Cyprus is going through exciting times of growth and development thanks to a renewed boost in confidence with foreign investors flocking back to its shores, attracted by the improved economic climate, large-scale projects and bourgeoning prospects in the real estate, investment fund and energy sectors.
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 854,800 people, the Republic of Cyprus has steadily built itself into a thriving business centre over the decades. An EU and eurozone member for over a decade, and with one of the highest educated populations in Europe, Cyprus has built a strong service-based economy. It’s low-cost business environment with a wealth of support services, a sophisticated ICT infrastructure and investor-friendly tax regime – backed up by an extensive network of double taxation agreements with 64 countries – has developed Cyprus as an important European and regional financial and business services hub. The country is also one of Europe’s favourite holiday destinations, enjoying 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. Add to this the vibrant and cosmopolitan lifestyle where East meets West, Cyprus offers the perfect balance between business and leisure.
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 in family and social life. 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.
Growing EU Economy
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 in- credible resilience and an ability to bounce back to growth. The year 2015 signalled a sooner-than- expected exit from recession and a rapid economic turnaround followed, with 2017 recording almost 4% growth – earning Cyprus praise as an economic success story. The island’s international financial centre did suffer a blow in the wake of the crisis, especially to its reputation, but today the country stands tall with recapitalised and stable banks and stronger institutions with better supervision. Consistent credit rating upgrades have further boosted confidence and foreign direct investment has been pouring into all key sectors, with 2014- 2016 FDI in flows reaching €9.1 billion. Cyprus has retained and strengthened its status 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 increasingly attractive location for fund managers and promoters.
Booming Investment Fund Sector
Cyprus has big ambitions in the investment funds sector to establish itself as a contender in the global asset management industry – and with upgraded legislation, assets under management (AuM) and the number of funds steadily growing, the country is well on its way. AuM in Cyprus stood at €4.8 billion in March 2018 and are projected to reach an incredible €20 billion in the next five years provided the current rate of growth continues. Cyprus offers both EU-regulated Undertakings of Collective Investment in Transferable Securities (UCITS) and Alternative Investment Funds (AIFs). In July 2018, the country upgraded its AIF framework and introduced Registered AIFs (RAIFs), which do not require authorisation by the supervising Cyprus Securities and Exchange Commission (CySEC) to commence operations provided they are externally managed by an Alternative Investment Fund Manager (AIFM) based in Cyprus or another EU country. The upgraded legislation has been hailed ‘ground-breaking’ and offers a significantly more time- and cost-efficient means of establishing AIFs in Cyprus. 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 alternative investment funds has more than 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.
Global 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 was ranked as one of the top 10 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. With Greece still trying to overcome its economic woes and with a looming Brexit in 2019, increasing numbers of shipmanagers and owners are relocating their operations to Cyprus.
Tourism Breaks Historic Records
Tourism has been a key driving force of the Cypriot economy for decades, and 2017 saw another consecutive year of record-breaking numbers of tourist arrivals and revenue – and so far, 2018 numbers project yet another year of consistent growth. 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 current construction of the Republic’s first-ever luxury casino resort. The €550 million integrated resort, run by a consortium with renowned Hong Kong player Melco, will exceed five-star status and open a whole new market for niche tourism on the island.
Regional Energy Hub
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. Exploratory drillings by global energy giants have confirmed natural gas reserves that could meet Cyprus’ domestic gas demand for over 100 years, and a surplus for export. The hydrocarbons race in Cyprus’ waters has attracted international energy heavyweights, such as Total, ENI, Kogas, Royal Dutch Shell, and Exxon Mobil to explore the island’s waters for new discoveries and multiple auxiliary services companies have set up to support these efforts. With 340 days of sunshine to harness, solar energy has also become a bit of a boom segment for Cyprus recently. The European Bank for Reconstruction and Development (EBRD) alone has financed five solar parks across the island with an investment of €10.85 million in a bid to increase photovoltaic capacity in Cyprus by 12%, while Scandinavian Solar Parks, a Cyprus company with Swedish investors, has established nine solar power generation parks. In addition, a solar field on the island’s southern coast in Pentakomo aims not only to generate electricity but to provide fresh water by powering energy intensive desalination plants. The research facility is a result of a partnership between the Commonwealth Scientific and Industrial Research Organisation (CSIRO) and the Cyprus Institute, which is pioneering research in renewable energy systems.
Rise in Real Estate
Confidence levels in the Cyprus real estate sector have been steadily rising with 2016 and 2017 showing strong market performance, and the upswing continuing straight through to 2018. Major projects are forging ahead with more planned and in the pipeline, and residential housing projects as well as luxury developments are back in demand. In fact, 2017 saw an impressive 45% increase in sales contracts for high-end residential properties. Cyprus’ appeal has remained strong amongst international investors, expats and retirees thanks to its Mediterranean climate, high quality of life and safety, as well as its status as an EU member state conveniently located between three continents. Interest from foreign house hunters and investors has once again become a driving force of the sector, and real estate prices are finally recovering. Cyprus has one of the highest home ownership rates in Europe and also has a longstanding market for second homes and holiday villas, making the economy heavily reliant on the sector, which contributed 14% to Cyprus Gross Value Added (GVA) in 2017. 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.
The improved economic climate has revived interest in Cyprus and its numerous large-scale development projects. Most capital, predominantly coming from Greece, Egypt, Lebanon, Russia, the US and UK, has been invested in the banking, wholesale trade and real estate sectors. The banking sector has seen more consolidation in 2017-2018 through major acquisitions. Hellenic Bank acquired the ‘good’ assets of the Cyprus Cooperative Bank, a group of international investors acquired the majority stake of the Cyprus subsidiary of Greece’s largest lender Piraeus Bank, now branded AstroBank, which in turn is finalising a deal to acquire the operations of USB Bank. As for real estate, Limassol in particular has seen a boost in investment that is set to reconfigure the city’s skyline to the likes of Dubai with new innovative high-rises reaching for the sky along the city’s seafront. Over the last few years, privatisations were of 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 become a popular investment, with Egyptian billionaire Naguib Sawiris investing in the €220 million project to construct the Ayia Napa marina. Also, the new casino resort is expected to contribute €700 million annually to the economy from the second year of being fully operational, revenue which is projected to be 4% of the country’s GDP. 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, and evidence of this came in 2018 when Cyprus was ranked 8th out of the top 20 countries globally for FDI performance and appeal in Global Finance magazine’s ‘FDI Superstars 2018’.
A Sustainable Future
Offering a professional yet relaxed atmosphere that makes doing business pleasurable as well as pro table, Cyprus’ Mediterranean lifestyle coexists happily with a cutting-edge international business hub, allowing investors to enjoy the best of both worlds, a safe and comfortable environment for family life and a sophisticated infrastructure from which to grow and develop business. Cyprus combines numerous advantages as a business base with its EU-approved tax regime, competitive 12.5% corporate tax rate and tax breaks for high earners, its pro-business government and highly skilled workforce – as well as promising growth and development across numerous economic sectors. With Cyprus’ prospects on an upward trajectory, the country 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.
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