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+ PETROS LIVANIOS, GEORGE POUFOS, DESPINA THEODOSSIOU RATING AGENCIES Credit where it’s due?

SERVICE

Move over sun-and-sea economy!

OPINION

Michalis Attalides Savvas Savouri Andreas Theophanous

Plus:

MONEY / BUSINESS ECONOMY TAX & LEGAL LIFESTYLE

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Tax Facts & Figures 2012 - Cyprus The tax system in Cyprus

Please scan with your smartphone to find the electronic version of the publication.

All of us in PwC are here to offer you our knowledge and expertise and to support you in achieving your personal and corporate tax goals. The specialised solutions we offer to you are adjusted to your own needs and will support you in structuring your tax operations in an efficient way.

The guide is available free of charge at the reception areas of the PwC offices all over Cyprus. You may also find the guide in electronic form on our website.

©2012 PricewaterhouseCoopers Ltd. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers Ltd of Cyprus, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

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issue 11 february 2012

EDITORIAL NEWS BRIEFING FIVE MINUTES WITH INDICATORS | COMMODITIES | FOREX

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30 COVER

Taxing Times 33

What next for the Cyprus taxation system?

38

The View from the Top 40

Taxation in Cyprus: Facts and Figures

STORY

+ opinion .The State of the Civil Service

by Michalis Attalides

26

The Debate: “Will the operation of casinos have a positive effect on the Cyprus Economy?” by John Marsa (Yes) and Michael Rafael (No) 28 Where to after Greentree?

by Andreas Theophanous

62

Europe’s unilateral rebel

by Savvas Savouri

73

price and prejudice

by Eleni Vickers

77

Marketing is jazz

by Peter Economides

90

43

64 78 FEATURE 64 | Forging Ahead Times are changing as more and more women are appointed to key positions in the shipping world.

8

70 78 80 84 86

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We wish to congratulate our trainee Velisarios Masouras who won the Cassleton Elliott Prize of ICAEW and achieved the 5th place in the Professional Stage Annual International Order of Merit.

For more information please contact our offices: NICOSIA: T: +357 22 209 000 E: nicosia@kpmg.com.cy

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INTERNATIONAL SUCCESS

EDITORIAL

‘‘Let me tell you how it will be There’s one for you, nineteen for me ‘Cause I’m the taxman, yeah, I’m the taxman” Taxman, written by George Harrison, recorded by The Beatles (1966)

A

John Vickers, Chief Editor john@imh.com.cy the international investment, business & finance magazine of cyprus

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the international investment, business & finance magazine of cyprus

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articles I interviews I expert opinion I quotations, facts & figures

ccording to Sir Terry Pratchett, bestselling author of the Discworld series of novels, “Taxation is just a sophisticated way of demanding money with menaces” and many people would doubtless agree with him. On the other hand, most of us recognize the need for the state to raise money from individuals and organisations in order to pay for the goods and services it provides. And while no-one likes to see a single euro of their hard-earned salary being taken away, a majority would probably agree with the concept of a progressive tax that takes an increasing proportion of one’s income as that income rises. That taxation can be an important social and economic policy tool is not in doubt and, again, few are likely to oppose the philosophy of taxing the rich and returning some of the collected wealth in the form of benefits to the poorer members of society.

When it comes to taxation, though, theory and practice are often worlds apart and while we may all understand the need to make our own contribution to the common good, it is often accompanied by a nasty suspicion that, while we are doing our bit, others are involved in clever ways of avoiding their obligations. And no-one likes to feel that they are being made a fool of.

Last year, whenever the subject of austerity measures was brought up, a chorus of politicians’ voices rang out across the media: “First you have to fight tax evasion and then we will make sacrifices”. Not an unreasonable demand, you might say but, as George Poufos, Director of the Inland Revenue Department, says in an interview in this issue (see page 40), those shouting the loudest are, in some cases, the very people who could make the IRD’s task easier by passing the relevant legislation. Moreover, the Cyprus tax system is far more sophisticated than that of many other EU member states, unlike that of Greece where tax evasion has been described as a national pastime and the “shadow economy” accounts for a staggering 27.5% of the country’s GDP. Here in Cyprus, tax matters are arguably much more important than in many other countries in the sense that our present way of life owes more than a little to the services sector and its clients, many if not most of whom are on the island thanks to the generous 10% rate of corporation tax that foreign-owned companies are asked to pay. And while some foreign governments may turn a blind eye to the fact that many of their major earners – individuals and companies – are benefiting from their ability to be taxed in low-tax jurisdictions or, heaven forbid, tax havens, their citizens understandably do not take at all kindly to this. However, there is a clear distinction between tax evasion (illegal) and tax avoidance (legal) and thousands of people are employed in Cyprus to take care of the billions of euros that are being channeled our way in order to take advantage of the country’s favourable tax regime. The island’s financial services sector is booming thanks to some wise government policies and a decision not to be over-dependent on the fickle tourism industry and no-one is going to complain about that.

Fortunately for all of us, there are no plans to adopt the income tax regime that The Beatles sang about in 1966 and which caused George Harrison to write the song “Taxman” which also includes these lyrics: Should five per cent appear too small/Be thankful I don’t take it all, a protest against the high marginal rates of income tax paid by top earners like the Beatles, which sometimes represented as much as 95% of their income.

So perhaps there are still a few things that we can be thankful for when we submit our annual tax return.

10

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Antonis Antoniou, Stella Mourettou, Maria Pilidou Contributors to this issue:

Dinos Andreou, Michalis Attalides, Chris Damianou , Peter Economides, Isavella Frangou-Pavlou, Nathalie Kyrou, John Marsa, Kyriacos Michaelides Fiona Mullen, Elias Neocleous, Michael Rafael, Savvas Savouri, Costis Stambolis, George Theocharides, Andreas Theophanous, Eleni Vickers Art DirectION:

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Photos Photiades, Photos Photiades Group and Cyta Chairman Stathis Kittis

George Evripidou, Hellenic Bank

Cyprus Business Event of the Year th IN Business presents its 4 annual Awards

T

he 2011 ΙΝ Business Awards ceremony was held for the fourth successive year on January 19 at the Hilton Park Hotel, Nicosia. Firmly established as the Cyprus business event of the year, it brought together an impressive crowd of business and political figures from around the island. Once again, the prestigious awards were presented to outstanding companies and managers while innovative products and excellent business practices were recognized. The recipients of the nine awards were chosen by compiling the public vote 50%-50% with that of the Awards Committee which had selected the nominees in each category.

Two additional special awards were handed out: Alexandros Diogenous was honoured as Young Business Leader while the Lifetime Achievement went to the former President of Cyprus, George Vassiliou. The 2011 IN Business Awards were once again supported by Hellenic Bank while MTN, Chivas and BMW were the main sponsors of the event, which was hosted by TV journalist Chrysanthos Tsouroullis and Elizabeth Filippouli, journalist, presenter and director of Global Thinkers. Entertainment was provided by satirist Demetris Kallergis and violinist Barbara Lucas.

IN Business Awards 2011

Niki and Makis Keravnos, Hellenic Bank

Efthimios Flourentzou, Minister of Communication and Works, with Andros Kyprianou, Secretary-General of AKEL

Antonis Papas, Bank of Cyprus

Andreas Panayiotou of Hellenic Bank with his wife

Pieter Verkade, MTN

Best New Product/Service: Νοstalgia lactose-free ice cream by Papaphilippou & Patisserie Panayiotis Ice Cream Ltd Industry/Manufacturing: E. Neophytou Trading Co Ltd (Serano Nuts) Services: Andreas Neocleous & Co LLC Small-Medium Size Enterprise: Fileminders Ltd Best Workplace: Ernst & Young Cyprus Corporate Social Responsibility: Petrolina (Holdings) Public Ltd Cyprus International Enterpreneur: Stelios Hadjioannou, easyGroup founder Best Manager: Nicolas Shacolas, Managing Director, Cablenet Communication Systems Ltd Best Company: Jumbo Trading Ltd

Honorary Awards Young Business Leader (in memory of Andy Hadjicostis): Alexandros Diogenous, CEO Unicars Lifetime Achievement Award: Dr George Vassiliou, former President of Cyprus 12

IN BUSINESS

www.inbusinessnews.com

Yiannis and Marios Misirlis, Imperio

Elias Neocleous, Andreas Neocleous LLC

Loukas Christofides, Marfin Laiki

Thomas Kazakos, Cyprus Shipping Chamber

Theodoros Aristodemou, Bank of Cyprus

Presenters Elizabeth Filippouli and Chrysanthos Tsouroullis

George Pamboridis, Pamboridis LLC

Demosthenis Mavrellis, Chrysses Demetriades & Co. LLC

Panikos Alkiviades, Photos Photiades Group

Nicosia Mayor Constantinos Yiorkadjis and Sophocles Aletraris, Minister of Agriculture, Natural Resources and the Environment

news briefing

Apple buys Anobit for $500 million

HSBC, the largest European bank by market value, has agreed to sell its Japanese private banking unit to Credit Suisse. It has not disclosed the price of the transaction but has noted in a statement that its Japanese division had gross assets of approximately $2.7 billion at the end of October 2011. The deal is expected to close by the second quarter of 2012.

The bank, like its rivals, has been moving to strengthen its capital base. In August, HSBC announced the sale of its American credit card and retail services division to Capital One Financial for $2.6 billion.

HSBC is also in the process of selling a majority of its United States retail branches to the First Niagara Financial Group.

Last year HSBC announced that it would eliminate 30,000 jobs worldwide as part of a broad cost-cutting program to improve profitability. The layoffs, which would represent about 10% of the bank’s workforce, are part of a strategy to reduce expenses by $2.5 billion to $3.5 billion over the next two years. The purchase of the Japanese private banking business will help Credit Suisse, the second-largest Swiss bank after UBS, bolster its presence in the Asia-Pacific region.

Credit Suisse was managing $83.6 billion for clients in the region as of the end of the third quarter, according to a company filing.

Credit Suisse has been shifting focus from its investment banking operations to its wealth management unit in attempt to increase profitability. It has also announced plans for 3,500 layoffs and is seeking to reduce its annual costs by $2.1 billion by 2013.

$2.7 billion

Apple confirmed in January that it had bought the Israel company Anobit, a maker of flash storage technology whose chips it already uses in products such as the iPad. Israeli media had reported in December 2011 that Apple had paid $500 million for the company which has developed a chip that enhances flash drive performance and increases memory. The chip is already incorporated into Apple devices such as the iPhone, iPad and the MacBook Air. Apple is also reported to be planning to open a research and development centre in Israel, its first outside the USA.

Google ties up with KKR on solar projects

this year and the fourth will come online later in the year. The facilities will provide 88 MW power to Sacramento Municipal Utility District, and are expected to generate about 160,000,000 kWh in their first year of operation – enough to power more than 13,000 average US homes. Google had announced in 2007 that it intended to invest hundreds of millions of dollars in solar, wind and geothermal technologies.

Coca-Cola buys $980m stake in Saudi drinks firm

The Coca-Cola company, the world’s largest soft-drink maker, has acquired about half of the equity in the beverage business of Saudi Arabia-based Aujan Industries for $980 million as part of its strategy to expand its presence in the Middle East. Under the agreement, Coca-Cola will acquire a 50% stake in the entity that holds the rights to Aujan’s brands and a 49% stake in its bottling and distribution company. Ahmet Bozer, president of Coca-Cola for Eurasia and Africa, noted in a statement that the Middle East is a high-growth region with some of the highest rates of non-alcoholic readyto-drink per capita consumption. Aujan chairman Adel Aujan said that he hoped to double the company’s revenue over the next five years from the current 3 billion riyals ($800 million) per year. “Sixty-five percent of our sales are outside the kingdom [of Saudi Arabia] and we compete with international companies. We don’t have their capabilities,” Aujan said, “so I saw a necessity to partner with the people who can give us strength and Coca Cola are the most suitable people for that.” The transaction is expected to close during the next four months.

$980 million

HSBC to sell Japanese private banking unit to Credit Suisse

$500 million

deals of the month

Google Inc and KKR & Co have announced they will acquire a portfolio of four solar photovoltaic projects in California from Recurrent Energy, a unit of Japan’s Sharp Corp. The deal will be financed with a combination of debt and equity from Google and SunTap Energy RE LLC, a new venture formed by KKR to invest in solar projects in the United States. KKR has committed a $95 million line of equity to establish SunTap, part of which will be drawn for this investment. The deal marks Google’s first investment in utility-scale US solar projects and brings the technology giant’s total investment in renewable energy around the world to more than $915 million. Three of the four projects will be complete early

88 MW

Stelios attacks!

easyJet board blasted over bonuses

e

38% stake in easyJet

asyJet founder Sir Stelios Haji-Ioannou has attacked the airline’s board in a growing row over “fat cat bonuses”.

Haji-Ioannou accused easyJet directors, who are said to have threatened to quit the board en masse if they lose a forthcoming pay vote, of treating the company as their “personal piggy bank”.

The airline’s founder, whose family still holds a 38% stake in easyJet, has tabled a motion to block a proposed pay deal that could award 10 executives shares worth some £8m over the next three years. However, the directors plan to turn the pay vote at the 23 February AGM into a motion of confidence, raising the possibility of mass resignations from the board.

“These guys are welcome to resign anytime. I know as shareholders we could easily replace them with talented executives and experienced non-executive directors who will cost half as much in bonuses,” he said in a statement..

“We must take a stand against directors who seem to regard our company as their personal piggy bank to

be dipped into at will. The gravy train of £180m free shares issued over the last decade must come to an end now.” The latest broadside came less than a week after Haji-Ioannou accused easyJet of working out bonuses by using what he called “phony calculations” when the airline revealed a bonus of £840,000 for Carolyn McCall, its chief executive who earned a total of £1.5m in 2011 in her first full year in the job, according to the airline’s annual report.

The dispute centres on shares issued to 10 executives under the company’s long term incentive plan this month and will pay out if the airline meets what Haji-Ioannou described as a “phony” return on capital employed (ROCE), a measure of how efficiently a business invests its capital. He believes the way easyJet calculates ROCE delivers a figure three times higher than the rate of return using a different method of calculation.

The company believes that the payout is justified as the airline performed well in 2011. Late last year, easyJet paid its first dividend after full-year profit rose by one third. Haji-Ioannou founded easyJet in 1995 but quit the airline’s board in 2010 after a row over strategy.

Germany

issues debt with negative yield

A

€4bn auction of 6-month German bills drew a negative yield of 0.0122% at the beginning of January, meaning that, for the first time, investors were essentially paying Berlin for the privilege of lending it money. It should be noted, however, that German short-term debt has traded at negative yields in the secondary market for some weeks with three-month, sixmonth and one-year debt all below zero.

