Overview

The integration of new technologies and digitalization, frequently referred to as the 'fourth industrial revolution,' is profoundly affecting societal norms and practices, including the way people live, work, and interact. Information and Communication Technologies (ICT) have been instrumental in driving significant changes in production methods and employment patterns across the European Union (EU). In 2023, ICT specialists comprised 4.8% of the total workforce in the EU.

Cyprus as a Growing Technology Hub

In recent years, Cyprus has established itself as a burgeoning hub for technology. More ICT companies are choosing Cyprus as the location for their regional headquarters or as a central hub for activities like software development, systems integration, testing services, research and development, and back-office operations. With a strong local talent pool and access to the broader EU and global workforce, Cyprus has seen a substantial increase in the number of ICT employees.

The island is home to several globally renowned ICT companies, making it an emerging tech hub for software development, system integration, testing services, disaster recovery, research and development, project management, and marketing and sales. The Cypriot government prioritizes the tech industry, offering substantial support through national strategies and special incentives aimed at attracting ICT companies.

Government Support and Regulatory Framework

To support the growing technology sector, the Cypriot government has introduced several key initiatives and continues to update the regulatory framework in line with international best practices. This guide explores some of these benefits as well as the unique characteristics that aid Cyprus into becoming an innovation hub in the Mediterranean.

Market Access

Cyprus’s strategic location between three continents provides businesses with unparalleled market access. Companies in Cyprus enjoy full access to the European Single Market, which encompasses over 500 million consumers. Additionally, Cyprus benefits from over 40 EU trade agreements, facilitating efficient and effective trade operations.

Attractive Intellectual Property (IP) Regime

Cyprus offers a highly favourable intellectual property regime, making it an ideal location for businesses focused on innovation and development. Notably, 80% of the qualifying profits earned from qualifying intangible assets are exempt from tax, which can result in an effective tax rate as low as 2.5%, given the corporate tax rate of 12.5%.

Qualifying assets include those acquired, developed, or exploited in the course of business, provided they result from research and development (R&D) activities. However, qualifying assets do not include marketing-related intellectual property such as trademarks, brands, and image rights.

Favourable Tax Regime

Cyprus boasts one of the most attractive tax regimes in Europe, with a corporate tax rate set at 12.5%, among the lowest in the region. The country has established double tax treaties with over 60 countries, ensuring businesses avoid double taxation and benefit from favorable tax treatment.

The tax regime offers several incentives for new tax residents, including up to 50% deductions. Capital gains and security trading are exempt from taxes, and there are specific tax incentives for investing in innovative companies and startups. Dividend income, royalties, and interest are not subject to withholding tax, and foreign exchange gains or losses are tax-neutral. Furthermore, there is a provision for notional interest and expense deductions under certain circumstances.

Trusted Business Environment

Cyprus’s legal system, based on common law principles and fully compliant with EU law, offers several advantages:

• A transparent regulatory framework ensures legal stability for businesses.
• Unhindered access to European markets without barriers, tariffs, or bureaucracy.
• Fast and straightforward procedures for establishing corporations.
• Commercial Services: Over 700 accounting firms and 160 law firms providing a wide range of services.
• Compliance: Full compliance with EU and international laws and regulations.
• Investment and IP Protection: Strong safeguards for investment and intellectual property rights.

Fast Track Business Activation Mechanism (FTBAM)

The Fast Track Business Activation Mechanism aims to provide efficient services for foreign businesses establishing a presence in Cyprus. To join FTBAM, companies must meet specific criteria, contributing positively to the country’s economic growth:

• Physical Presence: Companies must have independent offices in Cyprus.
• Turnover Requirements: Existing companies need a minimum turnover of €500K per year for three out of the last five years. New companies must provide a reliable five-year business plan demonstrating growth potential.

Under FTBAM, all necessary procedures for the registration and incorporation of a company in Cyprus are completed within seven business days from the submission of all required information to the Ministry of Energy, Commerce, and Industry. Additional permits required for business operations are processed within 30 working days, excluding building and planning permits.

Key benefits include the ability to employ third-country nationals as directors, middle management executives, and qualified ICT specialists in various roles, such as software engineers, data scientists, web developers, and UX user experience professionals.

New Framework for Cyprus Citizenship for Highly Skilled Professionals

Cyprus recently introduced significant amendments to the Civil Registry Law to attract and retain highly skilled tech professionals. Key changes include:

• Qualifications for Naturalization: Includes Greek language proficiency, knowledge of social realities, financial self-sufficiency, and a clean criminal record.
• Residence Requirements: Continuous legal residence for 12 months before application and at least seven years within the preceding ten years.
• Family Inclusion: Citizenship extends to family members.
• Streamlined Process: Citizenship applications are processed within four months.

These amendments aim to modernize the naturalization process, making it easier for tech professionals and their families to become Cypriot citizens. The introduction of provisions regarding the naturalization of persons residing in Cyprus for highly skilled employment in companies is a highly beneficial development for the country.

What’s Next: European Blue Card

Cyprus is in the process of implementing the EU Blue Card scheme, which facilitates the entry of high-skilled workers from third countries. The Blue Card grants holders and their families the right to live, work, and move within the EU, simplifying the bureaucratic visa process and allowing relocation after 18 months of employment in one EU state.

The EU Blue Card aims to attract high-skilled workers from non-EU countries by providing a streamlined process for obtaining work and residence permits. This scheme offers significant benefits, including the ability for cardholders to move freely within the EU, bring their families with them, and simplify the lengthy visa acquisition process.

Conclusion

Cyprus presents a highly attractive environment for ICT and fintech companies, offering a strategic location, favourable tax and IP regimes, and robust government support. The country’s legal and regulatory framework, combined with initiatives like the Fast Track Business Activation Mechanism and the new citizenship framework for highly skilled professionals, makes Cyprus an ideal destination for businesses looking to establish or expand their operations.

The forthcoming implementation of the EU Blue Card scheme will further enhance Cyprus’s appeal by facilitating the entry of high-skilled workers from third countries, thereby contributing to the growth and development of the ICT sector. With its strategic location, supportive government policies, and attractive business environment, Cyprus is well-positioned to continue its growth as a leading technology hub in the region.