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Cyprus closing in on first ‘A’ Fitch rating in 13 years

(Source: InBusinessNews 16/07/2024) Good news is always welcome, but when it concerns the Cypriot economy and its performance, it is also extremely important, as it directly or indirectly affects everyone's lives. Two such items of good news came on the eve of the elections from the international rating agency Fitch and after the elections from Standard & Poor's, which upgraded the country's credit rating from BBB to BBB+ and at the same time maintained the outlook of the Cypriot economy on a positive horizon. The upgrades may be small-scale, because inflation and interest rates distract society's attention, and justifiably so, but it is a fact that Cyprus is now in the “waiting room” for Fitch and Standard & Poor's ‘A’ ratings. As important as the upgrade is, just as important is the resounding message addressed to the country's politicians given that, 11 years after the zero point of 2013, the Cypriot economy still has a way to go in the face of the remnants that the crisis left behind. NPLs and debt These are remnants such as non-performing loans (mainly those outside the banking system), and private and public debt that remain high despite their significant reduction. As Fitch aptly reminds us in its brief description of the Cypriot economy "the non-performing loan ratio was 7.9% at the end of 2023, the lowest level since the global financial crisis and from a peak close to 50%." External observers/evaluators of the Cypriot economy constantly refer to the issue of divestments, a chapter that occupied the attention of the political scene of the country like no other except the Cyprus Problem. As 2023 drew to an end, Parliament voted to implement a revised divestment framework, which Fitch expects will "strengthen the industry's resilience and help reduce non-performing loans." And, Standard & Poor's makes special mention of the significant reduction in NPLs, noting however that their percentage of total loans in the banking system "remains higher than in other countries and is the highest in the EU." It acknowledges, however, that the slowdown in NPL decline is related to the fact “that most have been concentrated in smaller banks that have struggled to sell portfolios due to size-related constraints. In addition, the remaining non-performing loans are mostly mortgages, which, due to social incentives, are difficult to settle." Regarding private debt, Fitch points out that weak credit demand and strong nominal economic growth led to further deleveraging. According to data from the Central Bank of Cyprus, the household and corporate debt-to-GDP ratios fell to 67.9% and 140.4% in the third quarter of 2023, from 131% and 221.2% in the third quarter of 2023. of 2015 and is, as Fitch points out, very close to the EU average. Corporate debt, excluding special purpose entities (SPEs), is close to 88% of GDP. 13 years later The Cypriot economy in June of this year returned to where it was in the summer of 2011. Cyprus was downgraded then, while today it has been upgraded. These upgrades for Cyprus combined with the positive outlook leave the door open for the first time in almost 13 years for Cyprus to return to the ‘A’ category on the agencies’ ratings scale. In particular, Fitch's upgrade on 8 June, 2024 brought Cyprus' rating back to the point it was on 10 August, 2011, and Standard & Poor's upgrade to the point it was after its downgrade in July 2011. As the political scene tries to find its pace and recover from the passage of ‘Hurricane Phidias,’ Fitch and Standard & Poor's remind us how easy it is to fall and how difficult it is to get up again. In this case, it took a full 13 years and counting.

