Celebrating its 25th anniversary Sovereign Trust is calling for more regulation in corporate services to ensure Cyprus’ role as a competitive jurisdiction.
What are Cyprus’ key advantages for your international clientele and how do you promote Cyprus as a jurisdiction?
A key advantage is Cyprus’ EU membership as many of our clients come from non-EU countries. Sovereign Trust has a strong base in the Middle East and we have offices in Dubai, Abu Dhabi and Bahrain. Many of our Cyprus office clients are also from the Middle East, but most are from Russia. Different regions are interested in Cyprus for different reasons. For the Middle East, a key interest is to establish a presence in the European market and Cyprus is an excellent gateway into the EU and the low corporate tax rate is a major benefit. Russia and the Ukraine mainly want to take advantage of Cyprus’ double taxation treaties. There have been many significant initiatives promoting Cyprus as a jurisdiction, such as the trust law amendment, which has made a big difference for us. We are still hoping for the licensing regulation of corporate services to be finalised, which would help in establishing the reputation of the jurisdiction.
What are the key services of Sovereign Trust?
Our key services are company formation and tax planning, but we also have additional services such as yacht registration, which provides support services for yacht owners including setting up an ownership structure and crew payroll. Cyprus recently introduced a new scheme, which allows Cyprus yacht owners to reduce the VAT rate on their vessels. Given the geographical location of Cyprus it can be assumed that a yacht will not remain in EU waters all the time, this allows for a lower VAT rate. Since the launch of the scheme an increasing number of yachts are being registered in Cyprus. The Limassol Marina project is also boosting interest in this service. A similar, but less publicised scheme for aircraft VAT is also being discussed. This is a more specialised niche service, but there is great interest from Middle Eastern and Russian clients. Sovereign also provides registration of trademarks worldwide and advice on suitable trademark programmes. Cyprus recently approved a new intellectual property regime that will see Cyprus evolve into a jurisdiction of choice.
What kind of an image and reputation does Cyprus have abroad and what type of queries or concerns are you receiving from your clients at the moment?
Cyprus has a good reputation as a jurisdiction. However, at the moment there has been a lot of uncertainty. Most of our clients are concerned about the banking crisis in Cyprus and the request for an EU bailout, but I am confident that the situation will calm down once the Troika negotiations and Presidential elections are over. Because of the current economic situation, good news is often overlooked such as the strong shipping industry and the licensing regulation being debated in parliament at the moment. Regulation on licensing corporate services is long overdue. Cyprus has managed to build a good reputation, but it only takes one bad case to destroy all the good work done so far.
What are the key challenges in your industry at the moment and how is your company attempting to tackle them?
The licensing regulation for corporate services needs to happen as soon as possible. As a jurisdiction you want to attract high quality business and transparency is a key factor in achieving this. Also in order to establish a good reputation and offer a sense of security to our clients, more regulation is needed in Cyprus. As a company we are vocal about this issue and have been delighted to see the great work done by the Cyprus Fiduciary Association, we hope to be a part of raising the standards of corporate services in Cyprus. Unfortunately the bureaucracy is still slowing down progress of these important initiatives supporting our industry, which is developing into one of the largest sectors of Cyprus’ economy. However, there are efforts to help speed up processes and it is encouraging to see Cypriot professionals and businesses taking a strong stand on these issues.
At the moment are you seeing a decrease in investor confidence or any withdrawal of funds or investment from Cyprus due to the economic crisis and Troika negotiations?
We haven’t experienced a huge loss of business, I think investors are holding their breath and waiting to see what happens before they make any big decisions. Some countries will do business in Cyprus no matter what the outcome, for example Russia and Ukraine favour Cyprus as a jurisdiction. The main concern is the uncertainty and we need decisions. We have had some queries about the security of investing in Cyprus to which we reassure clients that despite the current economic climate all the advantages of Cyprus remain valid. It is still a stable EU jurisdiction and it is business as usual. Cyprus is resilient and once the political and economic direction is clear we will see strong development in our sector.
In your view, is there any reason to fear that Cyprus’ corporate tax rate of 10 per cent, the lowest in the EU, will be increased?
I don’t think there is a genuine fear this would happen. The corporate services industry is one of the biggest sectors in the economy, soon overtaking tourism, and it would be detrimental to the country’s economy to undermine it by raising the corporate tax rate. As far as we know, this has not been proposed.
How does Cyprus compare with other international financial business centres and who are its key competitors? Where should Cyprus be looking for development ideas?
Cyprus is often compared to Malta, but they are not straightforward competitors. Jurisdictions are very different and it depends where your business is based and what type of business you are in, it is important that Cyprus keeps developing its own strengths. Ideas and lessons can be learned from many regions, but primarily it is good to look at other EU jurisdictions as they share much of the same legal framework.
What proactive steps do you feel should be taken in order to develop Cyprus into a stronger and more competitive jurisdiction?
Legislation and its successful implementation is the first step. Another question is how the Cyprus Securities and Exchange Commission will regulate our sector. There are two approaches, acting as an enforcer or having a dialogue and cooperating with the corporate services providers. I have seen the dialogue approach work well in Malta and Gibraltar, combining strict standards but leaving a path open for dialogue. It is important service providers feel they can approach the regulator with questions and concerns. Efficiency, more automated processes and decreasing bureaucracy are important aspects of making Cyprus more competitive.
Which countries are the major players in Cyprus in terms of international business and in your view who are the up-and-coming players? Which markets are you targeting at the moment?
Russia and Ukraine are major players, but China is still definitely an up-and-coming player and there is enormous potential to be explored. I am not sure how much bargaining power Cyprus has with China, which is a massive market, but there are definitely opportunities. However, Cyprus being an EU member and a gateway into European markets is a key attraction for many third countries, which makes it all the more important we finalise the regulation on licensing to secure the reputation and quality of Cyprus as financial business centre. Our four target markets are Russia, Ukraine, China and the Middle East. India is definitely a growing opportunity and as for interesting emerging markets, Israel is a priority for us. There are many mutual benefits with Israel due to the geographical proximity and the natural gas investment opportunities. There has also been an increase in Israeli investment in Cyprus.
How do you see your sector developing in the next five years both in Cyprus and globally?
There is an increasing international drive towards transparency and regulation, which will lead to better quality in the business. Cyprus has the infrastructure in place, which allows for great potential to further develop this sector. It will also be interesting to see if the leadership change in China will shift focus or priorities in our industry in the long-term.
What message would you like to send to the readers of CyprusProfile?
Cyprus has enormous potential and I am sure in the next five years we will be seeing growth despite these uncertain times. The current economic crisis has forced us to take a good hard look at ourselves and provides an opportunity to improve, an opportunity that should not be missed.
Latvian-born Baiba Saldovere has an MA in International Relations and Spanish from the University of Aberdeen, a Diploma in International Trust Management and is a member of the Society of Trust and Estate Practitioners (STEP). She launched her career with Sovereign Trust in 2007 at their Gibraltar office and became Managing Director of the Cyprus office in 2011.