The extensive offering of business services continues to be a cornerstone of the Cypriot economy. Its strong shipping sector, thriving forex industry and burgeoning funds business have established the country as a key European services hub in the Eastern Mediterranean.
Cyprus has spent decades building an economy based on the provision of top-quality professional services, and is recognised internationally as a leading provider of corporate structuring, international tax planning and other financial services. It has certainly proven its relevance as it continues to be one of the fastest growing sectors, rising by 6% in the first three quarters of 2016, building on its success in 2015, when it grew 4.5% compared with 1.7% of the economy as a whole.
Since gaining EU and eurozone memberships, in 2004 and 2008 respectively, Cyprus has constantly enhanced its appeal and transformed from an outpost into a key services hub in the Eastern Mediterranean, serving as a business bridge between Europe, the Middle East, Africa and Asia. The country’s efforts to streamline its business environment have seen success.
The added convenience of English as the business language and the internationally-trained service providers – mostly educated in the UK or the US – have created a global outlook in the local industry to best serve their clients worldwide. As a stable and neutral country, coupled with an EU and OECD-approved tax system and one of the lowest corporate tax rates (12.5%) in Europe, Cyprus has become one of the most attractive international business centres in the region.
At Your Service
With over 80% of the economy based on services, Cyprus has a wide range of expertise and experience to cater to the needs of international business. For companies and individuals requiring an ideal location to structure their investments into Europe, the Middle East and Africa, as well as Russia and Eastern Europe, Cyprus offers unique benefits that have already attracted thousands of companies.
Key activities include international business structures such as holding and finance companies, shipping companies, forex and investment firms, trusts and investment funds. The most dominant activities include using Cyprus as a holding and finance company jurisdiction, thanks to the numerous tax benefits provided under Cypriot law. Cyprus has proven itself a resilient and dynamic business centre, and although it is one of the smallest EU member states it has one of the fastest growing economies in the European Union.
The country continues to offer one of the most pro-business, international and cost-effective environments in Europe and with hydrocarbons exploration in its waters gaining momentum and drawing significant foreign investment, Cyprus’ energy knowhow and service base are also set to expand further.
Cyprus’ geographical location and thousands of years of trading with its neighbours has shaped the country into the strong contender it is today. Since gaining independence from Britain in 1960, Cyprus focused on laying the groundwork to establish a services-based economy. Over the years, its favourable regulatory regime, experienced law firms, accountants – including the long-standing presence of the ‘Big Four’ audit firms – and professional services providers have further strengthened the country’s position as a key corporate location. International companies have been quick to identify the opportunities of setting up corporate structures in Cyprus and using the country as a launch pad to manage their investments.
As a jurisdiction, Cyprus has various unique characteristics. It has one of the most advantageous EU tax frameworks and its legal system is based on English Common Law. Cyprus follows the International Financial Reporting Standards (IFRS), and its legal system is fully compliant with the EU, the Financial Action Task Force on Money Laundering (FATF), OECD, FATCA, the Financial Stability Forum laws and regulations and EU AML directives.
The island is part of the EU, the eurozone and the Commonwealth and has the advantage of being positioned strategically between three continents – Europe, Africa and Asia. Cyprus already hosts hundreds of thousands of registered companies from across the world, and today registers over 1,000 companies per month.
Foreign businesses have long been attracted to the jurisdiction for its world-class business services and preferential access to high-growth markets, its highly educated and multilingual workforce, as well as its advanced telecoms and Double Tax Treaties (DTTs) with 60 countries. An added benefit for foreign business will be the launch of a One Stop Shop and efforts by the Registrar of Companies to reduce the time to set up a company to one day, which will make the process of doing business in Cyprus even more efficient.
Holding & Trading Companies
Cyprus continues to be one of the leading jurisdictions used by blue-chip corporations and corporate planners to establish holding, trading and investment companies to channel investments into key markets worldwide.
