‘The future lies with fully compliant jurisdictions like Cyprus’
The administrative services sector has enjoyed a growth path that has been at a faster pace than the economy itself, but a lot more has to be done to make Cyprus more attractive and competitive among rival jurisdictions, said George Savvides, Partner, Fiducenter (Cyprus) Ltd.
In an interview, Savvides said that even the success stories of the citizenship and residency schemes, that have so far raised EUR 2.5 bln in state revenues, need some improvement to dispel concerns of a sell-off, while to conclude it all, Cyprus must definitely spend more to promote the image as a premium services centre, something which is not done today.
How is the local administrative services sector (corporate, trust and other services) faring in 2016?
The sector is, once more, surpassing the overall economy in terms of growth, boasting a healthy rate, although it has to be said that due to its resilience it has never suffered to the same extent as other sectors or even the economy as a whole. Having said that, it is hard to speak with numbers as unfortunately there are no statistics for the sector. So, the only objective indicator is the number of new company registrations at the Cyprus Registrar of Companies, but even that is distorted somehow. As I was never a proponent of the evaluation of how well we are doing by the number of new incorporations (or at least merely by it), I strongly believe that all stakeholders of the sector should work towards creating some reliable indicators.
How does Cyprus compare with other jurisdictions in the provision of Administrative Services?
In terms of what it has to offer, not only does it not have anything to be jealous of other jurisdictions but it can proudly claim that it is perhaps one of the few jurisdictions which currently offer a complete package, in terms of being attractive for investing, setting up or relocating a business and having people move in the country. Not only that, but this package, following the various legislative introductions and/or amendments over the last year, is fully up to date and compliant with international legal, regulatory, tax and other developments.
You have always supported and promoted the idea that Cyprus companies should have real substance. Is this becoming more of the norm or are there still too many ‘brass plate’ operations being set up?
Although all international developments are leading towards substance, it is going to take some time until we can say that this is the norm. Cyprus forms an ideal location for creation of substance in structures, not only because of the various fiscal and corporate incentives available but for a plethora of other reasons, including its geographical position, the abundance of highly educated and experienced staff, the high quality of professional services, the quality of life, the weather, etc.
Following the publication of the Panama Papers, will a well-regulated jurisdiction like Cyprus benefit from an influx of companies and individuals wishing to show that their dealings are transparent or will such people seek other tax havens?
It is hard to say at this stage because this case is still ongoing. During the initial period, I think that there will be a general numbness as people will be reluctant not only to move existing structures, but even to set up new ones. Yet, in the long term and in conjunction with all other international developments, such as BEPS, FATCA and the CRS, for sure the future lies with fully compliant jurisdictions, which follow and promote principles such as transparency, substance and good corporate governance, like Cyprus does.
There seems to be a growing mood of negativity towards tax avoidance schemes in many countries. Will this affect service providers in Cyprus in any way?
Although no diligent administrative service provider or other professional engaged in the sector should be aiding or even encouraging clients in tax evasion or even aggressive tax avoidance, erhaps the whole issue has now reached a stage where even legitimate tax planning is condemned. Indeed, as there are no legal grounds against such planning (either by legislation or case law), the only tool various governments are adopting is aggressive negative publicity, taking advantage of the fact that many people around the world are struggling financially because of the effects of the global economic crisis. To what extent the professionals engaged in the sector will be affected and this frenzy will depend on how far it will go.
How successful ave the government’s Cyprus Citizenship by exception and Permanent Residency schemes been? Can they be improved?
This is perhaps one of the few parts of the sector where numbers can speak by themselves and they are very impressive. As per the latest reports from the Ministry of Finance, the amount invested in the country through the Citizenship Scheme alone over the last few years has exceeded EUR 2.5 bln.
I think that the schemes can be streamlined in order to promote substance as well, in the sense that they can be aiding towards having people actually spend some time in Cyprus, spend money in the local economy and perhaps even making further investments. I know that not requiring any minimum stay in Cyprus has been one of the strong cards of the schemes, but at the same time it has been the main argument for opponents of Cyprus in this field, so by considering this we could actually help in safeguarding the schemes and making them more sustainable. Indeed the changes considered by the government, which are expected to be put in to force pretty soon, seem to be taking this point into account as well as other factors, which aim towards substance. There are certain other points to consider, such as making rental of properties also an option instead of restricting access to the schemes through purchase of real estate, especially for the Residency Scheme.
Are we any closer to having a single regulatory authority for the fiduciary sector?
I believe we are, through practice and because of the various developments in or related to the sector both in Cyprus and internationally. This is actually what we have been claiming since the very beginning at the Cyprus Fiduciary Association, a body established in 2011 of which I was the President up until recently that came about from esteemed firms joining forces.
Perhaps we were at a very early stage at that time and our voice was not strong enough to be heard. Legal and regulatory requirements are gradually aligned between the three regimes both on paper but, more importantly, in practice and the presence of the Troika of international lenders (especially the quarterly monitoring reviews) – coming out of the financial assistance scheme which Cyprus has very successfully completed earlier this year – has played a very significant role towards that.
Are there major steps that still need to be taken to improve the image of Cyprus in this sector?
I cannot stress the word promotion enough in answering the question. If there is one thing we are lagging behind other jurisdictions is image and reputation. We have to realise that we didn’t have the best of images when entering the EU because of our offshore regime before accession. Extensive work was done in the years which followed, mainly as a result of the private sector and especially the professionals who invested time and money and travel around the world to pass the message that things have changed in Cyprus. Then the financial collapse of March 2013 served a huge blow to the whole effort and we had to start from scratch.
The sector has proven its resilience once more, but I believe we are at a critical stage, where we mainly need two things: a plan and a concerted promotional campaign.
We have tried, in the Cyprus Fiduciary Association, to come up with a plan through our annual forum and we presented a draft to the Undersecretary to the President. Although it can be a good start, we need something more comprehensive than that which will be the result of the contribution of all stakeholders so that it can receive universal approval and backing. Then we need a vehicle through which the plan will be executed and which will be reporting the progress to the stakeholders and through a process of assessment, realignment and response to developments, will be reaching out stronger and more decisive.
The message we have to send should not be defensive (as the initial response to the Panama Papers case was) or apologetic, but instead we should shout out loud that Cyprus today is one of the most attractive, efficient, compliant and diligent places to invest, set up and operate a business and live.
