International Financial Services

Diversified yet Specialised

Cyprus’ financial services sector is evolving into a broad-based investment platform, which encompasses a wide range of activities, including asset management, fintech and sustainable finance.

Cyprus is forging a reputation as a quality-efficient and cost-competitive choice for regional and global financial services firms and is gaining ground as a management hub in selected segments. With a strong track record in cross-border finance and investment, Cyprus’ financial services sector has significantly expanded in recent years. Regulatory reform, coupled with economic restructuring and the identification of new growth drivers, has radically transformed Cyprus’ financial market.

Today, the country delivers world-class fund management and trust administration services in line with international best practices. From a regulatory point of view, the country has pioneered the foreign exchange sector and is positioning itself as a major player in the wealth management industry. Investment into Cyprus is increasingly coming from regions such as Asia, the Middle East and Africa, a trend that is expected to accelerate further in the coming years.

Meanwhile, the island is developing new areas of opportunity. Fintech and digital finance are fast developing into thriving segments of the finance sector, while Cyprus has brought in a new crowdfunding law in order to position itself as an ideal EU jurisdiction in which crowdfunding platforms can be established.

Reformed Industry 

Times of crisis spark innovation and reinvention as evidenced by Cyprus’ financial services sector, which was completely overhauled after the 2013 European debt and banking crisis. Nearly ten years ago, Cyprus avoided bankruptcy by securing a €10 billion bailout by the European Commission, the European Central Bank and the International Monetary Fund. 

The crisis fundamentally reshaped Cyprus approach to financial services as one condition of the bailout was to reform the country’s financial system. Up till that point, Cyprus’ finance sector focused almost exclusively on banking and corporate structing, particularly facilitating investments into Europe, the Middle East and Africa, as well as Russia and Eastern Europe due to a fiscally attractive tax regime and wide network of tax treaties. However, Cyprus grew with its challenges and revamped its financial sector. The country sharpened its value proposition by diversifying its financial industry and breaking into new sectors such as investment funds, fintech and forex while significantly strengthening corporate governance, compliance and anti-financial crime regulation. 

Well-Rounded Sector 

Cyprus’ financial services sector has grown significantly since its early days and has been growing at a commendable rate of 6.5% per annum. In 2019, financial activities and professional services contributed 7.6% and 8.2% respectively to Gross Value Added (GVA). The Cyprus Securities and Exchange Commission (CySEC), the country’s financial services regulator, supervises more than 760 entities which employ together close to 20,000 people. Activities today centre around three strategic areas: corporate services, financial services and fintech/digital finance.

Foreign businesses have long been attracted to Cyprus due to its cost-effective services and preferential access to high-growth markets. Corporate services and corporate structuring continue to play an important role. Investment funds, trust services and private wealth are today growing elements of the island’s financial sector, and all have potential for further expansion. Facilitating the next steps in the finance sector’s evolution, Cyprus has established an innovation hub that provides a safe space for fintech entrepreneurs who are developing the business models of the future. These initiatives show that Cyprus today has a well-rounded financial services sector that developed a diverse portfolio of services and bears little resemblance to the industry of just a few years ago.

Based in Cyprus 

Cyprus is today home to a unique blend of financial services firms. Key players in the banking scene are Bank of Cyprus and Hellenic Bank. However, in addition, many foreign banks, which carry out international banking business, have a presence on the island. Cyprus’ booming fund sector has attracted a host of fund management companies, including Citigrade Capital, Hanseatic Capital Management, GMM and many more. Fund platforms such as KMG Capital Markets and Fortified Capital operate as third-party providers, while an array of fund administrators such as Alter Domus, IQ-EQ and Vistra complement the sector.

Foreign exchange trading is probably one of the most active segments in Cyprus’ financial industry. CySEC issued its first forex brokerage licence to Windsor Brokers in 1988, but with the emergence of online retail trading interest in setting up in Cyprus intensified significantly. The professional services segment is headed by the ‘Big Four’ as well as a range of top-tier legal, accounting and corporate services providers with plenty of international expertise.

Regional Business and Management Hub 

Corporate formation remains one of Cyprus’ areas of specialisation. Blue-chip corporations and corporate planners continue to establish holding, trading and investment companies on the island to channel investments into key markets worldwide. Cyprus’ stable EU environment and neutral political stance, coupled with its low corporate tax rate at 12.5% and tax treaties with 67 countries, have made the island a prime destination for the structuring of investments into Europe, the Middle East and Africa, as well as Eastern Europe.

