Cyprus hopes to attract direct investment from Germany as new amendments to the Treaty for the avoidance of double taxation with respect to taxes on income and capital come into force. New amendments will not allow to set up shell companies in Cyprus.
Both countries signed the corresponding protocol last week.
The upgraded agreement, in accordance with the OECD guidelines, implies that taxation of the profits of German companies will take place in the country in which the products and services are produced, but not where its office is located.
Updating and expanding the Conventions for the avoidance of double taxation is of great economic and political importance for further strengthening and attracting investment by promoting Cyprus as an international business center, the Ministry of Finance said.
“Upgrading and expanding the Double Taxation Conventions network is of high economic and political importance in further strengthen and attract investments by promoting Cyprus as an international business centre,” the Finance Ministry said.
“For companies based in Cyprus, attracted by the favourable tax system, are actually producing or providing services in Germany, will be taxed in Germany” - commented president of the Cyprus Germany Business Association, Stefan Nolte
It should be noted that the UK was previously the main trading partner of Cyprus. However, after Brexit, Cyprus is forced to look for new partners among the EU countries, in particular Germany.
“Cyprus is currently mostly known to Germans as a tax haven and an island used by foreigners for money laundering and tax evasion. It will have a more challenging time building relations with Germany. Cyprus is a small country with German investors not particularly interested in developing business ties. As an association, we wish that things were different. What Cyprus needs to do if it wishes to strengthen ties with other EU countries is to diversify its portfolio and investment incentives to attract foreign money" - told Nolte.
Germany is important for Cyprus, as it is the island's second largest trading partner in exports after the UK and the third in imports after the UK and Greece.
The President of the Institute of Certified Public Accountants (ICPAC) Demetris Vakis noted that the innovations should have a real economic impact on Cyprus, as companies will be able to take advantage of tax incentives.
"Checks and balances in the banking system mean that a company found to be a shell company is no longer eligible to be serviced by the country’s banking system. It is essential to attract investments which will not just pass by and leave, but investments that create wealth and benefit society. When a company relocates, it does not just relocate its offices, but also its executives. That is what we should be aiming for," - said Vakis.
Undoubtedly, this can positively shake up the Cypriot market if foreign investors rent houses, cars, spend money in restaurants and shops.
"What makes Cyprus an ideal destination for multinational companies are; geographical location, favourable business environment, robust European legal framework, attractive tax regime, low operating costs. Firms relocating here will not only benefit from incentives the island has to offer, but they will also be able to find skilled labour, quality support services and incentives such as the attractive intellectual property regime, an important parameter for tech and IT companies. Brexit was a first-class opportunity to start promoting Cyprus as an alternative EU base for companies headquartered in the UK. We have already succeeded in recent years to attract International Mutual and Pension Investment Funds to register in Cyprus. Currently, funds registered have a portfolio worth €7.2 mln. The one-stop-shop project needs to be completed to facilitate companies and fund managers relocating to Cyprus," - noted Vakis.
At the same time, he stressed that in order for Cyprus to get closer to this, it is necessary to attract several high-profile names and earn a reputation in the financial sector.