Helping Cyprus bounce back

Back in the middle of July when AB interviewed Stavroula Vrasida FCCA, she had only been back in her office in Nicosia, the capital of Cyprus, for a couple of weeks, after working from home since March.

As head of advanced tax rulings at the Ministry of Finance she was busy planning ahead for the next stage of support for businesses and individuals as the island’s economy emerged from a two-month lockdown.

However, alongside dealing with the immediate fallout of the Covid-19 crisis, Vrasida was looking to the future, not just in terms of additional support for local businesses and individuals, but also in terms of securing foreign investment and helping the government develop its responses to shifts in international tax policy.

Support boost

After the pandemic took hold across the globe, Vrasida worked closely with the government as it implemented a wide-ranging financial support package. At the end of May, President Nicos Anastasiades announced a major input from the European Investment Bank (EIB) in the form of loans worth €1.7bn (US$2.01bn), along with interest rate subsidies for businesses and mortgages.

The package injected more than €1.2bn (US$1.4bn) into the economy – worth about 6% of the country’s gross GDP – to help rescue and restart the economy. This included an €800m (US$ 948m) liquidity grant to small and medium-sized enterprises, administered through the Cyprus Entrepreneurship Fund, with the government providing a 50% state guarantee.

Further steps to boost the tourism and hospitality sectors came in the form of a reduction in VAT from 9% to 5%, from the period 1 July 2020 until 10 January 2021.

Attractive environment

In more normal times, however, Vrasida’s main area is providing guidance to investors on the tax implications on their investments in the Cyprus economy, particularly overseas businesses looking at inward investment.

Cyprus is widely regarded as having an attractive tax environment for inward investment, with various incentives to encourage non-residents to set up a business in, or invest through, the country. There are no restrictions on foreign share ownership, and no withholding taxes on dividends or interest, while the sale of shares and other titles is exempt from tax.

At 12.5%, the corporate tax rate is one of the lowest in the EU, while non-domiciled tax residents enjoy a number of tax exemptions. This is perhaps why, according to UNCTAD’s 2020 World Investment Report, foreign direct investment inward flows reached US$24bn in 2019.

Providing tax certainty

Nevertheless, potential investors still want to know where they stand. ‘My unit, which functions in compliance with the relevant EU laws and instructions of various courts, issues tax certainty primarily to corporates and prospective investors wishing to incorporate Cyprus within their corporate structure,’ Vrasida explains.

‘It also issues tax certainty to existing corporates that operate in Cyprus in relation to transactions they wish to carry out. We also, though less frequently, issue tax certainty to individuals who wish to locate in Cyprus and to investors who are already using Cyprus as their tax residence.’

Alongside this, however, Vrasida has other items on her agenda. Before lockdown, trips to Brussels were a regular occurrence, as was regular attendance at parliamentary committee meetings to discuss direct tax matters, presenting draft legislation to politicians to help their understanding of the issues ahead of any vote in parliament.

Tough on profit shifting

Inevitably, the conversation turns to BEPS, the OECD’s campaign to tackle base erosion and profit shifting by multinational companies that use the international tax system to their own advantage. It is an area central to Vrasida’s work and one where she is actively involved.

‘Cyprus has been following very closely the OECD’s and EU’s initiatives, and so far is fully compliant with the requirements in areas such as transfer pricing and country-by-country reporting,’ she says.

Cyprus is also aligned with the actions covering intellectual property (the patent box), transparency over tax rulings and hybrids, and is a signatory to Action 15, which creates a multilateral instrument to close loopholes in international tax treaties.

‘The rise of the digital economy in particular poses problems for all governments that wish to secure their due share of global tax revenue, including Cyprus,’ Vrasida says. ‘It has created a business model that multinationals can take advantage of.’

This is why she believes that work on Pillar 2 of the BEPS initiative is so important. The so-called Global Anti-Base Erosion proposal seeks to develop an integrated set of global minimum tax rules to ensure that the profits of internationally operating businesses are subject to at least a minimum rate of tax.

Needless to say, the debate required many trips to Brussels, though these meetings are now conducted by very different means.

Uncharted waters

Vrasida relocated to Cyprus after completing her ACCA studies in the UK in 1991. ‘It was an important choice for family reasons,’ she recalls. ‘The choice of a career in tax was, however, a natural consequence of my ACCA Qualification.

‘Going to work in the public sector in Cyprus was definitely uncharted waters, but to the rational thinker in me it made absolute sense – working in the public sector rather than the private sector would optimise my exposure to tax.’

Vrasida joined the Cypriot Tax Department in 1992, working on investigations. Six years later, she was asked to join the ‘EU acqui screening group’, the government department charged pre-accession with ensuring that the country’s legislation was in step with the EU ahead of officially joining the bloc in May 2004.

Vrasida had responsibility for harmonising Cyprus’s direct tax legislation with EU tax law – one of the highlights in her career, and a great opportunity to further her own knowledge of the legislative process.

International outlook

‘This experience gave me an in-depth understanding of Cyprus laws and regulation, but also the opportunity to really compare Cyprus with EU legislation, to read between the lines and grasp the substance and the spirit of my own legislation.’

Shortly after this, Vrasida joined the Cyprus delegation that negotiated a double taxation agreement with Indonesia. This allowed her to understand the interaction between national tax legislation in respect of cross-border business transactions.

‘This was my first real exposure to international tax matters,’ she says. ‘It pulled together all my knowledge.’

From 2004, Vrasida was a member of the EU Direct Tax Working Party and Code of Conduct Group (Business Taxation). This involved further high-level visits to Brussels, including meetings with professional bodies to discuss the review, amendment and enforcement of tax practices, tax policy and enforcement issues.

In 2009, this work brought her to the Cyprus Tax Department’s Advanced Tax Rulings Unit (Direct Taxation), where she became head in 2016.

Throughout her career, Vrasida has not forgotten the importance of her ACCA Qualification. ‘It was perfect for a career in tax,’ she says. ‘It helped build a well-structured tax mentality, and also assisted in rendering me as a credible tax expert. It was my foundation in the world of tax.’