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Cyprus: Economic Factors, Regulatory and Fiscal Environment

Cyprus as a business centre

Other text -- The Cyprus economy always exhibited a high degree of dynamism mainly because of the strong professional services and tourism industries. Although the corporate services sector has been challenged in recent years, it is becoming stronger and stronger every year as a result of GDP growth, fiscal stability, credit rating improvement and restructuring
of the banking sector (recent IMF report: stand-out factors). European partners feel that Cyprus has shown a remarkable turnaround and is now on a growth track. Although the 2017 actual GDP growth was 3,8%, expected projections are a bit prudent showing a 3,2% growth rate for 2018, beating the European GDP growth average of 2,4% in 2017 and 2,1% to 2,3% for 2018 (data from DG ECFIN).

The Cyprus economy always exhibited a high degree of dynamism mainly because of the strong professional services and tourism industries. Although the corporate services sector has been challenged in recent years, it is becoming stronger and stronger every year as a result of GDP growth, fiscal stability, credit rating improvement and restructuring of the banking sector (recent IMF report: stand-out factors). European partners feel that Cyprus has shown a remarkable turnaround and is now on a growth track. Although the 2017 actual GDP growth was 3,8%, expected projections are a bit prudent showing a 3,2% growth rate for 2018, beating the European GDP growth average of 2,4% in 2017 and 2,1% to 2,3% for 2018 (data from DG ECFIN).

Cyprus fiscal environment-the basics

The Cyprus economy always exhibited a high degree of dynamism mainly because of the strong professional services and tourism industries. Although the corporate services sector has been challenged in recent years, it is becoming stronger and stronger every year as a result of GDP growth, fiscal stability, credit rating improvement and restructuring of the banking sector (recent IMF report: stand-out factors). European partners feel that Cyprus has shown a remarkable turnaround and is now on a growth track. Although the 2017 actual GDP growth was 3,8%, expected projections are a bit prudent showing a 3,2% growth rate for 2018, beating the European GDP growth average of 2,4% in 2017 and 2,1% to 2,3% for 2018 (data from DG ECFIN).

The government of Cyprus is committed to adopting regulations and laws to assist in the growth of the international business and enhancing Cyprus’ completeness as a business and investments center.

Cyprus, as one of the few former British colonies situated in the EU, has inherited the English legal system and values. Therefore, the Cyprus independent judicial system applies the principles of common law and draws guidance from English statutes and case law. This has been a very important factor which assisted in the development of the island as an international business hub.

Nowadays Cyprus as a jurisdiction, attracts clients from all borders of the globe: the European region, the CIS region, Asia and the Middle-East regions. This is the result of beneficial double tax treaties, EU directives, familiarity and good business ties which are expected to be reinforced further in the future.
Business ties with the new markets are being strengthened both via the “Citizenship by Investment” scheme, introduced

by the government of Cyprus, and via strategic investments of entrepreneurs (investments in tourism, the shipping industry and in the banking sector of the region).
The recent finding of hydrocarbons in the Exclusive Economic Zone of Cyprus has also attracted energy tycoons to acquire exploration rights in Cyprus for the extraction of hydrocarbons, to setup offices and gradually fully fledged operations.

Flash facts on Cyprus as a maritime hub

Cyprus is also a leading maritime centre. The geographical position, infrastructure, legal and shipping tax system have contributed to establishing Cyprus as a highly ranked international shipping centre. More specifically, Cyprus Registry is ranked as the 10th largest merchant fleet in the world and the third largest merchant fleet in the EU. In addition, Cyprus is considered as the largest shipmanagement centre in the EU and among the three largest globally.

Furthermore, 200 internationally known and recognised shipowning, shipmanagement and shipping related companies operate from Cyprus. The Cyprus Register is also considered one of the safest. The approval by the EU in 2010 of the special “Open Registry” regime considerably strengthened the image of the Cyprus flag which has a reputation as a “Flag of Progress and Quality”.

European and other entrepreneurs have established local companies with fully fledged offices in Cyprus taking advantage of the fiscal and economic incentives available, such as:


• competitive ship registration costs and annual tonnage tax,
• an EU approved favourable and competitive tax regime for shipowning, shipmanagement, and chartering companies, • a competitive corporation tax for other international business enterprises,

• availability of competent local employees and, • comparatively low operation costs.

Quick guide for companies regulatory system in Cyprus

Cyprus is a member of the European Union (EU) and the companies incorporated in Cyprus are subject to the audit and financial reporting requirements as issued by the IAASB and the IASB respectively and endorsed by the EU as per the EU Directives.

Financial Reporting Framework and Obligation to Prepare Financial Statements:
Cyprus Company Law sets out the requirements for the preparation of company financial statements and it requires all entities registered in Cyprus to prepare consolidated and separate financial statements on an annual basis and file these
to the Cyprus Registrar of Companies. There are certain exemptions when the company is subsidiary of a group, if certain criteria are met. The financial reporting framework used is IFRS’s as endorsed by the EU. There is no local GAAP therefore a separate financial reporting framework for smaller and medium sized entities does not exist.
Audit Framework and Statutory Audits:
As a general rule, all Cyprus companies need to have their IFRS financial statements audited by a qualified auditor. There is no small companies’ audit exemption. Statutory audits should be conducted in accordance with ISA’s, as adopted by the EU.

The Auditors and Statutory Audits of Annual Consolidated Accounts Law sets out the legal framework for the audit profession in Cyprus. The Cyprus Public Oversight Board (CyPAOB) monitors the audit quality of public-interest entities, whereas the Institute of Certified Public Accountants in Cyprus (ICPAC) conducts audit monitoring visits to ensure audit quality for all the other entities.

Tax glimpse into the Cypriot tax system

Cyprus also offers one of the most attractive tax regimes in Europe which has facilitated the use of Cyprus Special Purpose Vehicles in international structures. There is a uniform corporation tax on profits of 12,5% and an extensive network of double tax treaties. These have contributed to rank the island as a serious EU tax juristinction for outbound and inbound investments, where non-EU companies are seeking to expand their operations into the EU and when EU companies are seeking to expand their operations outside the EU.

Other tax advantages include, no withholding tax on dividends, interest and royalties, no tax on the disposal of shares etc. In the past decade Cyprus has developed into reliable financial center, member of the EU and fully committed to OECD initiatives against harmful tax practices.

A vast majority of clients use international tax structures to optimize their tax liability position through holding or financing company structures, royalty holding entities, trading entities or even securities trading entities.

To uncover more about the overall tax system in Cyprus, refer to our brief Tax card 2018.

News and Views

ICPAC:
www.icpac.org.cy/selk/default.aspx

European financial reporting advisory group:
www.efrag.org/?AspxAutoDetectCookieSupport=1

IFRS.org :
www.ifrs.org

International audit and assurance standards board:
www.iaasb.org

Web portal of the Republic of Cyprus:
www.cyprus.gov.cy/portal/portal.nsf/citizen_ en?OpenForm&access=0&SectionId=citizen&CategoryId=none&SelectionId=home&print=0&lang=en