Nestled in the eastern Mediterranean, Cyprus has long been a sought-after destination for investors seeking a strategic business foothold in Europe and beyond. With its rich history, favorable business infrastructure, strong economy, and appealing opportunities, Cyprus remains an attractive jurisdiction for both domestic and foreign entrepreneurs, organizations, and corporations.
Business environment
Changes in 2023 versus 2022 – What has changed in the last year that has impacted the way business is conducted?
2023 presented both challenges and opportunities for investors, with several notable developments impacting the business environment and overall economic outlook.
Top sectors driving positive growth trends
The ICT sector continues to be a pivotal driver of Cyprus GDP growth with contributions by this sector amounting to €655 million in 2023. This was achieved by the ongoing collaborative efforts of both the government and private sector, that also included several incentive packages to attract multinational technology companies to the country. These packages seek to ensure the quick processing of company registrations and the swift issuance of work permits to personnel (made possible by the Business Facilitation Unit, launched by the Ministry of Energy). The objective is for corporations to be able to operate in an efficient environment without complexities.
Additionally, economic expansion was also fueled by the sector encompassing wholesale and retail trade, vehicle and motorcycle repair, transportation, storage, accommodation, and food services. Within this category, covering commerce, hotels, and restaurants, there was a significant annual growth of 5%, injecting €1,366 million into the economy. The second major contributor to the country’s GDP was public administration, defense, mandatory social security, education, human health activities, and social care, showing a 1.4% annual increase and contributing €1,088.4 million. Finally, the real estate sector also contributed a reported €510 million to the GDP, with a 0.8% annual increase.
Impact of UK/US sanctions
2023 was marked with instability in the context of the sanctions imposed by the EU, United Kingdom and the USA on Russian interests as a result of the Russian aggression against Ukraine. As with the rest of Europe the sanctions had a negative effect on the Cyprus economy, and the services and tourism sectors in particular. This has prompted discussions among policymakers and industry leaders to explore measures for economic recovery and long-term stability.
Tax reforms
Cyprus introduced a series of tax reforms in 2022 that continued to enhance its attractiveness to international investors in 2023. These measures aimed to maintain Cyprus’s status as a preferred tax jurisdiction and to promote innovation. They included the introduction of Cyprus’ Recovery and Resilience Plan, Transfer Pricing rules in line with the OECD, new green taxes, a 120% R&D deduction for companies, updates to the 20% and 50% personal income tax exemptions and Double Taxation Agreements.
Economic outlook
The flash estimate from CyStat revealed a promising economic outlook for the fourth quarter of 2023, with a growth rate of 2.3% compared to the same period in 2022 and a notable 0.8% increase from the preceding quarter. The overall growth rate for the year 2023 stands at 2.5%, closely aligning with the Ministry of Finance’s conservative forecast of 2.4%. Eurostat’s comparative data highlights Cyprus as the second highest in growth among Member States for Q4 2023, surpassing the Eurozone and EU averages of 0.0% to 0.3%. In quarterly terms, Cyprus achieved the second-largest increase alongside Portugal after Slovenia, contrasting with the EU’s 0.1% growth rate and the Eurozone’s 0.0%. (Ministry of Finance)
What are the advantages of your country as a business location?
Cyprus boasts a strategic geographical position, situated at the crossroads of Europe, Asia, and Africa, making it a prime location for businesses seeking entry into these lucrative markets. This unique positioning presents a wealth of opportunities for international enterprises. Additionally, Cyprus offers an appealing tax system with one of Europe’s lowest corporate tax rates at 12.5% and an extensive network of double tax treaties. Further, the country has introduced a favorable Intellectual Property (IP) regime that provides tax incentives for companies holding IP rights, reducing their effective tax rate as low as 2.5% on IP-related profits. Such tax advantages make Cyprus an enticing choice for foreign investors seeking to optimize their financial profiles. Additionally, the country is included on the OECD’s whitelist of jurisdictions and has also received positive credit rankings in 2023 from Fitch (BBB), Moody’s (Baa2) and S&P (BBB). Cyprus also finds its long-term credit rating 3 grades above the minimum investment threshold, specifically at BBB High and BBB+ by DBRS Morningstar and the Germany-based agency Scope Ratings.
