In Cyprus, the crisis caused by Covid 19 has shocked the country’s economy which this year will see GDP decrease by 7.7% according to the European Commission, after it had grown by 3.2% in 2019. Public debt will skyrocket, rising from 95.5% to 115.7% of GDP. Exports fell by 14.9% between January and May and will drop by 21.8% over the year. The island off the Turkish coast is trying to diversify its economy as the current model is too dependent on services and tourism, Andreas Theophanous, a lecturer in political economy at the capital’s university, Nicosia, told Le Monde. , «The consequences of this crisis will be disastrous for us as well as for Europe».
After deciding to renounce the ESM (European Stability Mechanism) created in 2012 intended to provide emergency financial aid to Member States, because the request could be perceived as a sign of difficulty with the risk of insolvency, the government has decided a series of urgent measures. In detail: guaranteed loans to businesses; temporary reduction of VAT from 9% to 5%; help to those who want to create a business. Some suggest developing the pharmaceutical industry and betting on health tourism. The wine business is another possibility such as the construction of an attractive regional university center, while the exploitation of the immense gas field discovered at the end of 2011 in the territorial waters could be a source of income for the country, but at the moment it is the cause of tension in the region with the Turkish neighbor, in particular.
Today the Cypriot economy is faltering under the effect of the Covid-19 pandemic. Like Croatia, Portugal and Greece, where tourism accounts for around 20% of gross domestic product (GDP), Cyprus has been hit hard by the collapse in air traffic and travel restrictions. The president of Limassol hoteliers, Charis Theocharous, has asked the government to set up free screening at airports to detect coronavirus infections. In particular, the screening should be aimed at British tourists, the largest group of visitors each year and who, however, are prohibited from entering the island (1.2 million inhabitants).
Main sectors of industry
Before the division of the island, the Cypriot economy was largely centered on agriculture and had an underdeveloped manufacturing sector.
Following the separation, the Greek community of the Republic of Cyprus has made important efforts to implement government building, industrial and commercial development programs in order to bring the country’s economy towards Western models.
Currently, the construction sector represents an important component of the country’s GDP, contributing to its growth. Indeed, the number of building permits (including residential and other buildings) continues to increase at a much faster rate than is the case globally, supported, above all, by the strong demand for tourist holiday homes.
While traditionally strong, primary sectors such as agriculture and manufacturing – contributing 1.9% and 5% of GDP respectively – have faced new challenges that have led both to follow a similar strategy to create high-quality products. added value for niche markets willing to spend more for a quality product. Both economic sectors have focused on innovation and diversification, which have supported the efforts of industries to increase productivity.
Taxation for businesses in Cyprus
Normally the corporate vehicles used to invest in Cyprus are represented by joint stock and limited liability companies, by partnerships (established in the form of General Partnership or Limited Partnership, pursuant to Cap 116 of the Companies Law) and the creation of local branches of foreign companies (which normally requires the approval of the Central Bank, when the branch is required to operate actively and continuously in the country, as well as the identification of a local resident who can validly receive notifications, and registration in the Register of Companies within the month following the constitution, and the annual filing of the financial statements).
The Holding In Cyprus
Cyprus had introduced since the second half of the nineties a policy aimed at transforming the island into an off-shore center, and also the Central Bank had changed its rules to make room for collective investment models, such as trusts, management companies of funds and offshore companies in general.
The entry into the Union, however, resulted in the elimination of the favorable regime for offshore companies, which in themselves are contrary to OECD principles and which led in the recent past to consider Cyprus as a “tax haven”. This process was offset by a simplification of the tax system, with a significant reduction in corporate income rates, with the introduction of a single rate of 10%.
Investing in Cyprus
Investing in Cyprus can be beneficial in light of the following reasons:
- Ability to operate within the European Union, without customs duties and in a logistically optimal allocation, using a structured and sophisticated financial system;
- Modest tax burden (ordinary rate of 10% for the tax on income produced in the country by fiscally resident legal entities), with the possibility of using local holding companies for the management of equity investments and real estate trusts and for the management of proceeds from licenses and royalties generally;
- Possibility to benefit from accelerated depreciation on machinery and structures for investments in tourism and production activities, as well as to use the accumulated losses without time limitations;
- Possibility of freely transferring profits and dividends abroad and repatriating the invested amount without any limitations in terms of time and amount;
- Reasonable labor costs;
- Easy procedures for setting up a local company, with the advantages offered by holding companies and trusts under Cypriot law. In addition, there is absolute equality with the local investor, with the possibility of setting up wholly foreign-controlled companies;
- The abolition of currency limitations for EU subjects starting from the annexation to the Union, with the only obligation for those who leave the island to declare cash amounts exceeding 12,500 euros.
- Favorable immigration policy and fast track to obtain a permanent community residence permit, without particular domiciliation restrictions.