Since the island’s independence in 1960, Cyprus has been gradually transformed from a mostly closed economy, based on agriculture and mining, into a service-based, export-oriented economy, with the private sector being the backbone of economic activity and the Government’s role restricted to monitoring the economy and the public utilities.
The Cyprus economy has performed remarkably well for most of this period. It has weathered significant external shocks and has taken advantage of a number of different opportunities. A key driving force has been the openness and the responsiveness to international markets and the investment in infrastructure essential for growth. Economic policies have been overall appropriate, providing a supportive framework of financial stability and expansionary fiscal policy when appropriate, resulting in strong employment growth and rising living standards.
For over half of century, sectors of tourism, shipping, banking, insurance, accounting and law, information, consulting and financial services recorded remarkable development with a dramatic increase of foreign investment. This led to a significant number of companies established in Cyprus, attracted by the strategic location of the island, a favourable tax system and a legal framework based on English Common Law and highly educated workforce.
The onset of the global financial crisis in 2008, reversed the growth path, affecting mostly the construction and tourism sectors and most recently the banking sector. The Government followed at the beginning expansionary fiscal policy in order to mitigate the impact of the crisis, focusing on the affected sectors. After Cyprus singed the MoU with the EC, ECB and IMF, fiscal consolidation became the primary objective, which took effect in a series of fiscal consolidation packages and the formation of a particularly tight budget, primary focusing on the expenditure side with measures of permanent character, addressing any structural issues.
The restoration of Cyprus’ credibility has been a top priority following the country’s €10-billion bailout deal and the unprecedented bail-in decision by the Eurogroup to impose losses on depositors in 2013. However, the hard work is finally paying dividends and with the banks successfully recapitalised with foreign investment, Cyprus’ economic recovery has been faster than many first projected.
The goals achieved by both Cyprus’ economy and banking sector over the last almost four years have been hailed impressive internationally. The successful and sooner-than-expected completion of the financial assistance programme in 2016, continuous credit rating upgrades, positive bank results and successful bond issues, have marked an end to prolonged uncertainty, and revived confidence in the country.
Cyprus has exceeded on almost every major economic indicator, as it has refocused its economy on tourism, shipping, construction and business services as well as supporting entrepreneurship and innovation.
With stronger growth on the horizon, new opportunities are springing up in the wake of rebuilding the Cypriot banking sector. Investment opportunities that could be tapped into by international banks and financial groups are mergers and acquisitions, private equity and venture capital projects as well as financing of infrastructure projects in the oil and gas industry, casino and resort development and other large scale projects.
Furthermore, to reduce its bank dependence, Cyprus has already turned its interest into alternative sources of finance such as bond markets and investment funds, also peer-to-peer lending and crowd funding are emerging as new finance models.
While international financial institutions and credit agencies project GPD growth rate of 2.5% for 2017 and 2.3% for 2018, it is more evident than ever that the island’s economy continues the recovery at a remarkable pace.
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Cyprus has always played a major role as a trading and business centre due to its strategic location at the crossroads of three continents. The implementation of wide-ranging structural reforms has led to the creation of new business opportunities for dynamic investors. The island is today the European Union’s south-easternmost outpost, boasting a favourable tax regime, an advanced commercial infrastructure, a conducive business environment, a liberal investment regime and a highly qualified manpower.
Cyprus is rapidly emerging as one of the most favoured holding company jurisdictions worldwide. Especially since joining the European Union, the country has become one of the most attractive locations for the setting up of holding companies. The wide network of double taxation treaties and other international investment agreements, enables multinational corporations and international enterprises active in cross-border business activities to increase considerably their returns on investment, by using the Cyprus holding company structure in their international tax planning activities.
The island has also developed into a fully-fledged shipping centre combining both a sovereign flag and a resident shipping industry, renowned for its high quality services and standards of safety. A number of fiscal and economic advantages, such as the competitive ship registration costs and annual tonnage taxes, the favourable tax regime for ship management and the low operation costs have further enhanced the image of Cyprus as an international shipping and shipmanagement centre.
There is also no doubt that Cyprus offers excellent advantages to become an energy hub for the whole region, especially after the discovery of significant quantities of hydrocarbons in the exclusive economic zone and the Government’s decision to proceed with the exploration. The Cyprus Government has been engaged in talks with neighbour countries for the co exploitation of the hydrocarbon reserves of the area.
In addition, the country offers other attractive investment opportunities in the sectors of residential and commercial real estate, leisure and tourism, financial services, renewable energy, ICT, research & development.
Cyprus has developed into a bridge of cooperation and may be used not only as an effective jurisdiction for routing investments within the European Union by third country investors but also as a portal for investment outside the European Union, particularly into the rapidly growing economies of Central and Eastern Europe, India and China. It is not therefore surprising that Cyprus is considered as “the gateway of Europe”.
The Point of Single Contact (PSC) in Cyprus offers valuable guidance for the completion of the relevant procedures and formalities.
Establish a Company
All Cyprus international business entities may take advantage of the many tax incentives which have been designed specifically to provide maximum profit potential. The old distinction between local and international companies has been abolished and the corporate tax rate is now uniformed and only 12.5%, one of the lowest in the European Union.
In order to enhance foreign investment intensity, the FDI policy has been liberalised for both EU and non-EU nationals. Subsequently, administrative procedures have been simplified and no limitations apply in most sectors of the economy, as per the minimum level of investment and the foreigners/ participation percentage.
Foreign investors can register a company directly with the Registrar of Companies and Official Receiver and obtain any licence, if needed, from the appropriate authority depending on the nature of investment.
Investors may address to the Point of Single Contact (PSC) for further guidance and direction on a case by case basis.