21 Nov Interview with Pieris Markou, CEO, Deloitte Cyprus
BF: The Cypriot economy has shown resilience and recovery in recent years, with a 5.6% y-o-y increase in GDP in 2022. What are the most significant trends you are seeing in the economy of Cyprus and what factors are shaping its future?
Pieris Markou: Cyprus relies heavily on tourism and services, which are our two main sectors. The impact of the war in Ukraine certainly had an immediate effect on our economy and the tourism industry due to the reduction of tourists and business from Russia and Ukraine. There is an attempt to look to other markets, which is a step in the right direction. However, this is going to take time. There has been a rebound in tourism as Cyprus has managed to attract visitors from other jurisdictions to replace the lost Russian and Ukrainian markets. Although this helps our economic recovery, we face increased costs due to inflationary and interest rate pressures, a trend evident across Europe. This is slowing the economy and making investments more expensive, at a time of uncertainty in the market. These increased costs are impacting and deferring some of the investment decisions. Nevertheless, we are still seeing new companies and investors arrviing, albeit at a slower pace than expected. Given the circumstances and the increase in costs and interest rates, Cyprus is recovering at a faster rate than the rest of the EU. This is a good indicator that the Cypriot economy is resilient and capable of overcoming these obstacles and slowly returning to normality.
BF: Cyprus has the fourth lowest corporate tax rate in the EU and provides a simplified incorporation process and a strategic location. Please provide an overview of the business operating environment in terms of taxation, legislation and business costs. How competitive is Cyprus in terms of ease of doing business?
Pieris Markou: Tax rates used to have a more important role in attracting foreign investments, as opposed to now, when several other benefits are more attractive. When it comes to tax rates, Cyprus’ aim is to reduce the number of obstacles to businesses by taxing them at a lower rate – that is for all businesses, not just foreign-owned entities. All businesses in Cyprus pay the same corporate tax rate in a continuous effort by the government to encourage business activities that create job opportunities, flow of money and, at the same time, more activity. It is quite attractive for any business that wants to operate in Cyprus that their tax contributions are not going to be an obstacle to them running their business. At the same time, Cyprus offers top-quality professional services andboasts one of the highest percentages of university graduates. Many of these students study abroad and make their first career steps overseas, before bringing this global knowledge back to Cyprus upon their return.
One big challenge is the further development of our technological capacity. In general, the business and working environment, standard of living and infrastructures are considered at the top level. Moreover, the cost of living, raising a family and working in Cyprus is much lower than any other financial center in the region, creating a business model that is attractive to foreign investors. We have a very high percentage of expatriate communities with schooling available in English and French, so there are several facilities for expatriates. Following the 1974 invasion after which we lost a lot of our agricultural land, a decision was taken to develop Cyprus into a financial center with new legislation that would be attractive to foreign investors. Ever since, all governments have supported such incentives, whether left wing or right. This is certainly very important for any business that decides to move to Cyprus. To bring, for example, 200 people here to establish a business presence and ask them to move their families here; they would want to move somewhere where there is security. Cyprus has historically shown a consistent development without surprises. If you establish yourself and your business on the island, you are here for the stability of the economy and of the business environment.
BF: Cyprus was ranked 18th in the world at attracting FDI according to the seventh edition of FDI Intelligence’s Greenfield FDI Performance Index 2021, soaring 50 places year-on-year. How has the perception of Cyprus as a business and investment destination evolved?
Pieris Markou: In the past, Cyprus was often used as a location to mainly set up companies as a vehicle for certain tax structuring, but with no real presence. This started to change about 10 years ago. We have seen banks take the initiative of closing the accounts of dormant companies, prompting a new trend of making Cyprus an attractive location for firms that want a physical presence. There was an initiative to introduce certain incentives to encourage not only the set-up of companies, but also expatriates, including tax breaks and incentives for individuals, not just for companies. These include provisions to allow an expatriate to be taxed at 50% of the personal tax rate for 10 years, with that figure now expanded to 17 years. There are also incentives for a business that brings personnel here; not only does the business pay less tax, but the employees and expatriates pay lower rates too. Encouraging companies to relocate creates additional opportunities in other sectors, as they will utilize restaurants and invite their friends as tourists. This creates movement in the economy as opposed to the model of just having a company without a presence. This decision has proven to be very successful and is encouraging fully fledged offices to be established here, including the headquartering of ICT firms and fintechs. That is the way forward and it’s what has changed the image of Cyprus in that the country offers opportunities to have a real business presence, as opposed to just using the tax structuring model.
BF: In recent years, there has been a growing emphasis on transparency and compliance in the business world. How has Deloitte adapted to recent regulatory changes in transparency and compliance? What steps is the firm taking to ensure compliance with these regulations?
