Cyprus as an alternative destination for UK companies seeking to export services to the EU
By Greg Demetriou
The eventual withdrawal of Britain from the EU will inevitably impact both the political and economic environment of the region. Cyprus will be directly affected by this “split”, seeing as it is one of only two EU member states whose exports to the UK exceed 10 per cent of its total, while the UK is Cyprus’ main supplier of goods and services after Greece. The City of London and Cyprus’ financial services sector collaborate closely, while the Britain has always been Cyprus’ main source for tourism.
Cyprus and Britain undoubtedly have close financial relations. To continue and expand this relationship, the two countries signed the updated convention for the elimination of double taxation in March 2018 with respect to taxes on income and capital gains, and the prevention of tax evasion/avoidance.
The question which logically arises in view of Brexit pertains to the impact that this “split” may have on the financial relations between the two countries, as well as on the economy of Cyprus as a whole.
A study by the Cyprus finance ministry indicates that the consequences of Brexit will be minimal and manageable, and that they will depend mainly on the exchange rate between pound sterling and euro. Financial analysts and market players claim that opportunities may arise in view of Brexit, focusing on the fact that despite abandoning the EU, Britain will continue seeking financial partners and doing business within the framework of its financial and commercial relationship with the EU, after Brexit negotiations. Many British companies have considered the possibility of relocating their activities or headquarters from London to other European countries in order to retain the benefits that a European “passport” ensures.
Cyprus offers competitive advantages in terms of attracting UK-based companies that seek to retain their access to the European Economic Area, which, among others, are its geostrategic position, the good command of the English language by the majority of its population, the Cypriot legal system, which is based on English law, the low corporate tax rate, and its full membership of the EU and the Eurozone. As a result of the positive course of its economy and the restoration of confidence by the global investment community, Cyprus can provide fertile ground for attracting companies and investments.
The financial sectors with the highest potential for new investments may be tourism, professional services, shipping, energy, and innovation, while insurance companies, banks, mutual funds, hedge funds and equity funds are the companies which are expected to benefit more by the relocation of their activities. According to some studies, in view of Brexit 22 per cent of financial services companies have already considered transferring their activities from London in order to ensure that they will continue operating smoothly.
By offering even more incentives as part of a comprehensive strategy, Cyprus could become an alternative destination for UK companies aiming to export their goods and services to the EU. For this to be achieved, a well-targeted integral strategy and constant reform efforts are needed.
Greg Demetriou is manager of Ergoserve, a Cyprus-based financial management and consultant company.