The small yet dynamic Mediterranean island of Cyprus, famous for the warmth and hospitality of its people, is experiencing challenging times today but continues to be an attractive location to live, work and invest. The island’s sophisticated and sun-kissed lifestyle coupled with its exceptional business infrastructure has proven a winning combination.
Located in the Eastern Mediterranean at the crossroads of Europe, the Middle East, Asia and Africa Cyprus’ strategic position has played a key role in shaping its history and in developing the island into a centre for trade and international business.
Despite being a country of only 840,000 people, Cyprus has steadily built itself into an international business centre. The island has much to offer in these terms with its well-educated workforce, low-cost business environment with a wealth of support services, a sophisticated ICT infrastructure and an investor friendly tax regime backed up by almost 50 double taxation agreements in an EU-compliant domicile. But Cyprus has not only developed a vibrant business centre, it is also one of Europe’s favourite holiday destinations.
Cyprus enjoys around 340 days of glorious sunshine a year and a coastline teeming with endless stretches of golden sands, secluded bays and rocky coves, all surrounded by the crystal clear waters of the Mediterranean Sea. Throughout the island the landscape is dotted with the fascinating remains of history from Neolithic settlements and ancient city-kingdoms to exquisite Byzantine art and magnificent Venetian architecture.
People & Culture
Cyprus is well known for its hospitality, a fact reflected in the Greek word, ‘xenos’, used for both stranger and guest, an indication of the warm welcome that awaits visitors to the island. Life is meant to be enjoyed in Cyprus, which is renowned for its excellent quality of life, with the emphasis on working to live, as opposed to living to work. Cafe culture predominates, with both business and social meetings taking place over a leisurely frappe (iced coffee) in the numerous cafes in every town and city. As with most Mediterranean cultures, food – both the preparation and the eating – plays a vital role and the famous Cyprus meze, a large selection of small, delectable dishes, is best enjoyed ‘siga siga’ (‘slowly slowly’) al fresco, surrounded by friends and family and accompanied by a glass or two of excellent Cyprus wine.
The people of Cyprus are the descendants of two major civilisations: the Greek Cypriots from the Mycenaean Greeks; and the Turkish Cypriots from the Ottoman settlers. While Cyprus is a Greek-speaking nation and Cyprus’ official languages are Greek and Turkish, English is almost universally spoken and written and is the language of international business on the island. German, French and Russian speakers are also easily found thanks to the high number of Cypriot graduates of overseas universities, the country’s commercial ties with the global business community and the island’s popularity as a tourist destination.
A Divided Country
Cyprus won independence from Britain in 1960, however a Greek-sponsored coup d’état in 1974 was swiftly followed by an invasion of Turkish forces which occupied the northern one-third of the island. Despite numerous efforts over the intervening decades, the island remains de facto divided, and the self-declared ‘Turkish Republic of Northern Cyprus’ (TRNC) remains unrecognised by the international community.
The Greek Cypriot and Turkish Cypriot leaders continue to look for a solution to end the division of the island, but while negotiations have been slow, some progress is being made. The capital city, Nicosia, is still split between the two sides though visitors can access either side from checkpoints at Ledra Palace and Ledra Street, and today Nicosia is the last remaining divided capital city in the world.
A Resilient Economy
Cyprus has a dynamic and flexible economy that has proven its capacity to adjust to continuously changing conditions. Before its independence from the UK in 1960, the Cyprus economy was primarily based on agriculture and the export of minerals. In the last few decades however, Cyprus has established itself as a business and service centre for shipping, banking, and commerce, and is classified by the World Bank as a high-income country. Following the recent economic and banking crisis Cyprus is implementing major reforms and has many challenges ahead, but time and time again this small nation has proven its resilience. The Cypriot economy has experienced a deep recession in 2013 with GDP dropping by 8.7%, but the European Commission forecasts a slowing of the recession in 2014 with GDP dropping by 3.9% and the year 2015 will signal the exit from recession and a return to growth, with GDP expected to increase by 1.1%.
