Renowned since antiquity, Cyprus has reinvented itself multiple times and is going through another exciting transformation today. The island nation has big ambitions to diversify its economy by placing innovation at its core, while it continues to attract professional expats and foreign investors to its shores thanks to its relaxed lifestyle coupled with bourgeoning prospects in the technology, investment fund, and energy sectors.
Located in the eastern Mediterranean at the crossroads of Europe, the Middle East and Africa, Cyprus’ strategic position has always played a key role in shaping its 10,000-year history and in developing the island into a convenient centre for trade and international business. Despite being a country of less than a million people, the Republic of Cyprus has steadily built itself into a thriving business centre over the decades. An EU and eurozone member for over a decade, and with one of the highest educated populations in Europe, Cyprus has built a strong service-based economy. Its low-cost business environment with a wealth of support services, a sophisticated ICT infrastructure and investor-friendly tax regime – backed up by an extensive network of double taxation agreements with 66 countries – has developed Cyprus into an important European and regional financial and business services hub. The country is also one of Europe’s favourite holiday destinations, enjoying 340 days of glorious sunshine a year and boasts a beautiful coastline teeming with stretches of golden sand, secluded bays and rocky coves, all surrounded by some of the cleanest beaches and waters in the Mediterranean Sea. The landscape is dotted with the fascinating remains of history, from Neolithic settlements and ancient city-kingdoms to exquisite Byzantine art and magnificent Venetian architecture. Add to this the vibrant and cosmopolitan lifestyle where East meets West, Cyprus offers the perfect balance between business and leisure.
PEOPLE & CULTURE
While the Republic of Cyprus is a Greek-speaking nation, English is almost universally spoken and is the language of international business. German, French and Russian speakers are also easily found, thanks to the high number of Cypriots with international degrees, the country’s commercial ties with the global business community, and the island’s popularity as a tourist destination. Cyprus is well known for its hospitality, a fact reflected in the Greek word, xenos, used for both stranger and guest. Life is meant to be enjoyed in Cyprus, which is renowned for its excellent quality of life. Cafe culture predominates, with both business and social meetings taking place over a leisurely frappe (iced coffee) in the numerous cafes in every town and city. As with most Mediterranean cultures, food also plays a vital role in family and social life. The famous Cyprus meze – a large selection of small, delectable dishes – is best enjoyed siga siga (slowly), al fresco and accompanied by excellent local wine.
RESILIENT EU ECONOMY
Cyprus has a resilient economy that has time and time again proven its capacity to adjust to continuously changing conditions and bounce back from external shocks. Before its independence from the UK in 1960, the Cyprus economy was primarily based on agriculture and the export of minerals. However, in the last few decades the country has established itself as a serious international business and service centre for shipping, financial services and commerce, and is classified by the World Bank as a high-income country. The island’s accession to the EU in 2004 with the subsequent adoption of the euro in 2008, was the catalyst for its transformation into a competitive financial and business services hub. Following the country’s financial crisis in 2013, Cyprus undertook a major reform agenda and while still facing some economic challenges, the small EU nation has demonstrated resilience and an ability to bounce back to growth. The year 2015 signalled a sooner-than-expected exit from recession and a rapid economic turnaround followed, with 2017 recording almost 4% growth – earning Cyprus praise as an economic success story. The island’s international financial centre did suffer a blow in the wake of the crisis, especially to its reputation, but today the country stands tall with recapitalised and stable banks and stronger institutions with better supervision. Consistent credit rating upgrades have further boosted confidence and foreign direct investment has been flowing into all key sectors. Cyprus has retained and strengthened its status as an attractive investment gateway to the EU and other high-growth markets, as well as a secure base to tap into opportunities in the Middle East. Offering a tax-efficient EU company domicile, the country is also emerging as a compelling destination for regional headquarters and a base for tech companies, as well as an increasingly attractive location for fund managers and promoters.
GROWING INVESTMENT FUND SECTOR
Cyprus has big ambitions in the investment funds sector to establish itself as a contender in the global asset management industry. The steady growth in both Assets under Management and in the number of fund structures licensed and active in Cyprus have underlined the strength and appeal of the novice domicile. Assets under Management (AuM) have increased by over 200% from €2.7 billion in 2016 to €10.7 billion in the first half of 2021, showing that it is not the sector’s size but its fast growth that has impressed, and is being recognised by the global asset management and investor community. Investment funds have already invested more than €2 billion in several sectors of the Cypriot economy, such as shipping, hospitality, education, healthcare, and renewable energy. Cyprus offers both EU-regulated Undertakings of Collective Investment in Transferable Securities (UCITS) and Alternative Investment Funds (AIFs). In July 2018, the country 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. The number of alternative investment funds has more than doubled in the last five years and foreign UCITS are now widely marketed in Cyprus, including ones promoted by international financial institutions such as JP Morgan, UBS and Julius Baer.
GLOBAL SHIPPING HUB
A major success story for Cyprus has been the maritime sector, which accounts for around €1 billion in annual revenue and approximately 7% of the island’s GDP – and of this figure, shipmanagement alone accounts for 5%. Apart from offering shipmanagement and business services to the industry, the Cyprus Registry is classified as the third largest merchant fleet in the European Union and the 11th largest in the world. The country is also the EU’s largest shipmanagement centre and amongst the top three in the world. The sector has seen growth in the past few years and Cyprus is currently looking at restructuring the commercial shipping sector to strengthen its competitive edge. Since introducing an advantageous EU-approved tonnage tax system in 2010, the island has continued to attract increasing numbers of shipping companies from across the world. The country’s maritime capital, Limassol, is home to some of the most influential names in shipping today and manage around 20% of the world’s third-party managed fleet.