The island further stands out due to its well-developed infrastructure, including modern telecommunications, global ports, and international connectivity. A skilled and educated workforce, proficient in English, strengthens Cyprus’s appeal for companies seeking to establish their operations. The nation’s economy has displayed resilience, exhibiting consistent growth and recovery following the economic challenges spurred by the Covid-19 pandemic. Beyond this, Cyprus diversifies its business sectors, extending well beyond traditional domains like tourism and real estate. Thriving in sectors such as ICT, fintech, shipping, renewable energy, entrepreneurship & innovation, investment funds, filming, and higher education, Cyprus’s economic prospects remain robust. Moreover, its straightforward legal system simplifies business establishment and operation. Furthermore, Cyprus offers accessible residency programs for foreign investors, allowing them to secure residency through varied investment opportunities. Lastly, Cyprus’s European Union (EU) membership opens doors to the EU’s market and free trade with other member states, enhancing its business attractiveness on a global scale.
What are the business structures in your country?
Private limited liability company by shares
Such a company has share capital, and the liability of its members is limited by its memorandum of association to any unpaid amount, for the shares they hold. A private limited liability company by shares must have at least one (1) shareholder but no more than fifty (50), exclusive of any persons who are or have formerly been in the employment of the company and are or still continue to be members of the company. A private limited liability company cannot offer its shares for subscription to the public. This is the most common type of company.
Public limited liability company by shares
This company has share capital and the liability of its members is limited by its memorandum of association, to any unpaid amount, for the shares they hold respectively. A public limited liability company may invite the public to subscribe for its shares and may be listed on the stock exchange. The number of members of a public company must be at least seven (7). The minimum authorized and issued capital of a public company, which is offered for subscription, must be twenty-five thousand, six hundred and twenty-nine euros (€25,629).
Limited liability company by guarantee without share capital
This type of company does not have share capital and its members act as guarantors rather than shareholders. The liability of its members is limited by its memorandum of association, up to the amount that the members have undertaken to contribute respectively to the assets of the company in case of dissolution.
Limited liability company by guarantee with a share capital
This company has share capital and the liability of its members is limited by its memorandum of association, on the one hand, up to any unpaid amount for the shares they hold, and on the other, up to the amount that its members have respectively undertaken to contribute to the assets of the company in case of dissolution. This type of company can be either private or public company. If it is a public company, it can invite the public to subscribe for its shares.
Variable capital investment company
This company is a limited liability company by shares. The main characteristic of this type is that, according to its memorandum of association and the rules governing its operation, its shares do not have a nominal value but rather a variable value. The company can be incorporated after it receives a relevant license from the Cyprus Securities and Exchange Commission (CySec) to operate as Collective Investment Funds (CIF).
A variable capital investment company (VCIC) can take the form of either a private or a public company, depending on the type of collective investment fund (CIF) that such variable investment company will take (UCITS, AIF, AIFLNP, RAIF). The number of members of a private company can range from one (1) to fifty (50) members while the number of members of a public company must be at least one (1).
General Partnership
In a general partnership, all partners are general partners and therefore every partner is jointly and severally liable with all the other partners for the debts and obligations of the partnership that arise while he/she is a partner. A general partnership must have at least two (2) partners.
Limited Partnership
A limited partnership must comprise of one (1) or more persons who will be the general partners and shall be responsible for all the debts and obligations of the partnership, as well as one (1) or more persons who shall be the limited partners who will contribute a certain amount or property, valued at a specific amount to the partnership and to which persons a specified number of shares may be assigned. Limited partners are not liable for the debts and obligations of the partnership beyond the amount they have contributed. A limited partnership may have a share capital and be limited by shares. Regardless of whether it has share capital or not, a limited partnership is not considered as a legal entity with an independent legal personality.
Economy
Currency strength
Cyprus adopted the Euro as its official currency on 1 January 2008. The Euro is one of the top 10 strongest currencies in the world and is the official currency of 20 out of the 27 countries that form the European Union. Euro coins and banknotes entered circulation in 2002, and the currency is free-floating.
Inflation rates
Inflation (HICP) in September 2023 is estimated to have increased by 4.3% compared with an increase of 3.1% in August 2023. For the period January-September 2023 the HICP is estimated to have increased by 4.4% compared to the corresponding period of the previous year.
Main trade sectors
Tourism plays a pivotal role in Cyprus’ economy, and officials anticipate 2023 to be a record-breaking year for the country. Although the COVID-19 pandemic had a significant impact on the industry, it is rapidly recovering as conditions improve. Cyprus is also a hub for foreign investment, particularly in real estate, which offers an abundance of residential and holiday properties, as well as numerous commercial real estate developments in key cities like Limassol. According to a PwC analysis, the real estate market on the island demonstrated resilience during 2023, with total value of transactions reaching €5.5 billion.
