax regime to attract valuable As you will see, there are many areas of agree-foreign investment and, of course, this in turn ment but, equally, there are others in which eachrequires expertise by specialist tax advisors and has his own view of what should be done to im-accountants who can advise investors on how to prove the situation. You are welcome to send us your own views on what you read.

28 ACCOUNTANCY CYPRUS COVER STORYMARIOS ANDREOU evolving. I believe that the next impor- tant challenge is the role of technology in In charge of Tax Advisory, PwC Cyprus taxation services. It is anticipated that, in years to come, tax functions will employWhat, in your opinion, are the most important issues and challenges facing tax dedicated tax IT, data and project man-professionals worldwide today? agement specialists, who will develop,Businesses are operating in an ever-increasingly global manner in all areas and have been champion and execute the tax technologyrevolutionised by digitalisation and other technological advances. Globally, there is a and transformation strategies. Successfulview that international tax rules have not kept pace with these developments. At the same tax professionals of the future will needtime, the global crisis has brought tax to the forefront and it has become part of the polit- to be highly proficient in data analysis,ical agenda. In response, we see proposals from the OECD and the EU which will bring statistics, technology, as well as processalong the most significant changes in the field of taxation in nearly 30 years. Such key improvement and change management.developments include the base erosion and profit shifting (BEPS) initiative at the OECDlevel, the recently adopted Anti-Tax Avoidance Directive (ATAD) and the proposals for a How do these issues affect Cyprus’ posi-Directive on the Common Consolidated Corporate Tax Base (CCCTB) at an EU level. tion as an international business centre?Developments are not confined to technical matters and stricter rules. Increased transpar- Regarding some of these developments,ency and exchange of information will provide authorities with the tools to communicate it will be obligatory for Cyprus tobetter between themselves and tackle tax evasion more effectively. Increased media cover- implement them due to their inclusionage and the expectation of companies to be paying “their fair amount of taxes” have cre- in EU Directives. For those that are notated reputational risks and, as a consequence, taxation has become a key discussion point obligatory, the Government will needfor C-suite executives of multinational companies. Tax strategy needs to be aligned with to carefully review and consider whetherthe business strategy and operational model of each organisation. their adoption will be appropriate for Cyprus. Membership of the BEPSTax professionals therefore need to clients, tax professionals need to invest Implementation Forum would require aadapt to this new environment. This is significantly in resources, knowledge commitment to implement the OECD/challenging but, at the same time, excit- and international networks. At the same G20 BEPS package minimum stan-ing. From a technical angle they need time, as taxation is interlinked with dards (the current minimum standardsto keep up to date with international business substance and operations, tax are in the areas of anti-abuse measuresdevelopments, be actively involved and professionals need to understand in detail for Double Tax Treaties, harmful taxhelp shape the outcomes by contributing the business of their clients and develop practices, transparency and improvinginsights and suggestions via the various industry-specific expertise. The role of dispute resolution). Cyprus will need toconsultations that are taking place. In the tax professional and the core expertise navigate through these developmentsorder to be able to effectively support required to be successful are continuously towards adopting best practices, which would strengthen its position as a repu- table international business centre.

29ACCOUNTANCY CYPRUSCyprus’ strategy is to portray itself as jurisdictions? What should be done in in a region which is subject to a lot ofa reputable international business cen- order to make it more competitive? risks and uncertainties. In fact, just re-tre, fully transparent and fully compli- International businesses are looking for cently Cyprus was ranked as the 5th saf-ant with international regulations, di- a number of factors in deciding where to est country in the world and first amongrectives and agreements. Do you think set up their operations. Just to name a smaller countries with a very low crimethis is the correct strategy to attract few, businesses are considering location, rate. These factors, along with a moderninternational businesses in setting up infrastructure, flight accessibility, quality regulatory framework, a legal frameworklocal headquarters? of local human capital, the legal frame- based on English common law and anAbsolutely. Jurisdictions that are not ad- work, asset security, the ease of doing investor-friendly tax framework, providehering to international regulations and best business, costs, the regulatory environ- for an overall environment which ispractices are subject to attack and scrutiny ment, education for children, quality very attractive for FDI, entrepreneur-in the international tax arena. This leads of life, etc. Taxation is just one of the ship and economic growth. At the sameto potentially increased tax exposures for factors that are taken into account. It time, taxation should provide for fiscalbusinesses operating in or transacting is important to leverage our advantages stability, which is critical in the invest-across jurisdictions, for example through and to address areas where there is room ment decision. Cyprus’ tax frameworkthe triggering of anti-avoidance provisions for improvement in order to be in a po- is robust and competitive and we shouldor denial of Double Tax Treaty benefits. sition to be as attractive and facilitating seek to ensure that it remains so. It isIn addition, given that reputational risk as possible for international businesses. not static and policies are considered inis one of the critical risks that businesses The overall business proposition that order to be on top of developments andneed to manage, association with non- Cyprus provides is quite competitive. to be relevant in the context of the glo-compliant jurisdictions is not desirable and We have a multilingual and highly edu- balization of business. These include thecan draw significant media attention with cated workforce, as we have the highest recently voted new IP regime and thenegative impact on business. Strategically, percentage of university graduates per proposed legislation for innovative busi-and also as a consequence of its EU mem- capita in Europe, supporting high qual- nesses and start-ups. In addition, the taxbership, Cyprus has been monitoring and ity services. Nicosia is emerging as a city framework is in line with global develop-implementing measures that strengthen with a focus on knowledge, research and ments and is adopting best practices inits regulatory and compliance framework, innovation with eight universities and terms of incentives, providing relief fromso as to be up to date with international high quality private hospitals. Infrastruc- double taxation but, at the same time,developments. As regards tax transpar- ture is improving with a robust telecom- addressing anti-avoidance and anti-abuseency, Cyprus was recently rewarded with munications system, high quality public provisions. Cyprus should continue itsan upgraded rating of ‘Largely Compliant’ and private schools and significant in- efforts in this respect and should remainfrom the OECD-led Global Forum on vestments in the leisure industry, with a alert and on top of developments in or-Transparency and Exchange of Informa- positive impact on the quality of life. Ac- der to be successful.tion for Tax Purposes. The rating puts cessibility is improving with an increasedCyprus on an equal footing with the ma- number of flights and significant invest- How important are Tax Services tojority of its peers in the Global Forum on ments in the marinas. The consolidation International Investors (corporate andTax Transparency. Cyprus has also imple- of Government finances, the exit from individual) as a revenue stream for lo-mented the US FATCA initiative and the the Economic Adjustment Programme, cal accounting, audit and tax firms?OECD/EU CRS initiative on automatic the return of the country to growth I consider that it is critical for Cyprus toexchange of financial account information. along with the prospect of the natural continue its efforts to modernise the overallCyprus is clearly doing well in this respect, resources and the country’s EU mem- framework in order to remain relevant. Aas evidenced by the international interest bership are very important factors which long-term strategy is critical to ensure thatin Cyprus. However, there is always room enhance our position as a stable country taxation policy is in line with evolving fiscalfor further improvement and the country needs and, at the same time, along with ashould continue to implement its strategy I CONSIDER THAT IT IS modernised legal and regulatory environ-and its efforts in a robust manner to main- CRITICAL FOR CYPRUS TO ment, provides a framework for Cyprus totain and further enhance its attractiveness CONTINUE ITS EFFORTS TO be competitive and attract more businessesand reputation. MODERNISE THE OVERALL and investments. A pro-business culture FRAMEWORK IN ORDER TO and administrative stance that wouldHow attractive is the tax regime of REMAIN RELEVANT facilitate rather than hinder business isCyprus compared with that of other critical. Indicatively, on tax related legisla-

