Cyprus: Open for business

As the third largest island in the Mediterranean Sea, Cyprus is at the crossroads between Europe, Asia and Africa, placing it in a privileged position for shipping, trading and international business

Cyprus has been an EU member since 2008 and boasts a strong economy, especially in the financial services sector. In addition, to a very attractive tax regime, it is backed by an extensive network of double taxation agreements between 64 countries and has evolved into a strong and serious international business and service centre for shipping, financial services and commerce.

Doxia Nikia Hadjivassiliou, president of the Cyprus International Businesses Association (CIBA), says, “With a population of approximately 854,000, the country has represented strong international business for decades. The country is thriving in the investment fund sector, global shipping and tourism industry, as well as in the energy and real estate sector due to a renewed boost of confidence by foreign investors. The economic climate is demonstrated by the numerous large-scale development projects, with capital coming from UK, USA, Greece, Russia, Egypt and Lebanon. The country offers a high standard of living in a professional atmosphere that makes doing business pleasurable and profitable.”

Cyprus combines numerous advantages as a solid business base having an EU-approved tax regime with competitive corporation tax 12.5% and tax incentives for a highly skilled workforce and high earners. The unemployment rate is also steadily on the decline. It was 8.2% in June 2018, which is sixth lowest in the EU according to the European Commission’s statistical office. The country’s goal is to reach full employment by 2020.

“Despite the harsh terms previously imposed on Cyprus,” continues Mrs Hadjivassiliou, “the country has taken full advantage of a strict reform programme to correct fundamental weaknesses in the financial system. The banking sector has been successfully recapitalised and is now stabilised after the 2013 bail-in. The liquidity and solvency have significantly improved, with deposits increasing by more than 3 billion in 2016-17, thus allowing for full repayment of emergency liquidity.”

Goods and services

More than half of Cyprus’ trade in goods is with the European Union and the country has achieved strong numbers in recent years for exports of both services – €9.9 billion in 2017 from €8.1 billion in 2014 – and domestically produced goods – €1.25 billion in 2017 from €735 million in 2014. The island continues to attract international companies and investments, particularly due to its natural gas exploitation, following the significant reserves discovered in Cyprus waters.

“Company formation, tax planning, trusts, foreign exchange trading and fund administration are strong segments of the business services industry,” says Mrs Hadjivassiliou.

“The main instrument of Cyprus holding companies has attracted hundreds of thousands of companies to structure investments into key markets through the island. Subsequently, a robust economic environment, enhanced by a solid reputation and image, has put Cyprus on the map as a first-class, world business prospect and one of Europe’s most interesting business investment locations. It is considered as an international centre of business excellence.”

Invest Cyprus is the government’s dedicated partner responsible for attracting and facilitating foreign direct investment into key economic sectors in Cyprus. Its director general, George Campanellas, shares the overall optimism reflected throughout the country. He comments, “2018 has marked a new era for our island, an era of new dynamics and robust economic growth of nearly 4%. Macroeconomic forecasts show that the momentum created is going to continue in the coming years. The recent upgrade of Cyprus’ credit rating to investment grade is the strongest confirmation of the viable and long-term conditions for economic growth in the country. Especially with regards to foreign direct investment (FDI), it is also proof of the full restoration of the international community’s confidence in Cyprus as a business destination.”

Consistent growth

The Cyprus economy has been expanding rapidly with growth accelerating since 2015. The island was among top five Eurozone performers in 2017, having an impressive growth rate of 3.9%, compared with EU average of 2.5%. Additionally, the European Commission predicts a growth of 2.8% in 2019 versus 3.2% in 2018. Professional services are one of the country’s most consistently growing sectors, rising on average by 5.1% per year in 2015-2017.

Recent figures show
The residential sales market in Cyprus is recovering, with transactions increasing by 29% in May year on year. Famagusta – a popular holiday destination for British tourists – has the highest growth of sale contracts at 84%.

Cyprus has celebrated record tourism arrivals for the first four months of 2018, representing an increase of 19.5 per cent compared to January – April 2017.

The City of Dreams Mediterranean, whose foundation stone was laid in June 2018, is expected to contribute €700 million or 4 per cent of the country’s GDP to the economy from the second year of being fully operational. This integrated casino resort will be the largest tourism development in Europe upon completion.

Cyprus currently enjoys one of the highest growth rates in the EU of around 4%, while macroeconomic forecasts show a robust growth of more than 3% in the coming years. Unemployment has also been reduced to 8.6% and is expected to be reduced even further.

The 12% growth in office space prices recorded by RICS index in Q1 2018 is mainly a result of the increased interest for international and regional headquartering to the island, as well as for establishing a secondary base within EU as a solution to Brexit.