Successfully investing in Cyprus

last updated on May 24, 2019

  

​​​​How do you assess the current economic situation in Cyprus?

The recovery of Cyprus since the 2013 economic crisis has been outstanding. However, a persisting problem is the large percentage of non-performing loans, especially household loans still not reassured by the banks. Α scheme has been laid out to protect primary homes, dubbed Estia which subsidises loan repayment of households (primary homes with a value of up to 350,000 Euro). There are fears this could result in a moral hazard for borrowers and banks. Cyprus is booming and 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 has been growing since 2015; the growth rate was 2.8 percent in 2016. For 2017, there has been a growth rate of 3.8 percent. The unemployment rate started falling in the first half of 2015, averaging 14.9 percent. In 2016, it fell further to 13.3 percent. Cyprus recorded the largest annual decrease in unemployment in August 2018, according to Eurostat, the statistical office of the European Union when it dropped from 10.5 percent in August 2017 to 7.5 percent.

  

How would you describe the investment climate in Cyprus and which industries have great potential?

Since 2015, there has been a positive investment climate. This was driven by the fiscal measures and incentives announced in 2015 and 2016, including:
  • Promotion of economic development. The country is the second fastest growing country brand worldwide (Brand Finance 2017);
  • Favoring 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

 

High potential industries that have proven to be resilient and have grown since 2015 include:
  • The ship management industry, which is being boosted by new ship registrations and the relocation of shipping and other services to Cyprus;
  • 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 center of the leisure and tourism industry has seen exceptional growth with the completion of important projects such as the Limassol Marina and other such facilities throughout the island;
  • The service sector;
  • 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 neighboring countries;
  • 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). The country is close to its goal for the generation of 16 percent of its Energy consumption by renewable sources by 2020. Interestingly Cyprus has become a new market for the import of PV panels from Germany, especially with their cost dropping and becoming more affordable for the wider public.

 

What challenges does a German entrepreneur have to master in 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). The DTA with Iran was recently signed;
  • 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;
  • The majority 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.

 

In your opinion, how far is Cyprus towards digitization?

Cyprus is progressing slowly in its digitisation, ranking 21st out of 28 EU member states in the Digital Economy and Society Index (DESI) for 2018.

 

However, there has been development steadily, albeit slowly. Cyprus has climbed by more than 15 points in the last four years. According to the European Commission, Cyprus performs well “in fixed, fast and ultrafast broadband coverage and in fixed and mobile broadband take-up” but still lags in supply and demand for e-government services. This has been picked up by the government and public institutions and a lot of services (for example submission of tax returns and services for companies) have been digitized and can be used online.

 

In terms of connectivity there is significant coverage of 4G network technology although Cyprus somewhat lacks behind in the rankings – there are plans to update this to 5G coverage.

 

With regards to the fields of science, technology, engineering and math (STEM) within the graduates joining the work force there is a low share and often sub-standard level of specialization regarding the industry’s needs. This is also true for IT Specialists.


These fields have been prioritized the past few years by the education ministry looking to improve educational outcomes.

 

In your opinion, how will Cyprus evolve, especially considering the Cyprus conflict?

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.

 

Cyprus is a divided island and has the only divided capital in the world. There have been many attempts in the past to find a solution that satisfies both sides of the conflict; its end will bring new opportunities, new challenges and uncharted territory to the united island. It is our belief that the benefits outweigh the costs, as Cyprus could become an “island of stability” in an increasingly volatile region. If reunification is well managed , the benefits of a larger economy, greater public and private investment outweigh the costs, as the entire island stands to gain from it.

 

Regardless of the outcome and outcome of the process, a united and a divided Cyprus will face many challenges. Similar to the challenges faced by reunified Germany, one of the biggest hurdles will be raising the economy and living standards - including infrastructure modernization, etc. – in the north to the level in the south of the island.
 
In addition to these challenges, a reunited Cyprus will also offer German companies the opportunity to be part of the economic growth that many economists and commentators expect from a united Cyprus.    


The status quo of an already small economy that is divided into two smaller economies amplifies the challenges – and potentially reinforces the increased per capita income gap between the Republic and the higher income economies of the EU.

 

If reunification is well managed, the benefits of a larger economy, greater public and private investment, and increased domestic and international trade could create many jobs across the island. Enhanced domestic connectivity for energy, transport, and water could generate about 1.1 billion Euro worth of investment opportunities within the next 2-3 years.

 

Such benefits can be reaped as long as it is accompanied by sound policy and institutional decisions, effective implementation, and careful management of the property issue.    

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Marios Loucaides

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