Pieris Markou: At Deloitte, we have our internal processes and regulations that follow global regulations, provisions and policies. It may make you a little more prudent and it makes you a little bit more cautious of what you are doing, but at the same time you are protecting your brand, and you are protecting your reputation. This is something you will find generally among network firms; because they carry the name and the brand of a global organization and so follow global policies. Over and above local legislation, anything that would add additional protection or additional screening, in terms of what clients you take on and what type of disclosures you have, is welcomed by the government as they know that you are applying a much stricter policy as to the minimum provisions that may be required. For Cyprus, there has been an effort to improve transparency and to improve on the concept of corruption, making sure there are mechanisms in place to quickly adapt to whatever is required and avoid this type of mishaps and any bad reputational issues.
BF: What are the areas that are left for further improvement in your opinion? What kind of reforms or changes might be needed?
Pieris Markou: There are still several reforms that Cyprus can make. Certainly, we need to move faster on our technological upgrade. The public sector needs to be more efficient with technology to advance egovernment, ensuring activities can be done online rapidly. When most practices are technology driven, it’s much easier to put controls that protect from human error.
Our judicial system, on the other hand, is already improving. In the past, we had a lot of inefficiencies in terms of decisions being made because by the time you go through the court case it would take 5-10 years, so there has been an improvement there. The legislation is in place, they simply need to implement what has been voted on.
Our tax system, although attractive, is also in need of reform. It’s been around for more than 20 years and we are continuously amending it as new directives emerge from the EU, or if there are new requirements from the OECD. Obviously, the goal is to continue to have the incentives and a legislation that is attractive for foreign investment, but it requires a little modernization. Having said that, whatever we do must be in line with the vision and direction that the country has chosen. It’s clearly agreed by all that the Cyprus’ vision is to continue to be attractive to the foreign investor and to encourage the real business sector to flourish. A government study on Vision 2035 identifies the industries in which benefactors should invest; any changes to the laws should be tied to this. There is still a lot of work to be done, but it is encouraging to see that the new government seems to be going in the right direction in terms of implementing several initiatives that were still pending and under discussion from the previous administration. We are seeing some movement in the right direction.
BF: The digital revolution is rapidly changing the shape of business, with new innovations in the realm of big data, artificial intelligence, fintech and smart machinery. What kind of disruptions do you think these will bring and how is Cyprus adjusting to this?
Pieris Markou: Technologies should be taken advantage of, instead of being perceived as a disruption. Obviously, low-level repetitive work will soon be replaced by technology. But at the same time, our younger generation and newcomers to the business market want to do something more advanced. We should be able to use technology to create an environment where people who are educated – and most of our people are graduates – want to work in a field that will be interesting. We need to use this as the basis to allow people to use technology and data analytics to add value and offer a high-quality service to the client. If I’m paying someone for a service, I want to get value out of it, not just repetitive work because that will be replaced by machines in the near future. I don’t believe there will be a disruption if we go about it efficiently. We need to encourage our younger generation to choose the right course of education and maybe look to more innovative paths, as opposed to the more predictable areas that our parents and grandparents saw as opportunities. We need to invest in the universities, and those that are educating our manpower so that when they come into the market, they are able to meet this new era that is emerging.
BF: At your level, how does Deloitte Cyprus train and upskill its over 800 employees and what does the company do to positively impact the human capital of Cyprus?
Pieris Markou: We do a lot. One of our main employer pillars is the training and development of our people. We take on graduates at an early stage and train them with not only on-the-job training, but also through seminars run either by Deloitte Global or locally. Deloitte Cyprus is part of the Middle East member firm, and together we are part of Deloitte North South Europe that includes most of the European countries and the Nordics. All our people follow a specific and rigorous development plan from the day they join. Even at partner level, we have partner development programs to follow. As our people move from one level to the next, they are constantly being updated and upskilled. In addition to the number of soft skills programs, we also offer training specific to our business lines and industry focuses.
BF: Deloitte has performed very well in recent years and enjoyed strong results. What have been some of the reasons for this growth?
Pieris Markou: The 2022 financial year was quite a year, perhaps a record year for Deloitte Cyprus. It was the result of a combination of the overflow of work from COVID-19, together with the closing of projects from which we had to disengage due to the war in Ukraine. It was a combination of emerging from a two-year slowdown due to the pandemic and occurring prior to the impact of the war in Ukraine. The financial year 2023 is a more conservative year due to the impact of the war being felt across the market, combined with the increases in cost in terms of what I mentioned earlier. In addition, some businesses deferred investments or deferred decisions to invest because of the uncertainty around Europe.
BF: What would be your final message to the readers of USA Today?
Pieris Markou: Being the third largest island in the Mediterranean, Cyprus is one of the most attractive tourist destinations in the region. But don’t be misled – when you’re on the beach, take a closer look at those enjoying the sun. They are most likely on their lunch break or enjoying after-work drinks with colleagues, or maybe preparing for a conference call with HQ in New York and a law firm in London.
Cyprus offers tremendous opportunities for businesses that want to be in the region with opportunities to serve the wider geography very easily, and at the same time to have a standard of living that is equal, or even better, to what they would have elsewhere. It’s a location not only for business, but for pleasure. People being relocated here would find that their families would come for their holidays and not want to leave. There are a lot of activities for families as it’s something Cyprus has been investing in for many years and that we are happy to share with the rest of the world.