Bills for six-month debt hit a low of minus 0.3% shortly after Christmas. Investors have flocked to German debt as the twoyear sovereign debt crisis has rumbled on, sending benchmark borrowing costs – calculated on 10-year debt – tumbling to their lowest ever level. This contrasts with the action in other eurozone countries such as Italy and Spain, which are now facing their highest borrowing costs since the 1990s.

minus 0.3%

10-year debt

the international investment, business & finance magazine of cyprus

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news briefing

Axia Ventures Group and Houlihan Lokey Europe appointed strategic advisors to the HRADF

A

xia Ventures Group and Houlihan Lokey Europe have been appointed to act as exclusive strategic advisors to the Hellenic Republic Asset Development Fund (HRADF). As part of this appointment, AVG and Houlihan Lokey will assist the HRADF in the development of a strategy for the implementation of Greece’s privatisation programme, as foreseen by the Medium Term Fiscal Strategy 2012-15. Alexandros Argyros, Managing Director and Head of the Investment Banking Division of AVG, stated: “We are delighted to have been mandated for such a critical role and look forward to supporting the HRADF as it seeks to meet its targets under the Medium Term Fiscal Strategy”. Axia Ventures Group is a privatelyowned investment banking boutique providing financial advisory and capital marketrelated services to corporate and institutional clients. AVG is headquartered in Nicosia. Houlihan Lokey is an international investment bank with expertise in mergers and acquisitions, capital markets, financial restructuring, and valuation. The firm has 14 offices and more than 800 employees in Europe, the United States and Asia.

The Top Debt-Free, Cash-Rich Companies

Art market beats equities again

T

he art market defied the economic gloom to return 11% to investors in 2011, outpacing stock market returns for a second consecutive year, When firms let their borrowing spiral largest amount of cash and short-term according to a report in the Financial out of control, it can have serious impli- investments as a percent of total assets Times. Impressionist and modern art delivered have been listed by CNBC as shown cations not only for their latest balance returns of 14%, postwar and contemporary sheets but also for their longer-term below. The average return for the top art grew by 6.4%, while Old Master and 19thcentury art increased more modestly by 4.8%. future. Some companies, however, have fifteen firms in 2011 stands at 8.5%, The performance of the Mei Moses All Art a history of operating with low debt lev- compared to a loss of 3.5% for the S&P index, a leading barometer of art returns based els, and others choose to issue no debt 500 as a whole. For the purposes of the mainly on paintings sold in New York and at all but to hold cash and liquid invest- survey, total debt includes the sum of London, beat the total return of the S&P 500 ments in order to make acquisitions and short-term borrowings, current portion index of US equities by about nine percentage points. The gap, the largest since 2008, was of long-term debt, current portion of fund other investments. According to driven by strong growth in Chinese demand the latest quarterly filings, only 24 com- capital leases, long-term debt, capital and high prices for the work of popular artists panies in the S&P 500 have reported leases, current finance division debt and such as Andy Warhol. having zero debt on their balance sheets. non-current finance division debt, but The Mei Moses index has beaten the S&P Of these companies, the ones with the does not include all possible liabilities.

500 in six of the last 10 years, with an average annual return of 7.8% compared with 2.7%

Total Cash & Cash as % for the benchmark US index. The Mei Moses Company Total assets tracks the prices at which individual works of ST investments

debt of assets art sell over time using repeat sales data, in a methodology similar to the S&P Case-Shiller $0 $1.37 billion $2.97 billion 46.2% 1. Autodesk property index.

2. Cognizant Tech $0 $2.27 billion $4.92 billion 46.2% “Art prices are not correlated to sudden swings in stock markets but their prices tend 3. Expeditors Int’l $0 $1.23 billion $2.88 billion 42.6% to match changes in wealth creation and $0 $1.85 billion $4.36 billion 42.4% 4. Electronic Arts destruction. I’m not surprised by this growth 5. Red Hat $0 $937.24 million $2.31 billion 40.6% as we are not seeing the wealth damage of 2008-2009,” said Michael Moses, creator of 6. Mastercard $0 $3.6 billion $9.03 billion 39.9 the index. $0 $906.5 million $2.32 billion 39.1% 7. LSI Corp Among the paintings setting record auction prices were Roy Lichtenstein’s 1961 painting 8. Intuitive Surgical $0 $993.9 million $2.65 billion 37.5% of a man looking through a peephole I Can 9. F5 Networks $0 $585.33 $1.59 billion 36.6% See the Whole Room…and There’s Nobody $0 $6.36 billion $17.94 billion 35.4% 10. Amazon.com In It! (above) which sold for sold for $43.2 million at Christie’s in New York in November. The 11. Forest Labs $0 $2.34 billion $7.22 billion 32.5% seller had bought it for $2m in 1988. One of $1.74 billion 12. Bed Bath & Beyond $0 $5.75 billion 30.3% Andy Warhol’s Dollar Sign prints also made big $0 $28.4 billion $106.76 billion 26.6% 13. Apple returns when it sold for twice its estimate at $698,500 in 2011, also having been bought in 14. T Rowe Price Group $0 $1.03 billion $3.88 billion 26.5% 1988 for just $27,000. $0 $449.72 million $1.85 billion 24.3% 15. DeVry

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the international investment, business & finance magazine of cyprus

Britain’s biggest-ever business investment conference to be held during the Olympic Games

I

n addition to representing the pinnacle of sporting excellence, the 2012 Olympic Games are set to be the year’s greatest business networking event on the global calendar. Companies from all over the world will come to London to meet, interact and do business and the UK Government will take advantage of this by hosting the biggest investment conference Britain has ever seen. The Government has developed an exciting Games time programme of networking opportunities, conferences, summits, seminars and face-toface meetings for British and international businesses. As the platform for showcasing international business partnerships and the best of British expertise and skill, the Olympics conference series is the key element of this programme running from the eve of the Games on July 26 to end of the Paralympics on September 7.

“This summer’s Olympics will put the eyes of the world on Britain as we host not just an unparalleled sporting spectacle, but also a chance for companies from across the globe to interact and do business here in the UK,” said Prime Minister David Cameron. “A wide range of British companies will be involved alongside the world’s leading business figures in this exciting pro-

gramme of events, putting the UK at the forefront of efforts to resolve the economic challenges that face us all. We are working hard to make sure the whole country can seize this once-in-a-generation opportunity.

We expect these events to generate at least £1bn for British businesses and they are vital to our efforts to secure a long-term return to sustainable growth.”

Global Investment Conference

On 26 July, the eve of the Olympics, the Government will host the Global Investment Conference, a major international event which will be attended by more than 200 global financial and business leaders.

The Global Investment Conference will address the vital issues that are facing all world economies; how to drive growth and how to stimulate increased global trade, investment and partnerships. The Global Investment Conference will feature leaders of the multinational and central banks (including the Bank of England), sovereign wealth funds, foreign trade ministers from key emerging markets, leading global investment managers and Chief Executive Officers from energy, infrastructure, technology and healthcare companies. Companies that have already confirmed their participation as speakers include ARM, Autonomy, GlaxoSmithKline, Vodafone,

and WPP. Other confirmed attendees include Airbus, China International Capital Corporation, DP World, Gamesa, Goldman Sachs, Google, HTC, Iberdrola, Korea Investment Corp, Nissan, Prudential, and Standard Chartered.

Global Business Summits

To give British and international businesses the chance to attract inward investment and grow their business internationally, the Government is alsol hosting a series of Global Business Summits from July 26 to September 7 2012. Focusing on a different high growth global sector, country or sports-related issue each day, the programme includes summits on key sectors such as advanced manufacturing, automotive and aerospace, creative industries, energy, infrastructure and construction, life sciences, technology and telecom as well as high growth partner regions such as Brazil and China. UK and International companies who have, to date, confirmed their participation include: Aggreko, Airbus, Alliance Boots, AMEC, Arup, BBC, B TP, CMS Cameron McKenna, Diageo, Facebook, Google, Intel, Jaguar Land Rover , JCB, Kraft, Marks & Spencer, Mind Candy, Mott MacDonald, National Grid, Openreach, Pascall & Watson Aviation Architects, Pearson, Qualcomm, Shell, Tesco, Twitter and Vodafone.

The 2012 Olympic Games are set to be the year’s greatest business networking event on the global calendar

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news briefing

The World’s Most ‘Liked’

Brands

T

he word “like” has taken on a whole new meaning in the age of social media, with Facebook’s ubiquitous “like” functionality allowing users to quickly share content across the social network. When users click a button to show that -they “like” a Facebook page, they are effectively signing up for continued interactions with that page and the entity behind it.

Corporations are increasingly making social media connectivity an important aspect of their marketing campaigns, allowing them to communicate with their customers, develop their brand, and even offer special promotions.

Although being “liked” offers direct, immediate access to users and their friends, it does not always translate to success on Facebook. To obtain a measure of how well companies are utilizing their social connections, Facebook recently launched the “people talking about this” feature, which measures user engagement – a much more valuable metric than “likes” alone. The new measure tracks structured activity on Facebook, such as users commenting on posts or sharing links and photos. When users engage in this brand-related activity, it becomes a mini-endorsement of the company or piece of content and offers immediate visibility to their friends.

Among all corporate brands, Facebook itself should be at the top of any list of the most “liked” brands, with approximately 60 million “likes” on its main fan page, but the social network is excluded from the following list.

➊Coca-Cola Number of “likes”: 36.29 million People talking about this: 276,996 The most “liked” brand on Facebook is one of the most recognizable brands on the planet, Coca-Cola. With more than 36 million fans, if Coca-Cola was a celebrity, it would be more popular than the likes of Lil’ Wayne, Megan Fox, Beyonce and Adam Sandler.

The company directly encourages users to 18

the international investment, business & finance magazine of cyprus

Corporations are increasingly making social media connectivity an important aspect of their marketing campaigns

“like” its page, using a call to action at the top of the page pointing directly to the “like” button. Coca-Cola has a vibrant events page, which announces local and global company events and promotions, in which fans can engage and announce their intention to attend. The company also posts short videos featuring Coke products and other company-related materials.

➋Walt Disney

Number of “likes”: 29.63 million People talking about this: 192,322 Although Walt Disney has 27 brand pages in total on Facebook, none of the company’s pages are more “liked” than its main page. Not only does the page draw a large number of fans, but it also keeps them engaged, through posts of Disney facts, screenshots of films, and cartoons, videos, and quotes from Disney classics. These posts are extremely engaging, with some drawing upwards of 50,000 “likes.” The page also allows users to share photos and stories with each other by reposting this content on their friends’ Facebook pages. The main Disney page also makes use of its other highly “liked” pages by linking them together in a “top pages” list.

➌MTV Number of “likes”: 29.30 million People talking about this: 230,088 MTV, a hugely popular network among young people, has successfully translated

its popularity on TV to social media, drawing nearly 30 million fans and keeping them highly engaged.

MTV keeps its audience engaged by posting exclusive sneak peeks of trailers and clips from upcoming MTV shows and films. The company also frequently post humorous questions, photos, quizzes, and insights, mostly based on pop culture icons such as Britney Spears, Lady Gaga, and Justin Bieber. Using specific calls to action, the page encourages engagement, and posts routinely draw thousands of “likes” and comments. One recent example was a post wishing Britney Spears a happy birthday, drawing nearly 17,000 “likes” and nearly 2,000 comments.

➍Starbucks Coffee

Number of “likes”: 26.38 million People talking about this: 240,571 Starbucks, the coffeehouse chain, has a vibrant and engaged Facebook community, with more than 240,000 “people talking about this”. Starbucks allows user comments and posts on its wall, where fans post photos, ask questions, and largely declare their love for the brand. Other features included on the page are a store locator and the ability to send friends Starbucks card eGifts via Facebook. When giving a gift, the post appears on the friend’s wall, adding to the visibility and engagement of the brand. Users can also manage their gift cards and check up on their rewards through the social network and, of course, post their own Starbucksrelated photos.

➎Red Bull

➐Victoria’s Secret

Number of “likes”: 23.57 million People talking about this: 156,025

Number of “likes”: 15.82 million People talking about this: 177,475

Red Bull, the most popular energy drink in the world by volume, is also the most popular energy drink on Facebook, drawing in more than 23 million fans through its brand page. The page makes no secret of its desire to be “liked,” when on the intro page a graphic points directly to the page’s “like” button, enticing users to connect with the brand. Red Bull mixes humour, extreme sports, and event notices on the page. The videos and images are the most popular, drawing upwards of 6,000 “likes”. Red Bull’s page keeps fans entertained and gives them a variety of reasons to frequent and continue using the page, including Red Bull’s web TV.

The highly popular Victoria’s Secret brand doesn’t merely draw crowds to its fashion shows, it has had huge success on Facebook. In early December, it began a daily offer to give away 100,000 gift cards and it gained more than 200,000 additional fans. The Facebook page promotes fashion shows, features videos of models, sneak peeks at in-store deals, and makes computer screen wallpaper available for download. Posts on the page’s wall draw as much as 26,000 “likes” for new images and 14,000 for new videos. Victoria’s Secret also gives fans the opportunity to send gift cards to friends through the page, directly encouraging its fans to purchase more of the company’s products.

➏Converse

Number of “likes”: 20.72 million People talking about this: 71,219 The iconic shoe company Converse is a subsidiary of Nike but its popularity on Facebook is far beyond that of its parent company, which has around 5.5 million fans.

Converse keeps conversation lively on Facebook by posting interesting photos displaying unique pairs of “Chucks,” such as a pair made for the 1992 holidays, RED Charity Chucks for World AIDS day, as well as a design done in collaboration with Damon Albarn’s band Gorillaz.

The photos are the most “liked” pieces of content on the page, but with a “people talking about this” number far below other brand pages with fewer fans, Converse certainly has some room to grow in its ability to generate social buzz.

➑Monster Energy

Number of “likes”: 12.76 million People talking about this: 67,738 You might be surprised by the popularity of Monster Energy, owned by Monster Beverage Co. Though not widely advertised in the media, Monster receives a large amount of recognition from its sponsorship of various sporting events, including motocross and car racing. The company’s page thus features a wide range of content, from high-octane videos of extreme athletes to a “Monster Girl Search” that makes use of social networking to discover models for the company’s upcoming 2012 calendar.

Monster’s page is full of posts that draw several thousand “likes” each, with clips of extreme sports action receiving the most. It also posts information about events and TV programs that Monster is affiliated with.

➒McDonald’s

Number of ‘”likes”: 11.79 million People talking about this: 115,289

McDonald’s is a good example of how brands can engage with customers via Facebook, given the fast-food giant’s 11.8 million fans. The company runs various Facebookexclusive promotions, and issues traditional press releases around its Facebook campaigns, thereby driving conversations on the social network.

