September 2016

Cyprus Economy Update

This alert covers updates regarding the recent upgrade of the Cyprus economy by Standard and Poor’s (S&Ps), tourist arrivals, the Cyprus economy growth rate, the number of sales contracts submitted to the Land Registry, the deposits in the Cyprus banking system, the interest rates on loans and deposits, the building permits, company registrations, unemployment, trade deficit, retail trade and exports.
Contact us

Costas Christoforou CPA, TEP
General Manager

Rodoula Demetriades MS, CPA
Senior Manager
Business Development

Cyproman Services Ltd

Furthermore, Cyprus signed a deal for the transfer of natural gas via pipeline to Egypt, once extraction starts, and the Council of Ministers approved the revised scheme for granting Cypriot citizenship to non–Cypriot entrepreneurs/ investors.
S&P upgrades Cyprus

Ratings agency Standard &p Poor`s upgraded on 16th September 2016 its assessment of Cyprus to BB. The outlook is positive.

S&P expects the Cypriot economy will expand by about 2.7% this year, surpassing their March 2016 forecast, with annual growth at about 2.5% in real terms in 2017-2019. It said that Cyprus' recovery is supported by resilient business services, tourism, gradually reviving private consumption and construction. The restructuring in the financial sector is advancing, but the Agency expects it will be a few years before the sector contributes to economic growth.

They think that the sovereign`s budgetary position will continue improving over the next few years, standing at close to balance or in surplus, with gradually declining government debt.

S&P said that the positive outlook reflects its view that they could upgrade Cyprus within the next 12 months if its reduction of currently high levels of nonperforming loans accelerates, indicating a convergence of Cyprus` credit and monetary conditions, including the monetary transmission mechanism, with those of the Eurozone.

On the basis of the results of the Passengers Survey, arrivals of tourists reached 482.132 in July 2016 compared to 414.527 in July 2015, recording an increase of 16,3%. An increase of 7,1% was recorded in tourist arrivals from the United Kingdom (from 155.813 in July 2015 to 166.874 in July 2016) and 39,3% increase from Russia (from 96.085 to 133.892). On the other hand a decrease of 4,2% was recorded in tourist arrivals from Greece (15.120 in July 2016 compared to 15.780 in July 2015).

For the period January – July 2016 arrivals of tourists totalled 1.737.372 compared to 1.450.427 in the corresponding period of 2015, recording an increase of 19,8%.

On the basis of the results of the Passenger Survey, revenue from tourism reached €301,0 mn in June 2016 compared to €259,0 mn in the corresponding month of the previous year, recording an increase of 16,2%.

For the period January – June 2016 revenue from tourism is estimated at €831,2 mn compared to €730,9 mn in the corresponding period of 2015, recording an increase of 13,7%.
(Source: CYSTAT)
Increase in property sales

Real estate property transactions registered a 50% rise in August 2016 marking an annual rise for the thirteenth consecutive month. The 50% increase in August follows a 26% increase in July, 42% increase in June and a 17% increase in May.

According to data released the department of lands and survey overall contracts of sale reached 451 in August 2015 compared with 301 in August 2015. Sale contracts for the period of January – August 2016 rose by 30% reaching 4.088 from 3.155. These figures also include transactions relating to loan restructurings, recoveries and debt-to-asset swaps agreed between the banks and borrowers.
GDP Growth Rate

According to the Flash Estimate compiled by the Statistical Service, the GDP growth rate in real terms during the second quarter of 2016 is positive and is estimated at +2.9% over the corresponding quarter of 2015. Based on seasonally and working day adjusted data, GDP growth rate in real terms is estimated at +2.7%.

The increase of the GDP growth rate is mainly attributed to the sectors: "Hotels and Restaurants", "Professional, Scientific and Technical Activities", "Retail and Wholesale Trade", "Manufacturing", "Construction" and "Transport". Negative growth rates were recorded by the "Financial Service Activities".
(Source: CYSTAT)

Cyprus' bank deposits increased in July this year for the fourth consecutive month, data released by the country`s Central Bank showed on Friday. Total deposits in July 2016 recorded a net increase of €269,0 million, compared with a net increase of €343,4 million in June 2016.

The annual growth rate stood at 5,5%, compared with 5,4% in June 2016. It is the tenth consecutive month that deposits record an increase on a yearly basis. The outstanding amount of deposits reached €47,0 billion in July 2016.

Deposits increased by €1,13 billion from last March when they reached the lowest level of the past nine years. Last March, deposits fell to € 45.73 billion, the lowest level since April 2007, when they stood at € 44,52 billion.

As Central Bank`s data show, Cyprus residents' deposits recorded a net increase in July 2016 by €127,3 million to €34,60 billion, whereas deposits of residents of EU Member States increased by €84,9 million to € 3,06 billion. Deposits of Third Countries residences increased by €56,8 million to €9,36 billion.

