July 2016


Cyprus Economy Update



This alert covers updates regarding tourist arrivals, the Cyprus property market, the number of companies registered, the deposits in the Cyprus banking system, the third licensing round of hydrocarbon exploration in the Cyprus Exclusive Economic Zone (EEZ), the recent Cyprus Bond Issue and the tax incentives decided by the council of Ministers for start-ups.
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Costas Christoforou CPA, TEP
General Manager costas.christoforou@cpm.com.cy

Rodoula Demetriades MS, CPA
Senior Manager
Business Development rodoula.demetriades@cpm.com.cy

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Tourism

On the basis of the results of the Passengers Survey, arrivals of tourists reached 413.114 in June 2016 compared to 336.967 in June 2015, recording an increase of 22,6%. An increase of 21,1% was recorded in tourist arrivals from the United Kingdom (from 122.894 in June 2015 to 148.812 in June 2016) and 41,6% increase from Russia (from 89.884 to 127.244). On the other hand a decrease of 6,4% was recorded in tourist arrivals from Sweden (16.860 in June 2016 compared to 18.005 in June 2015).

For the period January – June 2016 arrivals of tourists totaled 1.255.240 compared to 1.035.900 in the corresponding period of 2015, recording an increase of 21,2.
(Source: CYSTAT)
Deposits

Total deposits in May 2016 recorded a net increase of €377,2 million, compared with a net increase of €144,9 million in April 2016, according to data released by the Central Bank of Cyprus.

The annual growth rate stood at 3,7%, compared with 2,4% in April 2016. The outstanding amount of deposits reached €46,5 billion in May 2016.

Total loans in May 2016 exhibited a net decrease of €2.147,4 million, as a result of loan repayments, compared with a net decrease of €114,1 million in April 2016.

A substantial part of these repayments concern previous transfers of loans from non-resident MFIs and are not related to the domestic economic activity. The annual growth rate stood at -10,8%, compared with -7,3% in April 2016. The outstanding amount of loans reached €55,3 billion in May 2016.
(Source: www.stockwatcg.com.cy)
Cyprus Property Market

The number of property sales in Cyprus during June 2016 increased by 42 % compared with June 2015 according to the latest official figures issued by the Department of Lands & Surveys. The 42% increase in June follows a 17% increase in May and a 35% increase in April.

June saw a total of 657 contracts for the sale of commercial and residential properties and land (building plots and fields) being deposited at Land Registry offices across the island.

Sales rose in all districts. Sales in Famagusta rose 64% compared with June 2015, while sales in Nicosia rose 61%. Meanwhile sales in Paphos, Larnaca and Famagusta rose 48%, 8% and 3% respectively.

However the figures include debt-to-asset swaps, which inflate the numbers. Borrowers who are unable to service their loans have been encouraged to benefit from the debt-to-asset swaps as the law passed on 1st January, which exempts them from paying Property Transfer Fees. It also helps them to repay their debts and avoids insolvency. The debt-to-asset swaps also helps the banks reduce their non-performing loans (NPLs) and improves their balance sheets.
(Source: www.goldnews.com.cy)
Building Permits

The Statistical Service announced that the number of building permits authorized by the municipal authorities and the district administration offices during April 2016 stood at 437. The total value of these permits reached €53,4 million and the total area 47,9 thousand square metres. These building permits provide for the construction of 201 dwelling units.

During the period January – April 2016, 1.716 building permits were issued compared to 1.600 in the corresponding period of the previous year. The total value of these permits decreased by 5,2% and the total area by 4,9%. Τhe number of dwelling units recorded an increase of 2,9%. Building permits constitute a leading indicator of future activity in the construction sector.
(Source: CYSTAT)
Increase in applications for the registration in new companies

Applications to register new companies continued to rise for the tenth consecutive month in June, according to data from the Department of the Registrar of Companies and Official Receiver.

The applications increased significantly by 11,4% and reached 1,016 compared to 912 in June 2015 and by 21,9% in the first six months of the current year. Compared to May, the applications for the registration of new companies fell by 5,2% in the sixth month of 2016. During the first six months of the year, the number of applications reached 6,366 compared to 5,222 in the same period last year, an increase of 21,9%.

The figures also showed that a total of 204,817 companies were registered in Cyprus at the end of June. The new registrations of companies in the six five months of 2016 were 6,267. Throughout 2015 11,270 companies registered in Cyprus.
(Source: www.stockwatch.com.cy)
Applications for the third licensing round for hydrocarbon exploration in EEZ

Oil&Gas majors have submitted applications for the third hydrocarbon licensing round in Cyprus`s Exclusive Economic Zone.

