21 Nov Interview with Constantinos Clerides, Phoebus, Christos Clerides & Associates LLC
Interview with Constantinos Clerides, Phoebus, Christos Clerides & Associates LLCPartner, Barrister-at-Law, Head of Commercial Dispute Resolution and Corporate Law at Phoebus, Christos Clerides & Associates LLC
How competitive and attractive is Cyprus in the EU? What are the remaining bottlenecks, and what further reforms and changes are needed to further enhance the ease of doing business in the country?
Cyprus is undeniably an excellent place for doing business and investing. As a member of the European Union and the eurozone it follows EU Directives and Regulations. In general, the education of professionals is at the highest level and it enjoys a multilingual, experienced and relatively low-cost workforce. There is a high-quality telecommunications infrastructure and experienced transportation and ports sector. Most importantly, there is astrong business-friendly environment with one of the lowest corporate tax rates in Europe (12.5%, the lowest in Europe together with Ireland). There are many investment opportunities in already developed sectors such as education, energy, tourism, financial services, maritime transports and property development. In general it enjoys an excellent lifestyle in a secure and healthy environment with a very high standard of living and low crime rates. It enjoys all year round sun. It has a solid legal framework and a legal system that is based and aligned with the British Common law, which has been modernized in various sectors by national and EU Law. An added benefit is the country’s secure and stable EU environment in a turbulent region, which also provides an ideal base for regional headquarters or ancillary and support services for investors with clients in the wider eastern Mediterranean region.
Cyprus has demonstrated strong economic resilience despite the adverse effects of the Covid-19 pandemic. In 2022, Cyprus displayed an annual GDP growth rate of 5.5% becoming a leader among EU nations. Although GDP growth for 2023 is expected to be around 1.1%, Cyprus will remain positive while the majority of European countries will likely see negative growth percentages. There are indeed still delays and bureaucratic procedures in all parts of the public sectors and all relevant governmental authorities. Much reform and modernization of the public sector is required to tackle the delays which might deter investments, but in overall, the private sector in cooperation with the public sector are driving the reforms and change required to modernize procedures at every level and make Cyprus an attractive investment destination. Investors and investments are safeguarded properly in Cyprus.
Investing in Cyprus – A look at the country’s recent FDI performance, government’s incentives to attract foreign firms and activities in the country and their success. How has the perception of Cyprus as business and investment destination by the international business community evolved lately?
Net FDI transactions remained negative for the sixth consecutive year in 2021. Outward and inward FDI returns increased in 2021. FDI stock invested in/from Cyprus, originated mainly from/to Europe. Most of the FDI invested in/from Cyprus was related in particular, to financial and insurance activities.. The second most important continent, in terms of value, was America, with an outward investment value of €72.498,9 million, down from a respective amount of €116.358,0 million in 2020. More specifically, inward FDI stock from Europe reached €299.384,2 million in 2021, down from €322.986,8 million in 2020. Inward FDI stock from America, was recorded at €38.041,1 million, thus decreasing by €613,5 million compared with the previous year. The stats can be found from the Central Bank of Cyprus, and are at the end of the day, substantial for the small island of Cyprus.
Sectors such as financial intermediation benefited from government policies and Cyprus began receiving large amounts of FDI annually. Large-scale projects, tourism infrastructure, and privatisations are also receiving FDIs.Moreover, the government is trying to attract FDI in newer sectors such as film production, investment funds, education, research & development, information technology, and regional headquartering.
Tax regulations – Highlights of the Cypriot taxation system and a comparison to the European average. What kind of progress has been made towards fiscal consolidation lately, to ease complexity and boost efficiency? How do you analyze the country’s fiscal competitiveness at present?
Cyprus has one of the lowest rates of corporate tax in Europe at just 12.5% for resident companies, while non-resident companies pay zero taxes. People who are tax residents pay income tax on their worldwide earnings while people who are not tax residents are only taxed on income that is Cyprus-based. Tax residents pay tax on earnings over 19,500 Euros at 20%, which rises to 35% for income over 60,000 Euros. The standard rate of VAT is 19% with a lower rate of 9% for groceries, books and hotels, while certain areas such as non-commercial rent or second sale of properties are exempt from VAT.
