Cyprus today stands at a pivotal moment. After a decade of efforts of diversification, the country has entered a new phase, one shaped by the rapid rise of the technology and innovation sector, shifting investment dynamics, and the need to modernise core infrastructure. The real question is how Cyprus can evolve from a small, service-driven market into a true destination economy: a place where global companies choose to build, where talent chooses to stay, and where innovation becomes a defining national strength, rather than an exception.

In this context, the technology and innovation sector stands out as a dynamic driver of new business and investment. According to the 2025 KPMG Cyprus study, the wider tech and innovation sector contributes 16% to national Gross Value Added (GVA) which amounts to €8 billion, ranking Cyprus second in the EU for ICT contribution to GVA. Over the past decade, ICT GVA has grown by 347%, and the workforce has more than tripled. These are structural shifts that signal the emergence of technology as a core pillar of the Cypriot economy.

Strengthening STEM education, modernising curricula, and expanding skilling and upskilling opportunities for local talent are essential. That is to ensure that the next generation acquires the digital and technical skills required by a modern digital economy, meeting the demands of the rapidly growing tech sector and the global AI transformation.

The long-awaited Schengen accession in 2026 is expected to remove bureaucratic barriers, facilitate worker movement, and strengthen connections with other EU tech hubs like Estonia and Portugal. Symbolically and practically, it will facilitate further attraction to talent and investment. To fully leverage this, Cyprus must shift its narrative from a tax-efficient base to a place where ambitious people can build global careers and meaningful lives.

Improving social infrastructure is central to this ambition. Schools, hospitals, cultural institutions, and sports facilities are not simply public goods – they are competitiveness enablers. A 19% VAT on social infrastructure construction discourages private investment, particularly for organisations that cannot reclaim input VAT.

Targeted reductions, as shown in European best practice, can unlock capital, accelerate development, and support sustainable growth driven by the expanding tech sector. Likewise, addressing bottlenecks such as affordable housing, modern office space, and co-working environments is essential.

At the same time, several challenges faced by early-stage startups must be addressed. The criteria for obtaining an Innovation Certificate – especially the requirement that 10% of expenditure be allocated to R&D – remain unrealistic for firms that are often pre-revenue and focused on validating their product. The absence of standardised early-stage funding instruments, such as SAFEs or simplified convertible notes, limits startups’ ability to raise capital efficiently and in line with international practice.

Regulatory uncertainty around crypto taxation and custodianship rules, combined with limited banking support for crypto-focused businesses, also creates friction for founders and investors. Clearer regulatory guidance, investor incentives tailored to Cyprus’ needs, and a more innovation-friendly framework for emerging technologies would significantly strengthen the country’s competitiveness and support the next generation of high-growth companies.