CYPRUS: An Introduction
OVERVIEW
Cyprus is an island in the eastern Mediterranean Sea with an area of 9,251 square kilometres and a population of about 850,000. It has a diverse history stretching back to ancient times and its strategic location has been key in establishing Cyprus as a business hub. Cyprus gained its independence from British rule in 1960, became an EU member in 2004 and adopted the euro as its national currency in 2008. Although the official languages are Greek and Turkish, English is widely spoken and constitutes the predominant business language with state authorities accepting documentation in English. Cyprus has been welcoming millions of visitors due to its pleasant climate, historical monuments and Mediterranean lifestyle whilst, in parallel, it has been steadily establishing itself as a regional hub for finance, commerce, logistics and education. Although Cyprus is still grappling with the effects of the COVID-19 pandemic, the economy has proven to be resilient and the government has accelerated the long-awaited digital transformation of the public sector, a positive side-effect that will undoubtedly enhance the efficiency and reliability of Cyprus as a business centre and jurisdiction.
LEGAL SYSTEM
Cyprus’ legal system is based on the English Common Law principles, and is widely considered as business-friendly, effective and fair. It ensures transparency and reliability as it is based on well-established business practices followed in the global financial centres. Cyprus’ legal system is also fully compliant with the EU, the Financial Action Task Force on Money Laundering (FATF), OECD, FATCA, the Financial Stability Forum laws and regulations and EU AML directives.
The COVID-19 pandemic found the Cypriot court system lagging behind in terms of technological, or legal infrastructure, highlighting the urgent need for digitalization of the court procedures and the capability to adjudicate any proceedings remotely through video conference or otherwise. Nevertheless, the Cypriot courts found ways to adapt to the challenges of the times – albeit imperfectly – and have implemented procedures to ensure that the judicial system continues to function as smoothly as possible, despite the unprecedented hurdles and restrictions brought by the pandemic. Significant steps were taken this year towards the creation of a digital court registry, the implementation of a digitalization system for the filing of pleadings, and the general management of court procedures digitally. While the said platform is not yet operational, a pilot version is currently being tested, and it is expected that it will be fully implemented in the foreseeable future.
The further restructuring of the Cyprus court system has been on the forefront of political and academic discussion over the past year. It is noted that an Administrative Court was established a few years ago with jurisdiction to adjudicate recourses submitted against administrative decisions and acts, including applications concerning international protection regimes, as a first instance court. This has accelerated the handling of such cases, which were previously heard by the Supreme Court of Cyprus. At the same time, it somewhat relieved the Supreme Court from this branch of its jurisdiction, allowing it to function more promptly and efficiently as an appellate court handling the adjudication of appeals and constitutional referrals, which were traditionally being heard with serious delays. In the same vein, plans are being promoted for the introduction of a tripartite judicial system with the creation of new Court of Appeal serving as an appellate court of second instance, as well as the creation of new courts with special jurisdiction such as the Supreme Court, the Constitutional Court and a new Commercial Court which will exclusively be handling disputes of a commercial nature. The Supreme Court has also set its focus on increasing the numbers of judges adjudicating cases before the District Courts of Cyprus, aiming at a more manageable allocation of judicial workload at first instance level, which is expected to accelerate the court process and adjudication of cases, which has been and still is criticised for unreasonable delays.
Moreover, after several years of deliberation, and with the assistance of experts from the UK and Ireland, the Supreme Court of Cyprus has recently published and is expected to implement new modernized Civil Procedure Rules regulating the court process in civil cases. The new rules, largely in line with the Woolf reforms in the UK, aim to tackle various issues in the existing system, which were traditionally contributing to the creation of delays and obstacles in the smooth operation of the civil justice system. In parallel, amendments in the current legislation are being promoted aimed at encouraging the use of alternative dispute resolution methods such as arbitration and mediation, which are universally accepted as flexible, effective and efficient ways to resolve disputes, in lieu of conventional court proceedings, thus further easing the load of the judicial system and providing stakeholders with an efficient alternative.