30 ACCOUNTANCY CYPRUS COVER STORYtion, I believe that the Stamp Duty and the bodies into a single Tax Department has aid. The EC’s investigation in the AppleCapital Duty provisions should be revis- provided a platform for a more efficient case related to two rulings granted by theited. Although they may have served their and effective collection of taxes. The tax Irish authorities, on the attribution ofpurpose well in the past, they are no longer administration is now more consolidated profits to the Irish branches of two Irisheffective in the current environment and and joint teams with VAT and direct tax incorporated, non-resident companies ul-often place an undue burden on taxpayers, expertise have been formed in an effort to timately owned by Apple Inc. These rul-not only financially but also administrative- increase the completeness and effective- ings were granted in 1991 and 2007. Thely. It is important to revisit and streamline ness of tax examinations. In addition, col- EC’s position is that the agreements madethe compliance cycle with a shorter statute lection provisions have been enhanced, between the taxpayer and Ireland do notof limitation. A self-assessment process, through new legislative powers being reflect economic reality as regards thepayment of taxes, submission of returns, granted to the Tax Department. Having profit attribution. The EC concluded thatsetting off of refunds with payables and said that, there is more ground to be cov- the rulings deviated from the arm’s lengthfinal assessment process should become ered in relation to this, given a significant principle in a manner which was selectivemore robust, time and cost efficient. This backlog and a need for further resources and thus constituted unlawful state aid.is critical to support and enhance efficiency as well as investment in technology by As a result of this decision, Ireland wouldin the compliance process. From an in- the tax authorities. I also believe that the need to proceed with a recovery of theternational angle, we should continue our modernisation of the compliance cycle aid in an amount of up to €13 billionefforts to expand the Double Tax Treaty and of administrative practices will have plus interest. It is important to note innetwork further. I believe that Africa and a positive effect both on the backlog as the case of Apple that, to date, the ECthe Middle East could be important mar- well as on collection. On the taxpayers’ has only announced its decision via akets to focus on in terms of new foreign side, over the last few years there has been press release and the full reasoning willdirect investment and places where Cyprus an increase in the compliance level with only be apparent when the detailed non-can serve as a regional financial and services a significant number of filings of long confidential decision is published. Thehub. As mentioned earlier, taxation is just outstanding tax returns by taxpayers. Tax Irish Government has stated publiclyone of the factors that influence any invest- professionals have an important role to that it will contest the negative decision.ment decision and it should complement play in facilitating further increases in the Under EU state aid law, both Applethe other factors which are important for compliance levels of taxpayers and sup- and the Irish Government can challengebusiness. It is important that Cyprus takes porting a stronger compliance culture. the validity of the decision and ask forappropriate measures to improve its overall its annulment before the EU’s Generalposition in global rankings of entrepreneur- The case of the European Commission Court. The judgment of the Generalship and ease of doing business, seeks to vs Apple & the Government of Ire- Court can, in turn, be appealed beforeattract High Net Worth Individuals to the land: (a) Do you think the Commis- the EU’s Court of Justice which will ul-island, develops further the funds, energy, sion’s verdict is fair? timately have the final say on the meritshealth, education, aviation and tourism The recent decision of the European of the EC’s decision. Cyprus, as an EUindustries, supports the listing of Cyprus Commission (EC) in relation to Apple’s member state, is bound by the same EUcompanies on foreign stock exchanges and operations in Ireland was an EU state state aid rules as set out above. This isenhances the overall business ecosystem. aid decision. Under the Treaty of the not something new. In fact, in the lastInvestment in infrastructure, innovation, Functioning of the European Union, major tax reform in Cyprus, which tooktechnology and human capital should re- EU Member States are prohibited from place prior to Cyprus’ accession to themain a top priority. providing certain forms of state aid to EU in 2004, certain provisions of the tax undertakings without prior authorisation laws as they stood at the time were abol-As the business world becomes more of the EC. This prohibition is part of Eu- ished due to state aid concerns (e.g. thecomplicated, do you think that tax ropean competition law and is intended to exemption of semi-government organisa-services will become more important safeguard fair competition within the EU. tions from stamp duty and immovablefor corporations (both local and inter- The most straightforward example of state property tax, exemption of profits fromnational) and individuals? aid is a subsidy provided directly to a cer- operating an auxiliary tourist buildingThe collection of taxes remains an impor- tain undertaking. However, state aid can or project by a company, etc.). State aidtant challenge given the lack of liquidity also arise in the case of a reduction of taxes is therefore something which should bein the economy due to the financial crisis. otherwise due, insofar as this provides an taken into account by the Cyprus authori-The merger, just over two years ago, of advantage to certain undertakings (i.e. is ties in their designing and implementingthe two major tax collecting government selective). This is referred to as ‘fiscal’ state of tax laws.



32 ACCOUNTANCY CYPRUS COVER STORYNICOS CHARALAMBIDES related services, increased employment and more revenues to the Government. Director, ISOTAX Ltd At the same time, investors and interna- tional business are attracted to Cyprus by,What, in your opinion, are the most important issues and challenges facing tax among other things, the security and legalprofessionals worldwide today? certainty that the country offers so, beforeIn recent years, through the exchange of information systems like FATCA and CRS, the any regulatory changes are introduced,introduction by the EU of the anti-avoidance directive, other exchange of information they should be carefully reviewed to avoidsystems and increased transparency requirements, there have been moves – especially by being regarded as overly aggressive andthe US, Russia and the EU – to clamp down on tax evasion. This ever-changing global perceived as threatening to business. Allenvironment to fight tax evasion and increased compliance requirements have become measures should be well balanced as itvery challenging for tax professionals, especially those who provide services to international has taken us many decades and strenuousclients, firstly to stay continuously on top of these developments and provide high profes- efforts to achieve what we have. We needsional advice to their clients and, secondly, to keep up with the compliance requirements. to preserve the image of Cyprus as a repu- table and reliable business centre.How do these issues affect Cyprus’ posi- Cyprus’ strategy is to portray itself as ation as an international business centre? reputable international business centre, How attractive is the tax regime of Cy-As an international business centre, Cy- fully transparent and fully compliant prus compared with that of other juris-prus undoubtedly has been – and is prone with international regulations, direc- dictions? What should be done in orderto being – affected by these issues and it is tives and agreements. Do you think this to make it more competitive?trying to adapt to the new global environ- is the correct strategy to attract inter- Cyprus currently has one of the mostment in which it operates through the national businesses in setting up local competitive tax regimes in Europe. At theintroduction of the necessary direct and headquarters? same time, thanks to the continuous ef-indirect tax measures and incentives. The In my opinion, this is a correct strategy forts of the professional community, theincome generated by the industry is very because not only it will enhance the effort support of the Government and measuresimportant to the economy and Cyprus to attract international businesses to set taken by the regulatory authorities, it hasis continuously making the necessary up local headquarters but it will also keep managed during hard periods of adjust-changes to stay competitive against other Cyprus off the blacklists which would ment not to be regarded as a tax haven.international business centres around the have an adverse effect on its reputation as However, in order to become more com-world. At the same time, the regulatory a reputable international business centre. petitive, Cyprus should introduce tax andauthorities have been very proactive in Moreover, it will help attract a more repu- other incentives which will differentiatebringing about the necessary changes, edu- table clientele with an interest in establish- it from other major competitive jurisdic-cating and supervising their members as ing solid operations in Cyprus, which will tions. One recent example is the loweringthey adapt to the new more stringent com- bring multiple benefits to the economy, of transfer fees on the acquisition of prop-pliance and transparency requirements including demand for real estate and erties in order to induce foreign entities to set up headquarters in Cyprus, which should be extended beyond 2016. Tax incentives by themselves, however, are not enough. If Cyprus wishes to differentiate

