Successfully investing in Cyprus

last updated on 16 June 2023 | reading time approx. 8 minutes

How do you assess the current economic situation in Cyprus? »
How would you describe the investment climate in Cyprus? Which sectors offer the largest potential? »
What challenges do German companies face during their business ventures into Cyprus? »
Why companies should choose to enter/remain in the Cyprus market? »
In your opinion, how will Cyprus develop? »

How do you assess the current economic situation in Cyprus?

Cyprus has continued to grow, and it is listed as one of the fastest growing economies in the EU. The country surpassed international expectations as its economy reversed within just three years following the devastating financial crisis in 2013, one year earlier than initially predicted.

Cyprus regained its investment-grade status in 2018, both Standard & Poor’s and Fitch Ratings assigning a BBB-credit rating to long-term sovereign debt. It has been recognized that Cyprus accomplished to stabilize its banking system and record a robust growth.

The actual GDP growth is 5.8 percent in 2022 and the forecasted GDP growth in 2023 1.6 percent. The GDP growth resulted after the Covid-19 breakdown, whereas the tourist sector has resumed its operations, being one of the most significant industry sectors in Cyprus. Despite the rising inflation worldwide, the private consumption remained constant supported by the decreased unemployment rate and increasing salaries and indirectly favoured by the targeted government measures to compensate for higher energy prices. The main driver of interruption of the growth in GDP are the gradual tightening of financial conditions such as increase of interest rates, persistent supply disruptions and exceptionally high prices for construction materials and basic goods.

Private consumption is projected to be negatively affected by high inflation even though households’ income is supported by measures adopted by the government to address high energy prices and the partial indexation of wages to expected be applied throughout the year. Significant uncertainty and negative impact risks to the growth outlook remain, in particular as tourism and other export-oriented services sectors are vulnerable to the adverse global impact of Russia’s ongoing war against Ukraine. The occupancy levels in the first quarter of 2023 and last of 2022, shown that Cyprus has been able to replace the Russian tourists with other markets (including Germany) and the level of tourists in 2023 is expected to be close or exceeding 2019 levels.

High energy prices and other basic product prices are driving up inflation, resulted to 8.1 percent in 2022, expected to decelerate to 4 percent in 2023 and further to 2.5 percent in 2024. The higher interest rates imposed by the EU Central Bank are expected to decrease the upward trend of inflation.

The economic situation was greatly affected by the war, although it is expected that in 2024 the GDP will grow steadily and for the inflation to decelerate.

How would you describe the investment climate in Cyprus? Which sectors offer the largest potential?

Since 2015, there has been a positive investment climate. This was driven by the fiscal measures and incentives, including:

Favouring the introduction of new equity as an alternative to excessive leverage.
Incentives for doing business through attractive income benefits for individuals (Such incentives include the citizenship by investment program which has attracted high net individuals and the undertaking of several projects, especially in real estate)
Introduction of tax incentives for intellectual property, innovative small and medium-sized enterprises (SMEs) and start-ups
Introduction of 50 percent income tax exemption for high-earners (above 55,000) willing to move to Cyprus

High potential industries that have proven to be resilient and have grown since 2015 include:

The ship management industry is being boosted by new ship registrations and the relocation of shipping and other services to Cyprus. In the past six years the number of shipping companies registering in Cyprus has increased by 65 percent boosting the sector’s revenue by 25 percent.
The construction industry with a large amount of both commercial and residential projects being undertaken in all major cities of Cyprus. Limassol, a business hub and a centre of the leisure and tourism industry has seen exceptional growth with the high-end residential property segment accounts for 19 percent of the total transaction value of real estate in Cyprus in 2018 and half of the properties were sold to foreigners and only 33 percent were to EU buyers. Although due to the increased prices in materials and the
Cyprus’ economy is 80 percent based on the professional services sector which is the essence of its economy. Supported by highly skilled professionals throughout the country, this sector costs lower than other European countries, but the quality is indistinguishable.
The energy sector with the discovery of a large quantity of hydrocarbons in Cyprus’ Exclusive Economic Zone (EEZ) has attracted global interest from international energy giants. This has created new and exciting prospects for Cyprus becoming a regional energy hub with emphasis on multilateral cooperation agreements with neighbouring countries and expected liberalisation of the electricity market by 2021.
The renewable energy sector has gained momentum in Cyprus, especially with the immense potential of sources such as solar energy (Cyprus receives an average of 2,700 to 3,500 hours of sunshine per year among the highest in the EU).
Tourism has been one of the biggest driving forces of the economy in Cyprus. Attraction from foreign investment has been noticeable as diversification offered by the island developing nautical, golf and wellness tourism resulted in extending the tourist season throughout the year. The construction and investment of multipurpose projects for instance luxury marinas, golf courses and luxury casino resorts are all part of the island’s strategy to upgrade and diversify the industry of tourism.
Another sector which is booming the last couple of years is education. Cyprus is a world-class educational and research center of excellence with high quality academic institutions, offering a large variety of advanced and fully accredited undergraduate and postgraduate programs, at affordable cost. Educational sector comprises of three public and five private universities and more than 40 public and private higher education institutions enjoying international academic and scientific recognition, the island attracts thousands international students every year.
IT start-ups and professionals who want to relocate to Cyprus are being offered additional incentives to develop patentable technologies or copyrighted software. These companies are entitled to a minimum of 2.5 percent effective corporation tax rate.
Headquartering in Cyprus is not a new sector, which has flourished by the decreased personal income tax liabilities for high-earners. 30 years of experience as an International Business Centre, with more than 4.000 registered accountants and 700 registered accounting firms and more than 3.000 registered lawyers and 160 law firm, being of vital importance for the correct application of substance rules and transparency.