Assets under Management of Collective Investments at €9.1b in Q1

(Source: Cyprus Business News 10/07/2024) During the first quarter of 2024, the number of Management Companies and Undertakings of Collective Investments (UCIs) remained at 328, with the assets under management increasing to €9.1b. Based on the quarterly statistics bulletin for the first quarter of 2024 issued by the Cyprus Securities and Exchange Commission (CySEC), which presents the most important data for the Collective Investments sector in Cyprus, CySEC supervises 328 Management Companies and Undertakings of Collective Investments (UCIs), as opposed to 335 during the same period of the previous year, recording a decrease of 2.09%. The total number of 328 entities includes 226 Externally Managed UCIs, 33 Internally Managed UCIs and 69 External Fund Managers. The total number of Management Companies includes 42 AIFMs, 51 Sub-threshold AIFMs, 3 UCITS Management Companies and 6 dual license entities (AIFMs and UCITS Management Companies). Based on the data for the first quarter of 2024, the Total Assets Under Management (AUM) reached €9.1 billion, recording an increase of 6.35% since the fourth quarter of 2023, whereas comparing with the same period in 2023, the decrease amounts to 14.89%. Furthermore, the UCIs, managed by the Management Companies, had a Net Asset Value (NAV) of €8.6 billion. The 59% of the AUM relates to Assets managed by the AIFMs, 18% by the AIFMs and UCITS Management Companies, 11% by the Sub-threshold AIFMs, 11% by the UCITS Management Companies and only 1% by the Regulated UCIs that are managed by Foreign Fund Managers. The 90.6% of UCITS’ Assets under Management was invested in Transferable Securities and 6.9% was invested in UCITS and other UCIs while 1.4% in bank deposits. Regarding AIFs, AIFLNPs and RAIFs 32.6% of the Assets Under Management related to investments in Private Equity, while the investment in Real Estate represents the 17.3% of the AUM. Investments in Hedge Funds account for 12.2% while Investments in Funds of Funds constitute 11.1% of the AUM of the total Assets Under Management. There is a total of 224 UCIs with operations. The 75% of the total AUM is held by 199 UCIs domiciled in Cyprus (13 UCITS, 52 AIFs, 46 AIFLNPs and 88 RAIFs). From the total 224 UCIs, 161 invest in Cyprus partially or entirely and these investments amount to €2.4 billion or 26.8% of the total Assets Under Management. The 65.7% of the investments in Cyprus are in Private Equity, while the 13.5% are in Real Estate. When it comes to categorising unitholders, the vast majority of UCITS are retail investors (99.2%), while for AIFs, AIFNLPs and RAIFs, 67.8% are well-informed investors, 19.8% of them are professional investors, and only 12.4% are retail investors. Regarding the specific sectors that UCIs invested in, during the first quarter of 2024, AUM in the Energy sector amounted to €533.3m (5.858% of total AUM), while €220.4m was invested in Fintech (2.421% of total AUM), €657.9m in Shipping (7.226% of total AUM) and €95.1m in Sustainable Investments (1.044% of total AUM).

Work remains to be done before Cyprus can join US visa waiver programme

(Source: InBusinessNews 19/06/2024)   "We are at the final stage regarding the issue of entry visas to the USA," President of the Republic Nikos Christodoulides has said. He was speaking at the start of the 19 June Council of Ministers meeting at the Presidential Palace. Addressing the members of the Government, the President of the Republic indicated the importance of the Strategic Dialogue agreement between the Republic of Cyprus and the USA and invited all members of the Cabinet to work towards the implementation of the agreement. As he indicated, it touches many Ministries and many issues, such as energy, security, trade, investment attraction, research and technology, culture and therefore, the cooperation of all is needed. "At the same time," President Christodoulides pointed out, "towards achieving the goal of the Republic of Cyprus joining the US programme where holders of Cypriot passports do not need entry visas, we are in the final stage, that's why I expect everyone to work for the realisation of this objective." Also speaking on 19 June, Government Spokesman Konstantinos Letymbiotis said the goal of abolishing entry visas to the US by the end of 2024 or the beginning of 2025 is completely achievable. In statements at the Presidential Palace after the meeting of the Council of Ministers, and asked to refer to a statement by the President of the Republic, Nikos Christodoulides, that we are at the final stage in the issue of entry visas to the USA, the Spokesperson recalled that during the visit of the Minister of Foreign Affairs to the USA one of the last pending agreements for the inclusion of Cyprus in this programme has been signed and after this agreement, the country is essentially entering the final stage for its inclusion. Letymbiotis said that the Deputy Minister under the President, who has been appointed since last year as the coordinator of the efforts for the inclusion of our country in the programme, where a visa will not be needed for holders of Cypriot passports when they travel to the USA, is preparing the data, which will then be delivered to the US authorities. He explained that what remains is a practical difficulty that exists as a parametre from the US side, namely that the rejection rate be less than 3%. "In other words, out of 100 applications made by Cypriot passport holders, less than three are rejected. Last year we were very close to the goal, we hope that this year we will be able to reach the goal. There is still an agreement to be signed and we hope that this will be done in the very immediate future," he said. Letymbiotis said that Cyprus is fulfilling all its obligations and the difficulty of 3% remains, but the government is optimistic that Cyprus will be able to reach this goal. "Once this data is submitted there will be a period of approximately three months for the US to evaluate whether to accept or reject the rate. So, the target of late 2024 to early 2025 is perfectly achievable and it is a target that has been set from the first moment of this administration assuming its duties," he said. Responding to another question the Spokesperson said that any country applying to join the programme must meet the rejection rate criterion.