It was the island’s accession to the EU in 2004 and the adoption of the Euro in 2008 that gave impetus to transform Cyprus into a financial and business services hub. Cyprus is already well established as a reputable location for holding and trading companies, but the island’s international financial centre has suffered a blow in the wake of the banking crisis. Today major restructuring is taking place to clean up the banks’ balance sheets and to build stronger institutions with better supervision and the country will reap the rewards of these reforms in years to come. The outflow of deposits since January 2013 has slowed down, reflecting welcome signs of stabilisation in the banking system since the March 2013 €10 billion loan agreement, which forced a haircut of uninsured deposits to save the island’s ailing banks. Despite the economic situation, Cyprus has retained its reputation as an attractive and effective investment gateway to the European Union, Eastern Europe and other high-growth markets.
Offering a tax-efficient company domicile within the European Union, Cyprus is now also promoting itself as an attractive location from which fund managers and promoters can reach investors throughout the EU through the incorporation of management companies and funds. Cyprus has been a launch pad for investment funds into Eastern Europe for years and more than 100 investment services firms are already established in the country.
A major success story for Cyprus has been the maritime sector which today accounts for €1 billion in annual revenue and around 6% of the island’s GDP. Apart from offering ship management and business services to the industry, the Cyprus Registry is classified as the 11th largest merchant fleet in the world, and the third largest fleet in the European Union. Having introduced a new EU approved tonnage tax system in 2010, Cyprus is encouraging shipping companies from across the world to explore the unique opportunities that the island offers in order to establish and operate shipping offices from Cyprus, making the island even more competitive.
Tourism, which became the mainstay of the economy during the last three decades, at its peak in 2001 contributed over 20% to GDP. This, however, has been surpassed by increases in other high-growth sectors and the contribution of tourism has fallen to around 10% of GDP. Nevertheless, a series of new projects are currently underway to boost the tourism sector and encourage year-round visitors, ranging from the construction of brand new golf courses, to the development of new marinas and the upgrading of the island’s wellness and medical tourism product. In addition, the country has successfully attracted a number of low-cost carriers to the island making it even easier and cost effective for visitors to reach Cyprus.
Apart from the sun and the sea, Cyprus had few natural resources and until today has been dependent on oil imports to satisfy its energy demands. However, the world-class discovery of natural gas and potential oil deposits in Cyprus’ Exclusive Economic Zone (EEZ) in the Mediterranean Sea is expected to change all this. Although the appraisal drilling in Block 12 by US company Noble Energy confirmed natural gas reserves slightly smaller than expected, it remains a significant find. The confirmed gross mean of 5 trillion cubic feet (tcf) of natural gas is currently the third largest discovery in the Levantine Basin. Oil reserves of between 1.2 and 1.4 billion barrels have also been found below the gas deposits in Block 12, which could translate into revenues of around €60 billion for Cyprus. Cyprus’ energy sector currently presents the best opportunities for foreign investors and for economic growth in general.
Beyond finance and commerce, Cyprus is also highly attractive to real estate investors and has always been a magnet for international buyers looking to invest in property outside their own home countries. This has turned Cyprus’ real estate and construction sectors into important components of the island’s economy. While the industry has experienced a fall in prices and decreased sales, the sector is seeing the building of new up-market developments as well as major infrastructure projects designed to enhance the island’s attractiveness as a property investment location. Also the fall in demand coupled with the current recession have brought down property prices making this an opportune time to invest and buy real estate in Cyprus.
Foreign Direct Investment
Attracted by Cyprus’ favourable tax regime, with a flat rate of corporate tax, which at 12.5% is one of the lowest in the European Union, business-friendly government and a multilingual, highly skilled workforce, have long attracted foreign investment into the country. Most capital, predominantly coming from Greece, Russia and the UK, has been invested in the real estate, banking and wholesale trade sectors, but the economic crisis has opened new opportunities for foreign investors. With major infrastructure projects in the pipeline within the developing oil and gas sector, the diversification efforts of Cyprus’ tourism product and with a restructured and streamlined banking sector, many investors are recognising interesting opportunities within the small EU member state.
A Bright Future
With its solid infrastructure and multilingual and highly educated workforce – Cyprus has more university graduates per capita than anywhere else in Europe – the island has all the right elements firmly in place to maintain its reputation as an international centre of business excellence in one of Europe’s most interesting investment locations. Offering a professional atmosphere that makes doing business pleasurable as well as profitable, Cyprus’ legendary hospitality and Mediterranean lifestyle seem to coexist happily with a cutting edge international business centre allowing investors to enjoy the best of both worlds: a safe and secure environment for family life and a sophisticated infrastructure from which to grow and develop business.