33ACCOUNTANCY CYPRUSand go head to head with other major considerations to take into account, like the (c) Would lowering taxation for indi-business centres, it also needs to modern- issuance of tax rulings, which might lead to viduals be an incentive for internationalize its legislation such as its Companies favourable and discriminatory tax treatment High Net Worth Individuals to relocateAct and introduce new legislation to ap- of a taxpayer, and the streamlining of trans- to Cyprus?peal to niche areas of the market such as fer pricing rules on specific types of transac- The tax band rates could have been loweralternative funds or high-tech companies. tions and arm’s length principles. but the nil tax amount of €19,500 is high enough so that a big percentage of employ-How important are Tax Services to Taxation in Cyprus: (a) Do you think ees are paying zero or low income tax onInternational Investors (corporate and any changes should be made to the cur- their emoluments. Also, the recent introduc-individual) as a revenue stream for local rent corporate tax rate? tion of tax exemption provisions for the firstaccounting, audit and tax firms? In my opinion, even though the 12.5% 10 years of employment in Cyprus, underTax Services to International Investors corporation tax rate is still one of the lowest certain conditions, is very attractive to Highhave always been a very important part of tax rates in the EU and there is no defence Net Worth Individuals who want to relo-the revenue stream for local accounting, tax to be paid on dividends by non-tax cate here. A lower taxation for individualsaudit and tax firms but, in recent years, resident shareholders of Cyprus companies, would be an important factor for interna-they have become more important due to a similar corporation tax system to the one tional HNWIs to relocate in Cyprus but, inthe ever-changing global environment and they have in Malta could be introduced, my opinion, there are other very importantthe increased needs of clients to seek ad- whereby there is a high corporation tax rate factors to consider like the high standard ofvice to comply with changes to local and but a refund system based on certain condi- accommodation, schools, transportation,international tax laws. tions on entities where the shareholders are communication services and so on. domiciled in Malta.As the business world becomes more (d) Can you suggest ways to improvecomplicated, do you think that tax ser- (b) Can you suggest ways to improve individual tax collection procedures andvices will become more important for corporate tax collection procedures and methods? Are there any other issues youcorporations (both local and interna- methods? Are there any other issues you would like to mention?tional) and individuals? would like to mention? A few years ago there was a discussion byAs already mentioned, these services have In recent years, the Tax Department the Government to abolish the filing ofbecome much more important for cor- has improved on its collecting pro- income tax returns as the administrationporations and individuals in recent years. cedures and methods but there is a cost by the tax office to review the returnsBecause of the momentum to clamp down need to speed up the investigation and was disproportionate to the additional taxon aggressive tax strategies, tax laws will be review process so that final tax assess- collected. In my opinion, the Governmentprone to continuous change in the near ments are issued and taxes are collected should proceed with this as the PAYEfuture. The same holds for tax compliance in an efficient manner. Also, a consid- system works efficiently in Cyprus. Themeasures. As a result, businesses will be plac- erable amount of taxes are “tied up” in legal duty should completely be passed oning great reliance on such services and espe- time-consuming reviews of objections to the employer, who could act as an in-cially on high quality professional services. by taxpayers. Another important factor, termediary and should make sure that the which hinders the effort to collect taxes, correct amount of income tax is deductedThe case of the European Commission is the fact that there is a huge number and paid, as is done under the social insur-vs Apple & the Government of Ireland: of pending cases and the Department is ance system. At the same time, the Tax(a) Do you think the Commission’s understaffed. The introduction of auto- Department should speed up the processverdict is fair? matic exchange of information systems, of reviewing capital statements filed asThe Apple case is all about state aid and and the powers invested in the tax of- well as other ad hoc reviews performed.not tax law and, in my opinion, should not fice to obtain information from other Additionally, as noted earlier, thanks tobe seen as a precedent for future tax cases. Government departments and banks, the powers invested to the tax office to ob-Based on the published findings, one can gives a platform to the tax commission- tain information from other Governmentcome to the conclusion that the European ers to have an abundance of informa- departments and banks, the tax commis-Commission’s verdict was a fair one. tion to cross-check with tax returns and sioners have an abundance of information flag up problems but, in order to do to cross-check this information and flag(b) How might this affect Cyprus’ posi- so, a good computerized system should up any problems. In my opinion, if thetion as an attractive EU destination for be put in place. In my opinion, if the aforementioned were enforced properly,international businesses? aforementioned organisational issues there would be increased efficiency in theIt does not directly affect Cyprus’s posi- were resolved, then there would be tax collecting procedure.tion as an attractive EU destination for increased efficiency in the tax collectinginternational businesses but there are certain procedure.

34 ACCOUNTANCY CYPRUS COVER STORYIOANNIS DEMETRIADES Government, the Central Bank, the banks, the trade unions and the po- Managing Director, Horwath DSP Lid litical parties need to pull together as soon as possible to turn Cyprus intoWhat, in your opinion, are the most important issues and challenges facing tax an investment grade economy and,professionals worldwide today? at the same time, spend time andThe automatic Exchange of Information for Tax Purposes, FATCA, & CRS Report- money promoting the Cyprus branding are, without doubt, the biggest challenges. The financial crisis has forced countries abroad. Then we will see more com-to introduce stricter tax rules such as substance requirements and transfer pricing. panies setting up local headquarters and investing in Cyprus.How do these issues affect Cyprus’ position as an international business centre?International financial centres such as Cyprus service international investors and they How attractive is the tax regime ofwill be affected more than others by FATCA, CRS reporting and substance require- Cyprus compared with that of otherments. We, as services providers, will end up serving fewer clients but providing jurisdictions? What should be done inmore complex advice. More clients will set up fully fledged offices in Cyprus. We order to make it more competitive?shall see some turmoil in the next couple of years but, as in the past, I am sure we’ll It is already very attractive. With themanage. The uncertainty also helps us focus on other areas such as expanding our recent introduction of an IP Box, No-services to the fund industry. tional Interest Deduction, and the Non- Domicile concept for individuals, CyprusCyprus’ strategy is to portray itself strategy, but who is the “stratigos” has become even more competitive. Theas a reputable international business (general) and who is his army? We proposed introduction of powers to thecentre, fully transparent and fully need a Hercules to push through existing tax tribunal to hear VAT dis-compliant with international regula- government reform and a change putes, amendments to our fund laws andtions, directives and agreements. Do in attitudes. I hope that the Under- the possible introduction of a Founda-you think this is the correct strategy Secretary will get all the support he tions Law will add to the country’s com-to attract international businesses in needs and will make a start this year. petitiveness. I hope that these proposalssetting up local headquarters? We have to bear in mind that the become law by the end of this year.I think this is the only strategy. The global financial crisis is not yet overworld is moving in that direction and and that we need to move fast on How important are Tax Services toCyprus has no choice. You call it a what Cyprus can do by itself. The International Investors (corporate and individual) as a revenue stream for lo-

