It will surprise few that Cyprus has become the next European Union state to seek assistance from its European partners. There is reluctance among EU partners, particularly Germany, to “bail out” more states which, in the eyes of many, have been less than careful with their finances.
Although this predicament may at first dissuade some insurers and reinsurers from investing in Cyprus, a closer look at the situation reveals that Cyprus is ripe with opportunity and could prove to be an advantageous business destination.
Cyprus is a relatively small country in terms of its size, population and economy. Despite the island’s close historical, religious and linguistic ties to Greece, it differs significantly from Greece. Cyprus is fundamentally more sound in the manner it has organised its government, civil service (even though that is still larger than it should be), tax collection regime, legal system and, most importantly, its approach to business and financial structure.
Today’s banking predicament is principally attributed to the island’s expansion in the Greek market in the last five to ten years — an expansion which, at the time, seemed natural and prudent. The collapse of the Greek banking system, however, has proved disastrous. The problems in Cyprus are not due to overspending and tax evasion, the two issues most connect to the problem in Greece.
Greece has suffered from many years of overspending, an inefficient tax system and a resistance to move forward in terms of its approach to financial structures. Such modernisation would have encouraged businesses — local, EU and from further afield — to establish and continue to operate in Greece itself, thus helping the local economy.
Cyprus has recognised the issues it faces and is taking protective measures to resolve them. Perhaps now, more than ever, Cyprus represents an opportunity for foreign investment.
Cyprus continues to represent a sound investment destination for several reasons, including:
- Cyprus legislation has generally followed the English system (a remnant of British colonial times) and is now, of course, in line with EU legislation.
- Corporate tax remains at 10% and the government is determined to preserve this no matter what other terms may be imposed on it in the context of a bail out agreement. Ireland fought to retain its low corporate tax rate and succeeded.
- Cyprus does not suffer from the same tax collection issues as Greece.
- The banking sector and the government support each other and continue their efforts towards securing a bilateral loan in order to limit the extent as well as the severity of the terms of any bail out.
- The insurance industry is relatively young, so restructuring and exit solutions are new concepts. These will undoubtedly become increasingly important as consolidation and exit solutions are sought, in time.
- Cyprus is an entry point into the EU by any non-EU investor/industry.
- English is widely spoken and remains the language in which business is conducted.
Cyprus faces difficulties — but it is not without hope. There continue to be opportunities in the insurance market, and timing is key.
If you have any questions regarding the material in this briefing or any related issues concerning Cyprus, please contact Eleni Iacovides in the Goldberg Segalla London office. Eleni is a solicitor practising in London and has also qualified in Cyprus.
Partner, Goldberg Segalla Global LLP