Cypriot authorities are considering introducing a new tax exemption on reinvested corporate profits in a bid to prop up the island’s economy, and may also authorize the establishment of local casinos to support fiscal consolidation efforts.
The measures were promoted by Cypriot President Nicos Anastasiades in announcing a new twelve-point economic recovery plan, drawn up to ensure that Cyprus’s small island economy remains afloat despite the heavy losses depositors with funds over EUR100,000 will incur as a result of an EU-funded bailout. Laiki Bank will merge with Bank of Cyprus, and depositors with funds above EUR100,000, including Cyprus’s largest businesses, face losses topping 60% and delayed access to their funds.
It is unclear whether the European Union will permit Cyprus to exempt reinvested corporate profits. The measure will erode Cyprus’s corporate tax base, diminishing the impact of a corporate income tax rate hike, from 10% to 12.5%, included in the nation’s austerity plans as a precondition to securing an EU bailout.