More recently, Cyprus has also begun posting growth as a regional and international headquartering location. Over the last five to 10 years, the island’s advantages as a business hub became ever more ingrained, with many multinationals basing operational or corporate management functions on the island. Companies such as NCR, Kardex, Amdocs, Bernhard Schulte Shipmanagement and Wargaming have all established headquarters on the island.

Strong Banking and Insurance 

Cyprus’ banking sector is a symbol of the island’s reform process following the 2013 crisis. The industry was forced to restructure and consolidate; and today the country has a much stronger national banking sector than a few years ago. Cypriot banks enjoy strong capital ratios, and the rate of non-performing loans has been reduced by half. International banks continue to use the island as a launch pad into high-growth and emerging markets. More than 30 foreign banks are operating in Cyprus, which mainly carry out international banking business and have limited interaction with the domestic economy.

Cyprus’ insurance sector is performing well; posting premium growth year-on-year. However, insurance in Cyprus focuses mostly on domestic business. While the island is home to around 30 insurance companies, only a small number of them are writing business outside of Cyprus and taking advantage of EU passporting rights. Industry experts are of the opinion that this segment of the financial sector could be developed further, highlighting that Cyprus is particularly well positioned as a base for companies wishing to do business in the EU and the Middle East region.

A European Contender in Funds 

Cyprus’ investment funds sector has surprised the global asset management community with its fast growth. A sector that was practically non-existent only 10 years ago, Cyprus catapulted itself into recognition by overhauling and modernising the sector’s regulatory framework. Assets under Management (AuM) seeing a staggering increase from €2.7 billion in 2016 to €11.1 billion in the first quarter of 2022, proving Cyprus is being recognised by the global asset management community.

Cyprus has experienced growing interest from fund professionals around the world, but most notably from Europe, as well as Asia and the Middle East, whose fund managers are increasingly seeking access to the EU market. The island is positioning itself as a cost-effective alternative to the larger European fund centres, Luxembourg and Ireland, and many in Cyprus believe the sector has a great future ahead.

Private Wealth Hub 

Cyprus is solidifying its role as a partner to the global wealth management industry. As family offices and wealth managers around the world are turning to outsourcing in an effort to achieve sustainable profit generation, and Cyprus looks to grab a bigger market share of the private wealth market.

Cyprus’ wealth management significantly sector benefited from the island’s longstanding and close relationship with Russia and other Eastern European countries. For decades, Cyprus has been a financial base for ultra-high-net-worth and high-net-worth individuals from those countries, but it is also increasingly on the radar of wealthy individuals from the Middle East and Asia. Brexit has also been a key driver of new business for Cyprus’ private wealth sector in recent years.

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 firms and family offices. Another key reason for Cyprus’ appeal as a private wealth hub is the island’s modern trust regime, which is a unique combination of English and Cypriot law, and hence renders the island’s trust legislation very unique. A 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. The income of an international trust is tax exempt as long as it is earned outside of Cyprus.

Forex Capital 

Cyprus today is one of the most important EU locations for international foreign exchange (forex) and Contract of Differences (CFD) brokers. More than 40 companies from Europe, Asia and beyond are either headquartered on the island or opened offices on the island, including global giants such as eToro, FXTM, FXPro and Admiral Markets. Decades ago, Cyprus was the first country in the EU to regulate the foreign exchange market, and CySEC is credited with attracting foreign companies to set up Cyprus Investment Firms (CIFs) ever since. CySEC issued its first forex brokerage licence to Windsor Brokers in 1988, but with the emergence of online retail trading interest in setting up in Cyprus intensified significantly.

Cyprus became a popular forex hub due to low corporate tax rates, excellent infrastructure and an efficient regulatory framework under the supervision of CySEC, which is fully aligned with EU directives and European MiFID regulations. The sector has seen an influx of new companies as well as heightened M&A activity in recent years, primarily driven by UK-licensed FX and CFD brokers seeking an address in the European Union post Brexit. With years of expertise and advanced infrastructure in electronic platforms, Cyprus continues to offer strategic advantages that have positioned it among the most attractive destinations for international forex business.

Fintech Driving Growth 

Cyprus’ fintech cluster continues to grow, with some 250 fintechs reportedly calling the island home. Companies based in Cyprus have expertise across the entire fintech spectrum, including payments, asset management, regtech, insurtech, as well as crypto-trading platforms and crypto-exchanges.