Other notable tax benefits of Cyprus are that Income from dividends or gains on the sale of shares are tax-free. Capital gains on disposals of capital assets are tax-free. Profits from activities of a Permanent Establishment abroad are tax-free. No inheritance or gift tax or net wealth tax. Lower withholding tax rates in other countries on remittances of income from dividends, royalties or interest due to wider applicability of Treaties for the Avoidance of Double Taxation. Cyprus has a wide double taxation treaty network which serves as a strong incentive for foreign investment including USA, UK, Canada, India, EU Countries, Russia.Tax-free distributions by Cyprus Holding Companies to their non-resident or nondomiciled resident shareholders.
On 26 July 2022, a new tax incentive scheme has been incorporated to facilitate the headquartering of foreign businesses to Cyprus and the relocation of talented employees and their families to Cyprus. More specifically, based on the previous tax system, people who worked in Cyprus but were non-residents of Cyprus and earned more than EUR 100,000 per year could benefit from 50% tax exemption on their employment income for the first 10 years of employment. Under the new scheme the minimum wage in relation to first-time employment in Cyprus from 1 January 2022 onwards, entitling a person to the tax 50% exemption has been reduced from EUR 100,000 to EUR 55,000 annually. In addition, the tax exemption has been extended from 10 years, to the first 17 years from the first year of the commencement of a person’s employment in Cyprus. A grace period of 2 years will be given to such new employees in cases where their initial annual salary is below the minimum annual wage of €55,000.
Notable also is Cyprus’s Intellectual Property Tax Regime which is in full compliance with the recommendations of the OECD and the European Union on taxation related to intellectual property. It provides for an 80% exemption of income from and gains on the sale of Qualified IPs and coupled with the 12,5% Cyprus Income Tax rate it may in some cases reduce the effective tax rate up to 2.5% . It is safe to say that structuring IP holding and/or management activities through a Cypriot Corporate Structure could provide unapparelled tax advantages.
Phoebus, Christos Clerides & Associates – General overview of the firm, key competence areas, values, mission, latest developments.
This year the firm celebrates 73 years in business making it one of the most recognizable and prestigious law firms in Cyprus, providing legal services and representation in and out of court. It was founded in 1950 in Nicosia by Phoebus Clerides, who was joined by his son Dr. Christos Clerides in 1981. Phoebus Clerides served as Minister of Justice as well as Member of the Cypriot Parliament in the 1980s while Dr. Christos Clerides was a Member of Cypriot Parliament from 2001 until 2006 and also a member of the National Advisory Board. He has served as legal advisor to the President of the Republic consulting him on the Cyprus issue in the realm of International and European Law. He is the President of the Law Department at Frederick University and an elected Professor. Since 2009, he teaches and has published five legal books to-date,”. Dr. Clerides was elected President of the Cyprus Bar Association on 15 October 2020. Since being elected, the management of the firm has been completely passed on to the third and younger generation of the family continuing the firm and who are now the three main Partners, Phoebe Cleridou, Alexandros Clerides and Constatninos Clerides.
Phoebe Cleridou (LL.B, LL.M – UCL) as the General Manager of the firm has her main objective the systematic and gradual upgrade of the company to meet the current needs of the market whilst preserving the professionalism and initial core values instilled by the founders of the firm. As for Alexandros Clerides (LL.B, LPC) has specialized in the handling of Human Rights law, Criminal law and Family Law court cases. Constantinos Clerides holds a Master’s degree in International Business Law from King’s College London (LL.M) and has passed the England and Wales Bar becoming a member of the Honourable Society of the Lincoln’s Inn in London. He has been handling dispute resolution of commercial cases since 2016. Out of court, he advises clients in drafting various commercial agreements, partnerships, M&As, corporate structures and formation of trusts. The law firm practices law in all fields and sectors, and is staffed with professionals who are equipped with the knowledge, experience and consistency to cater and support the needs of each client. The team consists of 17 specialized and experienced individuals in total, each of whom practices within the sector of the law of their specialization. The permanent staff of the firm also cooperates with a network of experienced external associates, and together they offer full range of services.