35ACCOUNTANCY CYPRUSTAX IS ONE OF THE BIGGEST PAYOUTS FOR BUSINESSES, The level of corporate taxation is, I be-AND INTERNATIONAL INVESTORS HAVE BEEN SETTING UP IN lieve, right. When government financesCOUNTRIES LIKE CYPRUS TO MINIMIZE THEIR TAX PAYOUT AND allow, we should consider reducing theRISKS. AS A RESULT, OUR PROFESSION AND THE ACCOUNTING 17% rate of withholding tax on divi-FIRMS HAVE SEEN AN UNPRECEDENTED EXPANSION dends and especially the 30% on inter- est. The abolition of the immovablecal accounting, audit and tax firms? EU applied the state aid rules. My property tax was, I believe, a mistake.Tax is one of the biggest payouts for view is that companies like Apple are Regarding real estate taxes, the Govern-businesses, and international investors too big and, therefore, it is possible ment should commission a new studyhave been setting up in countries like that they could take advantage of of how to tax real estate and not carryCyprus to minimize their tax payout their position. The EU applied the on with a piecemeal approach.and risks. As a result, our profession state aid rules. Does this mean thatand the accounting firms have seen an Apple acted within the tax laws? The (b) Can you suggest ways to improveunprecedented expansion. Commission said that tax rulings corporate tax collection procedures are perfectly legal but member states and methods? Are there any otherAs the business world becomes more should not give selected companies issues you would like to mention?complicated, do you think that tax a better tax treatment than others! Tax assessments should be up-to-dateservices will become more important Now, whether Apple had an advan- and on time, and all should be donefor corporations (both local and in- tage – and one worth €13 billion – electronically, including the payment ofternational) and individuals? only the courts can say. VAT. The Tax Department needs newThe recent introduction of exchange of tax software and new knowledgeabletax information, substance requirements (b) How might this affect Cyprus’ personnel. Speed in issuing assessments,and more tax compliance rules has in- position as an attractive EU destina- dealing with mistakes and objectionscreased the need of international inves- tion for international businesses? and in the issuing of rulings will resulttors for more complex, professional Tax We have not managed to attract big in better and more timely collection.Services and therefore the tax revenue multinational corporations to set upstream will continue to be one of the their European headquarters here or to (c) Would lowering taxation for in-main sources of income for our firms. use Cyprus tax rules in a way that gives dividuals be an incentive for interna- them an EU advantage. Therefore, tional High Net Worth Individuals toThe case of the European Commis- there is no direct effect of the Com- relocate to Cyprus?sion vs Apple & the Government of mission’s decision but it reinforces the The level of taxation on individuals isIreland: (a) Do you think the Com- need for Cyprus to be fully compliant too high. The income tax rate shouldmission’s verdict is fair? with EU and international regulations. go down to 30%. This, together withDifficult questions. First, I have to the abolition of the special contribu-state that there is nothing “fair” about Taxation in Cyprus: (a) Do you tion at the end of this year, will be ataxes. It is just a matter of law. In the think any changes should be made to good incentive for international Highcase of Apple, I understand that the the current corporate tax rate? Net Worth Individuals who earn less than €100,000 per year. (d) Can you suggest ways to improve individual tax collection procedures and methods? Are there any other issues you would like to mention? I would like to say that we have the tax incentives and tax professionals and what is required is for Cyprus to be- come an investment grade economy in 2017, and to start investing in promot- ing and improving Cyprus’ image.

36 ACCOUNTANCY CYPRUS COVER STORYGEORGE KARAVIS tions, directives and agreements. Do you think this is the correct strategy Tax Partner, Grant Thornton (Cyprus) Ltd to attract international businesses in setting up local headquarters?What, in your opinion, are the most important issues and challenges facing tax This is actually the only way forward.professionals worldwide today? Even big countries cannot afford toIncreased transparency and the new, stricter approach to tax avoidance will lead to big go in a different direction. Everyonechallenges for tax professionals. The whole game is changing and the tone is being set is moving towards transparency tofrom the top, without any space to walk away. Most countries have accepted these new combat aggressive tax planning andrules through FATCA (Foreign Account Tax Compliant Act) and the CRS (Common tax evasion. As a country, we mustReporting Standard) for exchange of information. In fact, they never really had an op- also provide an excellent environmenttion and now tax professionals have the burden to convince taxpayers to pay their fair and correct infrastructure. Peopleshare (either at a company or individual level) and, at the same time have their revenues who have money want to enjoy itallocated to the countries where they are being generated. This task is difficult, especially as well. If we are trying to attractin countries where, traditionally, the system has allowed those that were not compliant Western Europeans, we are startingto get away with it. Effectively, the burden of tax payment falls on a smaller group of immediately with a negative due topeople rather than on the whole population. When this smaller group cannot handle the our geographical location as we arewhole burden anymore, there is a need for drastic change. This, in conjunction with the far away from the rest of Europe.funding of terrorism from these undeclared funds, was the reason for change on a global We may need to focus on individualsscale. Globalization and the easy access to information have actually given large groups who are geographically and culturallythe opportunity to take advantage of favourable rules which were not really intended for closer to us.them. This effectively leads to countries’ tax revenues being disturbed. How attractive is the tax regime ofHow do these issues affect Cyprus’ ment. All these factors are somehow Cyprus compared with that of otherposition as an international business related to the level of taxes and the way jurisdictions? What should be done incentre? the tax legislation is interpreted and ap- order to make it more competitive?Cyprus has no option – it must comply plied in practice. Let’s be fair to ourselves – our taxwith the rules. At the same time, it must regime is not far behind that of ourtake action to gain positive results from Cyprus’ strategy is to portray itself competitors. We cannot be compla-this change. This can be achieved by as a reputable international business cent but it is at an acceptable level.providing an effective, simpler, clearer, centre, fully transparent and fully The country’s small size could workstable and trustworthy business environ- compliant with international regula- to our benefit for fast decisions and problem-solving, enabling tax payers to trust Cyprus. We could capitalize

37ACCOUNTANCY CYPRUSon this advantage but drastic changes ing repercussions for non-compli- sumers can take advantage of better goods/services at a lower cost. So, asmust be made – Government depart- ance. The EU is even challenging tax a concept, the approach is correct but the problem of competition has nowments must be fully operational and, rulings given by member states in an moved from businesses to countries. Businesses operate under same rulesat the same time, have a positive atti- attempt to show that practices that in each jurisdiction and, therefore, competition can work effectively. Intude. Unfortunately, today we cannot were essentially giving a tax amnesty practice, however, it is difficult to make comparison due to the differenttick either of these two boxes. to multinationals in exchange for rules that apply in each country. How can anybody control all member other benefits no longer apply. Un- states when the rules are different?How important are Tax Services to like audit – where there are material- (b) How might this affect Cyprus’ position as an attractive EU destina-International Investors (corporate ity levels – for tax purposes even a tion for international businesses? Given the circumstances, the Irishand individual) as a revenue stream small amount of a transactional tax, tax authorities provided a tax ruling for a certain tax treatment and theirfor local accounting, audit and tax for example, can be important and approach as a reputable financial centre is absolutely correct. I can-firms? can affect the business if it was not not imagine what would happen in Ireland if they had taken a short-termTaxation is an important factor in busi- provided for in the initial budget. An opportunistic decision to claim the money (even though very temptingness decisions and may be the most unexpected tax charge could be mate- for their budget!) from their client. The tax authorities should see taxpay-important factor when you look at it on rial for the survival of the company as ers as their clients – they have made an agreement and it’s an agreementa personal level. Following global taxa- it will affect its financial position and between two very important parties and both parties have to honour thattion rules on substance will inevitably future plans. Obviously, companies agreement. The approach of the Irish Government should be seen as a deci-lead to issues of a company’s residency will be more cautious in using ag- sion of reputable financial centre! gressive tax planning Taxation in Cyprus: (a) Do you think any changes should be madeTAXATION IS AN IMPORTANT FACTOR IN processes and will to the current corporate tax rate? only opt for that ap- The level of corporate taxation in Cy- prus is one of the lowest in the EU.BUSINESS DECISIONS AND MAY BE THE proach if they have Investors take the level of tax seriouslyMOST IMPORTANT FACTOR WHEN YOU good grounds to sup- but, more importantly, they valueLOOK AT IT ON A PERSONAL LEVEL port it. The scope for the stability of the system and the ap- aggressive tax plan- proach and effectiveness of the parties ning will be very nar- involved for the business cycle – the legal framework, the service providers row and specific to and, more importantly, the approach of the Government authorities. This is certain circumstancesin Cyprus. Forming a company is not where there will be reasonable chal-enough. Its management and control lenges to the more or less expectedmust be exercised from Cyprus. To approach.overcome this issue and to confirm thetax-residence of companies on the is- The case of the European Commis-land, we should promote real substance sion vs Apple & the Government ofand push to have top management Ireland: (a) Do you think the Com-physically in Cyprus. Therefore, busi- mission’s verdict is fair?ness and personal tax services are of par- The EU aims to prevent unfair com-amount importance for a sound services petition between member states.industry in the country. The question is whether the way the system currently works is feasibleAs the business world becomes more and can be controlled. For example,complicated, do you think that tax the system allows the countries toservices will become more important have huge flexibility to set their ownfor corporations (both local and legislation and the right to go a stepinternational) and individuals? further to make their own interpreta-Taxation is very often seen as a tion of the legislation through so-“threat” which cannot be avoided and called “tax rulings” which are specificthe increasing demand for transpar- to certain facts. In an open market,ency worldwide is leading to increas- this is a healthy process and con-

