Cyprus Economic Development 2023 and Outlook 2024

In recent years, Cyprus has demonstrated remarkable resilience, experiencing growth and expansion across various sectors such as tourism, financial services, and energy. The momentum is expected to persist, as several sectors are anticipated to remain significant global contributors in 2024. This presents numerous advantages for business owners, foreign investors, and entrepreneurs exploring opportunities in Cyprus.

The Aspen Trust Group conducts an analysis of the growth in pivotal sectors over the previous year, gazes into the future to predict challenges and growth in 2024 and underscores the opportunities within this dynamic landscape.

Developments in 2023

The Cyprus economy witnessed positive growth in the first half of 2023, as indicated by the Cyprus Draft Budgetary Plan 2024 which was based on the latest available results from 2023 and prepared in accordance with Regulation EU 473/2013. It is revealed that in the first half of 2023, the economy exhibited a positive growth rate of 2.7%. Domestic demand saw a notable increase, with overall consumption rising by 11.8%, driven by a 3.9% increase in public consumption and a 4.6% increase in private consumption. Gross fixed capital formation also experienced a significant uptick, growing by 9.9% during the same period.

The growth of the economy in the specified period is attributed to the following sectors:

• 7.1% from wholesale and retail trade; repair of motor vehicles and motorcycles; transportation and storage; accommodation and food service activities.
• 5.2% from information and communication.
• 3.1% from arts, entertainment and recreation, repair of household goods and other services.
• 2.3% from manufacturing.
• 2.3% from construction.
• 2.0% from financial and insurance activities.
• 2.0% from mining and quarrying; manufacturing; electricity, gas, steam, and air conditioning supply; water supply; sewerage, waste management, and remediation activities.
• 1.3% from public administration and defense; compulsory social security; education; human health and social work activities.
• 0.8% from agriculture, forestry, and fishing.
• 0.7% from real estate activities.

The tourism sector and related sectors were crucial for economic growth. Despite the initial setback due to the Russia-Ukraine conflict and subsequent sanctions impacting Cyprus’s second-largest tourist market, the sector has rebounded. The loss in the Russian tourist market has been compensated by the emergence or strengthening of other key markets, including the UK, Israel, Poland, Germany, Austria, Scandinavia, and Greece. As of August 2023, all markets, except Russia, have returned to their pre-crisis 2019 levels.

In terms of employment, the overall unemployment rate dropped to 6.4%, and long-term unemployment decreased to 2.0%. However, youth unemployment saw a marginal increase to 15.6%. The tourism sector, responsible for much of the economic recovery, played a crucial role in these employment dynamics.

In addition, in 2023, Cyprus welcomed several renowned brands, with prominent names in the hospitality, real estate, education, catering, sports goods, and beauty sectors choosing to expand their presence on the island. Notable additions included Nyx Hotel, Mercure (Accor), Ritz-Carlton Residences, the American University of Beirut, JD Sports store, Decathlon, etc.

Prospects for 2024

Anticipating a recovery after the 2023 slowdown, it is foreseen a return to normal economic levels with accelerated activity. The tourism sector, having weathered challenges, is not only set to fully recover by 2023 but is poised for further growth.

According to the most recent macroeconomic forecast for Cyprus from the European Commission, there is an anticipated growth in economic activity in Cyprus, reaching 2.6% in 2024 and 2.9% in 2025. Government actions to control inflation, combined with increased partial wage indexation, are expected to support consumption growth, though at a slower rate. The rise in interest rates may impact the demand for residential properties, while foreign investments and the implementation of the Cypriot Recovery and Resilience Plan are geared towards enhancing infrastructure in green and digital transitions, healthcare, education, and tourism.

Renowned economist Marios Christou adds another dimension to the economic landscape, emphasizing the significance of natural gas and the outcome of maritime block negotiations in shaping Cyprus’ economic fate in 2024.

Amidst these considerations, a remarkable development unfolds with the inflow of substantial investment funds into Cyprus, cultivating a growing €10 billion market. This influx not only injects capital into Cyprus but also generates job opportunities for local youth who have studied economics, enabling them to secure employment with competitive salaries and meaningful roles. Consequently, this contributes to the positive growth of the services sector.

In the domain of digital innovation, the Deputy Ministry of Research, Innovation, and Digital Policy is at the forefront of a nationwide smart city strategy, blending ongoing initiatives with new projects. Aligned with the Cyprus National Reform Programme 2023, published by the European Commission, Cyprus is set to roll out the ‘CY Smart City Platform.’ This platform adapts to each municipality’s needs, incorporating existing and planned projects. The implementation roadmap, including smart parking, lighting, and waste management, is slated for completion by June 2026, marking a significant leap in Cyprus’s urban technological advancement.