The current double tax treaties include most major Western ‘high-tax’ countries, Russia, the majority of Central and Eastern European states, China, Iran and India. The popularity of the Cyprus Company has seen the jurisdiction grow to be one of the largest single foreign investors in Russia, Ukraine and India, and is uniquely used by local and foreign investors as a key pillar in their investment planning and tax strategies.
In addition to maintaining its pole position as a top holding and trading company jurisdiction, Cyprus’ comparative advantages have also strengthened the country’s status as an attractive headquartering location – especially with the global changes in regulation and the increasing demand for companies to create business substance.
An added benefit to the country’s offering is the launch of new legislation and tax incentives for high-net-worth individuals and high-earning expat executives, providing a 50% exemption on personal income tax for those earning more than €100,000. Many multinationals already use Cyprus as an administration, sales and marketing centre to manage and launch their products or services into regional markets.
Companies such as NCR, Kardex, Weatherford, AMDOCS, BS Shipmanagement and Wargaming have all established headquarters on the island. Evidence of Cyprus’ appeal as an HQ location is also the thriving forex industry and the strong shipping sector. The success of shipping, an industry which contributes approximately €1 billion each year to the economy, has also developed clusters and auxiliary services – a model that could be successfully replicated for the budding oil and gas sector.
Cypriot banks have demonstrated their resilience in the wake of the financial crisis and most industry professionals believe the overhaul of the industry and its institutions has produced a more efficient banking sector. Successful recapitalisations, credit rating upgrades and positive bank results have marked a new beginning for the sector, which is opening up to expanding opportunities and attracting significant foreign investment.
Cyprus’ banking sector is comprised of two tiers: domestically-oriented banks and international banks. The main domestic credit institutions include Bank of Cyprus, Cooperative Central Bank, Hellenic Bank and RCB Bank. The list of banks of foreign origin in Cyprus consists of around 30 institutions, which mainly carry out international banking business and have limited interaction with the domestic Cypriot economy.
Banking in Cyprus is regulated by the Central Bank of Cyprus and the European Central Bank, and is fully harmonised with EU legislation and directives, while commercial banking arrangements and practices follow the British model.
Favourable Trust Regime
With an industry valued at more than €1 trillion globally, the importance of trusts in financial planning is undeniable. Cyprus has one of the most modern and favourable trust regimes in Europe and with an updated legal framework, the Cyprus trust has become an instrument of choice for many wealth advisors.
The Cyprus Trust can be used in a range of international structures, because it is flexible enough to accommodate the objectives of the most demanding client. These include: discretionary trusts, fixed trusts, trading trusts and purpose trusts.
The main uses for Cyprus Trusts include asset protection, estate and tax planning, charitable/ purpose, confidentiality, wealth management/ investment, share ownership/pension fund, insurance and protection against exchange control. Cyprus has a liberal tax system, under which the income of an international trust is tax exempt as long as it is earned outside of Cyprus.
Refined Wealth Solutions
An increasing number of high-net-worth individuals are discovering Cyprus as the ideal place to live and work, through a number of flexible and competitively priced structures combining investment flexibility with tax advantages. Cyprus is also attracting wealthy individuals wishing to relocate to the island and take advantage of favourable citizenship and residency schemes. With an extensive banking network and the availability of a variety of investment vehicles, Cyprus is a natural hub for wealth management and family offices.
As one of the most valuable assets for businesses, choosing the right Intellectual Property (IP) regime is becoming increasingly vital. With an effective tax rate of 2.5%, Cyprus offers one of the most attractive IP locations in the EU. The IP Box Scheme is a package of incentives and tax exemptions for income from intellectual property rights, intended to encourage investment in research and development.
The Cyprus corporate income tax rate at 12.5% would normally apply to 100% of net profits produced. However, following the applicable tax exemptions, only 20% of the profits will be taxed. Cyprus’ efficient IP tax regime coupled with the protection offered by EU and all major IP treaties and protocols to which Cyprus is signatory, establishes the country as a highly attractive jurisdiction for the acquisition or development of IP assets.
