Financial Incentives for Overseas Investors
Globalization allowed investment funds and businesses to move beyond domestic markets, and investors to acquire assets abroad with less limitations.
Important factors that affect foreign investment are the expected return on interest (ROI) and the current conditions in the jurisdiction of choice: whether there is an attractive and safe environment to invest in, a stable economy, political stability, and industries which can provide a platform for profit and growth. Beyond the political and economic background of a country, investors who wish to relocate abroad are affected by additional crucial factors such as education and medical facilities, life-style, criminality rates and the climate.
Investors also take into consideration the imposed taxation and the overall cost. Any additional incentives provided by the public or private industries can make the prospective investment even more lucrative and hence more appealing. Indeed, countries which provide such incentives for investment, including tax, employment and immigration incentives, are often preferred over others.
Cyprus has become a popular destination for foreign investment in recent years. The country ranked 8th out of the top 20 countries globally in the Global Finance magazine’s “FDI Superstars 2018” for Foreign Direct Investments (FDI) performance and appeal. Cyprus is attracting significant inflows of foreign investments from the US, Asia, Russia and the Middle East.
The country has long been established as an international business centre due to the low tax rates and the business-friendly environment. Setting up a Cyprus company is quite popular within the European Union (EU), as well as outside the EU, due to the low set-up and maintenance cost, office rental rates and labour cost. The provision of professional legal and accounting services is highly affordable. In addition to these advantages, the regulatory regime is in full compliance with the requirements of the EU and OECD, and the AML Directives. Administrative procedures for registering a company are simplified, while Cyprus companies can be entirely owned by foreigners. Share capital can be in any currency and there is no minimum paid-up share capital.
In addition to the benefit of low corporate tax, investors often enjoy the perk of low personal tax and an advantageous Non-Dom status. Investors who choose to become tax-residents of Cyprus by spending 183 days or 60 days (if they are not tax-residents in any other country) in Cyprus within one calendar year, enjoy a beneficial Non-Dom status for new tax-residents with significant tax deductions on their income and tax exemptions on dividends and interest, for 17 years. The Non-Dom status is attractive to investors who wish to relocate to Cyprus, either through the Cyprus Investment Program, or by applying for a Cyprus Permanent Residence or a Work Permit.
Besides the Non-Dom, an array of incentives is provided by the government. Notably, immovable property tax was abolished for investments in real estate on 01/01/2017; while the transfer fees to be paid are reduced to 50%. New properties which are subject to VAT are exempt from transfer fees. In Cyprus there is no wealth tax, inheritance tax or gift tax. There is no capital gains tax from the disposal of assets and securities (exception: 20% capital gains tax on capital from the disposal of immovable property located in Cyprus). Investments in innovative companies and start-ups can be deducted from taxable income, up to an annual limit of EUR 150.000. At the same time, a Notional Interest Deduction (NID) will be granted for new capital introduced in a Cyprus tax resident company and used in the business for the production of income.
Most importantly, investors can expand their international business activities in Cyprus and gain full access to the European Markets and beyond through the EU Trade Agreements. Cyprus operates as a platform to the EU being a full member of the EU since 2004, as well as due to the strategic geographical location of the island.
The Cyprus economy traditionally excels in sectors such as tourism, real estate, professional services and shipping, hence providing significant potentials for companies which operate in these industries.
A modern and adaptable free-market economy, Cyprus has enjoyed consecutive credit rating upgrades by international rating agencies, which led to the country achieving an investment grade rating in September 2018. The island’s prudent fiscal policy, in combination with a GDP growth of 3.9% in 2017 reflect its promising economic outlook.
Cyprus aims at further diversifying its economy by developing new sectors with high potential, such as energy, start-ups, filming, education, technology, innovation and investment funds. A number of tax and other incentives is provided in these sectors.
Olivewood, the country’s filming industry is a new sector which the Cyprus government aims to promote. To that end, a number of incentives are granted to interested persons through the Cyprus Filming Scheme. Production companies which opt to film in Cyprus will be able to enjoy a cash rebate of up to 25%-35% on eligible expenditure incurred in Cyprus or tax credit up to 35% and can also benefit from tax discounts on investments made on equipment and infrastructure, and VAT returns on expenditure. This scheme has already attracted Hollywood movie stars and producers for the production of two international films.
The various investment options in the island provide a stable return on investment (ROI) which varies depending on the investment option.
The Cyprus Investment Program, which may allow investors to apply for Cyprus citizenship under certain conditions, has proven to be attractive to investors coming from all parts of the world. Even though the recorded investment through this scheme is highly related to investment in real estate, investors have a selection of different options in the country’s various industries, including funds, shipping, and any business which is operating in the country.
Tourism is one of Cyprus’ most resilient and strong economic sectors with a significant contribution to the country’s GDP. Almost four million tourists visited Cyprus in 2018, while the tourist offerings are being constantly upgraded.
Cyprus is considered as one of the most reliable and competitive shipping centres in the world in terms of services, registration fees and taxes. The country is the third largest merchant fleet in the EU and among the largest merchant fleets worldwide.
In the education sector, Cyprus offers a large variety of advanced and fully accredited undergraduate and postgraduate programmes, at affordable costs. With a booming industry comprising 3 public and 5 private universities and more than 40 public and private higher education institutions enjoying international academic and scientific recognition, the island attracts thousands of international students every year.
The recent gas findings are promising and some of the big names in the industry have already set up operations on the island. These include not only the well-known operators but many of the industry’s support services providers who are looking to set up regional headquarters for servicing their clients in the wider region of the eastern Mediterranean, Middle East and Africa.
A number of multinational companies have already chosen Cyprus for their business operations and have either expanded their presence in Cyprus or have relocated their headquarters. There is a bright future for Cyprus in attracting even more FDI which can have a real impact on the economy. For many years, Cyprus has been identified as an ideal location to establish business presence, offering an enviable combination of climate, business and culture with many key benefits to foreign investors and their family members.
Author: Eleni Drakou, Senior Associate and Director of Business Development of MICHAEL KYPRIANOU & CO. LLC
