In recent years, the Cypriot state has been prioritizing technological advancement, innovation and sustainable growth. To facilitate the accomplishment of these goals, a number of relevant initiatives have been fast-tracked and greenlit. These initiatives place great emphasis on local talent and its cultivation, as well as the establishment of a cutting-edge, attractive infrastructure for the island’s operations and procedures. 

Among these initiatives, Cyprus has implemented many investment incentives that make the country an enticing option for foreign direct investments (FDI) and assist the growth of local businesses. The benefits offered to businesses by these incentives create an inviting environment that makes basing their operations in Cyprus a sensible and favorable decision. However, they do not come without some issues of their own. This article will aim to explore both sides of the coin and impartially analyze the pros and cons of Cypriot tax incentives.

Tax Incentives

• Low Corporate Tax Rate: At 12.5%, Cyprus boasts one of the lowest corporate tax rates in the European Union, making it an ideal place for any corporation. To give you a clearer picture of the disparity between Cyprus and the rest of the EU, the European average corporate tax rate is 21.3%, while the global average sits at 23.4%!

• IP Box Regime: The IP Box Regime is a Cypriot measure regarding corporate profits from innovation and investment in intellectual property which reduces corporate tax rate to 2.5%. Companies operating in the tech and pharmaceutical industries stand to benefit greatly from the IP Box Regime, and as a result, several corporations have decided to set up their operations in Cyprus, over the last few years. 

Financial Incentives:

• State Grants: In order to promote the growth of local businesses and the spirit of entrepreneurship and innovation, the Cypriot government offers grants and subsidies, designed specifically to assist start-ups and people with a vision. The aforementioned grants are provided to local and foreign businesses alike, in hopes of creating a balanced, diverse and dynamic landscape for the island that will incentivise further investments.

• Investment Funds: The Cypriot legislative system offers various benefits to investors, thus attracting asset managers and private equity firms. Investment funds in Cyprus are supported by the favorable regulatory framework in place, allowing the country to thrive in this aspect and present a healthy climate for corporations and potential investors.

Other Incentives:

• Location: The value of the island’s location within the Mediterranean should not be taken lightly, as it serves as a hub between Europe, Asia, and Africa, providing aspiring businesses with access to multiple diverse markets with different needs and dynamics. Cyprus’s location has always been an asset enhancing the island’s trade capabilities, a virtue that is currently more valuable than ever before.

• Local Talent: While many corporations often need to set their sights on foreign talent, Cyprus is fortunate enough to have an extensive range of talented young individuals who are eager to make a name for themselves and help move the country forward. According to a recent study, most young people speak more than one language, which allows them to effectively communicate with people from all over the world. 

While all of the incentives listed above offer several benefits to both local business and potential investors from abroad, the Cypriot market faces some significant issues too.
One of the most major challenges the aforementioned parties will face are the island’s bureaucratic complications. The Cypriot infrastructure is often criticized for its lengthy and complex procedures that may delay operations and discourage investors looking to set up their business in Cyprus.

Similarly, the island’s financial state is considered to be somewhat volatile and may deter business owners from investing, as it can be unpredictable. Economic and political uncertainty may offset the benefits of state tax incentives in the eyes of foreign corporations.

On the other hand, foreign direct investments tend to facilitate the development of local businesses as well, as they “inject” the local market with new opportunities, technologies and ideas, fostering a dynamic community of entrepreneurs and innovators who engage in a healthy competition, driving the local landscape forward in the process.

It is no secret that tourism has always been one of Cyprus’s most lucrative affairs, thanks to the island’s unparalleled natural beauty, diverse landscapes and hospitable population. Year after year, tourists from all over the world choose the Mediterranean island for their vacations and escapades, resulting in a huge influx of investments that boost the Cypriot economy. 

The island’s popularity with foreign visitors creates a self-sustaining economy where investments coming from abroad are reinvested in various sectors of the islands, namely tourism and technology, rapidly advancing what Cyprus has to offer, and as a result, making it even more attractive to visitors. 

The Cypriot government has placed great emphasis on creating a healthy and welcoming environment in which local and international businesses can thrive, by providing favourable tax rates and incentives that are unrivaled within the EU. This approach has turned the island of Cyprus into a hub for innovation, technology and foreign investments, taking advantage of its local talent, geographical location and even natural attractions.

However, certain factors such as red tape complications and delays sometimes deter potential investors from setting up their operations in Cyprus.