On the other hand loans decreased to their lowest level in seven and a half years. Total loans in July 2016 exhibited a net decrease of €178,9 million, compared with a net decrease of €550,5 million in June 2016.

The annual change rate stood at -11,7%, compared with -12,3% in June 2016. The outstanding amount of loans reached €54,1 billion in July, which is the lowest level since October 2008, when they stood at € 53,92 billion.

Cyprus residents' loans have decreased by approximately € 8,66 billion to € 45,63 billion, from their highest level of € 54,29 billion in March 2013. Domestic household loans fell to € 20,71 billion, a decrease of € 3,14 billion, from their highest historical level of € 23,85 billion in December 2012.
Building permits

The Statistical Service announced that the number of building permits authorized by the municipal authorities and the district administration offices during May 2016 stood at 440. The total value of these permits reached €102,7 million and the total area 84,7 thousand square metres. These building permits provide for the construction of 278 dwelling units.

During the period January – May 2016, 2.156 building permits were issued compared to 2.034 in the corresponding period of the previous year. The total value of these permits decreased by 8,4% and the total area by 5,3%. Τhe number of dwelling units recorded an increase of 2,4%. Building permits constitute a leading indicator of future activity in the construction sector.
(Source: CYSTAT)
Revised Scheme for Citizenship to Non-Cypriot Investors

The Cyprus Government through the Ministry of Interior, has approved the revised criteria for granting the Cypriot citizenship by investment, in an effort to further promote foreign direct investments in Cyprus.

The most important NEW changes are as follows:
  • The applicant must have made an investment of €2,0 million (excluding VAT) in any qualifying investment category or a combination of categories as described below (previously it was €5,0 million if applied individually or €2,5 million if applied through a collective investment scheme).
  • The investment in government bonds of the Republic of Cyprus is now restricted to €500.000.
  • The applicant must be the holder of a residency permit in Cyprus to qualify for receiving the Cyprus Citizenship. For this purpose, an application for a residency permit should be submitted to the Authorities, which will be issued simultaneously with the filing of the Citizenship application.
  • The investor’s parents are entitled to apply for Cyprus citizenship by exception provided that they are owners of a permanent residence of at least €500.000 excluding VAT. For this purpose the investor and his/her parents may acquire one residential property of a total value of at least €1,0 million, excluding VAT (€500.000 being allocated to the investor and the remaining €500.000 being allocated to the parents of the investor).

A. Criteria for granting Cypriot citizenship by exception

  1. Real estate and land developing

    The applicant should have a direct investment in Cyprus of at least €2,0 million for the acquisition or development of real estate projects (residential, commercial, tourism or other infrastructure). It shall be noted that the acquisition of land is not considered to be a qualifying investment under this criterion.

  2. Purchase or creation or participation in Cypriot businesses or companies

    The applicant must have made an investment of at least €2,0 million in the purchase, creation, or participation in businesses or companies, that are based and operating in Cyprus. These businesses or companies should evidently have a tangible presence and substantial activity in Cyprus and employ at least five (5) Cypriot or EU citizens who have been legally residing in Cyprus for a continuous period of at least 5 years.

  3. Investment in alternative investment funds (AIFs), financial assets of Cypriot businesses or organisations which are licensed by the Cyprus Stock Exchange Commission

    The applicant must have purchased financial assets of at least €2,0 million (units in AIFs, bonds, debentures, other securities, etc.) registered and issued in the Republic of Cyprus, in companies or organisations with substantial economic activity in Cyprus which are regulated by the Cyprus Stock Exchange Commission.

  4. Combination of the aforementioned criteria

    The applicant may choose to have a combination of any of the above criteria amounting to at least €2,0 million.

    In the context of this criterion (i.e. combination of investments), the applicant may also purchase governmental bonds of the Republic of Cyprus of a maximum amount of €500.000.

B. Other conditions

It is noted that in addition to satisfying any one of the above criteria, the applicant must:
  1. Have a clean criminal record; and

  2. Acquire a permanent residence in Cyprus valued at least €500.000 excluding VAT. (This condition does not apply if the investment is in residential property, under criterion A1 above);
Cyprus Signs Pipeline Agreement with Egypt

Cyprus signed a deal on August 31 for the transfer of natural gas via pipeline to Egypt, once extraction of discoveries made off Cyprus starts. U.S. energy firm Noble found an estimated 4,5 trillion cubic feet of natural gas in one prospect off Cyprus in late 2011.

A consortium of Italy's ENI and Korea's KoGas have a contract with Cyprus for exploration over three offshore blocks. French oil major oil and gas firm Total has exploration rights over one block.

Cyprus received expressions of interest from ENI, Total, Statoil, Exxon Mobil, Qatar Petroleum, and Cairn in a licensing round for another three offshore hydrocarbon blocks in a licensing round in late July.
Company registrations

Applications to register new companies continued to rise for the fourth consecutive month in July reaching the highest level since February 2013, just before the bail – in.

