Cyprus alternative investment funds represent a sound link for investments in and out of Europe, and the country offers a transparent legal and regulatory framework, tax incentives and a comparatively higher standard of living, says Michael J. Hadjihannas.
Could you give a brief overview of HPA, its core business and services?
FinExpertiza Cyprus HPA (Hadjihannas and Partners Accountants Limited) is a licensed audit firm, registered with the Institute of Certified Public Accountants of Cyprus (ICPAC). Individually, directors of the firm are also licensed auditors registered with ICPAC. Our firm provides a wide range of services to clients from various countries in the field of audit, accounting, tax, financial consulting, risk management, formation of a new business, internal control, IFRS and business valuation. In March 2016, our firm became a full member of the FinExpertiza Network, a rapidly growing organisation, currently covering Russia, Eurasia and North Africa. The Network is among the top three biggest international audit and consulting networks operating in Russia in terms of revenue, according to the regional rating of International Accounting Bulletin.
What are the key priorities of your firm?
A consistent key priority for us is to serve our clients to the best of our abilities, and to provide them with our utmost attention and highest quality of service, in a time where the economic environment is unstable in many parts of the world. As their advisors, we must stay informed in this ever-changing economic era, by keeping up to date with relevant news and recent developments in our sector, following and adopting the Institute of Certified Public Accountants of Cyprus (ICPAC) requirements and EU regulations.
What key developments are currently affecting the corporate and financial services in Cyprus?
The truth is, right now there are many question marks, not only regarding the economy in Cyprus but in general as well. Seeing how an entire economy is managed and sustained on both the micro and macro level, we must identify the main contributors and how they affect the economic climate in general.
Starting with the foreign investments, it is worth mentioning that the Scheme for Naturalisation of Investors in Cyprus has brought in close to €4 billion since it commenced in 2013. Also, there is an increase of foreign investment in the past decade, coming from Eastern European countries, mostly from Russia. Hence, any changes in the Russian economy and their internal policies influence our economy. For example, President Putin's de-offshorisation law has made significant changes since January 2015, affecting structures that have no business substance outside of Russia.
This could lead to companies setting up fully-fledged offices in Cyprus, which would also benefit the commercial real estate sector as well as the wider economy of the country.
Another major change in our economic environment is the increase of requirements in compliance. We must keep in mind that one of the targets of the requirements increase in compliance is to make things easier, rather than harder. These procedures have been put in place to help clients structure their businesses better. The best we, the professional service providers, can do for our clients is to be prepared to address the changes and challenges, stay informed and ensure processes and policies are in place.
Finally, the Trump Administration has caused a stir as the new US President Trump has been known to be in favour of working out the issues with Russia and is open to lifting sanctions, initially imposed by the US in March 2014, and by the EU in July of the same year. The sanctions have recently been prolonged by the EU until July 2017. Also, the trade between both China and the EU with the US is expected to decrease as the President gives advance to domestic production, which will also have a significant impact on a global scale.
Although still at the beginning stages of building a fund industry, what are Cyprus' key advantages and which markets should it target?
With an investor-friendly government, excellent geographical position and a highly educated workforce, Alternative Investment Funds (AIFs) seem like a logical outcome for Cyprus' finance industry. There are over 3,500 registered accountants and just as many registered lawyers, in addition to fund administrators and custodians, ready to take part in the evolution of professional services. Since the AIFM Law of 2013 and the AIF Law of 2014, the AIFs represent a sound link for investments in and out of Europe and, in addition to being a regional and international business hub, Cyprus offers transparent legal and regulatory framework, tax incentives and comparatively higher standard of living.
What are your expectations for your sector and the Cyprus economy in 2017 and the next five years?
As a small economy, we have internal issues and we are just as much affected by the decisions of the three key players – Russia, the EU and the US. We live in turbulent times and the best we can do for our business and our clients is stay on top of these situations, be informed and look beyond, because any of these factors could be detrimental for the economy of Cyprus. With an uncertain economic climate in general, any long-term prognosis would be potentially inaccurate – as mentioned, we intend to stay focused, follow through with the new compliance processes and, apart from keeping up to date with the changes our main influencers are going through, also consider penetrating potential new markets, which could be China, or Turkey, given the Cyprus Solution is finalised on mutual benefit. We believe that we should not put ‘all our eggs in one basket' and that we should focus on a strategy in which we can benefit, regardless of the outcome. With a market economy built on the financial services sector, which accounts for more than 70% of GDP, our economy is relying heavily on one source of income and we need to diversify as a country, improving other sectors of the economy, such as the energy sector. There is only so much we can control and influence, being at peace with what we can and cannot control is of great importance, as it will help us identify and focus on having not only a plan B, but also a plan C, and avoid being so dependent on income from financial services.
Michael J. Hadjihannas is the Founder and Managing Partner of FinExpertiza Cyprus HPA, specialising in audit and assurance, business advisory, international tax planning and financial due diligence services. Michael became a qualified member of the ICAEW as a Chartered Accountant in 2011, during his tenure with KPMG, and has earned the Advanced Diploma in International Taxation in 2015. He graduated from Royal Holloway University of London in 2006, earning a BSc degree in Management with Accounting and has obtained MSc in Risk Analysis at King’s College London in 2007. Michael is an active supporter of Cyprus Red Cross Society and the President and Founder of Penya Barcelonista de Nicosia, the official FC Barcelona supporters club in Cyprus.