With a changing regulatory landscape, no country has a clear tax advantage over the other anymore. It’s a new game with new considerations, says First Names MD Christos Michael.
The award-winning First Names Group is one of the largest independent providers of trust and corporate services in the world. The group’s Cyprus team has continued to go from strength to strength, and is the first fiduciary company in the country to be accredited with the Investors in People Award. Led by Managing Director Christos Michael, the firm prides itself on delivering expert services as well as developing future leaders to support the growth of the industry.
How is the corporate services industry doing in Cyprus?
Things are relatively stable at the moment, with corporate service providers retaining clients and attracting a bit of new business too. We haven’t seen a massive reaction to the recession, the banking crisis or even to the de-offshorisation moves from Russia. Some clients have undergone limited restructuring of their groups, but assets are still under Cypriot structures so there continues to be a lot of work for administrators.
What key developments are affecting your industry today?
The biggest impact on our industry is from the volume of new regulation and compliance obligations coming from various international institutions. Today, creating substance is key to any business including holding company structures, which is both a challenge and an opportunity for Cyprus. There will be a much clearer picture of how things will stand for the industry in the next 18 months, when the new OECD Common Reporting Standards (CRS) will be in full implementation across the EU. The more detailed CRS framework is yet to be revealed and most jurisdictions are waiting to see how it will affect operations. The regulatory developments will shape a new world for the international structuring and tax planning industries. There continues to be a lot of business, but with the changing landscape, no country has a clear tax advantage over the other anymore. It’s a new game with new considerations.
What areas do you see as providing the best opportunity for growth in Cyprus?
Many companies, including ourselves, are using Cyprus as a service centre for other jurisdictions on accounting and reporting issues. As mentioned, substance is the name of the game now and Cyprus is an ideal location where substance can be easily established, for trading companies or international structures that need to be under a holding company. Cyprus has all the prerequisite factors to make this a reality, we offer highly skilled professionals that can offer cost-effective services to support international business. Many of our clients, especially the big structures, have gradually begun to build substance in Cyprus with the intent to further expand operations in the next few years – continuing to buy more specialist services from us and other local service providers. There is a lot of growth potential in this area, which could also establish Cyprus as a big player in this new world of changing regulation. Cyprus could also be ideal for more e-Business products and services, however we would need to put more structural changes in place to incentivise and support this type of business. More e-Business solutions could also help support our existing services and products, giving our clients added value.
Are you seeing more consolidation in the market and how will this change the landscape?
Consolidation is already happening within the industry, and it’s not only because of the volume of obligations deriving from new FATCA or CRS requirements. The industry itself is changing. Most small setups are servicing individual clients, but due to international regulatory developments it will not be of much benefit for these individuals to do business in Cyprus or anywhere overseas. I expect a lot of these smaller operators to close down in the next five years. As new regulation comes into play, governments and regulators will have to determine how to implement these measures. This will be a challenge for many jurisdictions, including Cyprus, because there is a lack of guidance and clear parameters on how to implement them.
How do you view the controversial OECD suggestion to create a register of beneficiaries and trustees?
Under the transparency regime, there shouldn’t be any discrimination. If you are disclosing the beneficial owners of a company, why not disclose the beneficiaries of a trust. There has been more resistance on this from the UK, which has a longstanding tradition of using trusts. However, this direction does cause some concern within the industry. If this register goes ahead, perhaps the way forward should be having a distinction between trusts – creating a new type of trust that does not warrant the disclosure requirements in cases where it does not include business assets and is set up for children and grandchildren for inheritance purposes. We have seen organisations like the OECD be more realistic and pragmatic in their approach with recent regulation, which is a positive direction.
Is Cyprus attractive for high-net-worth individuals?
It is, but as a group, we believe that the ultra-high-net-worth individuals (UHNWI) will be more important going forward, because they tend to be more committed in staying long-term in the jurisdiction of their choice, whereas the high-net-worths tend to be more mobile. So, the UHNIWs bring with them more security and stability. Cyprus also offers the family office service, but mainly supports business structures, not private wealth. If Cyprus can attract more wealth managers and once its banks regain more confidence, this could potentially become more attractive. This won’t happen in the short-term, but could be a good long-term prospect. In this side of business, reputation and perception carry a strong emphasis and any future strategy of developing this industry in Cyprus must take these aspects into consideration.
The Cyprus fund industry is heralded as having serious potential, how do you see the Cyprus fund landscape?
The fund industry was launched with great optimism and enthusiasm, but there needs to be a more structured approach in developing the sector further. The funds industry is all about reputation and this is something Cyprus needs to build up in order to attract more funds. The Russian market has long been and will continue to be a key market for us, and it is crucial to develop solutions that cater to their needs. However, we do need to diversify and identify other markets that could be interesting in terms of this sector.
What are your views on the state of the Cypriot real estate market?
The real estate market in Cyprus is still struggling and needs to undergo serious adjustments and structuring in terms of pricing and value. However, the abundance of available real estate as well as stalled projects also present opportunities for foreign investors to acquire properties and potentially redesign them to fit their purposes, whether it be offices, headquarters or even resorts. There are many interesting opportunities for investors with fresh ideas and new business concepts. For example, Cyprus is an ideal place to develop more sustainable building with the use of green energy, such as solar power thanks to the 340 days of sunshine a year. Repurposing existing real estate through sustainable development is a real opportunity.
How do you see Cyprus and your industry developing in the next five years?
Cyprus needs to become more proactive – rather than reactive – when it comes to new regulation. In many ways we need to start from a blank page and rethink how we want to develop a stronger Cyprus in the future, as well as create and commit to strong strategies for the short- medium and long-term. Becoming an expert in niche areas will be critical. Cyprus needs to identify specific areas and niche markets that we can service and support, and focus heavily on developing itself as the go-to jurisdiction for those services. A solution to the political situation and division of the island would also create the impetus to boost business and open new markets.
Christos Michael is a fellow member of the Chartered Association of Certified Accountants and holds a Masters degree in Accounting and International Finance from the University of Glasgow. He started his professional career in Cyprus with Grant Thornton in 1992 as a trainee Certified Accountant and became an assistant manager when the merger with Price Waterhouse took place in 1995, he then joined Chrysanthou & Christoforou (representing Arthur Andersen) as a manager in 1997. Following the merger of Chrysanthou & Christoforou with Deloitte he became a partner in audit in 1996, with specialisation in the financial industry, technology and leisure, servicing mainly large local and international clients. He joined Excel-Serve (a trust and corporate services company) in September 2007, as a shareholder and member of the Board of Directors, supporting the CEO in managing and developing the business. In June 2008, IFG Group acquired Excel-Serve and Christos was originally appointed Chief Operations Officer and then Managing Director of the IFG office in Cyprus. On 1st February 2013 IFG rebranded to First Names Group.