Despite being one of the world’s smallest nations, Cyprus has become one of its most important financial and business centres. Located at the crossroads of Europe, Asia and Africa, at the centre of the shipping and air routes linking Europe with the Middle East, the Far East and Africa, Cyprus is a strategic hub for business activities in the region.
Cyprus is a member of the EU and the Eurozone. It is two hours ahead of GMT, seven hours ahead of New York and seven hours behind Tokyo. The island enjoys a Mediterranean climate and the quality of life is among the highest in the world. The population and workforce are highly educated and Cyprus is a world leader in terms of university degree holders as a percentage of the population. English is widely spoken and extensively used in commerce and government.
The Business Environment
For many years Cyprus has been an excellent location for holding companies, for a host of reasons, including its transparent and reliable legal system, excellent communications and world-class professional and financial services. Since joining the EU, Cyprus has consolidated its position as the main portal for investment between the EU and other Western economies on the one hand, and the dynamic markets of Russia, Central and Eastern Europe, India and China on the other.
Cyprus’s modern, simple tax system is a particular source of competitive advantage. It is fully compliant with EU and OECD standards and tax rates are among the lowest in the EU. There are double taxation agreements covering 56 countries and the network of agreements continues to expand. There is a complete participation exemption and no taxation of capital gains except gains arising from real estate in Cyprus. Reorganisations and cross-border mergers are tax-exempt. Interposing an appropriate Cyprus holding or finance structure between investors in one country and the operating investee company in another can significantly reduce the tax burden, increasing post-tax income by 10% or more, and provide tax-efficient exit options.
With the world’s tenth largest fleet in terms of registered tonnage, Cyprus is also home to myriad shipping and ship management companies. Its tonnage tax system significantly reduces the tax burden on international shipping and ship management companies and makes Cyprus one of the most attractive environments in the world for international shipping.
An economic citizenship programme introduced in 2013 allows individuals investing more than €2.5 million in Cyprus and satisfying specified criteria to obtain naturalisation on an accelerated basis. Since Cyprus is an EU member, Cyprus citizenship considerably simplifies international travel and visa arrangements and is proving highly attractive to high net worth individuals.
The Legal Environment
Cyprus has a well-developed, transparent and reliable legal system based on common law. There is an independent and respected judiciary. Litigation can be protracted and time-consuming but effective interim remedies are available.
The government has pressed ahead with its programme to support economic recovery, attract inward investment and boost Cyprus’s attractiveness as a competitive but reputable international financial centre. The network of double tax agreements continues to be extended: new agreements with Bahrain, Georgia and Switzerland are now in force and new agreements have been signed with Ethiopia, Iran, Jersey and Latvia. A Protocol to the double tax agreement with Ukraine has been signed that preserves the highly favourable provisions regarding taxation of capital gains until at least 2019 and affords 'most-favoured nation' treatment to Cyprus. A new double tax agreement with India is expected to be signed shortly.
In December 2015 the final components of a tax reform package aimed at encouraging economic activity and attracting inward direct investment were enacted, including reduction of transfer fees on real estate transactions, temporary exemptions from capital gains tax, extension of accelerated capital allowances until 31 December 2016, introduction of a notional interest deduction on newly-introduced equity capital, the introduction of a non-domiciled regime for taxes on interest, dividends and rent and an extension of income tax exemptions for high-earning individuals taking up residence and employment in Cyprus.
In addition, the tax laws were amended to temporarily exempt loan restructurings from tax in order to facilitate and encourage the restructuring of non-performing loans.
In July 2015 the government announced that the reduction in real estate transfer fees was to be made permanent and that the annual immovable property tax would be abolished from the beginning of the new year.
Prospects for the Future
Cyprus has emerged successfully from its formal programme of economic reform and modernisation, with the targets agreed with international lenders having been met and in some cases exceeded. The reforms made at the behest of international creditors will improve regulation and keep out undesirable practices, and so help to enhance Cyprus's reputation for transparency and reliability, and its attractiveness to reputable investors. The government and the business services sector are committed to offering a competitive tax and business environment of the highest standards of probity.
Overseas confidence in Cyprus as an international finance sector was undamaged by the economic crisis, and privatisation and disposal of distressed assets by banks are currently providing significant investment activity and opportunities in the domestic market.
The government is continuing with economic reform, in order to secure and consolidate the progress made to date. The international services sector is in a strong position to lead the recovery, with new, competitive offerings enhancing the benefits it provides to international investors.
Looking forward, the discovery of substantial gas deposits offshore of Cyprus and the development of the island as a regional energy hub west of the Suez Canal offer substantial opportunities and grounds for optimism regarding the medium term.
While there are undoubtedly challenges ahead, the business sector has shown great resilience, and progress to date is highly encouraging. In summary, Cyprus remains very much open for business.