Thanks to its advanced ecosystem of professional and financial services, Cyprus has established itself as a thriving EU service centre and a convenient business bridge between Europe, the Middle East, Africa and Asia.
The financial services sector of Cyprus has continued to expand in both size and expertise, and its proven resilience through fluctuating global economic trends and volatile markets has underlined the country’s strength and status as an important EU jurisdiction for top-quality services.
There are several compelling features about Cyprus as a business hub and service centre. The island is part of the EU, the eurozone and the Commonwealth and is strategically positioned between three continents – Europe, Africa and Asia – with regular flight connections, multicultural business etiquette and a stable political regime. It has an efficient and transparent tax system and its legal system is based on English Common Law. Cyprus follows the International Financial Reporting Standards (IFRS), has a mandatory audit regime for all sizes and types of companies, 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. Foreign businesses have long been attracted to Cyprus for its cost-effective 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 65 countries.
Cyprus’ financial and professional services sector is a formidable contributor to the country’s economy and has maintained its status as one of the most consistently growing sectors – rising on average by 6.5% per year in 2016-18 and contributing 20% to Gross Value Added (GVA) in 2018. Already recognised internationally as a leading European provider of corporate structuring, international tax planning and other financial services, Cyprus is determined to go from strength to strength. Evidence of this is the healthy capital and liquidity levels held by banks and the continuous registration of new companies, funds and investment vehicles on the island.
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 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 know-how and service base are also set to expand further.
Thanks to its geostrategic location in the East Med and within the EU, the island is also establishing itself as a preferred headquartering location for international companies. Its stable EU environment and neutral political stance, coupled with one of the lowest corporate tax rates in Europe at 12.5%, Cyprus has become one of the most attractive international business centres in the region. 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 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.
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. 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 one of the lowest crime rates in Europe. 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.
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 and it has become a structuring tool uniquely used by local and foreign investors as a key pillar in their investment planning and tax strategies.
Cyprus’ comparative advantages have strengthened the country’s status as an attractive headquartering location. 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, amdocs, Bernhard Schulte Shipmanagement and Wargaming have all established headquarters on the island. An added benefit to the country’s offering are new 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. 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 growing oil and gas sector.
The Cyprus banking sector is on solid ground, it has shrunk and reorganised, developed its capital strength and invested in corporate governance. All core banks in Cyprus have passed successive and rigorous European Central Bank (ECB) stress tests and the sector has seen further sustainable development over the last few years. Banks have successfully raised private capital and maintained strong capital positions, non-performing loans have been slashed in half, while fresh investment through acquisitions has reshaped the banking sector into a more consolidated and agile industry. A strong focus on going digital, and the implementation of more innovative banking solutions and integrated products are enhancing competitiveness in an era of increasing costs.
Cyprus’ banking sector is comprised of two tiers: domestically-oriented banks and international banks. International banks have long been attracted to the island for its fiscal regime and to use the country as a launch pad into high-growth and emerging markets. The list of banks of foreign origin in Cyprus consists of over 30 institutions, which mainly carry out international banking business and have limited interaction with the domestic economy. Beyond the traditional deposit and lending services to households, corporations and SMEs, banks in Cyprus operate under the ‘universal banking model’ and offer a diverse range of products and services. The sector is introducing products and services to companies, start-ups and ventures with high growth potential, and at the same time keeping a clear focus to expand lending to key sectors such as shipping, tourism, real estate and professional services – which are substantial economic drivers for Cyprus.
Recording formidable growth over the last few years, the country is strengthening its status as a convenient European gateway for investment funds. The volume of funds and assets under management have hit record highs proving that interest in Cyprus as a business and investment base runs strong, as assets under management (AuM) have more than tripled from €2.1 billion in 2012 to €6.7 billion in May 2019. Cyprus offers both EU-regulated Undertakings of Collective Investment in Transferable Securities (UCITS) and Alternative Investment Funds (AIFs), and the consistent upgrades of its regulatory framework have boosted investor interest and the image of the jurisdiction. Bearing similar characteristics to the regimes of Luxembourg and Ireland, the country’s legal framework is one of the most flexible in Europe while maintaining a high level of investor protection. Cyprus also offers one of the most attractive fund tax regimes in Europe – for the fund manager, investor, and the fund.There has been growing interest from funds around the world, but most notably from Europe, Asia and the Middle East. Cyprus’ offering of a European passport of quality and flexibility, its exceptional possibilities for cross-border and global fund distribution, as well as its long-standing investment links into and out of Europe all provide investors with preferential access and solid service expertise through its skilled professionals. In addition, its geostrategic location at the crossroads of Europe, the Middle East, Asia and Africa has positioned the country as a natural investment bridge into markets worldwide.
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 a popular instrument 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.
An increasing number of high-net-worth individuals are discovering the benefits of Cyprus, and the island has become a financial base for a large number of extremely wealthy individuals from Europe, the Middle East and Asia. The number of flexible and competitively priced structures combining investment flexibility with tax advantages has also attracted 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, a growing fund industry as well as no taxation on capital gains or succession, 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. Along with the rest of the EU, Cyprus adopted a new IP Box Regime aligned with the OECD BEPS Action 5 and revised EU rules for the tax treatment of profit from intellectual property. In essence, the new Cyprus IP box regime offers a tax benefit of up to 80% on qualifying IP profit,reducing the corporate tax rate to an effective 2.5%.The revised law has excluded business names, brands, trademarks, image rights and other intellectual property rights used within the scope of marketing products and services and identifies a ‘qualifying intangible asset’ as an asset which was acquired, developed, or exploited by a person to carry out, enhance or initiate a business being a result of R&D activities. 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.
The Cyprus insurance industry has regained its strength with healthy growth rates and fresh momentum to diversify and introduce new services to meet increasing market demands. Cyprus continues to offer international insurance firms many opportunities as a cost-effective and business-friendly base to launch and manage products, services and operations in both the domestic and in international market. A number of foreign insurance operators have been successfully operating in Cyprus for years, attracted by the island’s EU member status, its straightforward and transparent legal framework, ease of doing business and advantageous tax regulation. EU passporting has enticed major international industry players to the country, and Cyprus is particularly well positioned as a centre for companies wishing to do business in the EU and the Middle East region. With increasingly specialised needs arising from clients, new opportunities are found in creating innovative services and products, forging new synergies and using the country as a gateway to expand business into new regional markets. Products that were not widely promoted in the past, such as director and officer liability, are now offered and sought out and new products, such as cyber and drone insurance, are emerging as new tech rolls out into the market. As demand has been rising for these types of policies, the Cyprus insurance industry has been quick to meet the needs of their clients – thus also broadening the spectrum of services. The insurance companies operating on the island, totalling around 30, account for about 98% of the annual gross premiums written in the domestic market, with a handful of these companies dominating the landscape. The insurance industry also manages assets of well over €2.5 billion, making it one of the largest institutional investors in Cyprus.
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 in the field. 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 with attracting foreign companies to set up Cyprus Investment Firms (CIFs). With years of expertise and advanced infrastructure in electronic platforms, Cyprus offers strategic advantages that have positioned it among the most attractive destinations for international forex business.
For more information, contact Cyprus’ investment promotion agency, Invest Cyprus.
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