Invest Cyprus: Moody's credit rating upgrade "exciting news" for Cyprus

(Source: CyprusBusinessNews 28/05/2024) International ratings agency Moody’s has upgraded Cyprus’ credit rating to positive from stable, which Invest Cyprus has welcomed as “exciting news” for the island. “Moody's, the renowned international credit rating agency, has upgraded the credit rating of Cyprus from stable to positive, affirming our country’s long-term credit rating of Baa2,” Invest Cyprus announced. “This development showcases the significant strides Cyprus has taken towards ensuring financial stability, enhancing investor confidence, and achieving economic growth.” It said Invest Cyprus will continue its collaborative efforts with the government and private stakeholders to further advance on this path, promoting Cyprus as a leading business hub in Europe and the broader region, and establishing it as one of the world’s best countries to live, work, and do business in. Moody’s decision to improve Cyprus’ outlook reflects its confidence in the potential for strong fiscal and debt outcomes in Cyprus over the next few years. According to Moody’s, this optimistic scenario is anticipated to result from the continuation of prudent fiscal policies and strong medium-term economic growth prospects. Moreover, the upward rating pressure could be further supported by increased confidence in the strengthening and deleveraging of Cyprus’ banking sector, which has reduced the country’s vulnerability to banking sector risks and is expected to foster robust growth and solid fiscal results. Moody’s anticipates that Cyprus will continue to achieve significant fiscal surpluses, projected at around 2.3-2.4 percent of GDP for 2024-25, although slightly lower than the government’s forecast of 2.8-2.9 percent of GDP. These surpluses are expected to further reduce the debt burden to under 65 percent of GDP by 2025. Moody’s assesses that the risks to these fiscal and debt projections are skewed towards more favourable outcomes.

Alert , 2022 Employment Tax Incentives-New income tax exemptions for first employment in Cyprus