Cyprus’ investment fund sector is poised for growth with the modernisation of its regulatory framework and updated legislation set to come into play in 2017. The number of funds is expected to surge and the sector has the potential to develop into a multi-billion-euro industry.
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 focus 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 funds under management has already tripled in the last five years reaching around €3 billion, and foreign UCITS are widely marketed in Cyprus, including ones promoted by international financial institutions such as JP Morgan, UBS and Julius Baer.
Cyprus has numerous big-name insurance companies offering a wide range of services and products for both individuals and international business. Although this sector has traditionally been more focused on the local market, the industry is increasingly looking at expanding cross-border business and synergies to establish Cyprus as a gateway into neighbouring markets. Deposits maintained by insurance businesses and pension funds remained at similar levels in 2016 and 2015, at €1.94 billion and €1.96 billion respectively.
There is room for growth in the sector and the potential for Cyprus to develop into an insurance hub and a convenient regional headquartering location for international insurance companies. Cyprus has also made pension reform a key aspect of its national structural reform programme in a bid to streamline benefits, address weaknesses and to boost competitiveness and growth.
For more than 20 years, Cyprus has been the jurisdiction of choice for Foreign Exchange (Forex) brokers and the country hosts a thriving industry and headquarters for many global giants such as FXTM and FXPro. The last decade has seen particular growth in the number of retail forex brokers locating their operations to Cyprus, thanks to low corporate tax rates and the country’s excellent infrastructure.
Another key advantage is Cyprus’ efficient regulatory framework under the supervision of the Cyprus Securities and Exchange Commission (CySEC), which is fully aligned with European MiFID regulations. Cyprus was the first in the EU to regulate the foreign exchange market and CySEC is credited for attracting foreign investors to set up Cyprus Investment Firms (CIFs). CySEC-regulated CIFs have multiplied from just 18 in 2003 to over 200 in 2016, while also expanding in size and types of investment services. The total volume of CIFs transactions at the end of 2014 amounted to more than €7 trillion and their total assets topped €21 trillion, which demonstrates the scale and growth of the sector.
As a result, the contribution of CIFs to the Cyprus economy is substantial, providing valuable employment opportunities and enhancing local expertise in the provision of investment and ancillary services. With years of expertise and advanced infrastructure in electronic platforms, which have also contributed to the building of a successful binary options business, Cyprus offers strategic advantages that have positioned it among the most attractive destinations for international forex business.
Cyprus is the world’s top regulator of binary options with some of the best brokers in the business operating from the country and licenced by the Cyprus Securities and Exchanges Commission (CySEC). The key to the country’s success in attracting binary options brokers to locate to Cyprus can be attributed to the fact that CySEC was the first financial regulator to include binary options in the MiFID definition of financial instruments and as a result regulate the investment firms offering this product.
Today, Cyprus’ binary options laws and brokers are some of the best in the world, and the jurisdiction continues to upgrade regulation and attract increasing numbers of firms seeking a CySEC license. As part of its continuous effort to enhance information disclosure, investor awareness and to improve supervision, CySEC has decided to formally bring binary options under its supervision, with the purpose of ensuring the maximum possible degree of investor protection.
The Complete Package
Companies have long been attracted to Cyprus for a number of factors, and not all are tax-related. Cyprus has a high-quality of life, excellent infrastructure and the lowest crime rate in Europe. Fees are competitive and the quality of service is internationally recognised.
Thanks to its location, Cyprus also enjoys business-friendly time zones, enabling international companies to do business with the East in the morning, Europe throughout the day and with the West in the afternoon. The country has a fully digital national network and a reliable, high-speed connectivity to other jurisdictions via satellite and fibre optic submarine cable systems. Its modern road network, extensive port facilities and two international airports, make travel and transport in and beyond Cyprus fast and economical.
Cyprus’ offering of specialised and internationally recognised services, unrivalled access to key markets along with rewarding business opportunities has proven attractive for decades and continues to cater to the diverse needs of international companies and individuals – solidifying Cyprus’ reputation as an international centre of business excellence.
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Updated: May 2017