38 ACCOUNTANCY CYPRUS COVER STORYreasonable and rational because, when discretion of the tax officers. This will The Government has recently ex-investors make decisions, they plan for provide transparency and a clear view tended two schemes for tax benefitsa number of years ahead. They need to taxpayers to manage their liabilities. to non-tax resident individuals com-to know the rules well in advance of One way to increase collection is to ing to Cyprus to work. I believe thesethe formation of the company, how ask taxpayers to settle outstanding two schemes are adequate to attractthey will be treated during their opera- amounts and immediately issue them even senior managers to Cyprus, astions, how much they will be paying with a tax clearance certificate (for the relief provided goes up to 50% ofto the service providers and in taxes, the years involved), meaning that the their earnings. Here we have to creditand also how easily they can pull out authorities will effectively accept what the Government for this legislationand the associated costs. The sugges- has been declared on the audited ac- which, I believe, is adequate andtion is straightforward and simple but counts. If the taxpayer knows that by requires no changes. Recently newI understand that it is difficult to apply paying the amounts due they will close domiciliation rules for individualsdue to the fact that so many people the chapter of taxes and possible risks were also passed. With this legisla-are involved. The authorities must set of higher assessments, then I believe tion, HNWIs earning revenues fromclear rules without room for ambigu- it will work. Finally, the government dividends, interest and rental incomeity, increase their productivity or hire must seriously consider an amnesty are effectively excluded from hav-more employees (whatever is easier) for existing interest and penalties (not ing their revenues taxed under theand, in general, change attitude – as I capital amounts) and even consider Special Defence Contribution for 17have mentioned before, the taxpayers an amnesty for undeclared funds held years. Taking into consideration thatare their clients! The private sector is abroad to stimulate the economy. The the income tax legislation also ex-doing a lot. Let’s have some positive last amnesty was made in 2004 and empts dividend and interest income,attitude from the government side. We covered liabilities up to 2002. These the only income that would be sub-need action. They all know very well suggestions are in line with the current ject to taxation is the rental incomewhat they have to do but there is very workload of the Tax Department. By which, I believe, would be seen asslow implementation. law (under normal circumstances) they very favourable. In conjunction with can examine up to six years prior the the two schemes for granting allow-(b) Can you suggest ways to improve current year. This period is fully uti- ance from income tax on their salarycorporate tax collection procedures lised by the authorities. Even though earnings, I believe the existing legis-and methods? Are there any other the law does allow for these six years, lation is adequate and very attractiveissues you would like to mention? the messages given are not very posi- for this category of employeesCollection has always been an impor- tive for a reputable business centre.tant subject and has become critical (d) Can you suggest ways to improvesince the 2013 crisis. Sometimes it can (c) Would lowering taxation for individual tax collection proceduresbe characterized as a survival game. individuals be an incentive for and methods? Are there any otherBefore the crisis, banks were providing international High Net Worth issues you would like to mention?finance easily but credit disappeared Individuals to relocate to Cyprus? One way is to ask taxpayers toliterally overnight. As a result, taxpay- proceed with settlement of theirers who didn’t have the resources or THE GOVERNMENT MUST taxes and immediately receive a taxaccess to finance effectively obtained it SERIOUSLY CONSIDER AN clearance certificate. This will ap-from the tax department by not paying AMNESTY FOR EXISTING ply only to existing tax returns thattheir liabilities on time. The Govern- INTEREST AND PENALTIES have already been submitted to thement needs to take a drastic approach (NOT CAPITAL AMOUNTS) tax authorities, so there is no roomto tax collection once and for all – one AND EVEN CONSIDER AN for misinterpretation. Obviously,that differentiates between those who AMNESTY FOR UNDECLARED the period of application of this rulehave money but are just taking ad- FUNDS HELD ABROAD TO should be set clearly from the begin-vantage of the system and those who STIMULATE THE ECONOMY ning, for example within the next 12simply can’t pay. It should provide months, taxpayers who settle theirarrangements through legislation, as it affairs on the amounts they have de-has done for social insurance, and not clared will automatically obtain taxleave the process of settlement to the clearance.



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42 ACCOUNTANCY CYPRUS COVER STORYGEORGE MARKIDES ing Cyprus’ business environment as friendly, efficient and competitive Partner, Head of Tax, KPMG Ltd as possible but, at the same time, we need to understand that competitive-What, in your opinion, are the most important issues and challenges facing tax ness will have to be maintained strictlyprofessionals worldwide today? within the limits of the new rules.The tax environment is changing rapidly and becoming more demanding. The newrules are complex and the timeframes for their application are tough. The adminis- Cyprus’ strategy is to portray itselftrative burden imposed by the implementation of these tasks by businesses will roll as a reputable international businessover to the tax professionals. They are the ones who face the challenge of absorbing, centre, fully transparent and fullyunderstanding and implementing the new rules swiftly, whilst at the same time, compliant with international regula-ensuring that their client’s interests are preserved, that income is allocated and taxed tions, directives and agreements. Docorrectly and proportionately and that the client maintains a tax-efficient policy in you think this is the correct strategyits operations. The mode of work is changing; tax professionals need to adapt to the to attract international businesses innew environment, re-adjust priorities when discussing taxation and develop tools setting up local headquarters?and methodologies that ensure effective compliance, both in terms of time and cost. Definitely. High compliance ratings and adherence to international devel-How do these issues affect Cyprus’ to align the tax framework with the opments are essential to substantiatingposition as an international business recommendations stipulated in the and validating our reputation. Taxcentre? OECD’s Action Plan on Base Erosion cannot be separated from economicIf we want to be an international busi- and Profit Shifting and the harmo- developments; both heavily influenceness centre, Cyprus needs to adjust to nization with the European acquis. a country’s fiscal policy. Therefore,the new environment; to start with, Extensive anti-avoidance provisions a good reputation cannot be gained,compliance ratings need to increase. will be introduced, under the process maintained and enhanced withoutPriorities should shift towards adher- of implementing the BEPS Action being in line with developments. Noence to the new rules whilst, at the Plan and the Anti-Tax Avoidance Di- business will set up local headquarterssame time, maintaining a competitive rective. Further measures, such as the in a disreputable jurisdiction. Fromenvironment that promotes business discussions at an EU level on the Eu- a practical point of view, a businessgrowth. Cyprus’ tax laws are about to ropean Commission’s Tax Transpar- will not set up its headquarters in anychange significantly with the intro- ency Package, are coming up. Special jurisdiction that does not substanti-duction of a set of provisions aiming attention must be given to maintain- ate its ability to interact with other jurisdictions and maintain cross-border transactions, no matter how low the tax

