2019 has been a transitional year for the Mediterranean island’s professional services sector with its economic model changing to meet international trends but also to abide by worldwide tougher regulations.
Data released on Monday by the Registrar of Companies shows that Cyprus has lost its potential as far as registration of new companies goes and is now trying to build a new economic model.
Cyprus’ trump card had always been the attraction of foreign companies, around of which a huge industry of professionals including lawyers and accountants, was built.
Through the implementation of various policies in the 1980s, the island gradually reached Lebanon’s high position in providing services while numerous companies and people from the neighbouring country finding refuge in Cyprus. Offshore companies were taxed at a rate of 4.25% on their income.
Then in the 1990s a number of Russians came to Cyprus, mainly for tax purposes. New company registrations and the real estate industry picked up in the 2000s. In fact, there were massive registrations of new companies within the three years of 2006-2008.
In 2006, new registrations amounted to 20,280, compared to 29,016 in 2007 and 24,453 in 2008. 2013 is the year during which the largest number of companies were recorded – 272,157 in total.
However, the 2013 economic crisis gave those in governance the opportunity to reshape the model of services. Naturalization incentives offered at the time gave a new momentum to the island’s real estate sector.
State coffers absorbed billions of euros while land developers succeeded in restructuring non-performing loans and putting back in motion the construction industry.
At the same time, Cypriot authorities committed to shedding off a rising bad reputation of being a tax haven. Because some practices implemented throughout the years – for example shell companies – had raised suspicion that Cyprus was in the middle of money laundering.
2018-2019 were two crucial years for Cyprus and a handful of new policies applied have pushed the country’s service sector into a transitional period. A new, more stringent Central Bank directive on shell companies and the consequent departure of Russian depositors have changed the overall picture in international business.
In addition, last May’s criteria changes to the citizenship by investment programme are again changing the island’s business structure.
New company registrations are down by 20.6% over the months of January-November 2019, according to the latest released data. The number of new companies dropped to 11,529 from 14,526 the same period last year.
For November alone, the drop in registrations reached 14.5% with 1,044 companies recorded in November this year, compared to 1,221 in November 2018. In fact, the downward trend of new registrations has been recorded over the past 14 months – since October last year.