The finance ministers of the Eurozone make up the Eurogroup, a body that exerts political control over the Euro in order to manage its stability.
With regard to the current financial and economic situation in Cyprus, the Eurogroup has reached an agreement with the country in order to gain cohesion and prevent the collapse of the Cypriot banking sector.
The terms of the Eurogroup agreement include the Cyprus Government to receive €10bn of financial assistance; the European Central Bank to maintain liquidity of the Cyprus banking system; Cyprus’ largest bank to absorb the second largest bank (Bank of Cyprus and Laiki Bank respectively); and the safeguarding of bank deposits of up to €100,000 (per legal entity, per bank) in accordance with the EU principles.
Other banks and institutions apart from the Bank of Cyprus and Laiki Bank will not be affected, and this protection extends to branches of foreign banks in the country as well.
An increase of Cypriot Corporation Tax has also been proposed, meaning the tax will rise from 10% to 12.5%, although legislation has not yet been passed.
The Cypriot tax regime will not change in any other way and Cypriot companies will still benefit from the various tax exemptions previously available. These include full participation exemption on capital gains, full participation exemption on income from dividends, withholding tax exemption for dividends, interest and royalties, no thin cap rules, no CFC rules, no exit charges, tax reduction on royalty income, and thin margin taxation for interest income.
As a result the Cypriot tax regime remains favourable to foreign investors. Although the banking sector is under stress, the country is still one of the lowest corporate tax jurisdictions in the EU and international business can therefore still operate fully and successfully in the country.
Expand Your Business with Us
The Eurogroup agreement during the Cyprus banking crisis marked a pivotal moment for the nation’s financial sector. While restructuring measures were necessary, including the consolidation of major banks and a slight rise in corporate tax from 10% to 12.5% the fundamentals of Cyprus as a favorable investment destination remain unchanged. Its tax regime continues to offer some of the most attractive incentives in Europe, including exemptions on dividends, royalties, and capital gains, making it a reliable jurisdiction for international investors despite past challenges.
For businesses, this period of adjustment highlighted the importance of choosing the right partners to navigate regulatory and financial complexities. At Open A European Company, we provide investors with expert guidance on Cyprus’s corporate landscape. From company formation and tax structuring to banking solutions and compliance, our services are designed to ensure that you can focus on growth while minimizing risks.
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