43ACCOUNTANCY CYPRUSTAXATION IS A MAJOR DRIVER FOR THE SETTING UP OF ternational) and individuals?A BUSINESS AND THE STRUCTURING OF ITS AFFAIRS. Of course. As noted previously, theTHE FIRST THING A PROSPECTIVE BUSINESS OR INVESTOR new rules are complex and the admin-WILL LOOK INTO WILL BE THE TAX COST, THE TAX LIABILITY istrative cost for business is bound toAND THE TAX REPORTING OBLIGATIONS THAT MAY RESULT increase. Reporting requirements underFROM THIS OPPORTUNITY FATCA and CRS are already in place and both corporations and individualsrate is. The key is to maintain a balance Policy Guidelines make an authority must pay attention to them. Country-between adherence to international friendlier and even swifter. by-Country Reporting is next on theregulations, directives and agreements How important are Tax Services to agenda, and we should not forget theand a cost-efficient environment for a International Investors (corporate re-launch of the CCCTB discussioncompany’s headquarters. and individual) as a revenue stream at an EU level on creating a common for local accounting, audit and tax – and, by the looks of it, mandatory –How attractive is the tax regime of firms? system of taxation for EU businesses.Cyprus compared with that of other Taxation is a major driver for the set- Taxpayers will need constructivejurisdictions? What should be done in ting up of a business and the structur- feedback on these matters in order toorder to make it more competitive? ing of its affairs. The first thing a pro- determine and address the obligationsDespite international tax develop- spective business or investor will look that derive therefrom. Some mightments, our tax regime is still very com- into will be the tax cost, the tax liability affect international corporations morepetitive and it has been stable in recent and the tax reporting obligations that than others but this doesn’t mean thatyears. Of course, there have been major may result from this opportunity. Tax local corporations or individuals willchanges to the legislation in order to Services are therefore instrumental in not be affected. Even local corporationsattract investment and instigate job persuading an international investor will need to adhere to stricter rules,growth but these changes took nothing whether or not to proceed with the with increased reporting obligations.away from the spirit of our tax system opportunity; it is through implementa- In this respect, Tax Services are boundas being simple and straightforward. tion that work is generated (and, with to become even more important; thisThe low tax rate and beneficial provi- it, revenues), for other services such is precisely the reason why it is time tosions concerning the taxation of in- as audit or accounting. Efficient tax prioritize the development of new ser-bound and outbound dividends are still strategies on behalf of a business also vice lines within the tax function. Wesome of our most precious advantages. facilitate the flow of reporting and, have an opportunity to create a newHowever, the world is changing and with them, audit and accounting are business environment, one that willwe should adapt. The funds industry also facilitated. But all functions of the assist taxpayers to continue workingand the tax framework concerning business sector play an important role efficiently, and we should be buildingfunds and other vehicles of collective in attracting international investors; on that.investment is something that needs to development and expertise should bebe fine-tuned so as to make tax legisla- continuous across the board. The case of the European Commis-tion relevant. Policy Guidelines should sion vs Apple & the Government ofbe issued as regards different matters As the business world becomes more Ireland: (a) Do you think the Com-concerning taxation. These provide the complicated, do you think that tax mission’s verdict is fair?taxpayer with clarity and assist in the services will become more important The Apple case is just one of those con-better understanding of tax obligations. for corporations (both local and in- cerning the issue of state aid and test- ing the limits that should be placed on countries when facilitating investment in their jurisdiction. We do not dis- agree with that principle; however, the lengths to which the EU has gone to maintain a balance between fair com- petition and the free market are being put to the test. The decision is on the

44 ACCOUNTANCY CYPRUS COVER STORYvery thin line between interfering with Jurisdiction that may have low rates its function. The unification of thea member state’s tax policy (which but is in compliant with every interna- Department of Inland Revenue andunder the founding treaties, remains tional rule and with no investigation the VAT department will greatly assistwithin their own competence) and against it is the perfect validation. in this area. This is already under wayensuring transparency. The final out- and we look forward to it, since it willcome remains to be seen with Ireland Taxation in Cyprus: (a) Do you majorly facilitate the interaction of thepossibly challenging the decision. It is think any changes should be made to taxpayer with the tax authorities.not an easy decision for any country the current corporate tax rate?to accept; on the one hand, the return I’m a firm believer in the efficiency (c) Would lowering taxation for in-of the aid (close to €13 billion) would of our tax system; it is efficient, dividuals be an incentive for interna-represent a cash windfall that could be low-cost, and attractive. However, tional High Net Worth Individualsa major boost to the national budget. it should be developed and mod- to relocate to Cyprus?But, on the other hand, companies like ernized. Apart from implementing The Cypriot framework for individ-Apple employ thousands of people; BEPS and upcoming EU provisions, uals has been remodelled significant-the thought of jeopardizing their con- we should also be considering how ly in the last couple of years, provid-tinuity in the country should be very to best address the complexity that ing a very competitive framework.frightening. arises in each business sector and in- The Non-Dom provisions, exempt- dustry and constantly work towards ing non-domiciled individuals from(b) How might this affect Cyprus’ resolving discrepancies. For example, the special defence contribution onposition as an attractive EU destina- tax provisions better addressing the their dividends, interest and rents,tion for international businesses? complexity of modern financial significantly eases the tax burden forThe cornerstone of the decision (as well instruments should be introduced. the investment income of High Netas in the other state-aid investigations Providing clarity for the taxation of Worth Individuals and greatly facili-currently in progress against the Neth- the Funds Industry should be a prior- tates their relocation. The fact that,erlands and Luxembourg) is, in essence, ity. Monitoring other initiatives and in terms of employment income, athe concessions made by member states checking the tax treatment should go 50% exemption is afforded for emol-to these large corporations. In Cyprus, without saying; for example, there uments exceeding €100,000, sig-the tax system is such that it does not are initiatives concerning cell compa- nificantly reduces the tax burden onprovide for such concessions. The Cy- nies, foundations and even charitable the employment income of HNWIs.priot rulings do not agree on specific institutions. The effect the tax laws These two provisions complementtax rates or margins and they don’t may have on such vehicles should be each other, creating a set of very at-constitute Advance Pricing Agreements assessed and measures should be taken tractive incentives for international(APAs). Cyprus uses rulings as a means simultaneously with those initiatives. HNWIs to relocate in Cyprus. Top-to interpret tax law and provide clarity There are also areas of our tax laws ping this with the attractiveness ofto the taxpayer regarding obligations that need re-thinking. Stamp duty the Citizenship through Investmentthereunder. Therefore, the Apple deci- law, for example, should either be schemes, Cyprus is a very attractivesion is not relevant, as such. It should, modernized to enhance enforceability destination.however, be taken very seriously into or be abolished altogether.account in that the grace period for I’M A FIRM BELIEVERtax policies is over. Having said that, (b) Can you suggest ways to improve IN THE EFFICIENCY OFthe fact that there are no pending (or corporate tax collection procedures OUR TAX SYSTEM; IT ISclosed) investigations as regards Cyprus and methods? Are there any other EFFICIENT, LOW-COST,on the issue of state-aid and harmful issues you would like to mention? AND ATTRACTIVE. HOWEVER,tax competition should speak volumes Tax filings, reporting and collections IT SHOULD BE DEVELOPEDin validating our reputation as a sound should be digitized as much as pos- AND MODERNIZEDand attractive EU destination for inter- sible. Taxpayers need a one-entry pointnational businesses. It should provide in determining their tax obligations.safety to Investors and multinational Therefore, the Tax Department needscorporations as to the stability of their to be modernized, better staffed andinvestments and their tax obligations. should also heavily invest in technologyMaintaining a clean record as an EU that will enable it to effectively perform



