Cyprus offers a European passport to the fund management industry providing exceptional possibilities for cross-border and global fund distribution, says George Ayiomamitis.
Established in 1987, represented by over 410 employees in 26 offices globally, and having acquired 33 licences from international recognised regulators has established Sovereign Group as one of the world’s largest independent professional tax planning and corporate services organisations. Headquartered in Hong Kong, the company has subsidiaries in Bahrain, Bahamas, BVI, China, Cyprus, Dubai, Gibraltar, Guernsey, Isle of Man, Malta, Mauritius, Portugal, Seychelles, Singapore, South Africa, Switzerland, TCI and the United Kingdom. Sovereign currently manages over 20,000 structures for a wide variety of clients – companies, entrepreneurs, private investors and high-net-worth individuals (HNWIs) and their families – and has assets under administration in excess of US$10 billion.
Could you give a brief overview of Sovereign Group, its core business and services?
Sovereign offers company and trust formation as well as management services in all major jurisdictions in the world, in addition to comprehensive advice to assist companies of all sizes to successfully establish business operations in foreign markets. Our aim is to meet the specific personal and commercial needs of our clients, be it in tax planning, wealth protection, property ownership or facilitating cross border business.
We also provide administrative support to maximise opportunities and achieve long-term sustainability, from full back-office solutions to assistance with tax and regulatory compliance. This includes bookkeeping,accounting, VAT and corporate secretarial services.
Via its Cyprus office, Sovereign Group offers a variety of services to a diverse portfolio of clients and professional intermediaries. These include the set-up and administration of companies, trust creation and trustee services, online gaming licencing, corporate and personal insurances, pension and retirement planning, registration of yachts and aircrafts, IP registrations, as well as residency and citizenship services.
What key priorities have you set for 2017?
Our main priorities for 2017 can broadly be divided into four categories – digital transformation, tax and legal compliance, investment in people, and corporate social responsibility and engagement.
We have seen technologies developing at a rapid pace, particularly in respect to banking services and regulatory reporting. Cyber security is a key aspect of this process and we are investing heavily to ensure that our risk assessment programmes and cyber security systems keep up with the pace of changes in this landscape.
Cyprus has a robust legal and regulatory framework that ensures clarity and reliability in business practices. It is also fully committed to meeting its external obligations in respect of implementing EU directives and complying with a number of international initiatives that are designed to increase financial and fiscal transparency.
Compliance is a fast-moving and unpredictable environment, but it is also a priority to manage and minimise any compliance risks both for our clients and for ourselves. Sovereign has taken a very proactive approach in terms of introducing controls, policies and guidelines and we constantly update these in line with changing domestic and international best practices. We are also seeking to build and maintain good relations with tax authorities in order to avoid any uncertainty over interpretation and ensure quicker resolution in case of conflict.
In any service industry, the most important assets of the business are the people that contribute – both at a client-facing level and behind the scenes. We are committed to developing the knowledge base of all our employees, through internal courses and external qualifications. This not only improves the quality and breadth of the services that we provide to our clients, but also ensures that we have a very good staff retention rate. We have doubled the personnel in our Cyprus office over the last three years.
Last but not least, is our commitment to corporate social responsibility. It is part of Sovereign’s culture to play as positive a role as possible in the communities in which we reside and work. We actively support a number of local causes and participate in many local events.
At a Group level, Sovereign is primarily focused on the work of the Sovereign Art Foundation (SAF), which helps disadvantaged children using the arts as rehabilitation, education and therapy. SAF has been running contemporary art prizes for over 13 years and has raised over US$5 million to support artists and charities worldwide. This year Sovereign Trust (Cyprus) is working to organise an event that is designed to recognise the importance of art in education and showcase the quality of art produced by young students in Cyprus.
What advantages does Cyprus offer international business and foreign investors?
Cyprus has an attractive tax regime, which offers a wide range of incentives and advantages for both companies and people. There are more than 100,000 companies registered in Cyprus that are actively trading, which proves just how competitive we are on an international basis. There are many benefits available in Cyprus, but I would like to highlight just a few of them.
For example, the Cyprus holding company is an effective means of consolidating ownership of operating subsidiaries. The structure can receive dividends at mitigated rates of withholding tax based on Cyprus’ double tax treaty network, exempt the incoming dividend from tax subject to a few simple conditions, and can distribute the dividend to non-resident shareholders free of any withholding tax in Cyprus. Generally, the disposal of an underlying shareholding will also not attract capital gains tax.
Another key advantage is Cyprus’ IP Box regime. Recently updated to comply with OECD guidelines, it provides for an exemption from taxation of 80% of the gross royalty income of intangible assets after the deduction of costs. This provides an actual corporate tax rate of 2.5%, making it the lowest tax rate IP box regime in Europe.
Also, Cyprus entities – including permanent establishments of foreign companies in Cyprus – are entitled to Notional Interest Deduction (NID). The NID regime greatly reduces the effective tax rate of interest income to around 2.5%, where such new equity has been utilised to carry out business, such as group finance operations.