The company often links to community. mcdonalds.com, where it looks to have the community spread the word about their favourite meals, win prizes, and play games.

McDonald’s also connects the page with other Facebook properties, including CityVille to appeal to a broader audience. A sample post: “Play CityVille? So do we! When you master a McDonald’s restaurant in your city, you’ll earn an exclusive reward with an 18 percent bonus!”

➓The National

Basketball Association

Number of “likes”: 10.76 million People talking about this: 125,506

The National Basketball Association had a rocky 2011 but that didn’t stop it from being the most “liked” sports brand in the world.

After the announcement that the season would begin on December 25, the “people talking about this” feature shot up, settling above 125,000 in the weeks after the announcement, compared to less than 80,000 the prior week.

The NBA’s fan page offers a range of features, including videos and commentary, NBA-related photos, and the ability to purchase NBA merchandise on Facebook.

It also allows users to “check in,” another feature that will contribute to its “people talking about this” number, where users can chat, earn badges, and enter to win prizes.

the international investment, business & finance magazine of cyprus

19

news briefing

CCCI Israel visit: “One of the most successful ever”

T

he Chamber of Commerce and Industry (CCCI) recently completed a very successful trade mission to Israel, headed by Minister of Commerce & Industry Praxoula Antoniadou. During the meeting, which was described as ‘successful and significant’,.Antoniadou and the Israeli Energy and Water Resources Minister, Uzi Landau, discussed further steps to advance the proposal of an submarine electricity cable linking the two countries. Along with another similar proposed project linking Cyprus and Greece

The Israeli

economy

at a glance

Israel has a technologically advanced market economy but is dependent on imports of crude oil, grains, raw materials and military equipment. Despite having limited natural resources, its recent exploitation of its offshore gas reserves have alleviated the country’s dependence on imported energy.

Israel has also developed its agricultural and industrial sectors over the past decades with lead exports ranging from cut diamonds and high-tech equipment to agricultural products (fruits and vegetables).

Israel usually posts a sizable trade deficit, which is covered by large transfer payments from abroad and by foreign loans. Roughly half of the Israeli government’s external debt is owed to the US which is the country’s major source of economic and military aid.

20

via a 600-kilometre undersea cable, the two links would connect Israel to the European electricity grid. The Cyprus-based firm Quantum Energy has already stated that it plans to realise the project by laying a 2,000 megawatt cable linking the three countries at a cost of approximately €1.5 billion. Hot on the heels of recent natural gas discoveries in Cyprus, such a project would be a further step towards making Cyprus a regional energy centre.

CCCI Chairman Phidias Pilides said it was “a hugely successful business forum, one of the most successful missions ever carried out by the CCCI.”

Did you know that…?

★ ★ ★

With more than 3,000 high-tech companies and start-ups, Israel has the highest concentration of hi-tech companies in the world after Silicon Valley.

Israel has the fourth largest airforce in the world (after the the U.S, Russia and China), including an aerial arsenal of over 250 F-16s.

At the forefront of some of the major technological advances in recent years, Israel has produced some pivotal technology such as: • The first cellphone by Motorola (which has its largest development centre in Israel) • Most of Windows NT operating system (developed

by Microsoft-Israel) • Pentium MMX Chip technology which was designed in Israel at Intel, • The very first voicemail-enabling technology Israel has the third highest rate of entrepreneurship including the highest rate in the world among women and people over 55.

As one of few countries in the world to have a space programme, Israel designs, builds, launches and operates its own satellites.

Israel is one of the most highly-educated countries in the world with the highest number of engineers, scientists and Ph.Ds per capita.

Israelis are slowly becoming a nation of wine lovers – there are now over 200 wineries in Israel producing red, white, and sparkling wines.

★ ★ ★ ★

the international investment, business & finance magazine of cyprus

Israel by Numbers Population:

7.5 million GDP:

$219.4 billion GDP - per capita:

$29,800 (est.)

GDP - composition by sector: Agriculture:

2.4% Industry: 32.6% Services: 65% (est.)

interview

five minutes with...

Petros T. Livanios, Vice-Chairman, Cyprus, Fiduciary Association

Gold: How important is the fiduciary sector to Cyprus?

At present, the services sector contributes to more than 70% of the Island’s GDP. There are currently over 40,000 people employed in this industry whether these be lawyers/accountants/bankers or corporate service providers. Maintaining Cyprus as an attractive jurisdiction to do business not only generates revenue for the country but it also attracts foreign investment into other sectors such as real estate and the finance industry.

What are the main problems facing it?

One of the main problems faced by the fiduciary sector is the lack of regulation and the lack of government support in the promotion of Cyprus as an International Business Centre. Lawyers and accountants are regulated by their professional bodies regarding money laundering and terrorist financing, for example, but corporate service providers remain unregulated in this area. Another problem is the fact that the Trevor Peacock office By of the Registrar of Companies is not as developed and as efficient as its counterpart in other jurisdictions. In order to maintain a level of competitiveness, Cyprus has to be in a position to respond to clients’ demands within the required timeframes.

What can the newly-formed Cyprus Fiduciary Association (CFA) do?

It will provide a level of “self regulation” to corporate service providers as well as provide overall regulation to the industry via its members. The CFA will also be in a position to voice the views of its members to the relevant government departments and to promote Cyprus and the fiduciary

industry at the international level. Moreover, any foreign investor/client will be able to see which corporate service providers are members of the CFA via the association’s website. The CFA’s membership requirements will be published, allowing investors/clients to know what to expect when receiving services from a CFA member.

The CFA will carry out frequent audits of its members to ensure compliance with its requirements.

a means for the interests of clients to be protected.

How will regulation assist the sector?

The introduction of internationally endorsed criteria for administering fiduciary services will further boost the island’s competitiveness with other jurisdictions and further increase the influx of related business. The security it offers to clients, and the guarantee that their interests will be protected by law, eliminates even the slightest reservations of doing business in Cyprus.

What is required of firms wishing to join the CFA? Among the key provisions are that members should apply due diligence procedures before accepting a new client in accordance with the Central Bank of Cyprus Directive and EU Directives; members should have at least two qualified “Principals” and adequate internal procedures and controls.

Why has it taken so long to form such an association?

In the past, the lack of legislation did not have such an impact on doing business in Cyprus. With the growing popularity of using Cyprus at an international level, however, the issue of regulation has become much more important and it is this growing need that has led to the key players within the industry to come together and form the CFA. This way there is some form of legislation within the industry and

Who are the founding members of the association?

The first ten firms are Abacus Ltd., Citco (Cyprus) Ltd., Fidelico Ltd.. Fiducenter (Cyprus) Ltd., IFG Trust (Cyprus) Ltd., Oxford Management Ltd., Proteas Management Ltd., Trident Trust Company (Cyprus) Ltd., Totalserve Management Ltd. and Vistra (Cyprus) Ltd. Tel: 25590086, Fax: 25590089 Address: 155 Archbishop Makarios III Avenue, 5th floor, office 202, 3026, P.O. Box 58159, 3731 Limassol, Cyprus e-mail: info@cfa.org.cy Website: www.cfa.org.cy the international investment, business & finance magazine of cyprus

21

indicators • commodities • forex

By Isavella Frangou-Pavlou KAB Strategy (Cyprus) Limited (CySEC License No. 058/05)

Major Commodities

Major FX Current

52 weeks

Monthly change (%)

High

Low

EURUSD

1.3096

+1.08%

1.4940

1.2624

USDJPY

77.03

+0.21%

85.765

75.560

GBPUSD

1.5671

+0.84%

1.6747

1.5235

AUDUSD

1.0608

+3.96%

1.1080

0.9384

USDCAD

1.0039

-1.66%

1.0522

0.9406

USDCHF

0.9211

-1.73%

1.0076

0.7075

EURJPY

100.93

-0.45%

123.280

EURGBP

0.8359

-0.47%

EURCHF

1.2063

-1.00%

Current

Monthly change (%)

52 weeks High

Low

Gold (USD/t oz.)

1718.50

+9.83%

1922.6

1309.10

Silver (USD/t oz.)

33.50

+20.59%

49.82

26.15

Crude oil (USD/bbl.)

99.74

+0.69%

114.83

74.95

Natural Gas (USD/MMBtu)

3.09

-13.20%

4.98

3.07

Corn (USD/bu.)

632.20

-2.33%

799.50

542.50

100.73

Wheat (USD/bu.)

646.60

-1.05%

892.50

572.25

0.9084

0.8221

Sugar (USD/lb.)

24.72

+6.05%

35.62

21.10

1.3241

1.0070

Soy (USD/bu.)

1218.00

+0.50%

1456.50

1094.25

(Source: Bloomberg As at 6GMT 27/01/2012)

(Source: Yahoo Finance. As at 6GMT 27/01/2012)

EuroZone 52 weeks

Current

Change

High

Low

GDP (YoY)

1.5%

+0.1%

2.5%

1.4%

CPI (YoY)

2.7%

-0.3%

3.0%

1.9%

Unemployment Rate (MoM)

10.3%

+0.0%

10.3%

9.9%

Bond yield (10-year) (Italy) (MoM)

6.183%

-9.03%

7.250%

4.340%

Debt/GDP (Italy) (MoM)

119%

-1%

120%

113%

Interest Rate (MoM)

1.00%

0.0%

1.5%

1.0%

Data shows that the US economy has done well stepping into 2012 and the current outlook is on track for slow growth. The US managed to close the year better than in 2010.

Iran has threatened to close the Strait of Hormuz, which is the major lifeline of global oil supplies.

(Source: Eurostat - http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/ home/ Bloomberg: http://www.bloomberg.com/quote/GBTPGR10:IND)

On paper, the eurozone outlook has improved but the advance can hardly mean any real change. The debt crunch continues to do damage to the member countries and even France has been downgraded from AAA status.

(Source: Eurostat - http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/ Bloomberg: http://www.bloomberg.com/quote/GBTPGR10:IND)

US MAJOR INDICATORS Current

52 weeks

Change

+4.23%

12876.50

10597.14

Unemployment Rate (MoM)

8.5%

9.8%

8.5%

131900K

130328K

3.74%

1.70%

99.75%

93.2%

0.25%

0.25%

Interest Rate (MoM)

0.25%

+1.46% 0.0%

(Source: US Bureau of Labor http://www.bls.gov/eag/eag.us.htm US Department of Commerce http://www.bea.gov US Department of the Treasury http://www.treasury.gov/Pages/default.aspx US Bureau of the Public Debt) 22

the international investment, business & finance magazine OF CYPRUS

1101.54

12734.63

1.1%

99.75%

1370.58

Dow Jones

0.4%

3.9%

Debt/GDP (MoM)

+4.82%

2331.65

3.8%

+4.9%

1316.14

2877.75

-0.4%

1.935%

S&P

+7.68%

+0.7%

Bond yield (10-year) (MoM)

Low

2805.28

3.0%

+200K

High

NASDAQ

2.0%

131900K

Monthly change (%)

Low

GDP(Annualized 3Q)

Non-farm

52 weeks

Current

High

CPI (YoY)

-0.2%

US Indices

European Indices FTSE

5789.89

+3.91%

6105.80

4791.00

DAX

6538.75

+10.86%

7600.41

4965.80

CAC

3363.23

+6.44%

4169.87

2,693.21

Asian Indices Nikkei

8839.12

+4.55%

10891.60

8135.79

Hang Seng

20416.25

+10.77%

24988.60

16170.35

Shanghai

2321.52

+5.44%

3186.72

2132.62

(Source: Bloomberg. As at 7GMT 27/01/2012)

$1717.65 Gold USD 1793.05 1765.85 1738.65

1717.65 1710.60 1683.40 1655.35 1628.15 1600.95 1572.90 1545.70 1518.50

13 Nov 2011 22 Nov 2011 1 Dec 2011

11 Dec 2011 20 Dec 2011 30 Dec 2011 10 Jan 2011

19 Jan 2011

The gold price dipped further at the end of December with support around 1530. It then recouped its losses steadily in January, climbing above 1700. Eurozone debt worries eased, which released some capital to buy into gold and central bank actions left a bullish effect on gold price. Borrowing costs fell at French and Spanish debt sales over recent weeks, although S&P recently announced credit rating cuts for six eurozone countries namely France, Austria, Italy, Portugal and Spain. The euro strengthened against the dollar, which also buoyed gold. Both the European Central Bank and the Bank of England kept their low rates unchanged in January and the US Federal Reserve made a new promise to keep extremely low rates for at least two more years. Most Fed members believe that it is not necessary to hike rates before the end of 2014. The low interest policy has helped burnish the metal’s safe haven appeal. Furthermore, according to a report from the World Gold Council, the central banks are estimated to have added about 450 tonnes of gold to existing reserves in 2011, four times that of 2010. Central banks will need even more gold to back their legal tender.

Source: KAB-MetaTrader

USD 103.65 102.50 101.35 100.20 99,72 99.05 97.90 96.75 95.60 94.45 93.30 92.15

13 Nov 2011 22 Nov 2011 1 Dec 2011

Source: KAB-MetaTrader

11 Dec 2011 20 Dec 2011 30 Dec 2011 10 Jan 2011 19 Jan 2012

1.3795 1.3675 1.3555 1.3435 1.3315 1.3195 1.3102

1.3075 1.2955 1.2835 1.2715 1.2595 11 Nov 2011 21 Nov 2011 30 Nov 2011 9 Dec 2011

Source: KAB-MetaTrader

19 Dec 2011 29 Dec 2011 10 Jan 2012

19 Jan 2012

OIL

The price of oil consolidated through January, hovering around $100/barrel. Oil’s trend was less related to that of other products this month due to issues around Iranian supplies and their fundamental impact on oil. Although the eurozone debt crisis and global economic uncertainty have weighed on many other commodities, oil keeps trading near half-year highs. The European Union has slapped an embargo on Iran’s oil to take effect in six months, as well as financial sanctions, which include a freeze on the assets of the Iranian central bank within the EU. Furthermore, the US is enacting tougher sanctions against the nation.

Iran has threatened to close the Strait of Hormuz, which is the major lifeline of global oil supplies. China and Japan have been looking to other Middle East countries such as Saudi Arabia and the UAE to guarantee the safety of their oil imports in case Iran’s oil supplies halt. Besides, the strong and steady increasing oil demand from emerging countries easily offsets the weaker demand in Western Europe.

EURUSD

EURUSD made a magnificent U-turn at the start of 2012 and reported gains in the first month. The euro opened disappointingly in January as investors expected a wave of rating downgrades by S&P suggesting that the debt crisis was deteriorating.

