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New action plan for foreign investments

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The government has announced its new action plan for attracting foreign businesses to establish or expand their activities in Cyprus.

The announcement came a year after the abolition of the previous investment programme in the wake of adverse publicity that put Cyprus in the spotlight for the way it granted citizenship.

The new strategy, to be implemented from January 1, 2022, aims to attract foreign businesses and stimulate economic activity by promoting foreign investment.

The Business Facilitation Unit

The new policy aims to facilitate the establishment of foreign companies to operate and/or expand their activities in Cyprus.

The existing Fast Track Business Activation mechanism for Companies of Foreign Interest shall be transformed into a “Business Facilitation Unit” for foreign companies operating in Cyprus or those wishing to expand their operations to Cyprus.

The Unit shall be responsible for providing the various services required for the establishment of corporate entities.

It will oversee company registration, name approval, registration with the social insurance, VAT registry and the income tax authorities.

It will also guide the establishment, licensing and operations of such companies.

In addition, it shall facilitate the issuance and renewal of residence and employment permits for employees working in companies of foreign interests.

Residence and Employment Permits

The government has revised the policy for the employment of staff from third countries employed by companies of foreign interests and those employed by Cypriot companies, which add value to the economy.

Companies that can benefit from this revised policy are:

  • Companies and businesses of foreign interests operating in Cyprus or companies of foreign interests wishing to establish operations on the island with a physical presence, and which operate or shall operate from independent offices on the island and are or will be housed in suitable premises, separate from any private residence ·
  • Cypriot shipping companies·
  • Cypriot high technology/innovation companies, Cypriot pharmaceutical companies or Cypriot companies active in biogenetics and biotechnology.

Eligible companies can employ third country nationals in key positions who have a university degree or title or equivalent qualification or a certificate of relevant experience in a corresponding employment position for at least two years with a minimum gross monthly salary of €2500 provided their employment contract is for not less than two years.

There is a maximum number of third country nationals that may be employed under this policy.

Only 70% of all employees may be employed under it for five years, from the date of joining the Business Facilitation Unit.

If five years have passed and it is impossible to employ 30% of Cypriot workers, it will be re-examined on a case-by-case basis. The relevant work permits for employees under this revised policy will be issued immediately within one month and last up to 3 years.

Eligible companies will be allowed to employ third country nationals as support staff with a gross monthly salary of less than €2500.

The employment of third-country nationals as support staff is allowed, provided it does not exceed 30% of the support staff and provided third country nationals and the employers have entered into an employment contract approved by the relevant authority.

The amount of their salary is determined by the current legislation. Their work permits will last up to 3 years.

Family reunification rights

Family reunification rights are granted to third-country nationals employed by this revised policy and regulated by the Business Facilitation Unit.

Through this revised policy, direct and free access to the labour market as paid employees is granted to spouses of the third country nationals who obtained a residence and work permit in the Republic and who receive a minimum gross monthly salary of €2500.

This right does not extend to supporting staff who receive a monthly salary of less than €2500.

Simplification

The action plan provides for the simplification and acceleration of granting immigration and work permits under Category E to persons offered permanent employment in the Republic, not creating undue local competition.

Digital Nomad Visa

The Action Plan introduces and issues a Digital Nomad Visa with a maximum initial limit of 100 beneficiaries.

Those entitled will be third country nationals who are self-employed or employees who work remotely using information and communication technologies to communicate with their clients or employers outside Cyprus.

The holders of a Digital Nomad Visa shall have the right to stay in the country for up to one year, with the right to renew for another two years.

They can be accompanied by their family members, to whom a residence permit is granted upon request, which will expire at the same time as the main applicant.

During their stay in Cyprus, the spouse or partner and children of the main applicant’s family are not allowed to provide dependent work or engage in any economic activity in the country.

If the holders of such a Visa reside in the Republic for one or more periods that exceed 183 days within the same tax year, they are considered tax residents of Cyprus provided they are not tax residents in any other state.

The Digital Nomad Visa is granted under certain conditions and prerequisites.

They need to provide evidence .of sufficient resources at a fixed income level of a minimum of €3500 per month to cover their living expenses, without burdening the national and welfare system and must have insurance coverage and a clean criminal record.

Tax incentives

The new policy includes certain legislative proposals concerning tax benefits and tax breaks, which will be submitted to the House of Representatives by the end of December.

The government hopes these proposals shall be approved by the first quarter of 2022.

The government proposes that a 50% tax exemption be granted to new residents-employees who receive an income of €55,000.

Furthermore, the proposals provide the extension of the tax exemption applicable to eligible employees in the Republic who have an income below €100,000 from 10 years to 17 years, provided they were not domiciled in the Republic for 17 years before the commencement of their employment.

Potential beneficiaries of this tax benefit with an income of €55K- € 100K should benefit from this exception for the remaining period of the 17 years.

The government also proposes extending the 50% tax exemption for investment in certified innovative companies to corporate investors.

The regime in force until the end of June 2021 allowed the tax exemption only to natural persons.

There is also a proposal to grant an increased discount on research and development expenses, for example, by 20%. In addition, eligible R&D costs will be deducted from taxable income at 120% of actual.

Proposal regarding naturalisation

The government proposes the right to apply for citizenship after five years of residency and employment in the Republic instead of the seven years applicable today or a reduction to 4 years if potential applicants meet the criteria of holding a recognised certificate of very good knowledge of the Greek language.

Overall benefit

In addition to attracting foreign businesses, Cypriot companies whose objectives fall within the criteria will also benefit from this new policy.

When presenting the new strategy, President Nicos Anastasiades emphasised that it aspires to make Cyprus a sustainable business and trade centre of the broader region and Europe.

He also noted the policy has taken into account the best practices from other European countries.

The emphasis is on high technology, shipping, innovation, research and development, technology, biogenetics, and biotechnology, without excluding any other companies.

High hopes lie on this policy to restore the credibility of the legislative framework at attracting foreign businesses and investments.

The government is optimistic it can stimulate economic growth and activity by promoting foreign investments, offering high and sustainable added value to the economy by creating new jobs and increased demand for domestic services.

Esme Palas, Barrister at Law, Partner at Michael Kyprianou and Co LLC

[email protected]