On 14 July 2022, the House of Representatives voted amendments to Articles 8(21) and 8(23) of the Income Tax Law (ITL) related to the income tax exemptions granted to employees who take up first employment in Cyprus. The amended provisions of the Law have been published in the Government Gazette on 26 July 2022. These amendments form part of a wider strategy of the Cyprus Government for attracting both international investments and diversified talent. Moreover, such amendments complement the recent changes in the migration rules which simplify and expedite the relocation of staff and their families from EU and non-EU countries. The new 50% exemption (Article 8(23A)) The provisions of the new Article 8(23A) of the ITL apply as from 1 January 2022 for individuals who take up first employment in Cyprus commencing on or after 1 January 2022 provided that the following conditions are satisfied:   • The individuals were not tax resident of Cyprus for a period of at least 10 consecutive years prior to the commencement of their employment in Cyprus; and • Their annual remuneration from exercising their employment in Cyprus exceeds the threshold of €55.000.   The exemption is granted in any tax year where the €55.000 threshold is satisfied. The exemption can also be granted (subject to special rules) in the first and final tax year as well as in cases where the annual remuneration fluctuates below the annual threshold of €55.000.   The exemption is available once in a lifetime for a maximum period of 17 years starting from the tax year of taking up first employment in Cyprus.   It should be noted that this exemption does not require the individuals to become Cyprus tax residents.   Moreover, individuals claiming this exemption cannot also claim the existing 50% exemption (Article 8(23)), the existing 20% exemption (Article 8(21)) or the new 20% exemption (Article 8(21A)).   Transitional provisions   Moreover, individuals who took up employment in Cyprus prior to January 2022, may also be eligible to transition themselves and claim an exemption as per the new Article 8(23A) as shown below:   Year of commencement of 1st employment Eligible persons   Prior to 2022 Individuals who benefited from the existing 50% exemption (Article 8(23)) and continuously exercised their employment in Cyprus up to and including 2021     Between 2016 and 2021 Individuals whose annual remuneration from first employment in Cyprus exceeded €55.000 Individuals whose annual remuneration from first employment in Cyprus did not exceed €55.000 and within 6 months, starting from 26th July 2022, their remuneration will exceed the €55.000 threshold   Individuals currently benefiting under the existing 50% exemption (Article 8(23)) and do not fall within any of the cases mentioned above will continue to benefit from the existing 50% exemption up until the completion of the 10 year period. It should be noted that the provisions of Article 8(23) apply for individuals taking up first employment in Cyprus up until 26th July 2022.   The new 20% exemption (Article 8(21A)) Under the provisions of Article8 (21A), which are applicable as from 26th July 2022, individuals who take up first employment in Cyprus after 26th July 2022 are eligible to claim a 20% exemption on their annual remuneration (capped at €8.550) for a maximum period of 7 years.   Individuals claiming the new 20% exemption should have been non-Cyprus tax residents for at least 3 consecutive years prior to the commencement of first employment in Cyprus and must have been employed outside of Cyprus by a non- resident employer.   The exemption can be claimed in the tax year following the tax year of commencement of first employment in Cyprus (i.e. if first employment commences in 2022, the 20% exemption is granted from tax year 2023 up until tax year 2029).   Individuals already benefiting from the 50% exemption will not be eligible to additionally claim the 20% exemption.   Individuals who are currently eligible under the existing 20% exemption (Article 8(21)), and who are not eligible for the transitional provisions (mentioned above) will continue to benefit from the existing 20% exemption up until the completion of the 10 year period.

Alert 2, 2021 UBO Register of Trusts and of similar legal arrangements

Cyprus implements Beneficial Ownership Register for trusts and similar legal arrangements Further to the introduction of the register of Beneficial Owners (BOs) for companies, on the 18 June 2021 Cyprus has introduced a similar register for BOs of Trusts and other similar legal arrangements (the “Trust Register”) to be kept electronically by the Cyprus Securities and Exchanges Commission (CySEC) which is the supervisory authority for the implementation and operation of the Trust Register. The Trust Register was implemented through CySEC’s Directive for the prevention and suppression of money laundering and terrorist financing (register of beneficial owners of express trusts and similar legal arrangements) (the “Directive”) which provides information and guidance in relation to the registration of express trusts and similar legal arrangements in the Trust Register. The Directive applies for express trusts which are defined as trusts created expressly by a settlor at his own will. Trusts arising by operation of law as well as trusts for which the settlor shows no clear intention for their creation are not considered to be express trusts. Registration of an express trust should take place in cases where: the trustee is located or residing in the Republic of Cyprus; or the trustee, which is located or residing outside EU, establishes a business relationship or acquires immovable property in Cyprus on behalf of the express trust. Information to be submitted The following information must be submitted for registration: For the trusts and other similar legal arrangements Name of the trust Country and date of establishment Applicable law Termination date (if applicable) Country in which the trustee is established or resides and details of his address In case the trustee resides outside the EU and establishes a business relationship on behalf of the trust in Cyprus, the date of commencement of the business relationship, the name of the person with whom such relationship is established together with the document which governs such a relationship In case the trustee resides outside the EU and acquires immovable property on behalf of the “Stated” (expressed) trust in Cyprus, the registration number and address of the immovable property together with the title deed of the property Any other information and/or supporting documentation requested by CySEC for identification purposes BO/s (trustee, settlor, protector, beneficiaries) Name, surname and father’s name Date and place of birth Nationality/ies Residential Address Type, number and country of issuance of identification document Date of death (where applicable) Date on which the person became beneficial owner The nature and extent of the rights which are directly or indirectly held by the UBO The role of the UBO in the trust or in a similar legal arrangement Any other information and/or supporting documentation requested by CySEC for identification purposes In case the Trust has one or more classes of beneficiaries, the following information should also be provided: Description of the class of beneficiaries and its members the nature and extent of the rights of each class of beneficiaries Deadlines and Charges A six-month period has been granted for existing trusts to be registered. For new trusts falling under either of the two cases, as well as for any changes in the information submitted to the Trust Register for trusts already registered, there is a time limit of 15 days from the date of appointment of the trustee or the date on which such changes were effected. CySEC has set a scale of charges for registration and renewal of registration of trusts as well as for retrieving information. Eligible persons/authorities for having access in the UBO trust register Eligible for having access without any charge to the information entered in the Trust Register will be the trustees and or any other equivalent person who has entered such information thereinto, as well as other competent authorities like the Unit for Combating Money Laundering and Terrorist Financing, the police, the Customs’ Department, and the Tax Department. Furthermore, any person or organization who may demonstrate a legitimate interest and who provides sufficient evidence in this respect , may have access to such information under a fee if the relevant application submitted to CySEC is approved. The procedure is set as follows: CySEC acknowledges with the trustees and or the equivalent person of the receipt of an application from a certain person/authority and the fact that they have initially established that indeed such a person or authority has a legitimate interest. If the trustees do not file written representations within 10 days as of the date it has received CySEC’s acknowledgment, then such a person and or authority will be given access to the information kept in the Trust Register.