46 ACCOUNTANCY CYPRUS COVER STORYPIERIS MARKOU mented all legislative provisions on exchange of information and trans- Partner, Tax & Legal Services Leader, Deloitte Ltd parency. In addition, it has commit- ted to adopt all the OECD’s GlobalWhat, in your opinion, are the most important issues and challenges facing tax Forum and BEPS recommendations.professionals worldwide today? In a world where transparency is key,The Global Tax Debate is currently focused on efforts to ensure that taxes are paid Cyprus needs to make sure that itwhere profits are generated. This means having in place sufficient legislation, regula- complies with all global requirementstions and practices to ensure full transparency and exchange of information between and must adapt to change quickly andtax authorities across the world. The challenges facing not only the professionals but effectively. In doing so, it can continuealso the competent authorities worldwide concern the processing of this vast pool of to be an attractive location for MNEsinformation. For the professional, this may mean ensuring that he/she complies with setting up presence on the Island.the legislation and fairly represents the tax results of an enterprise and, for the com-petent authorities, it means ensuring that they have the tools to audit these results. How attractive is the tax regime of Cyprus compared with that ofHow do these issues affect Cyprus’ value creation. This will not only en- other jurisdictions? What shouldposition as an international business able Cyprus to maintain its position as be done in order to make it morecentre? an attractive business centre but, in the competitive?The global tax landscape is chang- long run, will create an environment The attractiveness of Cyprus’ tax leg-ing rapidly. Multinational enterprises for increased employment opportuni- islation has always been its simplicity(MNEs) around the globe are looking ties and support services. and ease of understanding to the in-to enhance economic substance in ju- ternational investor compared to thatrisdictions that offer a business-friendly Cyprus’ strategy is to portray itself of our competitors. In a continuouslyenvironment. The information being as a reputable international business changing global environment, however,exchanged between tax authorities centre, fully transparent and fully simplicity does not always achieve thewill aim to ensure that tax is being compliant with international regula- desired result. We have a tax legislationpaid where value is created. If Cyprus tions, directives and agreements. Do which, for many years, has played anwants to continue to be attractive to you think this is the correct strategy important role in attracting interna-the MNEs, it must ensure that it of- to attract international businesses in tional businesses and it is time for thisfers the ideal environment which will setting up local headquarters? legislation to align itself with recentattract real business presence offering Definitely. Cyprus has fully imple- developments. We have a global tax reform that looks at businesses in a dif- ferent way and we have new industries

47ACCOUNTANCY CYPRUSIN A BUSINESS ENVIRONMENT WHICH AIMS TO ATTRACT currently being appealed. It mainlyMULTINATIONAL INVESTORS, LOCAL ACCOUNTING, AUDIT involved transfer pricing agreed onAND TAX FIRMS MUST ENSURE THEY ARE UP TO SPEED WITH cross-border transactions whichINTERNATIONAL DEVELOPMENTS AS THESE UNAVOIDABLY ended up reducing the profits payableEFFECT BUSINESSES WHEREVER THEY OPERATE in Ireland. Just to put it in perspec- tive, Apple has been asked to payto Cyprus, such as Oil & Gas, Funds environment which aims to attract back €13 billion in tax. With an ef-and Financial Services, to name just a multinational investors, local account- fective tax rate in Ireland of 12.5%few. We need to have specific provisions ing, audit and tax firms must ensure it means that the EU Commission isin our tax legislation that cater for these they are up to speed with international suggesting that the value generatedchanges but simply patching up the developments as these unavoidably ef- by Apple’s presence in Ireland shouldlegislation is not the answer. We must fect businesses wherever they operate. be in the region of €104 billion. Didrethink and redraft a complete new tax Apple have such a presence in Ire-legislation centred on the needs of the As the business world becomes more land to justify value creation of thisnew shifting global tax landscape. complicated, do you think that tax magnitude? Is there no IP value in services will become more important Apple’s sales? It will be interesting toHow important are Tax Services to for corporations (both local and in- how this is resolved.International Investors (corporate ternational) and individuals?and individual) as a revenue stream Definitely. A business operating in a Taxation in Cyprus: (a) Do youfor local accounting, audit and tax number of jurisdictions will look to think any changes should be made tofirms? ensure that it has the right support and the current corporate tax rate?With the global developments around right communication with its advi- As explained earlier, we must avoidtransparency and exchange of infor- sors in each jurisdiction. In a recent making piecemeal changes to our taxmation, offering the right tools to the survey conducted amongst our clients legislation. We need to look at our newinternational investor is becoming globally, more than 80% have busi- business model and rethink as to whereincreasingly important. MNEs are nesses in two or more countries. The we want to go. Making changes toexpected to pay the right level of tax. multinational investor is looking for either the tax rates or regulations willTax is becoming a social responsibility advisors that can offer a global reach, have a short-term impact with no realand it’s no longer part of a boardroom ensuring top level support in whichever long-term rewards.discussion about a business’s bottom jurisdiction they decide to operate. Taxline. Stakeholders are demanding full services are becoming more and more (b) Would lowering taxation forcompliance with legislation, not only global and, as the world gets smaller, individuals be an incentive for inter-in the country of operation but in all clients are demanding quick and up-to- national High Net Worth Individu-jurisdictions that their company is date solutions. als to relocate to Cyprus?transacting with. Tax advisors must If we want to attract HNWIs as well asoffer the right solutions to their clients The case of the European Commis- top executives of MNEs, tax is not theto ensure their full compliance. This sion vs Apple & the Government of only factor which may influence theirinevitably involves not only technical Ireland: Do you think the Commis- decision. Changes have been madeadvice but also improved technologies sion’s verdict is fair? recently to lower the effective tax paidfor reporting purposes. In a business The decision in the Apple case is by such individuals. I don’t think we need to do more. What we must do is offer them a friendly and hospitable environment with proper support services. These include not only ser- vices from the private sector but, more importantly, from the public sector so as to ensure that government policies are applied by all relevant departments within the civil service.

48 ACCOUNTANCY CYPRUS COVER STORYPETROS RIALAS rounding international related elements. Despite this, with proper planning and Director, Head of International Tax Planning, Totalserve Management Ltd implementation, the use of Cyprus is still workable and quite competitive.What, in your opinion, are the most important issues and challenges facing taxprofessionals worldwide today? Cyprus’ strategy is to portray itselfThere are three elements that must co-exist in every structure using international ve- as a reputable international businesshicles such as a Cyprus company in order for it to be ‘workable’ based on the current centre, fully transparent and fullychallenges: having the relevant business substance, ensuring proper local effective man- compliant with international regula-agement and control, and being considered the beneficial owner of the income that is tions, directives and agreements. Doearned by the foreign company used. These need to be properly taken into account at you think this is the correct strategyall stages. Additionally, more than ever before, a tax professional should be informed to attract international businesses inabout foreign aspects that can affect a client and always consider them on a case by case setting up local headquarters?basis. For example, one cannot ignore domestic developments in many countries such Absolutely, yes. In fact we cannot affordas reporting obligations, anti-avoidance rules and other CFC-related provisions, the not to. No jurisdiction that portraysnew automatic exchange of information, the creation of public beneficial owner regis- itself as an international business centreters as well as increased compliance issues, especially for banks. Our industry today is can survive without doing so. But themuch more complex, multi-faceted and challenging than before. At the same time, it is key thing here is, whilst complying withmore interesting and quite a few new opportunities are being created. whatever is needed, to also find ways to remain highly attractive and competi-How do these issues affect Cyprus’ become non-workable and potentially tive. I am glad to say that Cyprus hasposition as an international business have serious adverse effects on the own- managed to do this to a great extent.centre? ers. This means that Cyprus tax profes-These issues have always been in play sionals, advising or assisting on such How attractive is the tax regime ofbut, over the last few years, they have re- structures in or through Cyprus, cannot Cyprus compared with that of othersurfaced stronger than ever before. They afford to ignore or play them down jurisdictions? What should be done indo not only relate to Cyprus but are and they need to have knowledge and a order to make it more competitive?globally applicable and one cannot af- thorough understanding of not only our Our tax regime has always beenford to ignore them or the structure will local elements but also of all the sur- relatively simple, tested, workable, attractive and competitive. Over the years it has evolved, always taking

