International Financial Services - Cyprus Profile

International Financial Services

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The financial services sector of Cyprus has continued to expand in both size and expertise, and its proven resilience through fluctuating global economic trends has underlined the country’s strength and status as an important EU jurisdiction for top-quality services.

Backed by an EU-approved and attractive regulatory framework, strong supervision and consumer protection, Cyprus’ financial and professional services sector is a formidable contributor to the country’s economy. It has maintained its status as one of the most consistently growing sectors, rising on average by 5.1% per year in 2015-17. It has become increasingly important over the years as indicated by its almost 22% contribution to Gross Value Added (GVA) and its sizeable share in employment.

Since gaining EU and eurozone memberships, in 2004 and 2008 respectively, Cyprus has continuously enhanced its appeal and transformed into a key services hub in the region, serving as a business bridge between Europe, the Middle East, Africa, and Asia. 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. Key sectors, such as shippingenergy and the burgeoning investment funds business, have also supported the increased demand for the services of Cyprus professionals.

Thanks to its geostrategic location within the EU, the island is also gaining traction as a preferred headquartering location for international companies. Its stable environment and neutral political stance, coupled with an EU and OECD-approved tax system, and at 12.5% one of the lowest corporate tax rates in Europe, Cyprus has become one of the most attractive international business centres in the region. 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.

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. 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.

Service Economy

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 firmsaccountants – including the long-standing presence of the ‘Big Four’ audit firms – and professional services providers have further strengthened the country’s position as a key location to set up corporate structures and use the country as a launch pad to manage investments.

As a jurisdiction, Cyprus has various unique characteristics. It has one of the most advantageous EU tax frameworks and its legal system is based on English Common Law. Cyprus follows the International Financial Reporting Standards (IFRS), 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. 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. Foreign businesses have long been attracted to Cyprus for its world-class business 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 over 60 countries.

A new initiative by regulating authority the Cyprus Securities and Exchange Commission (CySEC) is set to further enhance the landscape for financial services. In 2018, CySEC announced it will establish an Innovation Hub to address and explore the rise of fintech and regtech developments. The aim of the Hub will be a place where both supervised and non-supervised entities in innovative or new industries will have ongoing access to the authority in order to better understand and implement their regulatory requirements. This is a welcome move that will support information and knowledge exchange in the industry as well as the development of new solutions for the financial services sector. The Hub, which is expected to be operational in September 2018, will also allow the regulator to better consult with the private sector on the risks and benefits of new investment products and platforms.

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.

Regional Headquarters

Cyprus’ comparative advantages have also strengthened 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 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. 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, BS Shipmanagement and Wargaming have all established headquarters on the island. 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 budding 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 have strong foundations to move toward sustainable development. Capital ratios are around the EU average of 12%, according to ECB’s requirements of capital levels, and with the number of non-performing loans (NPLs) on a steady downward trajectory, the future outlook is positive. The sector has seen interesting developments in the last year with fresh investment and acquisitions shaking up the landscape, specialised units taking over non-performing loan management and new international players vying to snap up distressed asset portfolios from local banks’ balance sheets. Cyprus’ banking sector is comprised of two tiers: domestically oriented banks and international banks. The main domestic credit institutions include Bank of CyprusHellenic Bank, and RCB Bank. 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. ese 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.

Wealth Solutions

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 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, as well as no taxation on capital gains or succession, Cyprus is a natural hub for wealth management and family offices.

Intellectual Property

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 pro t from intellectual property. In essence, the new Cyprus IP box regime offers a tax benefit of up to 80% on qualifying IP profit, by way of notional expense deduction. 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.

Investment Funds

Assets under management in Cyprus are projected to reach an incredible €20 billion in the next five years provided the current rate of growth continues. Cyprus has big ambitions in the investment funds sectorand has set its sights on becoming a fund and asset management centre of excellence, and with upgraded legislation and increasing inflows of foreign investments, the country is well on its way. Assets under management have more than doubled from €2.1 billion in 2012 to €4.8 billion in March 2018, and the number of funds is steadily growing and currently stands at over 120 with more than 50 new funds pending regulatory approval. Cyprus offers both EU-regulated Undertakings of Collective Investment in Transferable Securities (UCITS) and Alternative Investment Funds (AIFs). In July 2018, Cyprus 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.


Although the domestic insurance market in Cyprus is small and highly competitive, the country 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 the international market. The over 30 insurance companies operating on the island account for more than 90% of the annual gross premiums written in the domestic market, with a handful of these companies dominating the market. The insurance industry also manages assets well over €2 billion, making it one of the largest institutional investors in Cyprus. In 2017, growth continued to more dynamic levels, with premiums on the life side increasing an impressive 7.8%, compared to an increase of only 0.7% in 2016. On the general side (non-life), 2017 saw a 5.4% increase, compared to 4% the previous year. Cyprus has also made pension reform a top priority, which is a move certain to facilitate more opportunities in the sector.

Foreign Exchange

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 for attracting foreign investors 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.

An Attractive Package

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. Fees are competitive, and the quality of service 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 jurisdictions 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 – solidifying Cyprus’ reputation as an international centre of business excellence.

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September 2018

Cooperation Partners