CYPRUS: An Introduction
COUNTRY OVERVIEW - CYPRUS
Chambers & Partners, Europe Guide
Cyprus is an island in the eastern Mediterranean Sea with an area of 9,251 square kilometres and a population of about 1.1 million. 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 the 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. Cyprus’ economy has proven to be resilient, despite the effects of the global pandemic. In parallel, the government has accelerated the long-awaited digital transformation of the public sector, a positive side-effect ushered in by the pandemic, which will undoubtedly enhance the efficiency and reliability of Cyprus as a business centre and jurisdiction.
Cyprus’ legal system is based on the English Common Law principles. 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 global pandemic has sparked the need for acceleration of the reform of the Cyprus Court system. The Cyprus 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 introduction of a digital Court registry, the implementation of a digitalization system for the filing of pleadings and the general management of court procedures digitally. The said platform is currently fully operational.
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 and an International Protections Administrative Court were established a few years ago with jurisdiction to adjudicate recourses submitted against administrative decisions and acts, including applications concerning international protection and asylum 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 relieved somewhat 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 initiated for the introduction of a three-tier judicial system with the creation of a 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 be exclusively handling large disputes of a commercial nature. The Supreme Court has also set its focus in increasing the numbers of judges adjudicating cases before the District Courts of Cyprus and has introduced a new “back-log” program aiming at a more efficient and manageable allocation of judicial workload at first instance level, which has accelerated the court process and adjudication of cases which had been 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 modernised Civil Procedure Rules regulating the court process in civil cases in 2023. 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 pushed for 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 and attracts 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 pharmaceuticals, dairy and agricultural goods.
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 to 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. 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 have rebounded in 2021, as evidenced by the Land Registry Department of Cyprus which maintains all records in relation to property in Cyprus. 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 Cyprus tax system is fully aligned with EU and international regulations and is expected to be overhauled in the next few years in line with global and EU efforts to properly address challenges of the future, such as the taxation of digital services. 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.
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 from the reduced visitors due to the restrictions. Limited and specifically targeted measures and incentives remain in place to assist affected businesses and individuals; however, the growth of Cyprus’ economy, which is above the EU average, allows us to be optimistic for the future.
Contributed by: Patrikios Pavlou & Associates LLC, www.pavlaw.com
Authors: (1) Stavros Pavlou, Senior & Managing Partner,
(2) Theodoros Symeonides, Partner – Dispute Resolution,
(3) Stylianos Trillides, Senior Associate,