Cyprus has spent decades building an economy based on the provision of top-quality services and with its strong shipping sector, thriving forex industry and burgeoning funds business the country has established itself as a key European services hub in the Eastern Mediterranean.
The extensive offering of business services continues to be a cornerstone of the Cypriot economy. The island has established itself as a leading provider of corporate structuring, international tax planning and other professional and financial services. Since gaining EU and eurozone memberships, in 2004 and 2008 respectively, Cyprus further 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.
Cyprus’ efforts to streamline its business environment have seen success, with the country jumping up 13 places in the 2016 World Bank’s Doing Business Report to a rank of 47 out of 189 economies for ease of doing business. An added convenience is that English is 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. With an EU and OECD-approved tax system and with 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.
Wide Range of Professional Services
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, despite being one of the smallest economies in the European Union. Although the country is still recovering from a recession, the professional services sector has proven formidable and grew by 5% on average in 2015, compared with 1% for the economy as a whole. Cyprus continues to offer one of the most business-friendly, international and cost-effective environments in the EU and with hydrocarbons exploration in its waters gaining momentum and drawing significant foreign investment, Cyprus’ energy know-how and service base are 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 and professional services providers have further strengthened the country’s position as a key corporate location. International companies were 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 tax frameworks in the EU and its legal system is based on Common Law. 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. The island already hosts hundreds of thousands of registered companies from across the world, attracted by its worldclass business services and preferential access to high-growth markets, its highly educated and multilingual workforce, advanced telecommunications and around 60 Double Tax Treaties (DTTs). An added benefit for foreign business will be the launch of a One Stop Shop in 2016, which will make the process of setting-up and investing 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.
Although maintaining its pole positon as a top holding and trading company jurisdiction, Cyprus’ comparative advantages are also strengthening 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 and a 20% exemption (subject to a maximum of €8,550 per annum) from income tax from any employment exercised in Cyprus by an individual who was not Cyprus resident before commencing such employment. 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, Bernard Shultz Shipmanagement and Wargaming have all established headquarters on the island. Evidence of the appeal of Cyprus as an HQ location is also the thriving forex industry as well as 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 burgeoning 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 2016 bank results have marked an end to the prolonged uncertainty and the sector is opening up to new opportunities and attracting significant foreign investors. 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. International banks have long been attracted to the island for its fiscal regime and to use Cyprus as a launch pad into high-growth markets. 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 planning, 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.
Sophisticated Wealth Solutions
An increasing number of highnet- 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 with 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 with updated legislation set to come into play in 2016 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.
Cyprus has 34 insurance companies offering a wide range of services and products for both individuals and international business. Considering the size of the country, this is a substantial number, and 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. Total life and non-life premiums reached €699.3 million in 2014 and with the sector constituting only 4.5% of GDP (UK 9%), there is room for growth 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, FXPro and IronFX. 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 EU directives and 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 2015, 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 the best brokers in the business, such as 24Option, Banc de Binary and OXMarkets, 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 in 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 consequence 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 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.
An Attractive 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. Business service fees are competitive and the quality 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 economies 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. Its sophisticated business infrastructure, advantageous and transparent regulatory environment coupled with the current structural reforms is set to further boost Cyprus’ reputation as an international centre of business excellence.