The rapid economic turnaround of Cyprus has been hailed a European success story and with growth gaining momentum the country is determined to up its game.
Cyprus has seen a boost in confidence with foreign investors flocking back to its shores, attracted by the improved economic climate, large scale projects, privatisations and its strong probusiness culture. Located in the Eastern Mediterranean at the crossroads of Europe, the Middle East and Africa, Cyprus’ strategic position has always played a key role in shaping its 10,000-year history and in developing the island into a convenient centre for trade and international business. Despite being a country of only 848,300 people, the Republic of Cyprus has steadily built itself into a thriving business centre over the decades. The EU-compliant domicile has one of the highest educated populations in Europe, a low-cost business environment with a wealth of support services, a sophisticated ICT infrastructure and an investor-friendly tax regime – backed up by an extensive network of double taxation agreements with 60 countries. Not only is Cyprus a developed business hub, but also one of Europe’s favourite holiday destinations, offering a perfect balance between business and leisure.
The island enjoys an astounding 340 days of glorious sunshine a year and boasts a beautiful coastline teeming with stretches of golden sand, secluded bays and rocky coves, all surrounded by some of the cleanest beaches and waters in the Mediterranean Sea. The landscape is dotted with the fascinating remains of history, from Neolithic settlements and ancient city-kingdoms to exquisite Byzantine art and magnificent Venetian architecture.
People & Culture
While Cyprus is a Greek-speaking nation, English is almost universally spoken and is the language of international business. German, French and Russian speakers are also easily found, thanks to the high number of Cypriots with international degrees, the country’s commercial ties with the global business community, and the island’s popularity as a tourist destination. Cyprus is well known for its hospitality, a fact reflected in the Greek word, xenos, used for both stranger and guest. Life is meant to be enjoyed in Cyprus, which is renowned for its excellent quality of life. Cafe culture predominates, with both business and social meetings taking place over a leisurely frappe (iced coffee) in the numerous cafes in every town and city. As with most Mediterranean cultures, food also plays a vital role and the famous Cyprus meze – a large selection of small, delectable dishes – is best enjoyed siga siga (slowly), al fresco and accompanied by excellent local wine.
Cyprus has a resilient economy that has time and time again proven its capacity to adjust to continuously changing conditions and bounce back from external shocks. Before its independence from the UK in 1960, the Cyprus economy was primarily based on agriculture and the export of minerals. However, in the last few decades the country has established itself as a serious international business and service centre for shipping, financial services and commerce, and is classified by the World Bank as a high-income country. The island’s accession to the EU in 2004 with the subsequent adoption of the euro in 2008, was the catalyst for its transformation into a competitive financial and business services hub. Following the country’s financial crisis in 2013, Cyprus undertook a major reform agenda and albeit still facing some economic challenges, the small EU nation has demonstrated incredible resilience and an ability to bounce back to growth. The year 2015 signalled a sooner-than-expected exit from recession and a return to growth, with the European Commission forecasting the Cyprus economy to grow 2.8% in 2016 and 2.5% in 2017. The island’s international financial centre did suffer a blow in the wake of the crisis, but with robust restructuring to clean up the banks’ balance sheets and build stronger institutions with better supervision, the country is already reaping the rewards with bank deposits on the rise. Cyprus has certainly retained and strengthened its reputation as an attractive investment gateway to the EU and other high-growth markets, as well as a secure base to tap into opportunities in the Middle East. Offering a tax-efficient EU company domicile, the country is also now emerging as a compelling destination for regional headquarters as well as an attractive location for fund managers and promoters.
Emerging Investment Fund Jurisdiction
Ongoing improvement of Cyprus’ regulatory framework on investment funds is expected to substantially contribute to the growth of the sector and the economy. Upgraded legislation for alternative investment funds is set to be implemented in 2017 and the number of funds is expected to surge. This sector has the potential to develop into a multi-billion-euro industry, and the island is currently emerging as an interesting EU-regulated jurisdiction for the global asset management industry. Today, the majority of alternative investment funds in Cyprus are of a small- and medium-size and focused on debt and equity securities, real estate and private equity. However, Cyprus has also attracted larger funds including one with assets of €500 million under management. The number of alternative investment funds has doubled in the last five years and foreign UCITS are now widely marketed in Cyprus, including ones promoted by international financial institutions such as JP Morgan, UBS and Julius Baer.