But the currency pair suddenly bottomed out in the middle of the month after briefly touching 1.2625, a 16-month low. The rally coincided with improved yield rates throughout bond sales in the latter half of the month. However, given that there is no end in sight for the euro crisis, the uptrend’s sustainability is questionable. The all-time high ECB overnight deposit level is a sign that fear is still escalating. Technically, the euro seem to have competed a cycle which started in June 2010 with an end at 1.2623. The bottom end seems safe for now and a bullish fluctuation to 1.33 is expected in February. The advance will be a bumpy ride as time goes by and it should not be surprising to see the rebound touching 1.340 eventually. the international investment, business & finance magazine OF CYPRUS

23

indicators • commodities • forex

USD 1326.15 1311.28 1308.00 1289.30 1271.15 1253.00 1234.30 1216.15 1198.00 1179.30 1161.15 10 Nov 2011

20 Nov 2011 29 Nov 2011

Source: KAB-MetaTrader

8 Dec 2011

18 Dec 2011

29 Dec 2011 10 Jan 2012

19 Jan 2012

1143.00

1.6105 1.6015 1.5930 1.5840 1.5750 1.5676 1.5880 1.5570 1.5480 1.5390 1.5300

11 Nov 2011 21 Nov 2011 30 Nov 2011 9 Dec 2011

19 Dec 2011

29 Dec 2011 10 Jan 2012

19 Jan 2012

1.5215

US STOCKS

The benchmark S&P 500 index got off to a beautiful start in 2012 as companies’ year-end reports and economic data looked promising.

Over half of the S&P 500 listed companies have so far reported better-than-expected earnings in 2011 despite the poor economic environment. Moreover, economic figures also indicate that the US economy is recovering slowly and steadily. The stock market was further boosted by the Fed’s statement pointing out that near-zero short-term interest rates could be maintained until 2014 and the controversial bond-buying programme might be launched yet again.

GBPUSD

The pound achieved a beautiful turnaround to close up for the first month in 2012, largely influenced by the euro.

However, the rally seems less sustainable as the debt crisis continues to shadow the European continent.

Even in the absence of the debt crunch, the GBPUSD would remain under stress, given the situation of the British economy. The present stagflating state of the economy has worn the Sterling’s purchasing power against the US Dollar. The fundamental outlook in Britain is poorer than in the US since the Bank of England has less ammunition to promote growth than the Fed.

Source: KAB-MetaTrader

78.25 78.05 77.85 77.65 77.45 77.25 77.05 77.02 76.85 76.65 75.45

11 Nov 2011 21 Nov 2011 30 Nov 2011 9 Dec 2011

19 Dec 2011 29 Dec 2011 10 Jan 2012

19 Jan 2012

USDJPY

USDJPY trended north in January with a firm base near 76.50. The yen had a hard time in 2011 and the Bank of Japan had to intervene several times within the year preventing the resilient yen from further damaging its economy. The government will definitely set out to alter its trade policy in 2012 in order to avoid running a big trade deficit. However, given the fact that Japan is an export-oriented economy, weak global demand will undo much of the effort. Furthermore, Japan’s economy is yet to recover from the damage done by the earthquake. The yen’s north-trend in 2012 will be moderate. The yen was softer in the second half of 2011 with a higher bottom near 76.50. The support is solid and no major dips below are expected. Upside pressure near 80 is strong within first half of the year but the currency has started heading towards it. 78.20 meanwhile looks like an easy target to reach in February.

Source: KAB-MetaTrader

info: Isavella Frangou-Pavlou is Sales and Marketing Manager at KAB Strategy (Cyprus) Ltd (CySEC-License No. 058/05) E-mail: isavella@kab.com.cy This research report or summary has been prepared by KAB Strategy (Cyprus) Ltd (CYSEC Licence No. 058/05) and KAB Financial Advisory Ltd from information believed to be reliable. Such information has not been independently verified and no warranty, representation or warranty, express or implied, is made as to its accuracy, completeness or correctness. This report is provided for information purposes only. Nothing in this report should be considered to constitute investment advice. It is not intended, and should not be considered, as an offer, invitation, solicitation or recommendation to buy or sell any of the financial instruments described herein. Leveraged products incur a high level of risk and can result in the loss of all your invested capital. KAB Strategy (Cyprus) Ltd and its affiliates accept no liability whatsoever for any direct or consequential loss arising from the use of this document or its contents.

24

the international investment, business & finance magazine OF CYPRUS

opinion

The State of the Civil Service Radical change is necessary if Cyprus is to improve the reputation of its public services

I

By Michalis Attalides

All who have not committed fraud or who are not useless are invariably evaluated as ‘excellent’

spent thirty years of my working life within the civil service of Cyprus and, on the whole I do not regret it. It gave me the opportunity to serve my country in a way which made my working life meaningful and interesting.

In all the departments in which I served (6) and in all the others with which I came into working contact, most people I encountered were well qualified. I also met very many who were deeply responsible and who believed in doing a good job, considering it their duty. I also knew that in every Ministry or every department there were a number of people who were outstanding, both in ability and character: people on whom Cyprus could count, no matter how demanding the task or challenge.

Yet at the same time it was impossible not to be aware of the fact that the civil service was an organisation which systematically produced bureaucratic deformations that inhibited its effectiveness. Efficiency and a high output were only beyond doubt and outstanding in cases of national emergency or exertion, such as immediately after the catastrophe of 1974 and during the inspired period of working towards European Union membership between 1995 and 2003.

This was partly because, during these periods, there were clear objectives. Objectives and management by objectives are normally lacking in the civil service context, as is the measurement and even any note of outcomes.

A lack of urgency and formalistic action is frequently the norm, followed by a lack of followup. This is combined with the lack of any system of self-evaluation. The criterion for judgment is invariably the formal legality of action rather than the effectiveness of that action. When formal legality (or ‘following correct procedures’) and effectiveness compete, effectiveness does not have a chance. This is particularly important in the attitudes of people in managerial positions. The formal observance of legality is undemanding compared to management by objectives and it

info: Michalis Attalides is Rector of the University of Nicosia 26

the international investment, business & finance magazine of cyprus

cannot lead to mistakes, as effective action may.

Of course, observance of legality is a necessary – though not a sufficient – condition of meritorious and effective service. Most people, other than outright thieves, fulfil this criterion so it is difficult to assess people objectively on the basis of merit.

All who have not committed fraud or who are not useless are invariably evaluated as ‘excellent’ and, consequently, neither departmental committees nor management nor the Civil Service Commission nor the Courts have any reasonable basis for judging who is the most suitable for promotion.

As a result, performance is eliminated from the equation to be replaced by two largely irrelevant criteria: paper qualifications and seniority.

Yet positions in the civil service are well paid, often much better paid than their equivalent in the private sector. Moreover, civil servants are cosseted with short working hours, free medical care and adequate holidays, lengthened by plentiful and easily obtainable sick leave. They are protected by legalistic ‘schemes of service’ and legally assured immobility in one post, even if there is no work to do. They have constitutionally guaranteed permanence of job tenure (independent of productivity), non-contributory pensions and a generally easy life. So civil service jobs are much sought after and patronage and influence are brought to bear wherever possible. The Civil Service Commission is composed of party nominees who have a tendency to protect and promote their own.

Under these circumstances it is not difficult to understand why a culture of unrealistic demands, self-satisfaction and a lack of consideration for other citizens – extending, as happened recently, to a lack of appreciation of the need to protect democratic processes – can develop in some sections of the civil service. Indeed, when such a privileged group strikes at the expense of the community as a whole, such action has all the characteristics not of working class self-protection but of monopolistic blackmail.

It is not difficult to conclude that radical change is necessary.

the debate

Will the operation of casinos have a positive effect on the Cyprus economy?

NO!

YES!

By John Marsa

Every Cypriot government since independence appears to have had some kind of absurd moral problem over the issuing of licences for the operation of casinos on the island. Even before the recent sudden arrival of dozens of corner shops offering online gaming (many of which misleadingly describe themselves as “casinos”), Cyprus permitted all kinds of gambling and still does. Given the latest figures on spending by Greek Cypriots in casinos in the Turkish-occupied areas (at least €1.25 million went on “entertainment” in 2011), a government desperate to attract additional revenue has no excuse for ignoring a guaranteed source of tax income and one that will generate further economic activity.

Cities develop casinos for many reasons, the first of which is to attract more tourists, both local and foreign. Paphos, Limassol and Agia Napa have seen their tourist numbers fall over the past decade as competing destinations have offered visitors more of what they want. Experts and consultants have repeatedly recommended the casino option and they have been consistently ignored.

A second reason is to keep local money within the local economy by giving residents the opportunity to gamble at home. As part of the entertainment industry, casinos make their money on volume, like a cinema or a restaurant and, since no-one doubts that such businesses are good for the economy, casinos cannot be excluded simply because

Experts and consultants have repeatedly recommended the casino option and they have been consistently ignored they are viewed as “immoral” by a small minority. Tell that to the residents of Monte Carlo and Las Vegas and watch them laugh.

It is definitely not the role of governments to tell people how to spend their money. The cost of travelling abroad or enjoying a gourmet meal might be considered wasteful and extravagant by one person while, to another, it is an essential component of his/her quality of life. The same is true of those who are happy to spend an evening feeding a slot machine with coins or trying their luck at roulette or blackjack.

The argument that casinos are not good for society is a spurious one.

That they will have a positive effect on the Cypriot economy is beyond doubt.

By Michael Rafael

It is no secret that gambling is a destructive pleasure that can easily turn into an addiction, depriving individuals and their families of money that they cannot afford to lose.

According to Economics Nobel Laureate Paul Samuelson, gambling only enables a sterile transfer of money between individuals, creating absolutely no new money or goods. Samuelson argues further that, while gambling creates no output, it does absorb valuable time and resources and, when pursued beyond the limits of recreation, gambling

Gambling is addictive and leads to compulsive behaviour, unhealthy obsessions and other problems actually subtracts from the national income. Most gamblers cannot afford to indulge in their pastime in the first place. When they do it can cost their families dearly and, in many cases, the tax payer too. Gambling is by its very nature irresponsible. The argument can be – and frequently is – made that casinos bring benefits the economy, including employment opportunities, tax revenues and increased tourism, but for every tax euro made, how many more will it cost to hire additional law enforcement officers, to fund more social benefits and, as invariably happens elsewhere, to set up gambling treatment programmes? The economic and social costs of legalized gambling far outweigh the benefits. Gambling is addictive and leads to compulsive behaviour, unhealthy obsessions and other problems. It has been well documented that gambling promotes crime, immorality, stupidity, laziness, arrogance, greed, selfishness, entitlement, and neglect of one’s family. In many cases it fuels other vices which, taken in their entirety, can be described as an economic and moral cancer within society. The Cyprus economy has been striving to build a good reputation as a centre for education, commerce and financial services and creative entrepreneurship while the island’s tourism industry has always attracted visitors from around the world because of our good weather, our culture and ancient history.

Where do casinos fit into this grand picture? Nowhere! It would be far better to focus our efforts on economic activities that improve morale, engage creativity, build infrastructure and make us proud. With the newly-found gift of hydrocarbon resources, Cyprus can easily do this without investing in casinos and abandoning its core values.

info: Michael Rafael is a sociologist who provides gambling addiction guidance counselling.

John Marsa conducts casino-related consultancy work in more than 100 different countries.

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joy

cover story

By Dinos Andreou

the

of... tax 30

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yW

“ A tax which tended to drive away stock from any particular country would so far tend to dry up every source of revenue both to the sovereign and to the society. Not only the profits of stock but the rent of land and the wages of labour would necessarily be more or less diminished by its removal.�

hy do taxes exist? Most people would argue that it’s the price that must be paid in order to live in a civilised, modern society: a financial charge imposed on individuals and legal entities by the state in order to provide the benefit of public services and utilities. Taxes are mainly of two equally unpopular types: direct and indirect, most commonly in the form of tolls, duties, customs, excise or levies.

Utilisation of tax funds

Higher taxes and lower spending

he funds available through taxation are used by states & their administrative bodies to carry out their functions (however efficiently or inefficiently this may be).

These functions include law and public order enforcement, the development of economic infrastructure, social engineering, public works and the operations of government itself. Nowadays most governments use taxes for funding public and welfare services such as pensions for the elderly, public transport, the education and health care systems, and unemployment benefits. Some other common publicly-funded utilities also include water, waste and energy management systems.

In addition, taxes are applied to influence the macroeconomic performance an economy, to fund military activities or to modify patterns of employment or consumption within the country.

s indebted governments throughout Europe try to scrape together enough money to bankroll their public sectors, the issue of taxation has taken centre stage. Many political leaders now have to walk the tightrope of balancing public sector budget cuts on the one hand while imposing increasing levels of taxation for both workers and corporations on the other. Getting this balance wrong (and for some European governments the situation is so dire that it is now impossible to get it right) means either a loss of public support or going bust and having to agree to the austerity measures that accompany bailouts from the EU and/or the IMF. This is undoubtedly a very politically-charged issue as the main motivation for any politician or party is to remain popular enough to stay in power. Because of this, and the fact that solutions must be found before public finances run dry, ruling politicians have been frantically trying to figure out what course of

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Adam Smith - The Wealth of Nations

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action is least likely to negatively impact their popularity and re-election chances. A prime example of this is the ousted Greek Prime Minister, George Papandreou, whose attempts to take the necessary measures to keep the country solvent quickly led to a popular uprising and discontent in both the private and public sectors.

Given the difficulties that many governments are currently facing in their efforts to raise sufficient revenue to fund public services and support mechanisms, one of the topics sparking a passionate debate is tax avoidance. At one end of the spectrum are those who believe that it is a fundamental right for people and corporations to be able to organise their tax affairs as they wish, so long as they do not break the law. At the other are those who argue that the state and its citizens will be the ultimate losers if major earners are constantly shifting their tax residency from one jurisdiction to the next and/or using complex financial engineering to outfox the tax authorities.

This moral attitude towards tax has arisen from the debate that has gone on for many years regarding the differences between tax

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“People try to live within their income so they can afford to pay taxes to a government that can’t live within its income.”

Robert Half

avoidance and tax evasion. Strictly speaking, the distinction appears to be straightforward: the former being in agreement with the letter of the law and the latter involving some kind of dishonesty and thus being illegal.

However, those looking to minimise their tax exposure want to be able to tell (or be told by tax specialists) precisely where the line lies between acceptable and legal tax mitigation and unacceptable, immoral or illegal tax avoidance/evasion. Along with globalisation, multinational businesses have become much more sophisticated regarding the extent to which they arrange themselves into complex structures enabling them to pick and choose where they will be taxed. Combined with the ability to relocate and carry out wealth-generating activities in any number of locations, the multinationals are being fought over by low tax jurisdictions (such as Cyprus, Ireland and Switzerland) which seek to attract them.