According to data from the Department of the Registrar of Companies and Official Receiver the applications increased significantly by 20% and reached 1.287 compared to 1.072 in July 2015 and by 22,3% in the first seven months of the current year. Compared to June, the applications for the registration of new companies increased by 26,7% in July.

As regards the period of January – July, the number of applications reached 7.653 compared to 6.260 in the corresponding period last year, an increase of 22,3%. This is the highest number of applications recorded during January – July, since 2012. The figures also showed that a total of 205.864 companies were registered in Cyprus at the end of July. New registrations of companies reached 7.448.
Interest Rates

Loan and deposit rates in Cyprus remained at record low levels in June according to new European Central Bank (ECB) data, even though they are still among the highest in the Eurozone.

New data released by the European Central Bank show that rates fell in other Eurozone countries as well, in June. Despite the fall, rates in Cyprus remain among the highest in the Eurozone.

The average rate for business loans in Cyprus fell to 4,51% in June from 4,56% in May 2016 and 5,15% in June 2015. This is the lowest rate ever recorded. Greece has the highest rates for business loans (4,75%) while Finland (1,54%) and Luxemburg (1,59%) recorded the lowest rates. The corresponding rate fell to 2,45% in the Eurozone, from 2,48% the previous month.

New mortgage rates rose to 3,69% from 3,49% in May 2016 and 4,04% in June 2015. Last month the interest rate for new mortgages fell to the lowest level based on historical data. The mortgage rate in Cyprus is the highest compared to other Eurozone countries.

The mortgage rate fell to 3.03% in Greece. In the Eurozone, the rate fell to 2,32% from 2,37% the previous month. Deposit rates are unchanged at 1,49%, the lowest historical level. Last month deposit rates stood at 1.49% and in June 2015 at 1,66%.

The registered unemployed decreased by 14.4 per cent in July, compared with last year. The unemployed persons, registered at the District Labour Offices on the last day of July 2016, reached 36,112 persons. Based on the seasonally adjusted data that shows the trend of unemployment, the number of registered unemployed for July 2016 decreased to 37.162 persons in comparison to 37.681 in the previous month, the Statistical Service announced.

In comparison with July 2015, a decrease of 6,064 persons or 14.4 per cent was recorded, the Statistical Service said that the decrease was mainly observed in the sectors of construction (a decrease of 1,312 unemployed persons), trade (a decrease of 827), accommodation and food service activities (a decrease of 714), manufacturing (a decrease of 690), public administration (a decrease of 546), transportation (a decrease of 531) and to newcomers in the labour market (a decrease of 1,069).
Economic sentiment reaches 8,5-year high in August

The Economic Sentiment Indicator (ESI) in August rose to 115 points, marking the highest level in the last eight-and-a-half years, the University of Cyprus` Economic Research Centre (ERC) said on Monday.

The August ESI marked an increase of 5,1 points compared to the previous months, owing to the pickup of business confidence in services, retail trade and industry.

According to the ERC, the Services Confidence Indicator rose due to firms’ more positive assessments of past business situation and demand, as well as because of more optimistic views regarding firms’ turnover over the next three months.

The Retail Trade Confidence Indicator increased due to more positive responses regarding firms’ past sales and more optimistic sales expectations over the next three months.

The Industry Confidence Indicator rose as a result of the upward revision of firms’ assessments of production plans over the next three months, as well as by the improvement of firms’ views of the level of their current order books and stock of finished products.

The Construction Confidence Indicator continued to decline in August due to more pessimistic assessments of the level of current order books and downward revisions in firms’ employment expectations.

The ERC also noted that the Consumer Confidence Indicator increased marginally as the improvement of consumers’ assessments of future economic conditions (households, country, labour market) was offset by the deterioration of savings expectations
Retail trade up 5,3%

The turnover volume and value indices of retail trade increased in June and in the first six months of the year, according to figures released by the Statistical Service of Cyprus.

On the basis of provisional estimates, the Turnover Volume Index of Retail Trade in June increased by 5,3% compared to the corresponding month of the previous year and reached 91,0 units (base 2010=100).

For the period January-June, the index is estimated to have recorded an increase of 5,9% compared to the same period of 2015.

On the basis of provisional estimates, the Turnover Value Index of Retail Trade for June 2016 increased by 3,0% compared to the corresponding month of the previous year and reached 89,4 units (base 2010=100).

In the first semester of the year the index is estimated to have recorded an increase of 2.1% compared to the same period of 2015.
Immovable Property Tax

According to an amendment in the legislation, the immovable property tax for 2016 is reduced to 25% of the total tax arising using the current rates, whilst it will be fully abolished 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.
Copyright 2016 © Cyproman Services Limited. All Rights Reserved.

All newsletter content provided by KPMG Cyprus.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of Cyproman Services Limited. The information provided in this publication does not constitute legal, tax or investment advice and no responsibility is accepted for any loss occasioned directly or indirectly as a result of persons acting, or refraining from acting, wholly or partially in reliance upon it.