Cyprus secures majority of EU funds, with minor tax reform pending

The European Commission has given Cyprus the green light for most of its request for €152 million in funding as part of the EU’s Recovery and Resilience plan, which aims to boost economies after the pandemic. Out of 38 goals Cyprus needed to meet, 37 were approved.

These funds will help Cyprus move forward with key projects and reforms, including improving public health, education, renewable energy, and protecting against climate change. Notably, Cyprus has established an Independent Anti-Corruption Authority and passed a law to encourage strategic investments, aiming to strengthen the economy.

However, Cyprus fell short on one important reform related to cracking down on aggressive tax planning. Aggressive tax planning refers to strategies used by companies or individuals to exploit gaps in tax laws to reduce their liabilities, often by shifting profits to low-tax countries or using legal loopholes. While not always illegal, these practices undermine the fairness of the tax system. To complete this milestone, Cyprus must implement new legislation that closes these loopholes, strengthens regulations on profit shifting, and ensures transparent reporting to align with EU standards.

As a result, the Commission is holding back part of the payment until Cyprus addresses this issue. Cyprus has one month to respond, and the EU’s Economic and Financial Committee will also weigh in within four weeks. If Cyprus doesn’t fix the issue within six months, the suspended funds will remain on hold until the necessary steps are taken.