ECONOMY / BUSINESS ENVIRONMENT
Cyprus is a services-based economy with limited exports which has recently attracted large amounts of foreign direct investment, mostly in the key areas of real estate, financial services and higher education, which allowed it to diversify from the traditional tourism and hospitality services. In addition, it exports substantial volumes of pharmaceutical, dairy and agricultural goods.
Tapping on its excellent infrastructure and pro-business environment, Cyprus has been introducing a range of incentives, such as the fast-track business relocation package and the start-up visa programme, aiming to attract highly educated and experienced human talent to Cyprus. Further, an attractive intellectual property (IP) holding regime offers substantial tax and other benefits to companies creating and/or holding intellectual property who relocate or establish their operations in Cyprus. To this effect, many successful technology companies have already either relocated or expanded in Cyprus, using the country as a base and gateway to and from the EU.
In relation to the financial services industry, Cyprus has recently introduced an overhaul of its funds and fund managers legislation and regulatory framework, and is emerging as a preferred fund jurisdiction providing a gateway in the EU for setting up investment funds and establishing asset management companies. Following Brexit, as well as events caused both by the pandemic and instability in other regions, Cyprus has attracted a significant interest from investors worldwide as it has established itself as a reliable jurisdiction to relocate their investments and families. The main regulator and supervisor for financial services is the Cyprus Securities and Exchange Commission (CySEC), while the Central Bank of Cyprus supervises and regulates banking and payment institutions.
The real estate sector, one of the key aspects of the economy, was impacted by the pandemic as many transactions were put on hold due to the uncertainty created worldwide. Property sales were considerably reduced in 2020, as evidenced by the Land Registry Department of Cyprus, which maintains all records in relation to property in Cyprus. In addition, the discontinuation of the Cyprus Investment Programme at the end of 2020 has affected the activity on high-end residential real estate that was preferred by foreign HNWI and investors. Tourism was, traditionally, and still remains a key driving force for the local economy. A long-term strategy to attract affluent visitors to Cyprus is being implemented as major projects, such as the Limassol Marina and the Ayia Napa Marina, are nearing completion. Also, an integrated casino resort is currently being developed in Limassol and the overall investment will exceed EUR600 million. It is expected to be one of the largest single investments in Cyprus and the largest casino resort in Europe.
The pro-business stance of Cyprus is also evident in its modern, transparent and efficient tax system that is fully aligned with EU and international regulations. Cyprus tax resident companies benefit from Cyprus’ extensive and growing double taxation treaty network with 58 countries worldwide as well as access to all EU directives. The OECD places Cyprus on the White List of jurisdictions that have substantially implemented the internationally agreed tax standard on transparency and exchange of information. Cyprus’ corporate income tax rate of 12.5%, is generally what is applicable on the profits/net income of a Cyprus tax-resident company and a number of exceptions and allowances are available. It should also be noted that there is no withholding tax in Cyprus on dividends. In terms of labour and employment, Cyprus law also presents advantages to investors as it is quite flexible whilst maintaining basic employee rights.
TRENDS
Undoubtedly, the impact of the COVID-19 pandemic had widespread effect, with Cyprus not being an exception. As a silver lining, the pandemic has initiated a renewed focus on technology and new methods with various state authorities and public institutions seeking to introduce certificates backed by blockchain and other innovative technologies that are expected to create high-growth employment opportunities. In parallel, we have witnessed the resilience of the private sector which quickly adapted to work from home environments and took full use of new technologies and capabilities. Due to Cyprus’ small size and outdoor lifestyle, the spread of the pandemic was relatively contained, yet certain areas of the economy suffered by the reduced visitors due to the restrictions. Targeted measures and incentives were introduced to assist affected businesses and individuals; however, it is early to predict any long-term effects on the economy.
Contributed by: Patrikios Pavlou & Associates LLC, www.pavlaw.com
Authors:
(1) Stavros Pavlou, Senior & Managing Partner,
https://chambers.com/lawyer/stavros-pavlou-europe-7:332935
https://www.pavlaw.com/team/stavros-pavlou/
(2) Theodoros Symeonides, Partner – Dispute Resolution,
https://www.pavlaw.com/team/theodoros-symeonides/
(3) Stylianos Trillides, Senior Associate,
https://www.pavlaw.com/team/stylianos-trillides/