EAST MED ENERGY CENTRE
Apart from the sun and the sea, Cyprus has few natural resources and has been dependent on oil imports to satisfy its energy demands. However, the substantial discovery of natural gas and potential oil deposits in Cyprus’ Exclusive Economic Zone (EEZ) in the Mediterranean Sea is expected to change all this. Exploratory drillings by global energy giants have confirmed natural gas reserves that could meet Cyprus’ domestic gas demand for over 100 years, and a surplus for export. The hydrocarbons race in Cyprus’ waters has attracted international energy heavyweights, such as Total, ENI, Kogas, Royal Dutch Shell, and ExxonMobil to explore the island’s waters for new discoveries and multiple auxiliary services companies have set up to support these efforts. With 340 days of sunshine to harness, solar energy has also become a bit of a boom segment for Cyprus recently. The government is placing strong focus on renewable energy and working towards achieving a zero-carbon economy. The country’s top-tier universities and research institutes are also playing a pivotal part in these efforts to create a more sustainable energy mix through innovation in smart tech and research in ways to battle climate change.
TECH AND INNOVATION TAKING THE LEAD
The technology space in Cyprus is seeing a fresh boost with more state support to the sector, the launch of new national strategies to integrate innovative tech, and fresh incentives to attract more digital nomads, IT start-ups and regional headquarters. With its new focus on long-term development outcomes, Cyprus is determined to diversify and harness growth with a technology-driven economy. The biggest spender by far on IT in Cyprus is the financial sector, followed by the telecoms providers and the public service. Albeit one of the smallest EU member states, research and development is an area where Cyprus punches well above its weight. Unprecedented investment into the sector and ground-breaking projects are establishing this small island, not only as an innovation and research hub, but as a regional centre of excellence providing strong links with the global scientific and technical innovation community. Further evidence of the high calibre of research and development being undertaken in Cyprus is the fact that the country ranked first among the EU member states in relation to the per capita absorption of funds from Horizon 2020, the biggest EU research and innovation programme with a budget of nearly €80 billion.
POPULAR TOURISM DESTINATION
Tourism has been a key driving force of the Cypriot economy for decades, and pre- Covid the country saw consecutive years of record-breaking numbers of tourist arrivals and revenue. Although the pandemic has temporarily stifled the thriving sector, new projects currently underway are set to strengthen and upgrade Cyprus’ tourism product and encourage more year-round visitors, a strategy Cyprus is fully committed to. These projects range from the construction of new golf courses, luxury marina developments and the upgrading of the island’s wellness and medical tourism product. A new and exciting prospect is the current construction of the Republic’s first-ever luxury casino resort. The €600 million integrated resort, run by a consortium with renowned Hong Kong player Melco, will exceed five-star status and open a whole new market for niche tourism on the island.
ATTRACTIVE REAL ESTATE
The Cyprus real estate sector was showing strong market performance straight through to 2019, but 2020 marked a turning point as the pandemic hit worldwide. Amid widespread lockdowns and travel restrictions, foreign investor demand dropped significantly. However, by October 2021, sales to the European market increased 68% compared to the same period in the previous year. Cyprus’ appeal has remained strong amongst international investors, expats and retirees thanks to its Mediterranean climate, high quality of life and safety, as well as its status as an EU member state conveniently located between three continents. Cyprus has one of the highest home ownership rates in Europe and also has a longstanding market for second homes and holiday villas, making the economy heavily reliant on the sector. With new up-market developments, increased foreign investment in top hotels and major infrastructure projects springing up, Cyprus’ attractiveness as a property investment location is set to grow in the coming years.
Cyprus’ FDI appeal has been on an upward trajectory thanks to a robust economy. Real GDP growth averaged 4.6% in 2015-19 and the government’s latest projections suggest that in 2021 the economy will have fully regained the ground it lost in 2020 at the height of the Covid-19 pandemic. For the last few years, Cyprus has been a hive of activity with several notable projects already implemented or in the pipeline, strengthening the country’s image and appeal. Foreign investment flows have been significant. In the ten-year period 2011-2020, cumulative net FDI reached €22.2 billion. This investment was driven by equity, with the shipping/shipping finance and real estate sectors playing a significant role, while investment in communications is now also beginning to gain importance. Ongoing improvements in the macroeconomic and financial environment have also revived international interest in around 30 major development projects on the island. Investment opportunities in Cyprus’ large-scale projects span various sectors, including high-value tourism and housing developments, projects with a special focus on golf courses and luxury marinas, as well as education, energy and, more lately, the international film sector. The growth performance of Cyprus over the last five years has been exceptional and even exceeded international expectations, while successive credit rating upgrades and new incentives have attracted billions in foreign investment since 2015, with significant inflows from the US, Asia, Russia and the Middle East. Cyprus’ liberalised Foreign Direct Investment Policy, both for EU citizens and investors from third countries, along with its favourable tax regime makes it one of the most attractive centres for FDI in Europe.
A DIVERSIFIED FUTURE
Offering a professional yet relaxed atmosphere that makes doing business pleasurable as well as profitable, Cyprus’ Mediterranean lifestyle coexists happily with a cutting-edge international business hub, allowing investors to enjoy the best of both worlds: a safe and comfortable environment for family life and a sophisticated infrastructure from which to grow and develop business. Cyprus combines numerous advantages as a business base with its EU-approved tax regime, competitive 12.5% corporate tax rate and tax breaks for high earners, its pro-business government and highly skilled workforce – as well as promising growth and development across numerous economic sectors. With Cyprus’ prospects on the rise, the country has all the right elements firmly in place to strengthen its reputation as an international centre of business excellence in one of Europe’s most interesting investment locations.
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