What challenges do German companies face during their business ventures into Cyprus?

All challenges can be overcome with the right support and guidance from consultants. It is crucial for success that an entrepreneur surrounds himself with expert advisers who have the knowledge and competence to assist and guide him through the planning stages, and who also take on the ongoing advice.

Investing in Cyprus has many advantages:

The land is strategically located in the eastern Mediterranean and has been an EU Member since 2004 and Eurozone member since 2008.
A robust and modernized business hub, it has access to more than 500 million EU citizens, the single market and trade agreements. As a reliable EU business partner, it can offer competitive benefits and sold business solutions.
Cyprus can be used as a hub for investment in the Middle East. It has concluded agreements with many of these states to avoid double taxation (the country has more than 60 double tax treaties).
Cyprus's simple tax and regulatory legislation makes the country a gateway to and from Eastern Europe, the Middle East, Africa, the Indian subcontinent, and the Far East.
Most of the population speaks English. There should be no challenges in communication. In addition, the country has highly skilled, multilingual professionals and the youngest workforce in the EU many of which are internationally educated (UK, USA and Europe).
Modern infrastructure and an advanced and efficient banking system. The legal system is closely aligned to English Common law with flexibility and constant updating to meet investors changing needs.
Those investing in Cyprus will be able to use tax incentives for first employment which provide for exemption from income tax for part of their basic salary of between 20 and 50 percent; It will also benefit from the exemption from withholding tax on dividend distribution and interest income, as well as the low-income tax rate: the maximum rate is 35 percent. An important recent development is the introduction of the “60 day rule” by the Cyprus Parliament which loosens the restrictions for proving tax residency in Cyprus from 183 to 60 days of physical presence on the island.
Since joining the European Union, Cyprus has become a multicultural, cosmopolitan society. Many working professionals move to Cyprus because of the high quality of life, especially to Limassol. Cyprus has a very low crime rate, practically without significant violent crimes; Children can walk and play safely on the streets and there are several very good schools to teach in English, from pre-school to high school.
The weather is of course also a magnet. The winters are short and the summers long. A challenge is deciding how to spend your free time – hiking or skiing in the mountains or swimming in the sea. Or both on the same day.
On the other hand, bureaucracy in Cyprus can be considered a challenge, whereas for some specific governmental services there might be a delay.
Banks in Cyprus are very thorough with their AML/KYC procedures and might request additional documents or information in order to open a company bank account. This process might take some additional time. In addition, the banking system is Cyprus is different and thorough review of the bank charges need to be reviewed before approved. In conclusion, in order to overcome the challenges, you will need good advisors to assist you.

Why companies should choose to enter/remain in the Cyprus market?

Cyprus tax system offers several advantages to businesses and non-domiciled shareholders. In addition, the tax system evolves and produces new specialized programs for a number of different industries as well as tax regimes to attract different industries and related business to choose Cyprus.
Additional incentives being the 50 percent exemption of income tax for high-earners willing to move to Cyprus, as well as minimum effective corporation tax rate of 2.5 percent for IT related companies.
Tax system is considered business-friendly, in general taxes are simplified and easy to calculate, assessing your tax position at any given time. The key benefit of a resident corporation is 12.5 percent corporation tax rate which is one of the lowest in Europe and complies fully with the EU legislation.
There is 0 percent tax on dividend income, and profits from disposal of shares, bonds, debentures or other securities.
Creating a limited company is a quick and straight forward procedure and there is no restriction in relation to the residence and nationality of the owner of the company and no limit exists in the location of the company’s operations.
In the last couple of years a number of individuals have decided to relocate to Cyprus to take advantage of the tax rates as well as the easy access to the European Union as well as to other countries.
Due to the relocation of several companies the country and its cities are being developed and constructed to be a main financial services hub, whereas attracting foreigner employees to relocate and live and work in Cyprus.
There are numerous double tax treaties with other countries in which companies registered in Cyprus can benefit from.
Cyprus is known for its highly skilled labour in the corporate services section offered by professionals, lawyers and accountants who are very experienced and providing a high quality service and advice.

In your opinion, how will Cyprus develop?

With an educated workforce, strong investment and sound fiscal policies Cyprus is set to repeat an economic miracle as the one achieved in the previous years. Further integration within the EU with the implementation of policies and access to the single market are set to enhance prosperity and transparency on the island.

Unfortunately, the negative financial consequences of the war between Russia and Ukraine have slowed down the financial development of the island and increased the inflation rapidly. It is now expected that in 2023 the GDP will grow steadily, and the inflation will decelerate enabling investments and further movement in all industry sectors. In 2023, with all Covid-19 restrictions lifted, it is expected that tourism will recover and fully utilize its capacity and potential as one of the main industry sectors of Cyprus economy.