What is the firm’s approach and solutions to international investors, or multinationals moving their activities to Cyprus?
International investors require in essence three things from our firm – Professionalism, Due Diligence and Foreseeability. They need to know that whatever type of investment they are making in Cyprus, the legal framework is clear, potential liabilities and risks have been taken into account and therefore they are foreseeable, and that their investment is safe from a legal perspective. While the legal background of the office provides the experience and certainty required to provide due diligence and legal assistance to foreign investors, we continue to strive and gain knowledge in investment matters by expanding our knowledge to not only the legal side of the investment but also the economic and commercial side of an investment. For example I have passed three courses on Mergers & Acquisitions from the New York Institute of Finance and I am currently studying a course provided by LSE (London) on the Law and Economics of Mergers and Acquisitions. This knowledge is essential for a modern day commercial lawyer in that it provides us the tools to properly understand the needs and goals of the investor both legally but more importantly, commercially and therefore we are in a better position to advise them on their investment.
Reform of the Judiciary to tackle delays in Dispute Resolution
One significant factor that Foreign Investors take into consideration before investing in a foreign jurisdiction, is whether there are expedient and efficient methods of dispute resolution and whether the court system of the country is indeed up to the task to resolve matters impartially, fairly and swiftly. To tackle delays the Ministry of Justice, the Supreme Court and the Cyprus Bar Association pooled their resources and was successful in July 2022 at passing legislation and amendments that drastically reforms the judicial system of Cyprus by creating new Upper Courts. The amendments are applied for the first time on 1st of July 2023 which will see the creation of the new Courts come to life. Relevant to the interests of Foreign Investors is also the creation of a new specialized Commercial Court and Admiralty Court, focusing on commercial and maritime law disputes respectively and which shall be able to conduct hearings in English where the case is appropriate. While these are expected to start hearing cases towards the beginning of 2024, it is expected to enhance the competitiveness of Cyprus, attract foreign investment, and contribute to its overall economic development.
Transparency and compliance – Recent regulatory changes introduced and their impact. How does a firm like Phoebus, Christos Clerides & Associates ensure compliance with relevant regulations? Steps the firm is taking to remain compliant with these changes and help clients adapt.
Since March 2014, the EU has progressively imposed restrictive measures (sanctions) against Russia, initially in response to the illegal annexation of Crimea and Sevastopol and the deliberate destabilisation of Ukraine. After 24 February 2022, in response to Russia’s military aggression against Ukraine, the EU massively expanded the sanctions. It added a significant number of individuals and organisations to the sanctions list, and adopted unprecedented measures with the aim of weakening Russia’s economic base. So far there have been 11 packages of measures delivered by the EU against Russia with the most recent being on 23/06/2023.
The impact of these of course is that it has made providing services at times more difficult and more costly. However it is important that compliance is strictly adhered. Therefore in response to these as an office we have in-house compliance officer since 2017 who is responsible for keeping the office in compliance. Money Laundering Compliance Officer. Certified by ICA. (International Compliance Association). While undoubtedly the involvement of Cyprus in the recent Sanction Lists issued by the UK and US might be considered by some as adversely affecting the image of Cyprus, in reality and in our opinion, it has only confirmed that the overwhelming majority of Cyprus service providers have been strictly complying with all laws and regulations and have been doing so towards clients that also comply with AML and KYC requirements.
Concluding remarks and final message to the readers of USA TODAY.
For foreign investors wishing to expand their portfolios in foreign jurisdictions, Cyprus is undoubtedly a great investment destination that can be combined with an outstanding quality of life or vacation destination. There aren’t many places is in the world that are as welcoming as Cyprus is, or that provides the best of all worlds. Potential investors should take this destination very seriously.