To foster its fintech ecosystem, Cyprus has launched a number of initiatives. Chief among them is the Innovation Hub, which provides a sandbox-like environment and serves as the formal point of contact between CySEC and the fintech community. The ‘Hub’ reviews and provides non-binding feedback to the companies operating under its umbrella, which allows for the seamless transfer of information on how existing regulation applies to new products or business models, whilst also helping identify what regulatory frameworks might need to be established to meet tomorrow’s needs. The sandbox is just one cog in Cyprus’ ambitus plan to establish itself as a Mediterranean fintech hub. Other initiatives are incentives for fintech firms, a Startup Visa Scheme to attract and retain tech talent and the establishment of a €20 million fund with an emphasis on start-ups and innovative companies. Having adopted a national blockchain strategy in 2019, Cyprus is also taking steps to adopt crypto-related regulation, with the country’s finance ministry releasing a national risk assessment on crypto at the end of 2021.

Cyprus has also set out to attract crowdfunding service providers and platforms. Crowdfunding is increasingly seen as an alternative form of finance for small and medium-sized enterprises and start-ups which often find it difficult to access bank finance. Similar to its decision to be a first-mover in regulating forex firms, in 2020, Cyprus introduced national rules for investment-based crowdfunding, ahead of EU regulation which came into force at the end of 2021. In October 2021, Cyprus also launched a digital nomad visa, inviting remote workers to move to the island. Visa holders who either work as an employee of a foreign company or as a self-employed will have the right to reside in Cyprus for one year, with a possibility of renewal for a further two years. The idea of the nomad visa is to strengthen Cyprus’ position as a digital hub. Cyprus’ improved environment for fintech and crowdfunding platforms has been reflected in increased foreign investment, and there are hopes for more

Cyprus’ Credentials 

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.

CySEC, the regulator for all financial services, has overhauled and improved many facets of its operations in recent years to ensure the smooth and safe operation of Cyprus’ financial sector. CySEC emphasises that financial crime has no place in Cyprus and that the island’s services sector and its business models have changed in recent years. 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. The MONEYVAL Committee of the Council of Europe also found Cyprus to be compliant or largely compliant with all its parameters, and CySEC highlights that it is committed to the continued global fight against financial crime.

Challenges and Opportunities 

Despite the current challenges posed by the global coronavirus outbreak, Cyprus registers continued interest from local and foreign entrepreneurs and investors in setting up businesses in Cyprus, with CySEC reporting in July 2020 it has some 100 applications for new investment entities in the pipeline. The investment funds and wealth management sector are poised for further growth, and many believe there is scope for more cluster activities. The success of the shipping sector, an industry which contributes approximately €1 billion each year to the economy, has attracted auxiliary services, including the set-up of investment funds specifically designed for the sector – a model that could be successfully replicated for other sectors, for instance for the oil and gas sector. Impact investing and sustainable finance are also on the country’s agenda and have been identified as future growth areas.

However, in various segments, Cyprus positions itself as a place that helps small businesses grow into big companies. Currently, the island is home to many start-ups and smaller firms, all of whom are challenged by the costly introduction of new and complex regulation. The coming years will most likely see a series of mergers and acquisitions in the financial sector. Fintech firms might emerge as the big winner in this climate as financial technology can drive efficiency up and bring costs down. Cyprus should leave no stone unturned in welcoming these financial disruptors in order to benefit from the massive opportunities that fintech presents.

IP Protection 

A crucial element especially when it comes to attracting ICT and tech industry players is guarding Intellectual Property (IP), and Cyprus offers strong IP protection through domestic legislation and a network of EU and international agreements. The main feature of the Cyprus IP Box regime is the 80% deduction of revenue earned from the use of intangible assets. This four-fifths exemption from profits means that only 20% of IP income is taxed at the corporate tax rate of 12.5%. After applying the calculations, Cyprus-resident companies can see an effective tax rate as low as 2.5% – the lowest in Europe with tax rates for other IP Box regimes range from 2.5% to 10%. The IP regime of Cyprus is largely responsible for the growing interest in the jurisdiction. Digital goods are increasingly more valuable, and the favourable tax and business environment in Cyprus has made it a hub for digital business goods, IT software, and related services.

A Journey of Evolution

Cyprus has an ambitious vision for the future of its financial services sector. Looking to more established European finance centres, many in Cyprus acknowledge that the island still has plenty of room to grow and improve. In the meantime, there is no doubt that filling niches is a growth market for Cyprus. The island hosts predominantly start-ups and smaller firms, and in various segments, Cyprus positions itself as a place that helps small businesses grow into big companies. However, many believe that Cyprus’ financial services sector will become ever more important as it grows in tandem with the companies that call the island home today.


For more information, contact Cyprus' investment promotion agency, Invest Cyprus.

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October 2022


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