Many argue, however, that this competitive environment enables large corporations to avoid paying their fair share of taxes anywhere and gives them a distinct advantage over smaller domestic companies that may have far fewer or no methods by which to lower their tax burden.

Cyprus – Between a Rock and a Hard Place

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he Cyprus government is currently perceived by many to be treading a perilous fine line. Despite being recently shut out of the capital markets because of continued sovereign debt downgrades, the state appears to be incapable of reducing public sector wage and benefit excesses because it fears the political consequences of bringing the powerful unions to heel. However, by turning to the private sector to raise funds

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Taxation:

The Four Rs Revenue:

Taxation is used to raise money to spend on hospitals, schools and roads and on other indirect government functions such as the justice system and effective law enforcement.

Redistribution: Normally this means the transfer of wealth from the richer sections of society to the poorer sections. This function is uniformly accepted across most democracies but the extent to which the transfer of wealth should take place remains a controversial issue.

Repricing:

Taxes are frequently imposed to address externalities. For example, tax is applied on tobacco to discourage smoking. Many people advocate such policies as preventive measures. Another example could be the implementation of a carbon tax to tackle global warming.

Representation: The American

revolutionary slogan “No taxation without representation” meant that because a country’s rulers tax its citizens, accountability is demanded from the rulers as other part of the bargain. Many studies have shown that direct taxation results in a higher degree of accountability and better governance while indirect taxation tends to foster the opposite.

though this looks like a good prospect for generating future revenue, similar discoveries in Israel have proved that it can take decades to scale operations to the degree where the state starts to benefit in terms of revenue. Nonetheless, many citizens of the Republic and elements within the government seem to be willing to sacrifice the island’s successful financial services sector by increasing corporate taxes, arguing that Cyprus will gradually start orientating its economy towards being a regional energy hub rather than a financial one.

As events unfold and new legislation on taxation is proposed, debated, adopted or rejected, it seems that the best course of action for wealthy individuals and corporations is to draw up a plan that will provide them with plenty of options should the tax hammer fall in a way that impacts them financially to any great extent. Given the wildly unpredictable times in which we live, Gold dedicates its main story to debating some of the most pertinent questions regarding the future of taxation and presents the views of experts with some of the island’s leading taxation service providers.

by increasing taxes on profits, the state runs the risk of making Cyprus a less attractive tax jurisdiction and threatens the future of the thriving financial services sector that has taken hold here. Given the current debate between the private and public sectors over who is responsible for the country’s dire financial straits, the issue of where, how, and whom to tax has become a hugely divisive issue. Complicating the issue is the recent discovery of natural gas reserves in Cyprus’ Exclusive Economic Zone. Al-

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Taxing Times What wealthy individuals and corporate planners should be preparing for.

“Forewarned is forearmed” as the saying goes. Given the changing but always unforgiving nature of taxation, Gold asked four of the island’s leading tax experts to shed light on some topical questions facing taxpayers.

The Gold Tax Panel:

Who’s

Who

Costas Markides,

Member of the Board at KPMG

Gold: Why are there differing attitudes to taxation among countries?

Costas Markides: Southern Europe has a much more volatile institutional environment in which maladministration and, at times, corruption are present while Northern Europe is characterized by high levels of organisation and transparency.

The greater fidelity shown by citizens of north European states to their governments translates into increased tax compliance. This represents an integral part of the behaviour of citizens as taxpayers and of their general relationship with their governments.

Michalis Zambartas: Yes, to some extent, it is based on the culture, history and the mentality of the people. Differing attitudes develop over time and it is quite difficult to shift or adjust them. Some coun-

Michalis Zambartas,

Tax & Legal Associate at Eurofast Taxand

Tax policy harmonisation would constitute a serious blow to the competence of member states and would represent a loss of sovereignty tries are well organised and even though tax burden on the population is significant (such as in the Scandinavian countries), the people are confident that their tax revenues will be spent for the public benefit (infrastructure, public services, education, medical care, etc.) In other countries the general perception is that “no matter how much you pay in taxes, it will not

Angelos Paphitis,

Advocate & Managing Director at A.G.Paphitis & Co. LLC

Maarten Koper,

Member of the Board, International Tax Services and Transaction Tax Services at Ernst & Young

change anything and the same problems (i.e. roads, hospitals and the like) will still continue to exist, so there is no point in paying ‘into someone’s pocket’”.

Gold: So you’re saying that trust in a country’s political system leads to higher rates of tax compliance?

Costas Markides:Tax compliance represents a clear example of law enforcement and an act of law-abiding citizens. Greater trust in the institutions and the legal system will eventually lead to higher rates of tax compliance.

Michalis Zambartas: It also depends on factors such as the extent to which tax compliance is enforced and followed-up, if there is an efficient control mechanism in place and how significant the tax revenue is for the country. It is more likely the international investment, business & finance magazine of cyprus

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that citizens with little trust in the political establishments will find it easier to break the law. A democratic government inspires more trust than a dictatorship.

Trust in the public institutions may lead to more positive attitudes towards taxpaying and the tax schemes of the government, which will eventually have a positive consequence on tax compliance.

As Wintrobe has stated, “As long as people believe that the tax code is fair, they will be more willing to pay their taxes’’.

Gold: What are your views on striking the right balance in tax rates in order to maximise private sector growth while keeping government revenue healthy?

Costas Markides: Economic growth cannot be supported solely by public spending which is primarily financed from taxes.

What economic growth requires is a series of stimulating measures that will contribute to increased investment and the expansion of the employment market. Striking the balance can be a dubious task for every government but measures directed at increasing tax revenue should be always supplemented by economic incentives that will give rise to economic growth and development.

Michalis Zambartas: The eternal dilemma of governments is how to increase tax rates and maximize business growth while remaining tax-competitive internationally.

Low corporate taxation has always been seen as a boost to economic growth and high tax rates generally tend to affect business investments negatively.

Government efforts should be aimed at establishing and maintaining an efficient tax system, where the optimal (not the maximum possible) tax revenue is collected, and, at the same time, at encouraging growth in “priority” sectors of the

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By turning to the private sector to raise funds by increasing taxes on profits, the state runs the risk of making Cyprus a less attractive tax jurisdiction

economy through various tax incentives and other support such as subsidies. The private sector should not be financing government inefficiency as represented by excessive personnel and remuneration or other internal government sector expenditure.

Gold: How do you define the fundamental differences between tax evasion and tax avoidance?

Angelos Paphitis: There is a clear, fundamental distinction between the two.

Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities in order to reduce their tax bill; this amounts to dishonest tax reporting. In other words, tax evasion means using illegal means in order to avoid paying taxes, which is an offence, whereas tax avoidance involves using legal means (i.e. tax planning techniques) in order to reduce or minimize current or future tax liabilities. Cyprus has concluded almost 50 tax treaties for the avoidance of double tax payments which today apply to 42 countries. The main purpose of these treaties is the avoidance of double taxation on income earned in any treaty country. In this way, a company (the taxpayer) can lawfully reduce its tax liabilities by using the correct techniques agreed between the relevant states. Further to that, to prevent the misuse of such treaties, EU member states have concluded a multilateral agreement on information exchange. This means that they will each report a list of those savers who have claimed exemption from local taxation on the grounds of not being a resident of the state where the income arises.

Costas Markides: An international tax professional should operate proactively

The difference between tax avoidance and tax evasion is the thickness of a prison wall.

Denis Healey

and optimize the tax affairs of the clienttaxpayer. One of the main tasks of an international tax adviser is to inform the client of any beneficial provisions or tax traps in the relevant laws and, by using lawful means, minimize the client’s tax exposure. Therefore, the ultimate purpose is not for the client to avoid tax liability but to maximize tax savings within lawful constraints.

Angelos Paphitis: It is vital that corporations or physical persons looking to reduce their tax liabilities be advised by a professional body of international tax lawyers or other tax advisers in order to avoid any situation which may put them at risk in the future. Good tax advice can save you money whereas bad tax advice can cause you heavier tax payments later on or may even land you in prison in some countries.

Gold:How much can a good tax adviser save a major company or individual and what is the trade-off between paying less or more tax?

Michalis Zambartas: A good tax adviser can contribute significantly to improving the efficiency of a company’s operations and international flows of funds, through tax planning, structuring and optimisation, and the tax saving in some cases can be huge, depending on the size and operations of the company. For example, a recent decision of the Danish Tax Tribunal (published on 13 January 2012) confirmed that the structure put in place by an American group, holding a Danish subsidiary through holding companies in Cyprus and Bermuda, had resulted in an exemption to withholding taxes on dividends paid by the Danish subsidiary amounting to approximately €88 million. The trade-off between paying more or less tax is fairly obvious. Paying more tax mostly has an immediate negative impact on a company’s cash flows and profitability. Paying more tax could bring some positive results in the long run or not bring any results at all. A good tax adviser can save up to 100% of tax due through efficient and legitimate tax planning. He/she can also maximize taxation benefits, amplify the saving of funds, and increase business liquidity and asset coverage.

Gold: What company structures are best suited for tax minimisation in Cyprus?

Angelos Paphitis: I would point to three structures that are well-suited for avoiding excessive or double tax payments: International Trading Companies, Group Finance Companies and Holding Companies.

Firstly, International Trading Companies may employ expatriate staff who benefit by paying tax and social insurance in Cyprus at low rates, therefore avoiding high tax rates in their home country. Profits made by the company are taxed at Cyprus’ low corporate tax rate of 10% on net profits (having first deducted all trading and other expenses, including directors’ fees, legal, accounting and audit fees), instead of higher corporate tax rates. Secondly, Cyprus companies for group finance are exceptionally attractive. Taking advantage of the island’s Double Tax Treaties, such companies provide loans in treaty countries or other countries where withholding tax on interest is low or nil. Group Finance Companies fulfil intra-company financial management functions, such as granting of loans for project financing etc. Interest payments to a Cyprus Financing Company are tax deductible in the borrower’s home country, thus reducing the overall corporation tax liability. Thirdly, Cyprus is considered as one of the most beneficial holding company regimes in the World. Holding

companies are most commonly used for asset ownership and protection, participation interest, receiving dividends, distribution of profits and reinvestment of capital into new projects.

Costas Markides: The Cyprus holding company is the predominant vehicle for reaping the benefits offered by the island’s tax system and its extensive Double Tax Treaty network. Due to the simplicity of its establishment and operation, it is the most widely-used vehicle for international investors. Ample opportunities for profit repatriation, financing, Intellectual Property holding and real estate investment are offered through the use of a Cyprus tax resident company. Complemented with provisions such as the lowest corporate tax rate in the European Union and the full applicability of European Tax Directives, Cyprus holding companies are an extremely efficient tool in international tax planning.

Gold: What solutions are available to High Net Worth Individuals (HNWIs) based in Cyprus who wish to minimize their tax exposure?

Angelos Paphitis: “It is not what you make that counts, it is what you keep”. Minimizing taxes from investment activities is important because it is one of the few aspects of investing over which an investor can gain significant control. Paying attention to the tax consequences of investing can substantially increase long-term wealth and net income. Cyprus offers private investors a variety of low tax solutions such as the advantages that a Cyprus company offers or through Trust structures and Private Funds or through a combination of such vehicles.

Michalis Zambartas: Cyprus offers HNWIs numerous possibilities such as succession planning, tax structuring, business structuring and so on. Cyprus International Trusts

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Tax harmonisation would limit some of the “competitive benefits” that the country offers international businesses with respect to their tax planning and business structuring models are a valuable tool in tax planning. There is no inheritance tax or gift tax on the transfer of the property of the settlor to the trust; no income tax or capital gains tax on a deemed disposal basis at the level of the settler, no VAT on the transfer of the assets by the settlor (private individual & not a VAT payer), and the tax is imposed at the level of the beneficiaries on a remittance basis (depending on the type of income). Furthermore, Cyprus has incentives in place providing up to 50% tax exemptions to HNWIs for a certain number of years after their relocation to Cyprus. And, as mentioned earlier, corporate tax is imposed at a flat rate of 10% so HNWIs can incorporate a company in Cyprus and be taxed at 10% instead of 35% which is the highest rate of income tax here. Another solution is to make use of an international collective investment scheme (ICIS). A private ICIS is capable of having up to 100 investors, also known as unitholders, and it offers an arrangement whereby they jointly invest their assets, have these assets administered, controlled and invested by independent professionals and receive the gains from profitable investments through a tax cost- effective method. ICIS enjoy the same tax benefits as a limited liability company incorporated in Cyprus.

Gold: What are the major upcoming developments regarding taxation that will affect European companies?

Costas Markides: Probably the most important awaited development is the proposed introduction of the Common Consolidated Corporate Tax Base (CCCTB).

The current system for allocating a group’s taxable profits between different jurisdictions is based on a framework of tax treaties and transfer pricing rules which have been built up over many years. The CCCTB aims at establishing a single method of translat36

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ing companies’ results into taxable profits (or losses) across the EU, consolidating the resulting taxable profits (or losses) into an aggregate figure and then allocating a share back to EU member states based on specified apportionment factors, to be taxed at the member state’s prevailing tax rate.

This is a real threat to the member states’ sovereignty which will clearly benefit larger industrial countries in the expense of smaller sized countries that have investment friendly taxation systems, such as Cyprus.

Maarten Koper: The governments of the various EU Member States will be engaging in examining the European Commission’s CCCTB proposal but such a system is not expected to see the light of day any time soon. Once introduced, however, it will or may have a material effect on the way European companies will be taxed on their corporate profits based on allocation keys related to the formulary apportionment of assets, labour and sales.

Michalis Zambartas: There is a general trend towards greater scrutiny by national tax authorities and more cooperation between tax officials in different jurisdictions. The latest achievement in this respect is the agreement reached among 38 OECD countries at the 7th meeting of the OECD Forum on Tax Administration in Buenos Aires. It focuses on ways of combating tax evasion and strengthening tax compliance, as well as on the new ways of increasing tax administration efficiency. Also high on the agenda are clarifications of terms such as “beneficial ownership” as used in the OECD Model Tax Convention.

Maarten Koper: Anti-avoidance measures and an increase in tax audit activities represent a continuing trend. In particular, the transfer pricing policies of taxpayers in the bigger EU member states are expected

to be scrutinized as raising transfer pricing adjustments is easy money for the revenue authorities. There will be a continuing backdrop of debate about what is considered responsible corporate practice by large taxpayers and whether big business is willing to share the burden in times of austerity. Perceived tax avoidance by multinational corporations may be a significant subset of this debate. The trend towards reducing corporate tax rates seem to have come to an end because of the recent economic turmoil. More importantly, perhaps, there seems to be political pressure among the eurozone members (including Cyprus) to make their level of corporate tax closer to that of the European powerhouse economies or, alternatively, to have greater harmonisation in determining the corporate taxable basis in the various members of the eurozone.