Minister of Energy Yiorgos Lakkotrypis announced on Wednesday the companies and consortia that have submitted applications for the third licensing round for offshore hydrocarbon exploration in blocks 6, 8 and 10 of Cyprus` EEZ.

Specifically, consortium Εni Cyprus Limited/Total E& P Cyprus B.V submitted an application for block 6.

Consortium Capricorn Oil (Cairn Energy)/ Delek Drilling/Avner Oil Exploration as well as Εni Cyprus Limited submitted applications for block 8.

For block 10 applications were submitted by consortium Εni Cyprus Limited/Total E&P Cyprus B.V, consortium ExxonMobil Exploration and Production Cyprus (offshore) Limited/Qatar Petroleum International Upstream O.P.C as well as Statoil Upsilon Netherlands B.V.
(Source: www.stockwatch.com.cy)
Cyprus issues 7-y bond at 3.8%

Bids for Cyprus Republic’s 7-year bond under the EMNT programme reached € 2.462.698.000, exceeding by two and a half times the original target of the Ministry of Finance, with a yield of 3.80% and a coupon rate of 3,75%.

According to a press release by the Ministry of Finance, Cyprus opened on Tuesday book of offers aiming at raising €1 billion, with starting date the 26th of July 2016 and maturity date the 26th of July 2013.

Commenting on twitter, the Minister of Finance Harris Georgiades said that the issue was a decisive confirmation movement of the investor`s confidence in the Cypriot economy.

As mentioned in the press release, the transaction falls within the framework of the Annual Financial Plan for 2016 as approved by the Minister of Finance and in accordance with the Medium-Term Management Strategy of Public Debt for 2016-2020.

The new issue comes approximately one month after the UK decision to leave the EU. The bond will be listed under English law.

Barclays, JP Morgan, Morgan Stanley, Societe General and VTB Capital are lead advisers.

Cyprus issued in October 2015 a 10-year bond raising €1 billion with a yield of 4.25% that is traded today at 3.76%.

Fitch Ratings said that Cyprus' first market issuance is a key milestone following its exit from the EU and IMF bailout programme in March.

The seven-year 3.75% €1 bn bond was priced at the lowest coupon rate achieved by Cyprus for a euro benchmark bond and was realised without support from the European Central Bank's bond-buying scheme.

According to the Fitch Ratings, other developments that could lead to an upgrade of the sovereign rating include further stabilisation in the banking sector, a track record of economic recovery and reduction in private sector indebtedness, narrowing of the current account deficit, and continued fiscal adjustment.
(Source: www.stockwatch.com.cy)
Tax incentives for start-ups

The Cyprus government approved a package of tax incentives to boost the start-up sector and innovation in Cyprus. The package includes a 50% tax exemption on investments in innovative and start-up companies. The maximum annual amount to be exempted is €150,000. The government has also broadened the term innovative firm.

The decision is not limited and can now be used more efficiently by businesspeople and young businesspeople with innovative ideas that can evolve in entrepreneurship and commercial products.
(Source: www.goldnews.com.cy)
Immovable Property Tax

According to a law proposal voted by the majority of the Cyprus Parliament and published in the Official Gazette, the immovable property tax is reduced to 25% of the total tax arising using the current rates, whilst it is anticipated that full abolition of the tax will be applied in 2017. The tax will continue to be calculated on the total value of the immovable property owned by each owner on 1st January using 1980 prices.

The immovable property calculation will be using the same scales as those used last year and will be based on 1980 prices. However, the result from the calculation should be multiplied by 25% in order to calculate the final tax for 2016.

From € 0 Until € 40.000 6‰
From € 40.001 Until € 120.000 8‰
From € 120.001 Until € 170.000 9‰
From € 170.001 Until € 300.000 11‰
From € 300.001 Until € 500.000 13‰
From € 500.001 Until € 800.000 15‰
From € 800.001 Until € 3.000.000 17‰
From € 3.000.001   19‰

In accordance with the law proposal, the 25% will apply if the tax is paid by 31st October 2016. If the payment is made between 1st November and 31st December 2016, the tax for 2016 will be 27,25% of the corresponding tax of last year. In case of payment beyond 31st December 2016, an additional tax of 10% will be imposed, which will increase the percentage to 30,25%. Furthermore, it is provided that tax up to €10 is not payable.

It is noted that in 2015 a 17,5% discount was allowed in the case of a payment that was made on time and 20% if the payment was performed electronically or through financial institutions.

The immovable property tax is abolished in 2017 for all the above situations.
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