Cyprus among EU leaders in demanding tougher tax crackdown

Cypriots are among the strongest supporters of tougher action against tax evasion and avoidance in the European Union, with 64 per cent saying it should be the bloc’s top tax priority. The figure, contained in the European Commission’s annual report published last week, was the second highest in the EU, narrowly behind France at 65 per cent. Portugal followed with 61 per cent and Finland with 60 per cent. Across the EU, 54 per cent of citizens placed tackling tax avoidance and evasion above every other tax policy objective, according to the accompanying EU tax survey. Preventing double taxation between member states was selected by 26 per cent, resolving cross-border tax disputes by 23 per cent, supporting the green transition through taxation by 19 per cent and further digitalising tax and customs procedures by 16 per cent. Estonia was the only member state where preventing double taxation ranked first, supported by 40 per cent of respondents, compared with 36 per cent who prioritised action against tax avoidance and evasion. The findings come as the European Commission estimates that the EU’s VAT compliance gap reached €128 billion in 2023, representing the difference between expected VAT revenues and the amount actually collected. Its latest tax gap report also estimates that the average corporate income tax compliance gap across 23 member states was equivalent to 10.9 per cent of collected corporate tax revenues. The Commission said stronger data collection, digital reporting systems, artificial intelligence and closer cooperation between national tax authorities could help reduce these losses. Overall, EU governments collected €7.1 trillion in taxes during 2024, an increase of 5.6 per cent from the previous year. The tax-to-GDP ratio rose from 39 per cent to 39.4 per cent, according to the Commission’s latest tax data. Cyprus recorded a lower tax-to-GDP ratio of 36.3 per cent in 2024, up from 36.2 per cent in 2023 and 34.3 per cent in 2022. The ratio is estimated to have reached 36.7 per cent in 2025 before falling to a projected 35.9 per cent in 2026. However, the composition of taxation in Cyprus has changed considerably over the past decade. The share of labour taxes in total tax revenues increased by 8.2 percentage points between 2014 and 2024, largely because of higher social security contribution rates and broader contribution bases. Cyprus also recorded the EU’s largest increase in the implicit tax rate on labour during the same period, rising by 8.8 percentage points. By comparison, the increases stood at 3.4 points in Greece and three points in Spain. Nevertheless, marginal effective tax rates, which measure how much of an additional increase in earnings is lost through income tax, social contributions and the withdrawal of benefits, remain relatively low across much of the Cypriot income distribution. In Bulgaria, Croatia, Hungary, Cyprus and Malta, these rates generally remain below 35 per cent. However, Cyprus, Greece and Spain record a sharp increase among the highest-income groups. By contrast, marginal effective tax rates frequently exceed 40 per cent across the upper half of the income distribution in Belgium, Germany, Denmark, Finland, Ireland and the Netherlands. Average rates in 2025 ranged from 21.5 per cent in Bulgaria to 53.9 per cent in Belgium. Corporate taxation also plays a particularly important role in Cyprus. Corporate income tax generated 19 per cent of the country’s total tax revenue in 2024, the third-highest share in the EU after Ireland at 23.2 per cent and Malta at 21.4 per cent. The Commission noted that corporate tax receipts in smaller, open economies can be concentrated among a limited number of large taxpayers or industries, making revenues more vulnerable to company-specific and international economic developments. The report also refers to Cyprus’ increase in the corporate tax rate from 12.5 per cent to 15 per cent, bringing it into line with the global minimum tax framework. At the same time, Cyprus has expanded measures against aggressive tax planning. These include a 17 per cent withholding tax on certain interest and dividend payments to companies located in jurisdictions included on the EU list of non-cooperative countries, as well as a new corporate residency test based on incorporation. The report also examined citizens’ experiences when filing tax returns. Across the EU, 52 per cent described the process as easy, while 22 per cent found it difficult. Only 8 per cent said they used professional assistance. In Cyprus, 51 per cent considered filing easy, although 12 per cent still relied on an accountant or another tax professional. More than 15 per cent of respondents in Cyprus, Germany and Ireland also described the support provided by their tax authorities as “very inadequate”. Professional assistance was most widely used in Italy, at 25 per cent, followed by Slovakia at 19 per cent, Greece at 18 per cent and the Czech Republic at 15 per cent. Meanwhile, revenues from VAT and corporate taxation have risen across most of the EU, while environmental and property taxation have continued to lose ground. Compared with the previous decade, corporate tax revenues increased as a share of GDP in 23 member states, VAT revenues rose in 21 and property tax revenues declined in 22. Environmental taxes accounted for 5.3 per cent of total EU tax revenue in 2024, down from 6.8 per cent in 2014. Bulgaria remained the most dependent on environmental taxation, at 9.7 per cent of total revenues, followed by Greece at 9.4 per cent and Poland at 8.7 per cent. Cyprus recorded the largest decline in the EU, with the share of environmental taxation falling by 4.3 percentage points over the decade. Latvia followed with a reduction of 4.2 points and Malta with four points. According to the Commission, the decline reflects shrinking tax bases, long periods without tax-rate adjustments, limited political acceptance and measures introduced by governments to contain household energy costs following Russia’s invasion of Ukraine. Although the gradual withdrawal of many support measures helped revenues stabilise in 2023 and 2024, it did not reverse the longer-term downward trend.