Influential Shipping Hub
A major success story for Cyprus has been the maritime sector, which accounts for €1 billion in annual revenue and around 7% of the island’s GDP. Apart from offering shipmanagement and business services to the industry, the Cyprus Registry is classified as the third largest fleet in the European Union and for years has been ranked as one of the top ten largest merchant fleets in the world. The sector has seen growth in the past few years and Cyprus is currently looking at restructuring the commercial shipping sector to strengthen its competitive edge. Since introducing an advantageous EU-approved tonnage tax system in 2010, the island has continued to attract increasing numbers of shipping companies from across the world. The country’s maritime capital, Limassol, is home to some of the most influential names in shipping today.
For decades, tourism has been a key driving force of the Cypriot economy, and 2016 saw another consecutive year of record-breaking numbers of tourist arrivals. New projects currently underway are set to strengthen and upgrade Cyprus’ tourism product and encourage more year-round visitors, a strategy Cyprus is fully committed to. These projects range from the construction of new golf courses, luxury marina developments and the upgrading of the island’s wellness and medical tourism product. A new and exciting prospect is the development of the Republic’s first-ever luxury casino resort, which attracted investors from across the world. The integrated resort will exceed five-star status, opening a whole new market for niche tourism on the island. Tourism numbers are expected to see yet another boost this year with the coastal town of Paphos, the legendary birthplace of Aphrodite, and UNESCO world heritage site, having won the international competition to become the European Capital of Culture for 2017.
Regional Energy Player
Apart from the sun and the sea, Cyprus has few natural resources and has been dependent on oil imports to satisfy its energy demands. However, the substantial discovery of natural gas and potential oil deposits in Cyprus’ Exclusive Economic Zone (EEZ) in the Mediterranean Sea is expected to change all this. Drillings by US company Noble Energy confirmed natural gas reserves of 4.54 trillion cubic feet (tcf) – enough to meet Cyprus’ domestic gas demand for over 100 years – and has attracted international energy heavyweights, such as Total, Eni, Kogas and Exxon Mobil, to explore the island’s waters for new discoveries.
Real Estate Renaissance
Cyprus is highly attractive to real estate investors and has long been a magnet for international buyers – establishing the real estate and construction sector as an important component of the island’s economy. With new up-market developments, increased foreign investment in top hotels and major infrastructure projects springing up, Cyprus’ attractiveness as a property investment location is set to grow in the coming years. Also the fall in property prices and recently introduced incentives make this an opportune time to invest and buy real estate in Cyprus.
Boost in FDI
The improved economic climate has revived interest in Cyprus and its numerous large-scale development projects. Most capital, predominantly coming from Greece, Russia, the US and UK, has been invested in the real estate, banking and wholesale trade sectors, but the 2013 economic crisis opened new opportunities. Privatisations were of particular interest, with a consortium led by German Eurogate International GmbH – the largest container company in Europe – winning the concession of Limassol Port’s container terminal, generating €44 million in immediate revenues. Luxury marinas have also become a popular investment, with Paphos going ahead with a €400 million mixed-use waterfront marina resort and Egyptian billionaire, Naguib Sawiris, investing in the €220 million project to construct the new Ayia Napa marina. A key development in 2016 was the launch of Cyprus’ first-ever Science and Technology Park (STP), which provides strategic investors with an interesting opportunity to finance, design, build and manage the landmark project. The planned STP will create facilities tailored for science and technology companies, as well as promote business incubators to expand the range of opportunities for research and development investment. Cyprus’ liberalised Foreign Direct Investment Policy, both for EU citizens and investors from third countries, along with its favourable tax regime makes it one of the most attractive centres for FDI in Europe.
A Strong Future
With its economy on an upward trajectory, Cyprus has all the right elements firmly in place to maintain its reputation as an international centre of business excellence in one of Europe’s most interesting investment locations. The country combines numerous advantages as a business base with its EU-approved tax regime, competitive 12.5% corporate tax rate, its pro-business government and highly skilled workforce. Offering a professional yet relaxed atmosphere that makes doing business pleasurable as well as profitable, Cyprus’ Mediterranean lifestyle coexists happily with a cutting-edge international business hub, allowing investors to enjoy the best of both worlds: a safe and secure environment for family life and a sophisticated infrastructure from which to grow and develop business.
Updated: March 2017