The Cyprus Citizenship and Residency progammes have also proved beneficial to foreign investors. The Citizenship-by-Investment programme grants a Cypriot passport and EU citizenship – bestowing the freedom to work, travel, study and live anywhere within the EU – for a €2 million investment, which can be reduced down to just €500,000 after three years. The application process can take as little as three months, making it one of the fastest routes to an EU passport. It is also possible for non-Cypriots to secure permanent residency in Cyprus through investment of just €300,000 in newly built real estate.
Although still at the beginning stages of building a fund industry, what are Cyprus’ key advantages in this sector?
Cyprus is emerging as a location of choice for international fund promoters and investors seeking secure and advantageous fund solutions. The Cypriot regulatory authorities have worked diligently to bring the funds framework into line with other international jurisdictions.
The new Alternative Investment Funds (AIFs) regime is in full alignment with EU rules, and Cyprus-based AIFs and AIF managers can harness the low tax rates applicable to Cyprus companies, while non-Cypriot investors in Cyprus AIFs will, at the time of a redemption or distribution of a Cyprus AIF, benefit from an extensive double tax treaty network.
The law on AIFs provides a framework similar to that of Europe’s main investment fund hubs like Luxembourg, Ireland and Malta and opens the market to the registration of new types of funds. The AIF law also provides for the establishment of funds marketed to professional and retail investors, as well as for the introduction of umbrella funds with segregated investment compartments.
If AIF is setup as a private limited liability company and management and control as well functional control is exercised in Cyprus, then the fund has all the benefits of a Cyprus resident company. In addition, the small qualifying funds, can be self-governed without the need to appoint a fund manager or custodian for the qualifying assets. As a result, Cyprus now offers a European passport to the fund management industry providing exceptional possibilities for cross-border and global fund distribution.
What key developments are currently affecting the financial services sector in Cyprus?
Cyprus’ legal framework is particularly strong, due in part to mandatory compliance with EU regulations. The legislation governing Cyprus’ financial services sector underpins the island’s ambition to become a leading international financial centre.
Cyprus has put in place all necessary mechanisms for the prevention and suppression of money laundering and terrorist financing activities. In addition, following the 2008 global financial crisis, the international community has committed to a number of initiatives that are designed to combat tax avoidance and establish transparency on a global scale. These include the OECD Common Reporting Standard (CRS), which creates a single global standard for the automatic exchange of financial account information, as well as the US Foreign Account Tax Compliance Act (FATCA), which targets non-compliance by US taxpayers using foreign accounts.
Other initiatives that are affecting the sector are the OECD Base Erosion and Profit Shifting (BEPS) Action Plan, which is designed to ensure that tax administrations obtain a complete understanding of how multinational enterprises structure their operations, and the new EU Directive granting tax authorities access to information held by authorities responsible for the prevention of money laundering – including the requirement for member states to provide access to information on the beneficial ownership of companies.
These initiatives will have serious impact on service providers and clients in the months and years ahead, and will result in changes in pricing structures, reflecting the increasing costs of compliance and reporting procedures. However, the global application of these rules and guidelines and practices will also provide for healthy competition based on competency rather than price, as well as setting higher industry standards.
How would you assess the current corporate services sector and regulatory environment in Cyprus?
Given its strategic location, Cyprus has developed into a thriving business hub, with a vast array of investment opportunities in key growth sectors of the economy. These advantages are significantly enriched by an advanced infrastructure, an abundance of highly educated and skilled individuals, a robust legal and regulatory framework and an attractive tax regime, which offers a wide range of incentives and advantages both for companies and people. The standardised corporate income tax rate of 12.5% is still the lowest tax rate in the EU.
The island is an ideal investment gateway to the European Union, as well as a portal for investment outside the EU, particularly into the Middle East, India and China. As a member of the EU and Eurozone community, Cyprus ensures safety and stability for investors, while also offering them market access to more than 500 million EU citizens. It also has an extensive network of over 60 double tax treaties.
Cyprus has successfully reformed all its financial sector legislation in line with international best practice and has implemented a simplified, effective tax system that is fully compliant with EU Laws and Directives and with the Organisation for Economic Cooperation and Development's guidelines. Cyprus was placed on the OECD white list of territories that have substantially implemented the internationally agreed standard in tax transparency.
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. The corporate service sector will therefore have a vital role to play in development of the Cyprus economy in 2017, and in years to come.
George is a member of the Board of Sovereign Group’s office in Cyprus, as well as heading the Business Development department. He is a member of the Society of Trust & Estate Practitioners (STEP), through which he has undertaken the Certificate and Diplomas in International Trust Management. Since he joined Sovereign Group in 2012, George has built a respectable diverse portfolio of both international clients as well as local intermediaries interested in international tax planning and corporate services. Prior to joining Sovereign, George served as a Sales & Marketing Manager in the real estate and property development sector. He holds a BA in Marketing from Middlesex University in London.