2020 Cyprus Country Report

International Financial Services
Sector Profile
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, Cyprusresident
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.
Corporate services and
corporate structuring
continue to play an important
role, while investment
funds, trust services and
private wealth are growing
elements with potential
for further expansion
TOWARDS FUTURE GROWTH
There is no doubt that Cyprus’ financial sector
will face a more challenging future than initially
anticipated. The coronavirus crisis has affected
markets worldwide and will certainly leave an
impact on the island’s industry. However, the
face of the global finance industry is changing as
technologies play an ever more important role.
Cyprus’ decision to gather experience and expertise
in new opportunity areas should help it
navigate more challenging times and find a way
towards future growth. Meanwhile, the fact that
confidence in Cyprus’ fund sector is increasing
goes to show that the island can compete with
other European finance hubs in more established
industries. Cyprus’ finance industry is definitely
one to watch. On the international scale, it is still
small but there are opportunities aplenty. n
The pandemic
has affected
the way
we work,
interact and
source new
clients. Closing a relationship
usually required a due
diligence visit to a client or
from a client involving crossborder
travel and sourcing
of new business was via
seminars and conferences,
which are both no longer
occurring. It is a challenging
time with a reduction in
business, with governments
and companies tightening
their belts to reduce costs.
Paul Pavli
Managing Director
Oneworld Plus Management
Growth will
come mainly
from wealthy
individuals
who use
Cyprus as
their family office hub. Our
services will need to be aligned
with these needs and be in
a position to serve clients
globally. We estimate that over
$15 trillion worth of assets
are set to pass to the next
generation over the next couple
of decades, and Cyprus needs
to participate in this wealth
shift by enhancing its private
wealth protection vehicles.
Cyprus’ strategic location,
business friendly environment,
efficient tax system and
professional human capital
create an ideal environment for
the set-up of family offices.
Constantinos Meivatzis
Managing Director
IQ EQ (Cyprus) Limited
Discover more at www.cyprusprofile.com
106 Country Report CYPRUS 2020