The unprecedented decision by the Eurogroup of countries to propose a haircut on deposits in Cyprus sent shock waves through the European Union. Irrespective of whether or not the haircut will be put in place, it is certain that the Cyprus banking industry will never be the same.
How will this affect the future of the international financial services sector in Cyprus? Despite the bad news, service providers in the tax, accounting and legal services sectors report on new clients and additional investments in Cyprus. For example global providers of products and services to the energy industry are proceeding with their investments in Cyprus in anticipation of the further development of the oil and natural gas resources of Cyprus.
Cyprus is and remains the foremost business hub for investments between Europe and the rest of EMEA. Even with a corporate income tax rate of 12.5% Cyprus will continue to have one of the lowest income tax rates in Europe, and to be highly attractive to private equity funds, publicly listed companies and major financial institutions. The traditional features that have made Cyprus an attractive structuring destination remain effectively unchanged; amongst others Cyprus has in place 47 double taxation treaties, companies enjoy a full participation exemption on capital gains and dividend income, and there is no withholding tax on dividends, interests and royalties.
Alex Hooft van Huysduynen, Managing Director of TMF Group Cyprus, said: “Over the past few days we have spoken to several multinational companies based in Cyprus. It is clear to me that these companies do not consider the domestic banking crisis as an impediment to their investments in and through Cyprus and that business will continue as usual."
Kypros Ioannides, partner of Nicosia-based corporate law firm Hadjianastassiou, Ioannides LLC said: “The Cyprus banking system and its corporate structures are distinctly separate. The recent uncertainty surrounding the banking sector has not affected the demand for quality legal and professional services from firms and financial institutions with structuring projects and direct investments involving Cyprus companies.”