Cyprus, like many in the eurozone, has felt the effects of the economic volatility."We can divide it into two parts really. At the end of 2011 we saw a lot of recovery but in recent months the double-dip has hit us," said Consulco's Rutger Kriek, while ...
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Cyprus, like many in the eurozone, has felt the effects of the economic volatility.
"We can divide it into two parts really. At the end of 2011 we saw a lot of recovery but in recent months the double-dip has hit us," said Consulco's Rutger Kriek, while another practitioner added: "There is uncertainty caused by the European situation. Investment is stalled" This uncertainty is also affecting client behaviour: "There is definitely a slowdown. Clients will delay decisions or even cancel them," an adviser said.
The most noticeable trend in this market this year is one replicated across Europe: that of a more stringent tax authority looking to garner more revenue.
"The authorities are more aggressive. They are obviously facing budget constraints and the money has to come from somewhere! More scrutiny and more questions from them. This is the attitude," explained a partner.
Maarten Koper of Ernst & Young agreed: "With Cyprus applying for a bailout and financial support under the European Financial Stability Fund mechanism, the main change in behaviour is that it has had an impact on tax policy. Direct and indirect taxes are being applied more rigorously, and it is difficult if not impossible to get (material) refunds of direct taxes now."
The government has introduced some legislative changes: "There were a couple of big changes in law. One is that Cyprus has adapted to become a very favourable tax regime for companies whose income derives from IP. You can get an effective tax rate of almost 2% here," said Kriek. "Secondly, the interest expenses deduction scope has been broadened. Interest is now deductible if a subsidiary is a trading company, which can be easily done."
At the same time, though, the government wants to strike a balance between raising funds and staying competitive for investors: "The island is dependent on FDI [foreign direct investment]- it is a service economy – so the government doesn't want to do anything that will affect outside investment," said Deloitte's Pieris Markou.
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