Cyprus still Has the Edge in Attracting International Business
by Aristos Constantine
The world corporate map is beginning to be redrawn in ways that offer us an opportunity to present Cyprus as an advantageous and effective jurisdiction for global corporations. On the one hand, concern is growing among American multinationals over high corporate tax rates, worldwide taxation, and increasingly onerous regulation. As such, many U.S. corporations are moving their legal headquarters overseas or seeking mergers with foreign corporations in a process called “inversion”. On the other, there is an increasing public backlash against the corporate use of conventional “tax havens” to avoid taxation and ever closer government scrutiny of the corporate use of overseas subsidiaries in zero-tax jurisdictions or “tax havens”.
As a result, American corporations are searching for alternative low-tax jurisdictions that are OECD compliant to avoid accusations of tax-evasion and other prohibited activities. While London, Ireland and Luxembourg are some of the more traditional on-shore jurisdiction choices for US corporations, Cyprus has the potential to become an equally established and popular alternative within the EU market if it is properly presented to the corporate community in the United States.
The Cyprus Embassy Trade Center considers it a strategic priority to proactively engage and inform the American corporate community about the advantages that Cyprus has to offer as an ideal alternative jurisdiction. Moreover, we believe it is important that we seize every opportunity to do so in a way that is relevant to the prevailing climate during any given period.
While some might argue that the EU bailout/“bail-in” last year may have sparked some concern about Cyprus, it has quickly become apparent that the country’s fundamentals remain sound and our value-proposition remains undiminished. A fact that the two international rating agencies Standard & Poor’s and Fitch seem to agree with, having recently upgraded their ranking of the Cyprus economy noting Cyprus’ fiscal performance as higher than anticipated and that the services industries were affected much less than expected.
There are three important current developments that can be highlighted in presenting Cyprus as an attractive choice as corporate jurisdiction. The first is the potential Cyprus has to emerge as a regional energy hub with the discovery of substantial offshore gas reserves and with the growing interest of major energy companies to use Cyprus as a hub for conducting business in the region, as evidenced by the recent decisions of corporate giants Halliburton and Schlumberger to establish a presence in Cyprus as their base of operations for the Eastern Mediterranean.
Second, Cyprus’s recently reformed intellectual property Intellectual Property (“IP”) tax regime has made Cyprus one of the most attractive IP locations in the EU and worldwide. This is extremely important because of the increasing scrutiny given to the tax planning practices of such large companies as Apple and Google involving their use of zero tax jurisdictions as well as low-tax jurisdictions within the EU. Many other companies are seeking to avoid the related unfavorable public and government scrutiny that has arisen recently.
The third and potentially most far-reaching development is the rethinking American banking and financial institutions have been forced to undertake in light of the recent movement toward a Euro-zone banking union. Up until now, most US and Asian banks have chosen to base their European operations in London because it has given them an automatic passport to carry out their services across all 28 countries in the EU. But an eventual banking union with the European Central Bank (ECB) exercising greater authority over banks within the euro-zone may lead Britain to resist ECB authority or possibly even to leave the European Union altogether. (Britain is already challenging an ECB policy in the European Court of Justice that would force clearing houses handling euro-denominated transactions to decamp from London to the euro zone.) This would greatly complicate the operations of American banks that use the UK as their corporate headquarters. Consequently, as reported recently by the Financial Times, Wall Street banks are drawing up preliminary plans to move some London-based activities to Ireland or other EU jurisdictions to address concerns that the UK is drifting apart from the EU.
Of course, some of the purported fears about a possible “Brexit” may prove to be hyperbole. Nonetheless, they do provide an opportunity to introduce Cyprus into the US corporate conversation about the best jurisdictions for locating corporate activities.
Ireland is reported to be viewed as particularly attractive for US corporations because:
1) It has a low corporate tax rate,
2) It has an English-style legal system and an English speaking population.
3) Euro-zone membership.
It should be noted that all the attributes that make Ireland an attractive jurisdiction are similar if not identical to those that can be offered by Cyprus. Moreover, our strategic geographic location, low operating costs and excellent infrastructure of professional service providers combined with the low level of taxation constitute Cyprus an ideal home for multinationals; And our progressive tax system, combined with our expansive network of double tax treaties, make Cyprus the perfect jurisdiction for establishing a base from where to consolidate and manage international investments.
*Aristos Constantine is Trade Commissioner of The Republic of Cyprus, Cyprus Embassy Trade Center – New York