On Friday 15th of October 2021, the Cyprus government announced its new action plan for attracting foreign businesses to establish or expand their activities in Cyprus. The announcement came one year after the abolition of the previous investment program.
The new strategy announced aims to turn the page and attract foreign businesses to the island and to stimulate economic activity by promoting foreign investment. The action plan will be implemented as of 1.1.2022
Setting up of the Business Facilitation Unit
The new policy aims to facilitate the establishment of foreign companies to operate and/or relocate their headquarters and/or expand their business activities in Cyprus. In light of this target 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 for foreign companies that wish to expand their operations in Cyprus.
The Business Facilitation Unit shall be responsible for the provision of the various services required for the establishment of corporate entities. It will oversee new companies’ name approval, companies’ registration, registration with the Social Insurance and VAT authorities and with the Income Tax Authorities of the Republic. It shall also provide guidancein relation to the establishment, licensing and operations of such companies and shall facilitate the issuance and renewal of residence and employment permits for staff employed by foreign interest companies.
Revised Policy for Issuance of Residence and Employment Permits to highly skilled third country nationals and supporting staff
The Cypriot government has revised once more the policy for the employment of highly skilled personnel from third countries which are employed by companies of foreign interests, as well as for those employed by Cypriot companies which give added value to the economy and the local workforce.
The eligible companies that can benefit from this revised policy are the below:
Eligible companies can employ highly skilled third country nationals in key positions who are in possession of a university degree or title or equivalent qualification or a certificate of relevant experience in a corresponding employment position of at least 2 years with a minimum gross monthly salary of € 2500 and provided their employment contract is for a period of not less than two years.
The relevant work permits for employees falling under this revised policy will be issued immediately within 1 month and will last up to 3 years.
There is a maximum number of third country nationals that may be employed under this policy. Only 70% of the total number of all employees may be employed under it in a period of 5 years, from the date of joining the Business Facilitation Unit. In case 5 years have passed and it is not possible to employ 30% of Cypriot workers, it will be re-examined on a case-by-case basis.
Eligible companies will also be allowed to employ third country nationals as support staff with a gross monthly salary less than € 2500. The employment of third-country nationals as support staff is allowed, provided that it does not exceed 30% of the total support staff and provided that the third country nationals and the employers have entered into an employment contract approved by the relevant authority in accordance with the applicable law. The amount of their salary is to be determined by the current legislation.
The duration of their residence and work permits will be up to 3 years.
Family reunification rights to third country nationals employed under this revised policy
It is important to note that family reunification rights are granted to third-country nationals employed by this revised Policy and regulated by the Business Facilitation Unit.
Direct and free access to the labour market as paid employees is granted, to spouses of the third country nationals who have obtained a residence and work permit in the Republic, through this revised policy 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 of the process of granting work permits under category E
The action plan provides for the simplification and acceleration of the process of granting immigration and work permits under CATEGORY E - Long-Term Resident Status to persons who have been offered permanent employment and whose employment does not create undue local competition.
Introduction of Digital Nomad Visa.
Significantly the Action Plan provides for the introduction and the issuing of a DIGITAL NOMAD VISAS with a maximum initial limit of 100 beneficiaries.
Those entitled to such visas will be third country nationals who are either self-employed or are employees who work remotely using information and communication technologies to communicate with their clients or employers who must be outside Cyprus.
The holders of a DIGITAL NOMAD VISAS shall have the right to stay in the country for up to one year, with the right to renew their visas 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 that of the main applicant. During their stay in Cyprus, the spouse or partner and the minor members of the main applicant’s family are not allowed to provide dependent work or to engage in any kind of economic activity in the country.
In the event that the holders of such Visas reside in the Republic for one or more periods that in total exceed 183 days within the same tax year, then 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. For example, they must show evidence that they have sufficient resources at a fixed income level of a minimum €3500 per month to cover their living expenses during their stay without burdening the national and welfare system and must have insurance coverage and a clean criminal record. The aforementioned prerequisites are indicative and additional requirements are applicable.
Introduction of various tax incentives
Included in the new policy are certain legislative proposals concerning the granting of tax benefits and tax breaks which will be submitted to the House of Representatives by the end of December 2021. The government is hopeful that these proposals shall be approved by the first quarter of 2022.
The government has proposed a 50% tax exemption to be granted to new residents-employees who receive an annual income from their employment of € 55,000.
Furthermore, the government’s proposals provide for 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 a period of 17 years prior to the commencement of their employment.
Potential beneficiaries of this tax benefit with an income of € 55K- € 100K should be entitled to benefit from this exemption for the remaining period of the 17 years.
The government also proposes the extension of the 50% tax exemption for investment in certified innovative companies to corporate investors. The regime that was in force until the end of June 2021 allowed the tax exemption only to natural persons.
There is also a proposal put forward for the granting of an increased discount on research and development expenses for example by 20%. Eligible research and development costs will be deducted from taxable income at 120% of the actual.
Proposal regarding naturalisation
The government is also proposing the right to submit an application for naturalization after 5 years of residency and employment in the Republic instead of the 7 years rule as applicable today or a further reduction to 4 years if the potential applicants meet the criteria of holding a recognized certificate of very good knowledge of the Greek language.
The overall benefit of the new Policy
There is no doubt that in addition to attracting foreign businesses to the island Cypriot companies and businesses whose objects fall within those specified in the eligibility criteria will also benefit from this new policy.
When presenting the new strategy at the Presidential palace, president Nicos Anastasiades, emphasized that it aspires to make Cyprus a sustainable business and trade center of the broader region and Europe. He also noted that the policy has taken into account the best practices from other European countries. The emphasis is on domains related to technology, shipping, innovation, research and development technology biogenetics and biotechnology without excluding any other companies that choose Cyprus as their place of business.
It is beyond doubt that high hopes lie on this policy to restore the credibility of the legislative framework aimed at attracting foreign businesses and investments to the island.
Cyprus is a very attractive destination for business operations and investments due to its many competitive advantages which include but are not limited to its attractive tax regime, advanced and stable business, banking and financial services, transparent legal framework as well as its high quality of life, excellent educational and healthcare system.
The government is optimistic that the New action Plan it has announced will stimulate economic growth and activity by further promoting foreign investments to the island and thus offer high and sustainable added value to the economy through the creation of new jobs and increased demand for domestic services. It remains to be seen to what extent foreign and domestic businesses falling within the criteria will take advantage of the benefits offered through this New Action Plan.
The content of this article is intended to provide a general guide to the subject matter and does not constitute legal advice. For further information or advice, please contact Esme Palas, Partner at Michael Kyprianou & Co LLC, Barrister at Law via email at: firstname.lastname@example.org or by phone at: +357 26930800