Minimizing taxes from investment activities is important because it is one of the few aspects of investing over which an investor can gain significant control

Also, the battle lines are being drawn regarding environmental taxes in Europe, especially for the aviation industry, while the EU Energy Tax Directive is expected to influence how energy products are taxed in Europe and it is anticipated that an agreement aimed at harmonising energy taxation without harming competition and eliminating severe distortions and obstacles to the internal market will be reached.

Gold: What does the possibility of European tax harmonisation imply for Cyprus?

Costas Markides: Direct taxation has traditionally been the field of competence of the member states and this has been reaffirmed by the European Court of Justice. Tax policy harmonisation would constitute a serious blow to the competence of member

A good tax adviser can save up to 100% of tax due through efficient and legitimate tax planning

be some adverse consequences for Cyprus, as tax harmonisation would limit some of the “competitive benefits” that the country offers international businesses with respect to their tax planning and business structuring models.

Supporters of tax harmonisation claim that the advantages would mean that the cost of corporate capital would no longer be distorted by national tax differentials, that EU companies would only have to comply with a single corporate tax system, that governments would no longer need to enforce complex transfer pricing rules and thin capitalisation rules, and “harmful” tax competition in the field of corporate taxation would be put to an end.

Opponents of the idea argue that such reforms will create more problems than solutions including a weakening of budgetary revenue through income loss associated with tax competition, the risk of double taxation and a loss of national sovereignty where taxation is concerned. I am of the opinion that even if tax harmonisation has its benefits, each member state should maintain its own tax system and computation methods.

states and would represent a loss of sovereignty. Cyprus could be faced with the need to remove tax provisions that render it one of the most attractive EU holding jurisdictions and such a development would have negative consequences on foreign direct investment into Cyprus, with consequent setbacks on the operation of the services sector and the development of the Cyprus economy as a whole.

Michalis Zambartas: There would definitely

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Cyprus taxation system? bases for international business.

When the first round of austerity measures was passed in August, business was promised that future measures would be directed at promoting growth, rather than adding to the tax burden. Contrary to those assurances we have seen new taxes and tax increases, while at the same time a law to update the Cyprus International Trusts Law, which would reinvigorate the trusts sector and the real estate market and generate significant revenue, remains in limbo.

The proposed amendment to the International Trusts Law was presented to the House of Representatives more than a year ago. It addresses a number of perceived deficiencies in the trust regime in Cyprus, bringing it back to the “cutting edge” internationally. It strengthens the defences offered by Cyprus International Trusts by giving Cyprus courts exclusive jurisdiction over Cyprus International Trusts, as they have over Cyprus companies.

It also encourages investment in Cyprus and boosts the property market by removing any doubt about a settlor’s ability to relocate to Cyprus after having established a Cyprus International Trust and removing the pro-

hibition on international trusts investing in real estate in Cyprus.

The proposed amendment has been welcomed by practitioners and business leaders in Cyprus and abroad, and has received extensive coverage in the local and international professional press. All the comment has been positive and has concluded that the proposed changes will help restore Cyprus to the “premier league” of trust jurisdictions.

At a time when Cyprus is under severe financial pressure and the market for real estate is in the doldrums, it would be natural to expect the opportunity to generate significant new income and inward investment to be grasped enthusiastically.

Unfortunately, that has not proved to be the case. The House of Representatives consulted a wide range of interested par-

People will look for tax loopholes and ways of avoiding tax unless they feel that they are being treated fairly

ties including the Cyprus Investment Promotion Agency (CIPA), business organisations such as the Chamber of Commerce and Industry and professional bodies. All expressed support for the proposed amendments. Yet more than a year later, with the economic situation continuing to worsen, we are still waiting for the proposed amendment to become law.

We urgently need a change in approach.

Rather than increasing the burden on the private sector, which risks choking off any prospect of economic recovery, the government should be providing the services sector with the tools it needs to compete internationally. It should therefore expand, rather than erode, the benefits which Cyprus offers to international business and investors, and expand its network of double tax agreements. It should make sure its voice is heeded in Europe, by being a good European citizen and ensuring that Directives are implemented, but it should resist any moves that are likely to be detrimental to the national interest. In the short term there is ample scope to replace revenue by eliminating public sector waste and excess.

info: Elias Neocleous is an Advocate, Partner and Head of the Corporate and Commercial Department at Andreas Neocleous & Co LLC. the international investment, business & finance magazine of cyprus

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George Poufos

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The View

from the Top Gold: Certain taxes are now payable online. How much will eventually be possible?

George Poufos: Our prime objective is eventually to have all our business with the taxpayers carried out online. Legislation was passed recently whereby the submission of tax returns by businesses which have consultants to help them file or discharge tax computation requirements can be carried out online and we are in the process of building the software and the environment to enable this. As you say, we’ve already introduced the online payment of taxes and although there is currently a threshold of €1,000 per payment, there are actually quite a lot of important and useful things that you can pay online. We intend to raise the threshold as the system becomes more widespread and if we see that there is a demand for this service and the taxpayers’ response is positive, we can extend it to all types of taxes – it’s currently only for income tax payments. We are very oriented towards technology; in fact the Inland Revenue Department (IRD) has always been a pioneer in this area.

Gold: Everyone is aware that one of Cyprus’s key attractions to international companies is the 10% corporate tax rate.

However, some people point out that while the so-called headline rate may be 10%, the true rate is much higher. Can you clarify the situation?

G.P.: The 10% rate is one of the lowest rates in the European Union and its stability is important to businesses which need to be able to look ahead and plan. Now, to make things as clear as possible, those international businesses which are owned by non-Cypriot,

Will the European Union force Cyprus to abandon its attractive 10% corporate tax rate? Is tax evasion the huge problem that Cypriot union leaders and MPs of all parties claim it is? Would Russia’s low flat rate of income tax suit Cyprus? Gold sought answers to these and other questions from George Poufos, Director of the Inland Revenue Department.

Interview by John Vickers

non-tax residents (i.e. they are not present in Cyprus for 182 days) but their management is controlled in Cyprus – and so they are taxed here – are subject to 10% corporation tax. This is the final rate they have to pay and it is not a penny more than that. There is no doubt surrounding the reality of this and the true tax burden of these companies. Now, for Cypriot businesses there is an extended burden over and above the 10% rate which is based on the actual or deemed distribution of a company’s profits. In effect, this means that there is approximately an additional 10% levied on the distribution of profits. If a business carries out an actual distribution of all its profits, it pays the Special Contribution for Defence and the dividend tax which foreignowned businesses don’t pay. We do this because we want to stimulate the distribution of profits and the consumption of those profits. There is a very clear economic reason for this particular regime and it has proved very helpful for the Cypriot economy.

Gold: Do you see a possibility of lowering it even further?

G.P.: We have a commitment by the government to keep the 10% rate as it is and even though there was some discussion last year about raising it, the decision was eventually taken to maintain it. As for lowering it, I don’t think so. It’s a political decision, of course, but personally I don’t think that such a move is necessary.

Gold: Could we lose the 10% corporate tax rate in the context of EU tax integration?

G.P.: I don’t think so. What is being discussed, promoted and engineered, through proposed directives and discussions at vari-

ous levels, is not an EU-wide tax rate but a consolidation in terms of the corporate tax base. Every country has its own legislation and every country has its own corporate tax base – in other words, whether a particular income, activity or area of the economy is taxed or not. If you tax everything it means that you have a very broad tax base; if you don’t tax anything you have a zero tax base.

Here in Cyprus we have a reasonable tax base, customized to our specific needs. Europe’s political leaders are talking about shaping the tax base in such a way as to create a homogeneous framework across the member states while, at the same time, touching upon sensitive areas of each country’s national legislative basis. It’s here that we are sceptical but the rate per se will not be harmonized.

There has been no discussion whatsoever about harmonization of the rates. Of course, it could be argued that the shaping of a common tax base is an indirect method of affecting the rate but this remains to be seen.

We’re keeping a close eye on the situation.

Gold: The island has signed double tax treaties with around 50 countries but some competing jurisdictions appear to be offering more favourable provisions than Cyprus. Does the IRD keep a close watch on what the competition is doing in terms of what it can offer in the context of double taxation and legislation?

G.P.: In any double tax agreement, the interests of both countries must be taken into consideration. Those responsible for framing the provisions of such agreements have to take the whole economy into consideration but, at the same time, the micro-environment of the economy too. And of course, the international investment, business & finance magazine of cyprus

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there are two parties to any agreement. It takes two to tango, as they say! So each one is something like a reconciliation; it requires a give-and-take approach, mutual understanding and consensus. Each agreement is different and it is easy to say that a particular country has included a particular provision and we haven’t but it may be a very different ball game for that country. So yes, we know what our main competitors in the provision of financial services – Luxembourg, the Netherlands, the UK, Belgium and Austria – are doing and, of course, we pay attention to what is going on elsewhere. Sometimes it is not possible to include things in an agreement that another jurisdiction may have included but there are also instances where we have included things that others have not.

As you know, some people have a tendency to talk about the problems rather than the positive aspects of the situation. Let me also clarify that the responsibility for carrying out double tax agreements lies with the Ministry of Finance. The IRD is an administrative organ and its role is not to frame the agreements but to implement them.

Gold: During last year’s discussions about austerity measures, the trade unions and most of the political parties made a great deal of noise about alleged tax evasion, suggesting that it is a huge problem in Cyprus. Is it? And could the IRD do more to prevent it?

G.P.: I don’t think anyone can seriously say that there is a huge problem of tax evasion in Cyprus. Equally, though, it cannot be claimed that there is zero tax evasion. As always, the truth lies somewhere in the middle.

First of all, we cannot eliminate it. We can combat it and confine it but we cannot eliminate it totally and there is no country in the world that does not face this problem.

There are so-called ‘hard-to-tax’ groups and those that can carry out tax evasion more easily than others. It’s harder for public and private sector employees to escape paying tax than it is for self-employed individuals who are viewed all over the world as belonging to the ‘hard-to-tax’ group. In Cyprus the self-employed sector contributes from 8% to 11% to GDP, possibly even 12% over the last 5 years. The contribution of this sector to the IRD’s tax collection is about 15% so we are not far from what they are contributing in terms of GDP and, as a matter of fact, we’re getting more than that. This group of people covers a vast area and big numbers – 42

the international investment, business & finance magazine of cyprus

In Russia there may be a 13% flat rate of personal income tax but there is also a 28% corporation tax rate we’re talking about a lot of individuals and professions/vocations. Over the last two and a half years, they have declared and paid about €50 million in taxes on the basis of their own assessments. Over the same period, the IRD has examined and ‘checked’ the calculations of these self-employed individuals and levied another €50 million. So we are clearly making an effort. Could we do better? Of course. There is always room for improvement, no question about it.

Gold: What precisely can be done?

G.P.: Firstly, we need the political will to combat tax evasion legislatively and this concerns the House of Representatives as well as the government. If the administration is accused of not introducing legislation to tackle a problem but when it does so, the parliamentarians turn round as say “This is not what we were talking about” or “This is the way you should be doing it”, the system is clearly not helping us. So on this issue, I say to the politicians that if they want to judge me, they should pass the necessary laws and then judge me on the results. Secondly, the state has to invest in the IRD, in technology and in database administrative systems. It’s not enough to say that our objective is the electronic submission of tax returns or to get people using the Internet. We have to take all the practical steps to achieve this. And finally we have to invest in people. With the technology and the people it has, and with the legislation in its arsenal at present, the IRD cannot yet fulfil what I would describe as the expectations of society and what the average person would like us to do. But we are trying very hard with what we have.

Gold: In a recent interview in Gold, a Russian tax expert explained how his government had set the basic rate of income tax so low that people were more willing to pay it and thus less likely to be involved in the ‘black’ economy. Would the Russian model work here?

G.P.: I envy the Russian model for the 13% rate of personal income tax but one must be careful here. If you really think about it, who pays tax? It’s the household, through either direct or indirect taxation. The wages you take

home are taxed or, if you’re not an employee, the profits you take home are taxed. Now, a good tax system should have the virtue of not making a distinction regarding the vehicle by which one does business. For example, should I be Mr X, the self-employed butcher or should I be The Butcher Ltd? Don’t forget that when we talk about hard-to-tax groups we’re talking about individuals who are carrying out a business. Now, because the tax system is a distortion to the economy, that distortion should be minimized. So a decision needs be taken on the question of whether the corporate tax rate, for example, or the corporate tax base, should be the same as that for income tax. I have always been an advocate of the idea that if we want to pick up distortions and throw them out of the window, thus liberating the economy, the marginal rates of income tax should be equal to the marginal rates of corporation tax. In Cyprus we have a mosaic of rates and this facilitates planning.

If you have an administrative deficiency, that facilitates tax evasion. So in Russia there may be a 13% flat rate of personal income tax but there is also a 28% corporation tax rate.

Although we have this mosaic of rates, we still have an efficient system and we have an efficient services sector because of the system we have in place for foreign-owned businesses. So while I can appreciate much of the thinking behind the Russian idea, I would approach it with caution.

Gold: On average you are issuing 500 rulings a year, all free of charge. If the result is considerable savings in tax for companies, why don’t you charge for them and raise valuable additional income?

G.P.: I understand the logic of this suggestion but there are two sides to the issue. If the end objective is to raise revenue, I appreciate that we could raise a substantial amount but I don’t think we’re going to be rescued by it. And there is also the view which says that rulings are a service that we have to offer to the public, and this goes along with our philosophy of providing free public services wherever possible. It is ultimately a political decision whether we charge for our rulings and we have, in fact, discussed it a couple of times with the Ministry which does not think that this is the right moment to change our policy. I introduced these rulings in 2004 and they have been very helpful to the economy and to the supply of services. I think we can be proud that we’ve brought a lot of foreign direct banking activity because of them.

Taxation in Cyprus:

Facts & Figures

Corporate taxation:

● Residence – A company is resident in Cyprus if its management and control is exercised in Cyprus. Registration in Cyprus is not decisive. ● Basis – Resident companies are taxed on worldwide income. Foreign-source income derived by resident companies is subject to corporation tax in the same way as Cyprussource income. Non-resident companies are taxed only on Cyprus-source income.

Branches are taxed the same way as domestic companies. ● Taxable income – Corporation tax is imposed on business profits; interest and discounts; rents, royalties, remuneration or other profits from property; and net consideration in respect of trade goodwill.

Expenses incurred for the production of taxable income are tax deductible provided that they are supported by invoices or relevant receipts. Losses brought forward or surrendered by other group companies (group relief) may be set off against taxable profits. ● Taxation of dividends – Dividends received from a company located in Cyprus or abroad are exempt from corporation tax.