The Cyprus government remains steadfast in its commitment to transforming into a transparent jurisdiction. A key aspect of this initiative is the adoption of a Commercial Off-The-Shelf (COTS) system named “Tax For All – TFA,” a substantial IT project initiated by the Cyprus Tax Department since October 2020. The implementation of Tax For All is structured across three distinct stages, each targeting different functionalities and tax types. This comprehensive project is poised to conclude by the end of 2024, marking a pivotal step toward a more transparent and accessible governmental framework in Cyprus.

Despite external challenges, including the international impact of the Ukraine war, Cyprus found resilience. While sanctions and a tourism downturn posed hurdles, the compensatory effect emerged as companies sought refuge on the island, fortifying the economy.

As we look ahead to 2024, these multifaceted elements provide a comprehensive understanding of Cyprus’ economic landscape, offering insights into challenges, growth trajectories, and the potential for sustained development.

Business Environment in Cyprus

Over the years, Cyprus has evolved into a premier hub for global business and investment, attracting companies from diverse sectors establishing their headquarters on the island, including pharmaceuticals, shipping, fossil fuels, investments, and renewable energy, have witnessed substantial growth through increased investments in Cyprus. Beyond its reputation as a vacation destination, Cyprus offers strategic advantages for businesses considering establishment on the island:

Strategic Geographical Location:

Cyprus, situated at the crossroads of three continents, serves as an excellent channel for investment into and out of the European Union. Its convenient time zone and strong connections with Eastern Europe, North Africa, and the Middle East make it an advantageous location for businesses with a European focus.

Access to Local and EU Talent:

Cyprus boasts a dynamic, young, and affordable workforce. The island’s strategic position allows businesses to tap into a pool of highly skilled and multilingual professionals who are proficient in operating across diverse economies and languages.

Attractive corporate and income tax regulations:

The existing corporate tax rate for resident companies in Cyprus stands at 12.5% on their global income. The government has implemented various tax policies that specifically support high-quality and sustainable businesses across sectors such as multinational enterprises, shipping, pharmaceuticals, fintech, gaming, and digital marketing corporations.

Cyprus is particularly conducive for group holding and finance companies, offering a tax-free transmission of dividends from Cyprus to non-tax resident entities under specified conditions. Moreover, there is a complete exemption for participation and no taxation on capital gains, excluding gains originating from the direct and indirect sale of real estate within Cyprus.

The extensive network of double taxation agreements serves as robust protection against double or non-taxation, and unilateral relief is available for taxes paid abroad in cases where no double taxation agreement is in effect.

Favorable IP Box regime:

Focusing on cultivating a hub of advanced technology and innovative enterprises, the Cyprus government has implemented an EU-approved Intellectual Property (IP) Box regime, employing the ‘Nexus’ fraction approach. This initiative essentially grants a tax exemption of up to 80% on profits related to research and development expenditures linked to qualifying intangible assets under the Cyprus IP Box.

Unleash Your Business Globally

Cyprus stands as a resilient and attractive destination for businesses, offering a combination of strategic location, a skilled workforce, and favorable tax regulations. As the country navigates economic challenges and embraces opportunities in 2024, businesses considering Cyprus for establishment can leverage these advantages for sustainable growth.

Exploring the advantages of establishing a Cyprus company or relocating certain operations to the country reveals numerous benefits. For comprehensive guidance on legal assistance, business incorporation, or market entry strategies, it is advisable to consult with experts. These professionals can offer insights into country-specific procedures, assisting with tasks such as:

• Setting up and maintaining companies on the island and abroad, facilitating an efficient structure.
• Opening bank accounts.
• Providing advice on securing a physical address, registering business names, managing document submissions, and more.
• Facilitating collaboration with both local (Cypriot) companies and accessing an international network.
• Enabling access to diverse markets with potential consumer bases suitable for your products or services.
• Accounting, Payroll and Financial management.

The Aspen Trust Group assists HNWI globally in making well-informed, industry-specific choices that foster customized and sustainable financial development to achieve their individual growth objectives. Seek comprehensive advice from our experts to receive detailed recommendations on strategic decisions and actions, allowing you to leverage contemporary opportunities and manage risks effectively across the key sectors influencing the Cyprus economy in 2024. Contact us today for expert guidance tailored to your needs.