With its EU connection and appealing tax incentives, we discuss with Elias the common misconceptions investors have towards Cyprus and why it is in fact an ideal location to do business.
The president of the Cyprus Germany Business Association, Stefan Nolte, said, “Cyprus will need to come up with new ways to attract direct investments from Europe.” Why are direct investments so important right now?
Direct investments have been important for Cyprus ever since the country gained independence from the UK in 1960. At that time, the economy was firmly tied to agriculture and tourism and the country’s only natural resource was its people. In order for the country to develop, it was necessary to attract investment and expertise from elsewhere. The economy is now far more diverse, but tourism and tourist related activities do still remain a significant component of the Cypriot economy. The COVID-19 pandemic has adversely affected this sector and will continue to do so for the foreseeable future. In order to return to GDP growth quickly, Cyprus must look elsewhere. Direct investment offers a viable solution since Cyprus has many attributes that render it an attractive location for such funds.
In what ways can Cyprus achieve the above?
By promoting the advantages that it does have, including: its geographic location at the meeting point of three continents; a young and well-educated population which includes a skilled professional services resource; a Common Law legal system offering certainty of outcome; a stable political system; access to the EU, and numerous tax incentives forming part of a legitimate, modern, transparent low tax system.
Cyprus is an ideal headquartering destination for many firms. Its unique EU approved tonnage taxation scheme renders it very attractive to the shipping sector. Several significant development and construction schemes such as that for Larnaca Port and Marina have also been accelerated and should prove attractive to investors. There are specific incentives in place to attract film and media companies and also technology-based businesses. Additionally, there are investment opportunities in the renewable and hydro-carbon energy sectors as well as in the financial services sector.
Cyprus is not a tax haven but a bona fide business friendly jurisdiction.
Nolte also stated that Cyprus is known as a tax haven and an island used by foreigners for money laundering and tax evasion; why is this the notion often made?
Cyprus is not a tax haven but a bona fide business friendly jurisdiction. In his speech, Nolte was referring to the view in Germany and not in the world per se. At the time of the financial crisis of 2013 Cyprus was used as an ‘experiment’ for the concept of a ‘bail in’ and there was a concerted effort to portray the island as a haven for ‘dodgy’ funds to justify this. Money did flow into Cyprus (in much less amount than it did in other countries) following the collapse of the USSR when the country lacked a sophisticated regulatory structure to deal with it. However, this situation changed massively when the country introduced significant regulatory reform in order to become a member of the EU in 2004. Further reform conditions were attached to the EU funds received along with the ‘bail in’. Unfortunately, if you throw enough mud, some will stick. This may have been particularly true in respect of the German people who already felt that they were bearing the brunt of bailing out Europe and were aggrieved by the misconceived idea that they were propping up crooked Russians rather than ordinary citizens who in many cases had actually forfeited most of their life savings.
In fact, the most important flows of money into Cyprus in recent times have been from internationally respected companies and multinationals. This is something that, as a country, we should be publicising more.
What could be done for Cyprus to diminish the reputation of being an ideal spot for money laundering? Should there be tighter regulations in place?
I contest the assertion that this is Cyprus’ reputation. It is certainly not the view reflected in the 2020 Moneyval report on our country which strongly praised the Central Bank of Cyprus, the Institute of Certified Accountants and the Financial Investigations Unit for the systems that are in place to safeguard against money laundering. Furthermore, the two main concerns highlighted in the otherwise very positive report, namely clarity on ultimate beneficial (UBO) holders of a business and possible misuse of the Cyprus Investment Programme (CIP), have been addressed. The 5th Anti-Money Laundering Directive has been adopted into Cyprus Law, this includes the establishment of UBO registers and extends regulation of the crypto-asset sector. The CIP was amended to address Moneyval and EU general concerns but has now been completely dropped as a consequence of adverse publicity linked to the original scheme.
Cyprus law is fully harmonised with EU law. EU Anti-tax Avoidance Directives ATAD1 and ATAD 11 entered into force in June 2020. Cyprus was also one of the initial 68 signatories to the Multilateral Convention on Tax Treaty Measures to Prevent Base Erosion and Profit Shifting. All new and updated tax treaties are aligned with the latest OECD standards. In fact, Cyprus has double taxation treaties with more than 60 ‘reputable’ countries including the USA, Germany, most EU countries and the UK. It is hard to see how that squares with Cyprus having an image as a pariah state.
At 12.5% Cyprus has one of the lowest corporate tax rates in Europe.
To answer the second part of your question, Cyprus has already adopted currently accepted ‘best practice’ in its regulatory approach. This will be updated as necessary to ensure continued compliance with EU and international standards. I cannot see any justification for us self-imposing additional restrictions that would be tighter than those existing in any other country in the world.
Should Cyprus enhance its reputation as a destination for financial services and investment funds?