Alert 2, 2021 UBO Register Of Trusts And Of Similar Legal Arrangements

Cyprus implements Beneficial Ownership Register for trusts and similar legal arrangements Further to the introduction of the register of Beneficial Owners (BOs) for companies, on the 18 June 2021 Cyprus has introduced a similar register for BOs of Trusts and other similar legal arrangements (the “Trust Register”) to be kept electronically by the Cyprus Securities and Exchanges Commission (CySEC) which is the supervisory authority for the implementation and operation of the Trust Register. The Trust Register was implemented through CySEC’s Directive for the prevention and suppression of money laundering and terrorist financing (register of beneficial owners of express trusts and similar legal arrangements) (the “Directive”) which provides information and guidance in relation to the registration of express trusts and similar legal arrangements in the Trust Register. The Directive applies for express trusts which are defined as trusts created expressly by a settlor at his own will. Trusts arising by operation of law as well as trusts for which the settlor shows no clear intention for their creation are not considered to be express trusts. Registration of an express trust should take place in cases where: The trustee is located or residing in the Republic of Cyprus; The trustee, which is located or residing outside EU, establishes a business relationship or acquires immovable property in Cyprus on behalf of the express trust. Information to be submitted The following information must be submitted for registration: For the trusts and other similar legal arrangements Name, surname and father’s name Date and place of birth Nationality/ies Residential Address Type, number and country of issuance of identification document

Alert 1, 2021 Cyprus law to implement Mandatory Disclosure Rules enters into force