49ACCOUNTANCY CYPRUSinto account international develop- is required whilst, at the same time, services will become more importantments, requirements and expecta- ensuring the stability, attractiveness for corporations (both local and in-tions. We have always tried – and and workability of our tax regime ternational) and individuals?succeeded to a great extent – to offer and related available products in Yes. Those providing professionalelements that are high in demand this new era. Lastly, every so-called services in all areas need to be glob-at any given point in time. Indica- international business and financial ally minded and informed about alltively, from a tax perspective, the centre needs a solid banking system. the relevant international require-latest “fruits in our basket” are the So, the one thing that we definitely ments and complexities and takeintroduction of the notional inter- have to work harder on is promoting them into account in the mostest deduction on equity and the the reliability of our banking system proper way. Those who fail to donon-dom status of individuals for in the eyes of foreigners. On this, we so, along with the structures used bytax purposes. These, in combina- have come a long way but there is their clients, will be short-lived.tion with other tax and non-tax ele- still much work to do.ments (e.g. the attractive Citizenship The case of the European Commis-Through Investment scheme), have How important are Tax Services to sion vs Apple & the Government ofput Cyprus high on the list of the International Investors (corporate Ireland: (a) Do you think the Com-most sought-out jurisdictions, espe- and individual) as a revenue stream mission’s verdict is fair?cially in the EU. These are elements for local accounting, audit and tax Although the verdict appears to bethat make a properly planned struc- firms? very harsh, it is very well within theture in or through Cyprus foolproof Tax efficiency and optimisation is parameters of EU and internationalto a great extent. So I would say that one of the main reasons why inter- law. Fair competition on an interna-it is not a matter of how to become national investors engaged in cross- tional level playing field, and a fairermore competitive but rather one border transactions or investments apportionment of profits where ap-of remaining competitive in all the consider using Cyprus. As such, Tax propriate, are additional importantareas that have, for so long, made Services play a big part in the overall elements that need to be taken intoCyprus a prime player in interna- required service at all stages. In fact, account by each structure or corpo-tional tax structuring. Apart from its they lie at the heart of the matter ration, large or small, as well as byattractive tax regime, Cyprus offers and investors will then go on to use tax advisors. It is now more evidentan easily understood and practical all kinds of other local services. than ever before that aggressive taxlegal and corporate regime, as well planning can backfire, with a ret-as a very high level of all-round pro- As the business world becomes more rospective effect going back manyfessional services. Our professional complicated, do you think that tax years.community has been dealing withforeign clients for many decades IT IS NOT A MATTER OF HOW TO BECOME MORE COMPETITIVEand knows exactly how to service BUT RATHER ONE OF REMAINING COMPETITIVE IN ALL THEthem at all levels and stages with a AREAS THAT HAVE, FOR SO LONG, MADE CYPRUS A PRIMEpersonal touch. Equally important is PLAYER IN INTERNATIONAL TAX STRUCTURINGthe competitive advantage on coststhat Cyprus has when comparedwith other EU jurisdictions. Theseare elements that we must alwaysstrive to maintain and reinforceeven further. The main additionalelement concerns understandingvarious international and foreigndevelopments and challenges, be-ing quick to take them into accountand being compliant with whatever

50 ACCOUNTANCY CYPRUS COVER STORYMOVING ONE’S PERSONAL TAX RESIDENCY IS VERY MUCH IN PLAY NOW AND,THROUGH A COMBINATION OF OTHER ATTRACTIVE ELEMENTS, CYPRUS HAS BECOMEONE OF THE MOST ATTRACTIVE EU DESTINATIONS FOR SUCH PURPOSES(b) How might this affect Cyprus’ (b) Can you suggest ways to improve interpretation and/or understandingposition as an attractive EU destina- corporate tax collection procedures of their application. This not onlytion for international businesses? and methods? Are there any other potentially damages our image as anFurther to the Apple case and what- issues you would like to mention? IBC but also creates delays and evenever is derived from it, there are the Various provisions have recently disputes.new BEPS (Base Erosion and Profit been implemented, that have workedSharing) guidelines that will soon positively towards this end, for ex- (c) Would lowering taxation for in-be implemented, aiming to address ample, the obligation of a Cyprus dividuals be an incentive for interna-these exact issues in the most official company to obtain a tax number tional High Net Worth Individualsmanner in a global scale. Cyprus will within 60 days from incorpora- to relocate to Cyprus?be, or rather is, part of the much- tion. Nonetheless, the penalties for I would love to see a lowering ofneeded BEPS implementations and not complying with this, or for late personal tax rates. After all, whoactions and will undoubtedly be af- tax filing or even late tax payment, would not wish so? However, whenfected, but in the same way as any are not harsh enough. Perhaps, the considering the case of attractingother competing IBC. It is thus imposition of much higher default HNWIs and other similar foreignersimperative to continue proactive penalties for the late submission of to relocate in Cyprus, such tax low-monitoring of and reaction to such tax returns and late payment of taxes ering is not needed per se. Althoughinternational developments and, would not only prompt taxpayers to our personal income tax rates arewhilst being compliant, to also con- be more accurate and on time, hence competitive enough within the EU,tinue adopting and offering modern improving tax collection, but would the recent introduction of the non-workable and acceptable solutions also improve certain statistical rat- dom tax status, which mainly appliesthrough specific provisions, and by ings on which Cyprus has not been to foreign individuals relocating tobuilding further on those areas that doing well over the years. On anoth- Cyprus, and an array of other taxpositively differentiate Cyprus in a er matter, one other issue I would benefits on emoluments earned bycompetitive way. like to mention, on which we have a such foreigners from Cyprus, render long way to go, is that the new laws Cyprus one of the best choices forTaxation in Cyprus: (a) Do you that we pass should be clearer and personal tax purposes. In fact, mov-think any changes should be made to more properly thought right from ing one’s personal tax residency isthe current corporate tax rate? the very beginning. Sometimes, the very much in play now and, throughAlthough the defence tax does not fall drafting of new laws or amendments a combination of other attractiveunder corporate taxation, it still indi- is done in a rush and/or without suf- elements, Cyprus has become one ofrectly is. I strongly believe that we must ficient time for discussion with the the most attractive EU destinationsreduce the defence tax rate on interest relevant professional bodies or even for such purposes.at least by 50%. It is currently set at amongst the parliamentary commit-30% (it was 10% until mid-2011 and tees. Although the essence of what is (d) Can you suggest ways to improve15% until mid-2013). In this way, we to be passed is there, very often they individual tax collection procedurescan attract more business of foreign in- end up with grey areas and uncer- and methods? Are there any otherterest that earn significant amounts of tainties on the practical applicability issues you would like to mention?this type of interest from international that forces professionals, taxpayers As stated earlier, harsher default pen-sources, through the use of Cyprus or even relevant Government of- alties could go a long way towardscompanies. ficials to have a completely different prompter compliance by taxpayers.