The Association of Cyprus Banks (ACB) has raised a series of serious concerns over the government’s proposed tax reform package, warning that several provisions risk harming the financial sector, undermining competitiveness, and imposing disproportionate administrative and compliance burdens on banks and businesses.

In a detailed 17 November letter to the Chair of the House Finance Committee, Christiana Erotokritou, the ACB noted that while some of its suggestions were adopted during the consultation process, a number of revised provisions remain problematic and should be reconsidered before the reform moves to a vote.

One of the most significant positions concerns the special bank levy introduced in 2011 to finance the recapitalisation of the former Cooperative Bank. The ACB argues that the tax has outlived its purpose, as the recapitalisation fund has reached the €175 million target and no longer exists. It says the levy now serves only as a competitiveness handicap for Cypriot banks compared with eurozone peers and should therefore be abolished. At the very least, it stresses, the levy should finally become a deductible expense, correcting what it calls a distortion in tax neutrality.

The ACB also warns against expanding the definition of capital gains taxation to capture company shares where 20 percent of their value derives from immovable property. This would be stricter than the OECD model and double taxation agreements, which apply the threshold at 50 percent, creating a disadvantage for Cyprus tax residents and uncertainty in property transactions.

Banks further object to provisions allowing the Tax Department to block property transfers if either the seller or the buyer has unrelated outstanding tax obligations. Such a measure, they argue, could stall transactions, obstruct debt restructuring efforts, and negatively affect collateral recoveries.

Another red flag raised concerns the government’s intention to significantly expand the Tax Department’s powers to collect, store and process personal data of bank customers and other individuals. The association warns that several provisions conflict with data protection rules, banking secrecy and constitutional rights, calling for strict limitations, explicit legal definitions and prior assessment by the Office of the Commissioner for Personal Data Protection. It also stresses that any requirements would need at least two years to be technically implemented.

On stamp duty reform, the ACB maintains its longstanding position that the tax should be abolished altogether, as it represents only a small share of state revenue while imposing a disproportionate compliance cost, especially in a digital era. If not abolished, the association calls for clear rules on when electronic contracts are subject to stamp duty, how electronic stamping will function, and which documents are exempt.

The letter also highlights concerns over extended timeframes for audits and information requests, limitations on deductible expenses, changes to insurance premium deductions, stock option taxation, and the proposed introduction of rules on hidden dividend distributions. In several cases, the ACB argues that the provisions create uncertainty, discourage investment, and contradict best practices in other EU jurisdictions.

As parliamentary discussions on the tax reform continue, the ACB calls for a balanced approach that simplifies the tax system, aligns with international standards, supports digital transition, and reinforces Cyprus’s attractiveness as a financial and business centre, rather than introducing new layers of complexity and cost.