Cyprus: An Alluring Financial Center
GRC Review Q4 — The Cyprus Issue
Growth Across the Board
Yiannakis L. Omirou, Former President of the House of Representatives, 2011–2016
During the first quarter of 2017, Cyprus experienced its highest GDP growth rate in nine years. At 3.3%, this heralds the recovery of the economy and reflects the success of various initiatives put in place across key sectors, from tourism, retail, construction and real estate, to energy, shipping, and professional services.
With the services sector contributing to over 80%of its GDP, Cyprus is primed to retain its competitive advantage as a financial center. The country is known for its holding company, financing, and intellectual property structures and, in addition, has one of the lowest corporate tax rates in Europe at 12.5%.The tax system is attractive: all business expenses are tax-deductible, profits on the sales of shares are exempt from taxes, and no withholding taxes are imposed.
Growing investor confidence and a sturdier fiscal environment are evidenced by the significant reduction of the Cyprus Government Bond yields, as they are traded in the international markets. Further, increased building coefficient incentives provided by the government are laying firm foundations for new hotel developments and renovations in response to the record number of tourist visitors.
The construction and real estate industries are stabilizing and showing positive signs of rebounding, evidenced by the increased number of property contracts submitted to the land registrar. Thisincrease in sales is driven by the attractive citizenship-by-investment and permanent residence programs available, offering incentives both in terms of taxes and transfer fees, and the fact that investors disposing of assets/properties in Central Europe (where prices have significantly increased) are seeking higher yields in Mediterranean countries.
Specific programs and solutions have been developed by local financial institutions to reduce the high percentage of non-performing loans. Increased foreign investments, together with economic improvement and subsequent increased turnover for companies and disposable income for households, will assist in the gradual deleveraging of the private sector.
The legal system, based on UK common law, is competitive, modern and transparent. New legislation governing Alternative Investment Funds has been enacted and brings Cyprus up to par with other competitive EU investment fund jurisdictions, while trust legislation has also been modernized.
Positive developments in the energy sector, with well-known international companies signing for the exploration rights in the Cyprus Exclusive Economic Zone, will further bolster Cyprus’ economy in the long term. The country’s strategic geographical position between three continents provides it with a competitive edge in the international energy market and positions this sector for further growth.
Confidence in Cyprus’ economy is gradually recovering after 2013, with the traditional economic sectors showing significant signs of improvement. This is a great indication of further growth in the country.