On 31 March 2021, the law (Ν. 41(Ι)/2021, the Law) amending the Law on Administrative Cooperation in the field of Taxation (Law N. 205(I)/2012) was published in the Official Gazette of the Cyprus Republic and entered into force. The Law transposed the European Union (EU) Directive (referred to as DAC6 or the Directive) into domestic law. The Law entered into effect as of 1 January 2021, however, it will have a retrospective effect for reportable cross-border arrangements concluded on or after 25 June 2018 provided that one of the prerequisite triggering events is met. The final Cypriot Mandatory Disclosure Rules (MDR) legislation is broadly aligned with the requirements of the Directive with minor differences. Further to the Law, guidance notes will be issued by the Cypriot Tax Department (CTD) to provide clarity over the interpretation of key terms of the Law. The Directive requires intermediaries (including EU-based tax consultants, banks, asset managers, corporate administrative service providers, insurance companies and lawyers) and in some situations, taxpayers, to report certain cross-border arrangements (reportable arrangements) to the relevant EU member state tax authority. This disclosure regime applies to all taxes except value added tax (VAT), customs duties, excise duties and compulsory social security contributions. Cross-border arrangements will be reportable if they contain certain features (known as hallmarks). Under the Directive, an arrangement is reportable if: The arrangement meets the definition of a cross-border arrangement; and The arrangement meets at least one of the hallmarks A-E specified in Annex IV of the Directive and the main benefit test (MBT), where applicable. Administrative fines for non-compliance Breach   Penalty (one-off administrative fine per entity and arrangement) Failure to report a Reportable Cross Border Arrangement (RCBA)   €10.000-20.000 Delay in reporting an RCBA   Up to 90 calendar days: €1.000-5.000 More than 90 calendar days: €5.000-20.000 Filing inaccurate or incomplete or misleading report of an RCBA   €1.000-10.000 Failure to notify other intermediaries or the relevant taxpayer by the intermediary regarding the exemption due to Legal Professional Privilege (LPP)   €10.000-20.000 Delay in the notification of other intermediaries or the relevant taxpayer by the intermediary regarding the exemption due to LPP   Up to 90 calendar days: €1.000-5.000 More than 90 calendar days: €5.000-20.000 Failure to provide the Cypriot Tax Department with information or documents for an arrangement within 14 days from the date of reception of written notice   €1.000-10.000 Failure to pay the administrative fines imposed/Continuance of the relevant breach   Increase of imposed fine up to €20.000   As implied by the provisions of the Law, penalties will also apply for intermediaries/relevant taxpayers who have breached their reporting or notification obligations, as prescribed in the Law, for the transitional period. On 4 June 2021, the CTD announced the non-application of administrative penalties for all filings effected by 30 September 2021 in respect of RCBAs made or to be made from 25 June 2018 up until 31 August 2021. As from 1 September 2021, RCBAs should be reported within 30 days from the rom the relevant triggering event. Remarks Cyprus intermediaries and taxpayers with cross border arrangements should review their existing procedures to continuously monitor their disclosure obligations under the DAC 6, ensuring compliance and minimising the risk of monetary fines.

Mar Sat, 2022 CPM in Cyprus South Africa Business Forum
CPM was a proud sponsor of the Cyprus South Africa Business Forum, which took place between 11 and 18 September in the two major cities of South Africa, Johannesburg and Cape Town, with the mission to promote business cooperation and entrepreneurial synergies amongst the business circles of Cyprus and South Africa. The Business Forum, which was co-organized by the Cyprus South Africa Business Association, the Cyprus Chamber of Commerce and Industry and the Ministry of Energy, Trade, Industry and Tourism, CIPA, CIFA and the Cyprus Stock and Exchange Commission, involved the participation of more than 30 Cypriot businesses, including CPM, and more than 100 South African businesses as well as a number of officials from CCCI and the Ministry of Energy, Trade, Industry and Tourism, including the Ministry’s General Manager. During the Forum, Cyprus was presented as an EU jurisdiction of choice as well as a Business and Investment Funds Center. Special emphasis was placed on the opportunities for business development in the EU and other nearby non EU countries having Cyprus as an EU base.   CPM had the opportunity to meet with a number of prestigious law firms, accounting firms and service providers in both Johannesburg and Cape Town and to discuss particular ways of promoting Cyprus as a financial center. CPM would like to thank the organisers and participants for a most successful Business Forum. CPM is a leading international service provider operating from Cyprus offering the best possible tailor-made corporate management and administration solutions to each of our institutional, corporate and private clients in a multitude of international jurisdictions. This year, CPM celebrates 20 years of mastering the Art of Making Business! CPM is regulated by the Cyprus Securities and Exchange Commission under license number 56/196.
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