In addition to tourism and real estate, Cyprus boasts a well-developed financial services sector that includes banks, financial service providers, insurance companies, and investment firms. The country’s favorable tax system has attracted many international companies, fostering stability and promoting foreign investments and business startups. Additionally, Cyprus serves as a major global shipping hub, hosting numerous shipping companies and ship management firms. Notably, ship management revenues reached €623 million for the first half of 2023. Constituting 7% of the country’s GDP, the shipping industry is poised for further growth, with several global shipping giants relocating their activities to the jurisdiction.
Cyprus is also making strides in the energy sector, focusing on developing its natural gas resources and renewable energy through solar power initiatives.
Driving the Cyprus economy forward in 2024 are its expansive technology, entrepreneurial, and innovation sectors. Notably, the fintech sector has seen rapid growth, attracting international businesses and investors. As already stated, the information and communications (ICT) services sector has expanded significantly, becoming an impactful driver of Cyprus’ GDP growth, injecting billions into the economy. Cyprus has nurtured a thriving start-up ecosystem, with almost 450 start-ups and scale-ups with a combined valued of €3.7 billion in 2023. The government of Cyprus actively promotes innovation and entrepreneurship by offering tax incentives and support for start-ups and technology companies. The funds industry in Cyprus has also tripled in size since 2016, attracting substantial global interest and investments.
Legal system
How does the legal system operate? What should clients be mindful of when doing business in your jurisdiction?
Cyprus is primarily a common law jurisdiction with a justice system which is based on the adversarial model. This is a legacy from its period as a British colony. Much of Cypriot legislation is based on the UK laws in force at the time Cyprus ceased to be a colony. It is updated and amended regularly to ensure alignment with all relevant EU Guidelines and Directives. Where there is no applicable Cypriot legislation, English common law and equity are applicable, and English authorities have persuasive force. The courts are bound by the doctrine of precedent according to which where the common law has been interpreted by the Supreme Court of Cyprus in a particular way, the subordinate courts will be bound by that interpretation. This offers the parties to a commercial action the advantages of consistency, predictability, and efficiency.
Foreign investment restrictions
Regulatory environment
Cyprus, as an EU member state, operates within a regulatory framework that encompasses various sectors, each designed to promote economic growth, protect the rights of consumers and investors, and ensure compliance with international standards. In the financial realm, the Cyprus Securities and Exchange Commission (CySEC) oversees banking, insurance, and investment services, aligning the country with EU directives to maintain financial stability. The nation’s competitive tax environment, with a low corporate tax rate and extensive double taxation treaties, positions Cyprus as an attractive hub for international businesses, and the government actively combats tax evasion and money laundering. Moreover, Cyprus upholds robust labor regulations and fosters fair working conditions, while consumer protection measures are in place to safeguard consumers’ rights. The regulatory landscape here extends to environmental protections, legal systems, and data privacy, with an overarching commitment to EU standards.
Cyprus also ensures a conducive environment for business operations and investment. The Department of Registrar of Companies and Official Receiver facilitates the registration of various business entities, welcoming foreign investment. In the real estate and construction sectors, regulations maintain construction quality and safeguard buyer rights, while in the telecommunications and IT domains, regulatory bodies ensure competition, service quality, and data protection. These efforts are complemented by a robust legal system based on English common law principles, providing the legal foundation for contracts, property rights, and dispute resolution.
In response to global concerns, Cyprus has implemented comprehensive measures in areas such as anti-money laundering and counter-terrorism financing, aligning its regulations with international standards and EU directives. Additionally, the country complies with the General Data Protection Regulation (GDPR), ensuring the privacy and security of personal data. In healthcare and pharmaceuticals, Cyprus adheres to EU standards in the delivery of healthcare services and the regulation of pharmaceutical products. Overall, Cyprus’ regulatory environment reflects its commitment to maintaining a thriving economy, protecting individual rights, and adhering to international norms in various sectors of governance.
Direct investment
The Cyprus government has an established record of seeking to encourage foreign direct investment into the country in order to diversify its economy. The tax system has played an important role in these efforts and consequently the Cyprus tax regime has evolved into being one of the most attractive in Europe for individuals, investors and businesses. According to CEIC, Cyprus Foreign Direct Investment (FDI) increased by 1.1 USD bn in Jun 2023, compared with a drop of 1.6 USD bn in the previous quarter. CEIC converts quarterly Foreign Direct Investment into USD. The Central Bank of Cyprus provides Foreign Direct Investment in EUR. Federal Reserve Board average market exchange rate is used for currency conversions.
Restrictions on foreign capital
There are currently no restrictions on ownership and investment in Cyprus.
Foreign exchange controls
Cyprus imposes no capital restrictions but as with other EU countries, travelers to the island must declare cash sums exceeding EUR10,000 upon arrival.