Dividends received by a Cyprus resident company from another Cyprus resident company are exempt from the Special Contribution for Defence, unless such dividends are paid from profits which are more than four years old. Dividends received from a non-resident company are also exempt from the Special Contribution for Defence. However, the exemption does not apply if more than 50% of the payer company’s activities, directly or indirectly, lead to investment income and the foreign

tax burden on the income of the payer company is substantially lower (i.e. less than 5%) than the tax burden of the company in Cyprus. If not exempt, dividends are liable to the Special Contribution for Defence at a rate of 20% (15% for dividends declared before 30/8/2011 and 17% for dividends declared between 30/8/2011 and 31/12/2011). ● Capital gains – Gains derived from the sale of shares are tax exempt. Capital gains tax at the rate of 20% is imposed on gains from the disposal of immovable property situated in Cyprus and on gains from the disposal of shares in an unlisted company that owns immovable property situated in Cyprus. ● Losses – Tax losses may be carried forward and set off against taxable income of subsequent years without any time limit.

The carryback of losses is not permitted. ● Rate – Companies and public corporate bodies are subject to corporation tax at a rate of 10%. Certain types of income (i.e. dividends, interest and rents) are subject to a Special Contribution for Defence at a rate of 20%, 15% and 3%, respectively. ● Surtax – No ● Alternative minimum tax – No ● Foreign tax credit – A unilateral tax credit is granted for tax paid abroad, regardless of the existence of a tax treaty.

When a treaty applies, the treaty provisions apply if more beneficial. ● Participation exemption – See under “Taxation of dividends” and “Capital gains”. ● Holding company regime – No special holding company regime exists. However, in most cases, dividend income and capital gains are tax exempt. See under “Taxation of dividends” and “Capital gains”.

● Incentives – Special taxation regimes exist for ship-owning, chartering and ship management companies that own, charter or manage a qualifying ship in a qualifying shipping activity.

Withholding tax:

● Dividends – Dividends paid to a nonresident (company or individual) are not subject to withholding tax. Dividends paid to a resident company are not subject to withholding tax, but dividends paid to a resident individual are subject to the Special Contribution for Defence at the rate of 20% (applied as a withholding tax). ● Interest – No withholding tax is imposed on interest paid to a non-resident.

Interest paid to a resident is subject to a 15% Special Contribution for Defence deducted at source. ● Rent – rent paid by a Cyprus tax resident company/partnership, the Government or any other local authority to a Cyprus tax resident is subject to 3% Special Contribution for Defence (on 75% of the gross rental income) withheld at source (as from 1/7/2011) ● Royalties – Royalties paid to a nonresident for the use of rights in Cyprus are subject to a withholding tax of 5% on film royalties, and 10% on all other royalties.

These rates may be reduced under a tax treaty under the EU interest and royalties directive. Royalties paid to a non-resident for the use of rights outside Cyprus are exempt from withholding tax. There is no withholding tax on the payment of royalties by a resident company to another resident company.

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cover story

“The income tax created more criminals than any other single act of government. “ Barry Goldwater

● Technical service fees – Technical fees paid to a non-resident are subject to a withholding tax of 10%. This rate may be reduced under a tax treaty. There is no withholding tax on the payment of technical fees by a resident company to another resident company. ● Branch remittance tax – No

Other taxes on corporations:

● Capital duty – Capital duty is payable on authorised share capital and the issuance of shares at a rate of 0.6%. ● Payroll tax – Under the PAYE system, the employer is required to withhold personal tax on employee salaries. ● Real property tax – Tax is imposed annually on the market value of immovable property on 1 January 1980, at rates of 0% to 0.8%. ● Social security – An employer must make social insurance contributions amounting to 8.5% of gross salary of an employee. The maximum amount of annual earnings on which the contributions are payable is €52,104. An employer is also required to make a contribution of 2% to the social cohesion fund on all earnings of employees. ● Stamp duty – Stamp duty is payable on a document if it relates to property situated in Cyprus or to an act to be performed or done in Cyprus. Stamp duty on commercial contracts is charged at rates that vary according to the contract amount. A ceiling of €17,086 per document applies.

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“Taxation is just a sophisticated way of demanding money with menaces.”

Terry Pratchett

● Transfer tax – The transfer of immovable property is subject to a transfer fee ranging from 3% to 8% calculated on the market value of the property as estimated by the Land Registry department. ● Annual Company levy – an annual company levy of €350 is imposed on each company, capped at a total of €20,000 for companies of a group. The levy does not apply to dormant companies, companies that do not own any assets or companies which own property in the territory not controlled by the Republic. The levy is payable by 30 June each year. Late payment of the levy will give rise to a 10% or 30% penalty, depending on the period of delay. ● Other – a basic levy is payable by all credit institutions incorporated in the Republic and their branches outside the Republic in order to establish a Financial Stability Fund, with the view to improve the existing framework for managing and resolving financial crises. The basic levy contribution is equal to 0.03% of the relevant liabilities of the institutions affected by this law.

Anti-avoidance rules:

● Transfer pricing – The arm’s length principle requires that transactions between related parties be carried out at market value and on normal commercial terms. ● Thin capitalisation – No ● Controlled foreign companies – No ● Other – A general anti-avoidance provision allows the Commissioner of income tax

“The tax collector must love poor people – he’s creating so many of them.”

Bill Vaughan

to disregard artificial/fictitious transactions and assess tax on the person concerned. ● Disclosure requirements – No

Administration and compliance:

● Tax year – The tax year is the calendar year. The accounts of a company may be closed on a date other than 31 December, in which case, taxable profits are apportioned on a time basis to the relevant tax years. ● Consolidated returns – Taxation on a consolidated basis is not permitted and each company must submit a separate return. A setoff of group losses is possible provided there is a 75% parent-subsidiary relationship, including subsidiaries under the 75% control of a common parent company.

Group loss relief is available only between resident companies. ● Registration – Companies have an obligation to register with the Inland Revenue Department within 60 days from their incorporation or registration date with the Companies Registrar (effective as from 1/7/2011).

Filing requirements – The tax return for a tax year must be submitted by 31 December following the accounting year end.

The tax return can be completed either on paper or electronically (effective from 1/7/2011, companies are obliged to submit their 2010 tax return electronically.

In case of electronic submission of tax return the deadline is extended by three months). A company must pay provisional tax in 3 equal instalments on 1 August, 30

September and 31 December, with any underpayment of tax due by 1 August of the following year. If the income declared for the payment of the provisional tax is lower than 75% of the income as finally determined, an additional amount equal to 10% of the difference between the final and provisional tax is payable. ● Penalties – Administrative penalties of €100 or €200 (depending on the case) are imposed for late filing of a return or submission of information requested by the Tax Authorities. Further, where the tax return is submitted by the statutory

deadline but the tax liability as per the tax return is not paid by self-assessment, or the return is not submitted within the deadline and the tax liability under the tax return is not paid by self-assessment, an additional 5% tax on the tax payable is imposed. If a company fails to settle its tax obligations within the statutory deadline an additional 5% penalty on the amount of the unsettled tax is imposed.

Interest for late payment is charged at a rate of 5%. ● Rulings – Rulings are available on matters of law interpretation.

Personal taxation:

● Basis – A resident individual is subject to income tax on his/her worldwide income. A non-resident individual is taxed only on Cyprus-source income.

Some types of income (dividends, interest and rent) are subject to a Special Contribution for Defence at the rates of 20%, 15% and 3%, respectively. ● Residence – An individual is resident in Cyprus if he/she stays in Cyprus for a

the international investment, business & finance magazine of cyprus

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cover story

Income tax returns are the most imaginative fiction being written today.

Herman Wouk

period or periods exceeding in the aggregate 183 days in the tax year. ● Filing status – Each individual is assessed on a separate basis. Joint assessment for couples is not possible. ● Taxable income – Personal income tax is imposed on business profits, income from an office or employment, discounts, pensions, charges or annuities, rents, royalties, remuneration or other profits from property and net consideration in respect of trade goodwill. Expenses incurred for the production of taxable income are tax deductible provided that they are supported by invoices or relevant receipts. Benefits in kind are also included in taxable income. From 1/1/2012, when a company director or individual shareholder or their spouse or relatives up to second degree receive a loan or financial assistance from the company, then the person is deemed to have a benefit in kind equal to 9% p.a. of the above facility. ● Capital gains – See under “Corporate taxation”.

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● Deductions and allowances – The most important personal deductions are: donations to approved charities; social insurance fund contributions (and similar contributions paid abroad); life insurance premiums; pension plan contributions; and medical fund contributions. ● Rates – The first €19,500 is tax free with progressive tax rates imposed up to 35% on remaining amounts.

Other taxes on individuals:

● Capital duty – No ● Stamp duty – Stamp duty is payable on a document if it relates to property situated in Cyprus or to an act to be performed or done in Cyprus. Stamp duty on commercial contracts is charged at rates that vary according to the contract amount. A ceiling of €17,086 per document applies. ● Capital acquisitions tax – No

● Real property tax – Tax is imposed annually on the market value of immovable property on 1 January 1980, at rates of 0% to 0.8%. ● Inheritance/estate tax – No ● Net wealth/net worth tax – No ● Social security – An employee is required to make social insurance contributions at a rate of 6.8% of his/her salary (up to €52,104). Self-employed individuals contribute at 12.6%. The contribution is calculated on notional income, which varies according to the trade or profession. ● Government, Semi-Government Employees and pensioners – A special contribution is imposed from 1/9/2011 to 31/8/2013 on the level of the salary or pension at rates of 0% to 3.5%. ● Employees, Self-employed and Pensioners of the private sector – A special contribution is imposed from 1/1/2012 to 31/12/2013 on the level of salary or pension at rates of 0% to 3.5%, shared equally by the employer and the employee.

.....................................................................

“The income tax created more criminals than any other single act of government. “

Barry Goldwater

.....................................................................

“Taxes grow without rain.”

Jewish Proverb

.....................................................................

“People try to live within their income so they can afford to pay taxes to a government that can’t live within its income.”

Robert Half

.....................................................................

“Philosophy teaches a man that he can’t take it with him; taxes teach him he can’t leave it behind either.”

Mignon McLaughlin

.....................................................................

Administration and compliance:

● Tax year – Calendar year ● Filing and payment – The employer withholds tax on employment income under the PAYE system for remittance to the tax authorities. A selfemployed individual pays tax through the provisional and self-assessment systems.

The tax returns must be filed by: 30 April following the tax year for an employee; 30 June for a self-employed person who is not required to file audited accounts; and 31 December for a self-employed person whose return is accompanied by audited accounts (effective from 1/7/2011, self-employed individuals with annual turnover of more than EUR 70,000 for the years 2010 onwards are obliged to submit their tax return electronically. In case of electronic submission of tax return the deadline is extended by three months). ● Penalties – Administrative penalties of

€100 or €200 (depending on the case) are imposed for late filing of a return or submission of information requested by the Tax Authorities. Further, where the tax return is submitted by the statutory deadline but the tax liability as per the tax return is not paid by self-assessment, or the return is not submitted within the deadline and the tax liability under the tax return is not paid by self-assessment, an additional 5% tax on the tax payable is imposed. If an individual fails to settle his/her tax obligations within the statutory deadline, an additional 5% penalty on the amount of the unsettled tax is imposed. Interest for late payment is charged at a rate of 5 %.

Value added tax:

● Taxable transactions – VAT is levied on the sale of goods, the provision of services and the import of goods from outside the EU.

● Rates – The standard rate is 17% (15% until 28/2/2012), with reduced rates of 5% and 8%. ● Registration – The registration threshold for VAT purposes is €15,600 and €10,251 for intra-community acquisitions of goods. ● Filing and payment – The deadline for submission of the quarterly VAT return and VAT payment is the 10th of the second month following the relevant period. ● Other – all taxable persons making taxable supplies of goods or services to nontaxable persons are obliged to issue and deliver “legal receipts”. Any person failing to comply with this regulation will be subject to a penalty equal to 20% of the value of the transaction for which the legal receipt relates to.

...................................................................

Information provided by Deloitte Global Services Limited

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cover story

By Elias Neocleous

What next for the Cyprus taxation system?

The government should expand, rather than erode, the benefits which Cyprus offers to international business and investors.

A

mid rising concern over the state of the public finances, tax seems to have rarely been out of the news in recent months.

From the levy on bank deposits introduced in March, through the increase in the top rate of personal income tax in the August “austerity package”, to the levy on private sector salaries in the December budget, businesses and individuals in Cyprus have been hit with a series of tax increases at a time when 38

they are least able to afford them.

While “squeezing the rich until the pips squeak” may appeal to populist instincts, raising tax rates can actually lead to a fall in the amount of tax collected. The reason for this is that the wealthiest people simply leave the country in order to avoid paying what they see as unfairly high taxes. When tax rates were increased in Britain in the 1970s there was a veritable exodus of high earners, including film stars Michael Caine and Sean Connery and musicians Mick Jagger and David Bowie. Many entrepreneurs and businessmen followed in their footsteps.

They may not have been household names, but their talents were lost to the British economy, along with the tax they had previously been paying.

Even if they stay, people will look for tax loopholes and ways of avoiding tax unless they feel that they are being treated fairly.

In a country like Cyprus, which is highly dependent on attracting people and business from overseas (whether as tourists or as long-

the international investment, business & finance magazine of cyprus

term investors and residents) the potential damage is more far-reaching still. Cyprus’s services sector accounts for almost 80% of value added and employs around 70% of the workforce. Any loss of competitiveness will cause potential visitors and investors to switch to other destinations, reducing activity in the services sector and causing a further loss of tax revenue.

International investors operate on very fine margins, and a small increase in tax rates or costs may be all it takes to tip the balance between one jurisdiction and another.

At a time when Cyprus faces increasing competition from financial centres such as Luxembourg, Malta and the Channel Islands, we risk killing the goose that lays the golden egg if we make it more expensive for international businesses to operate here. We also give the impression of a lack of clarity and competence. The August austerity measures introduced tax incentives for high earners relocating to Cyprus, while the December budget imposed a levy on high salaries in the private sector.

Do we want high-achievers to relocate to Cyprus or not?

Cyprus’s business-friendly tax regime, its low tax rates and the tax mitigation opportunities its double taxation agreements provide are key factors in attracting investors to Cyprus. In these difficult economic times, when tax revenues in the major economies such as the USA and the UK are falling, their governments have sought to protect tax revenues by blurring the line between legitimate tax mitigation and illegal tax evasion, and by unfairly characterising low tax jurisdictions such as Cyprus as “tax havens” and sanctuaries for all manner of illegality. At the same time, at the European level, there have been growing calls for socalled tax harmonisation. Initially this harmonisation was confined to the overall tax framework, but more recently it has been suggested that countries should not be free to adopt tax rates below a prescribed level.

