Successfully investing in Cyprus

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last updated on 27 May 2020 | reading time approx. 6 minutes

 

 

 

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 – 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 recognised that Cyprus accomplished to stabilise its banking system and record a robust growth with IMF expecting 3 per cent growth rates in 2020 pre Covid-19 crisis.

 

As per the International Monetary Fund (IMF) the GDP is projected to result to 6.5 per cent as a result of the policies taken worldwide to contain the Covid-19 pandemic. The economic situation is expected to be affected, although the effects are still unknown and cannot be measured now.

 

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) as well as start-ups.

 

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 per cent – boosting the sector’s revenue by 25 per cent. 
  • The construction industry with a large amount of both commercial and residential projects being undertaken in all major cities of Cyprus. The city 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 per cent of the total transaction value of real estate in Cyprus in 2018. Half of the properties were sold to foreigners and only 33 per cent were sold to EU buyers.
  • 80 per cent of the Cyprus’ economy is 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. A liberalisation of the electricity market is expected 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 of 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.
  • Filming in Cyprus was initiated as a promising sector. The Cyprus government introduced a package of incentives encouraging international producers to choose the country as their next filming destination. In specific, production companies that opt to film in Cyprus will be able to choose between cash rebate or tax credit and can also benefit from tax discounts on investments made on equipment and infrastructure, and VAT returns on expenditure in scope.
  • Another sector, which is booming in the last couple of years is education. Cyprus is a world-class educational and research centre of excellence with high quality academic institutions, offering a large variety of advanced and fully accredited undergraduate and postgraduate programmes, at affordable cost. The Educational sector comprises of 3 public and 5 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. 

 

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 provide 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.
  • As a robust and modernised 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. Therefore 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).
  • The country has a 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 per cent. 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 per cent. 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.

 

Cyprus, together with Greece and Israel, has concluded an agreement on the construction of a natural gas pipeline in the eastern Mediterranean. What is your assessment of the project for the economy of Cyprus?

On 2 January 2020 Greece, Cyprus and Israel signed a deal to build a 2.000 km (1.243 mile) subsea pipeline to carry natural gas from the eastern Mediterranean’s rapidly developing gas fields to Europe. The 2.000 km (1.243 miles) EastMed pipeline is intended to provide an alternative gas source for Europe, which is currently largely dependent on supplies from Russia and the Caucasus region. As now designed, the pipeline would run from Israel's Levantine Basin offshore gas reserves to Cyprus, Crete and the Greek mainland. An overland pipeline to northwestern Greece and another planned undersea pipeline would carry the gas to Italy.

 

The project, with a rough budget of 6 billion United-States dollar, is expected to satisfy about 10 per cent of the European Union's natural gas needs. But it also is fraught with political and logistical complexities. Turkish President Recep Tayyip Erdogan has said that no project can proceed without his country's consent following a maritime border agreement that Ankara signed with Libya's Tripoli-based government.

 

The Cyprus government has licensed Italian energy company Eni, France's Total, and the United States companies ExxonMobil and Noble Energy to carry out exploratory hydrocarbons drilling in the country's offshore economic zone – which is again fought against by.

 
Thus, the project is highly dependent on the political complexities involved and outcomes from agreements between Greece, Cyprus, Israel and Turkey. If the project goes forward it can be proven very profitable for all countries involved. The economy of Cyprus can benefit from the current sector as additional jobs will be created and income will be inflowed to the country.

 

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 20th century. Further integration within the EU with the implementation of policies and access to the single market are set to enhance prosperity and peace on the island.

 

The Covid-19 outbreak has put a stop in the financial development of the island, although the measures imposed by the government are expected to assist the economy to easily recover from the lockdown financial crisis.

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