Definitely, in its growth to becoming an international financial services centre, Cyprus has developed a highly skilled financial services professional sector based in a relatively low-cost economy. It should also seek to promote its introduction of RAIFs which are a time efficient and affordable way for establishing AIFs in Cyprus. RAIFs do not require authorisation by the Cyprus Securities and Exchange Commission, being the competent authority supervising AIFs, in order to commence operations as long as they are externally managed by an Alternative Investment Fund Manager licensed in Cyprus or in another EU Member State.
What aspects of Cyprus are appealing to investors?
There are many but among the most significant are: The regulatory and ‘safety blanket’ that Cyprus’ EU membership confers on them; access to markets in three continents; a skilled low-cost workforce; Cyprus’ investor friendly tax system and, an extensive network of taxation which protects them from the burden of double taxation.
What incentives can firms benefit from if relocating to Cyprus?
At 12.5% Cyprus has one of the lowest corporate tax rates in Europe. There is a 50% tax deduction relief available for 10 years for ex-patriate employees earning above 100,000 and a 20% deduction lasting five years for ex-patriates earning below this threshold as well as a non-domiciled regime. Businesses investing in R&D can benefit from a generous IP Box regime. There are also industry specific benefits such as the Cyprus Film Scheme and the Cyprus Shipping Tonnage Tax Scheme.
About Elias
What has been your biggest achievement in the past 12 months?
Probably the fact that we have not just ‘kept the lights on’ during the COVID-19 pandemic, rather we have driven the firm forward. We have not furloughed any staff, have recruited new talent, recorded several big new client wins and have continued to develop both our staff and our client services. In fact, we are very proud to report that we managed to exceed our 2020 budget which was set and agreed upon before the covid crisis kicked in.
Do you have a mantra or motto you live by when it comes to helping your clients?
Always aim to exceed their expectations and then try a bit harder!
What has been your flagship piece of work and how did you apply thought leadership to this scenario?
I am a huge believer in the importance of leveraging technology to help it improve the quality, accuracy and cost of providing advice and value added to clients. This resulted in my pushing ENC to develop a strategy to adapt and develop services of an Alternative Services Legal Provider. This strategy was converted into action during 2019 when we established an innovation and technology development team. The team was tasked with developing ‘NEOLAW.AI’, a technological tool designed to provide ‘value added’ services to clients and thereby propel the delivery of legal services in Cyprus well into the 21st century. This innovative product will hopefully revolutionise the delivery of legal services both on the island and beyond. The launch of the ’NEOLAW.AI’ Alternative Services Legal Provider offering is scheduled to take place in the coming months.
Elias Neocleous & Co LLC and Elias Neocleous
I am proud to be the managing partner of the largest, and I believe, the best international law firm in Cyprus. I graduated from Oxford University and have been a partner since 1995. My specific areas of expertise are Corporate and Commercial and Tax Law.
Elias Neocleous & Co LLC (ENC) employs more than 150 professional staff and has three offices in Cyprus as well as fully functional offices in Brussels, Prague, Kiev and Budapest. We also operate a Russian desk and an Indian desk. All our staff are bilingual with the majority being fluent in English as well as in their mother tongue.
The firm is fully departmentalized, allowing staff to specialise in the areas of law which are of most interest to them and, enabling us to provide a comprehensive service to our clients which are mainly ‘blue chip’ companies, governmental and public bodies and, high net worth individuals. Whilst we are very active in the domestic market, we are best known for our ability to competently handle complex cross border issues. We are frequently called upon by the ‘magic circle’ law firms to handle the Cyprus aspects of complicated transactions. As a firm, we work hard to promote the expertise of the Cyprus financial sector and of Cyprus as a business centre. The firm is classed as ‘tier 1’ by a host of independent rating agencies whilst our staff are also widely recognised in their fields of expertise.
ENC began life as a family firm and throughout its growth, we have tried to maintain that sense of community whilst simultaneously adopting modern international quality standards, infrastructure and procedures. We operate the largest and most in demand lawyer training scheme in Cyprus and are strong advocates of continued professional development. Several of our current partners are ‘home grown’ and our international standing allows us to attract external expertise to strengthen our team. We place great emphasis on having a diverse staff team in terms of gender, nationality and age as not only is this the ‘right’ thing to do, but it also enhances our ability to engage with and fully understand our clients. The firm is very much a part of the community that surrounds it and consequently, we have a very active CSR programme. Our litigation team has also become quite famous for the pro bono work it undertakes – most recently winning a landmark discrimination ruling from the Cyprus Ombudswoman against the Defence Ministry on behalf of a large group of female soldiers.
As a firm, we believe in applying the highest quality standards to all that we do since a chain is only as strong as its weakest link. To my knowledge, we are the only law firm in Cyprus to hold ISO 9001:2015 for quality management systems in an organisation. I believe that we are also unique in holding certification ISO/IEC 27001 Information Security Management Systems, something that has provided our clients with valuable data security against the modern world’s many cyber threats. In addition to this, we are the only firm of any description to have received Cyprus’ Gold HR award in consecutive years for ‘Excellence in Performance Management Strategy’. Our biggest assets are our staff and our clients, and we are committed to investing in both.