Regrettably, the Cyprus government has not proved as successful as its counterparts elsewhere in resisting this pressure and maintaining the country’s tax advantages.

As double taxation agreements have been renegotiated, significant benefits have been lost, allowing Cyprus’s competitors such as Switzerland and Luxembourg to gain ground and present themselves as preferable

ts

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In its 15 years of operation, the firm has expanded significantly and it is now wellestablished in Cyprus, acting for a greatly enlarged customer base.

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firm’s various departments, together with the formation of the required structures for the speedy and efficient management and finalization of all our clients’ cases and claims have marked the our firm’s dynamic course in Cyprus.

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proach provides for professionally prepared returns, related calculations and advice, as well as integrated tax planning having prudent and well-argued tax positioning as a leading principle. Our tax accounting and tax risk management advisory professionals provide supporting quarterly and annual tax provision calculations, they validate tax balance sheet accounts and implement new accounting standards under IFRS, they review tax process, controls, data and systems effectiveness and identify and prioritize key risks assisting with controls. Our pre-filing controversy management services assist our clients with properly and consistently filing their returns and preparing the relevant back-up documentation using our knowledge of how the tax authorities operate. We increasingly work together with our clients to help resolve difficult or sensitive tax disputes but also to also have good relationships and discussions with the competent authorities on tax policy matters providing us with valuable insights.

International taxation and transaction tax

Our integrated global network of international tax professionals helps our clients manage their business tax burden by uncovering opportunities, managing global tax risks and meeting cross-border reporting obligations. Using a multi-disciplinary and multicultural team in Cyprus, we work with our clients to manage global operational changes, to manage tax risks and address transactions, capitalization and repatriation issues – from forward planning through reporting to maintaining effective relationships with the tax authorities.

Our transfer pricing professionals (both in Cyprus and abroad) assist with reviewing, documenting, managing and defending transfer pricing policies and processes and aligning them with the business strategies of our clients. Our international tax team

SPECIAL advertising FEATURE

Grant Thornton (Cyprus) Ltd

F

ounded in 1942, our firm is one of the oldest accounting practices on the island. In 1982, we became a member firm of Grant Thornton International.

Grant Thornton International is one of the world's leading organisations of independent assurance, tax and advisory firms. These firms help dynamic organisations unlock their potential for growth by providing meaningful, actionable advice through a broad range of services.

Proactive teams, led by approachable partners in these firms, use insights, experience and instinct to solve complex issues for privately owned, publicly listed and public sector clients. Over 31,000 Grant Thornton people, across 100 countries, are focused on making a difference to clients, colleagues and the communities in which we live and work.

At Grant Thornton we pride ourselves in providing partner-led service for all our clients and a consistent adherence to important matters of principle: a belief in accessibility and the need for responsiveness based on understanding the client’s business.

Assurance

Grant Thornton’s global audit methodology is designed to provide audit teams with a clear and direct link between identified financial reporting risk, internal controls that address the risk and audit procedures.

Our audit approach is designed to achieve a consistent standard of audit service. The audit methodology and software used are constantly reviewed to ensure they are up-to-date with the latest changes in audit standards and regulations. We follow the quality control and ethical policies that have been developed by Grant Thornton International, thus ensuring that we conform with professional standards and are on the cutting edge of developments in our profession. Our qualified professionals can also assist with special audits that clients may request as well as any special projects with regards to their organisation’s system of internal controls.

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the international investment, business & finance magazine of cyprus

Our tax experts can advise on the various tax aspects of setting up and operating a Cyprus company in the most tax-efficient manner, as well as ensuring compliance with filing and other obligations. In addition to corporation tax, our dedicated team of tax specialists can provide advice and assistance on all areas of taxation including personal tax, VAT and employment taxes.

Advisory Services

As a member firm within Grant Thornton International, we are able to complement our in-house competence with an enormous pool of experience and specialised knowledge to advise our clients.

George Karavis: Tax Partner Business Services

Our Business Services department is an independent, partner-led business line with Grant Thornton, providing outsourcing services to local and as well as international clients. Our services include accounting and bookkeeping, payroll, company registration, arranging for the provision of directors, corporate secretary, nominee shareholder and registered office, administration support including assistance with agreements and other documentation and opening/administering bank accounts, company secretarial and compliance services.

Taxation

We deliver a proactive, cost-effective service which assists clients with their filing obligations and minimises tax leakage, getting close to our clients and understanding their business and objectives. For our international clients with established cross-border operations or those looking to expand internationally and contemplating the establishment of a Cyprus tax-resident base, we can assist through our local expertise and the Grant Thornton International network to achieve their goals.

Business risk services We offer the following services to help reduce and manage business risk: governance, risk and compliance services, information technology services, operational improvement services, strategic services and assurance services.

Corporate finance Our offerings include advice on business sales and disposals, capital markets, mergers & acquisitions, private equity and management buy outs and transaction advisory services.

Forensic & investigation services Our services include anti-money laundering, asset recovery, commercial disputes and litigation advisory, dispute resolution, expert witness, fraud and criminal investigations, forensic technology, insurance claims, intellectual property and contract compliance, international arbitration and shareholder disputes and valuations Project finance Grant Thornton’s project finance teams are recognised as leading players in public/private partnerships, always working toward achieving a successful project.

Recovery and reorganisation Sometimes companies fail or they teeter on the brink of failure. Increasingly there is a willingness among financial stakeholders to embrace a 'rescue culture'. Sustainable turnaround and sustained improvement may be possible if the right steps are taken.

Valuations Our valuations services include advice on assessing the value of companies, businesses

and intangible assets for acquisition, disposal, merger, reorganisation or restructuring, satisfying regulatory requirements by providing a fairness opinion on a transaction, providing expert advisor opinion for corporates or shareholders involving disputes and litigation, dealing with the latest accounting requirements including acquisition accounting and impairment testing under IFRS/IAS, the issue of share options and ongoing valuation requirements, valuations for tax purposes, maximising tax benefits for individuals and organisations.

Recent tax amendments in Cyprus

By George Karavis, Tax Partner, Grant Thornton (Cyprus) Ltd. On 14 December 2011, the House of Representatives approved certain measures aimed at reducing public spending and increasing government revenue in order to improve public finances. These measures have resulted in the following amendments: 1. Income Tax Loans or other financial assistance provided to individuals who are directors or shareholders: • In such a case, the director or shareholder is deemed to have received a benefit in kind of 9% per annum, calculated on the monthly balance that was created due to this loan or financial assistance. This measure also affects spouses and second-degree relatives.

• This benefit will be taxed and paid through the Pay As You Earn system for emoluments (PAYE).

•This measure abolishes section 39, according to which interest was deemed to accrue to the company at the rate of 9% on the debit balance.

Employer contributions to be treated as deductible for tax purposes • Employer contributions that relate to Social Security Fund, Redundancy Fund, Industrial Training Fund, Social Cohesion Fund and other related funds, are deductible for tax purposes only if they were paid in the year they were due.

• In case the above contributions and their related penalties are paid within two years of their due date, these contributions become deductible in the year in which they are settled.

The above measures are effective as from tax year 2012.

2.Special Defence Contribution • Special defence contribution (SDC) rate on dividends The SDC rate on dividends arising or deemed, rises from 17% to 20% as from 1 January

2012 until 31 December 2013.

• SDC on dividends paid more than four years from the end of the year in which profits arose In such a case dividends are subject to SDC if the shareholder is Cyprus-resident, irrespective of whether the shareholder is an individual or a company.

3. Value Added Tax Increase of VAT rate from 15% to 17% as from 1 March 2012.Obligation to issue receipts • As from 16 January 2012, taxable persons are obliged to issue receipts when they supply goods or provide services to consumers (to non-taxable persons), unless a cash invoice is issued.

• In case of non-compliance, a penalty of 20% of the value of the transaction is imposed and, in case of court sentencing, a penalty of €1.700 or/and imprisonment up to 3 years.

4. Private Sector Special Contribution This measure covers private sector employees, private sector pensioners and self-employed individuals.

Special contribution does not apply to the following: •Retirement benefits • Payments from approved Provident Funds •Remuneration of the crew of qualifying Cyprus ships •Reimbursements The bands will be as follows: GROSS MONTHLY EMOLUMENTS €

SPECIAL CONTRIBUTION RATE

0-2.500 2.501-3.500 3.501-4.500 4.501 plus

Nil 2,5% 3,0% 3,5%

The employee is liable for 50% of the contribution and the employer is liable for the remaining 50%. For employees and pensioners, the contribution will be settled through withholding (PAYE). For self-employed individuals, payments will be made via the provisional tax system. This contribution will be deductible for Income Tax purposes, both for the individuals and for the employers.

Other amendments approved during 2011: 5. Registrar’s fee €350 An annual fixed levy of €350 is imposed on all Cyprus companies with a cap of €20,000 in case of groups of companies as defined in the companies law. As usual, there are exceptions to this levy which apply in the following circumstances:

1. Companies registered in the current year 2. Companies with neither assets nor turnover 3. Companies with assets but no turnover 4. Companies with turnover but no assets 5. Companies with assets in the occupied areas 6.Waiving of interest & penalties The deadline is fast approaching so hurry up to take advantage of this amendment!

The Law relates to tax balances due up to tax year 2008 with the assumption that these balances will be totally settled by 30th March 2012. It applies to assessments issued under the following laws: • Income tax • Assessment and collection • Special Defence Contribution • Capital Gains Tax •Property Tax • Estate Duty • Stamp duty (a) assessed up to 30th March 2012 (b) deducted at source or should have been deducted at source by 30th March 2012 (c) arises based on tax return filed for any tax year up to tax year 2008, filed by 30th March 2012 (d) arises under court order by any court up to 30th March 2012.

Effectively any interest and additional penalties over and above 5% are cancelled if they are repaid in full by 30th March 2012.

For more information please contact George Karavis at george.karavis@cy.gt.com

Grant Thornton (Cyprus) Ltd Office Address Nicosia: 41-49 Agiou Nicolaou Street Nimeli Court, Block C Engomi Postal Address P.O.Box 23907, 1687 Nicosia Tel: (+357) 22600000 Fax: (+357) 22600001 Limassol: 10 Filiou Zanettou Street, 2nd Floor Postal Address P.O. Box 55299 3820 Limassol Tel: (+357) 25878855 Fax: (+357) 25344425 Email: main@cy.gt.com Website: www.gtcyprus.com Year of Establishment: 1942

PARTNERS IN THE FIRM:

Stavros Ioannou, Managing Partner, CEO Avgoustinos Papathomas Stelios Loizides George Pouros Stephen Michaelides Achilleas Achilleos the international investment, business & finance magazine of cyprus

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SPECIAL advertising FEATURE

Horwath DSP Limited

H

orwath DSP Limited is a member of Crowe Horwath International, one of the top 10 global accounting networks.

The Crowe Horwath network consists of more than 150 independent accounting and advisory services firms in over 100 countries around the world. Crowe Horwath member firms are known for their local knowledge, expertise and experience balanced by an international reputation for the highest quality of service.

Established in 1987, Horwath DSP Limited is an accountancy firm with offices in Nicosia and Limassol, offering audit, tax, risk and advisory solutions to a diverse clientele in the local market and abroad.

With 4 partners, 80 professionals, 30 trainees and over 2,500 clients, Horwath DSP is one of the leading accountancy firms in Cyprus.

The firm employs some of the most highly-trained, educated and experienced individuals in the Cyprus market who are able to provide the highest level of client service. All key members of the team are either qualified ACA or ACCA who fully appreciate the need of adding value to the service offered to the client as well as the importance of delivering on time.

The firm’s service teams are committed to delivering value to multinational clients 56

doing business across borders. Horwath DSP is part of an international network of business experts with whom they share a commitment to delivering technical excellence and the highest standards of client service.

TAX CONSULTING

Every day somewhere in the world, tax regulations, rules and treaties change.

Strategies that reduced taxes yesterday may not work today. New opportunities to save money could be missed – especially as you enter new markets. The talented tax staff in your organisation might not have time to keep up with each nuance. Your current tax advisor may think your company is too small for personal attention – or your advisor may be too small to serve you.

Successful companies consider tax implications before they make business decisions, so they do not pay more than their legal obligation. This makes international tax compliance, consulting, and structuring a crucial element in your global strategy.

Cyprus is an international financial centre and many foreign investors use Cyprus companies for their international business. The firm provides compliance, advisory and restructuring support to foreign corporations and individuals.

Some of these services are listed below.

Tax Services

• Compliance and advice on Cyprus transactions for companies and individuals • International tax planning • Tax reviews • International corporate structuring • Advice on cross-border transactions • Finance and ownership of real estate worldwide • Expatriate and migrant planning • Trust and estate planning Horwath DSP takes pride in providing a speedy, competent service of the highest quality.

Horwath DSP Limited

Office Address Nicosia: 8 Stassinos Avenue, 1st Floor, Photiades Business Center, Postal Address P.O.Box 22545, 1522, Nicosia Tel: (+357) 22755656 Fax: (+357) 22452055 Limassol: 82 Nikou Pattichi Street 1st Floor, Marltania Building Postal Address PO Box 56430 3306 Limassol Tel: (+357) 25340097 Fax: (+357) 25340155 Email: mailbox@crowehorwath.com.cy Website: www.crowehorwath.com.cy Year of Establishment: 1987 Number of Employees: 114

the international investment, business & finance magazine of cyprus

20.8x28 o

We help you make wise decisions!

Specialists in International Tax Planning and Structuring, Accountancy and Audit.

Offices in Lefkosia and Lemessos Associates Worldwide.

Advisers to clients all over the World.

Audit | Tax | Advisory

Horwath DSP Limited Member Crowe Horwath International 8 Stassinos Avenue, 1st Floor, Photiades Business Center, P.O.Box 22545, 1522 Nicosia, Cyprus, 357 22755656 Main, 357 22452055 Fax, www.crowehorwath.com.cy, mailbox@crowehorwath.com.cy the international investment, business & finance magazine of cyprus

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we seek ways to minimize the tax burden on the wealth of our clients.

Against the background of a unified Europe, the removal of traditional banking secrecy rules and more rigorous anti-money laundering legislation, sophisticated individual tax planning, also known as personal wealth management, has been constantly gaining in importance.

Furthermore, it may be necessary for an individual to physically relocate as to optimize the taxability of his/ her wealth. KPMG Cyprus, aware of all the above significant tax considerations, is largely specialized in employment and relocationrelated issues and can be singled out for its expertise and exposure to local and European social security legislation while, at the same time, it is focused on other wealth-related taxes such as inheritance, estate and gift tax, which may affect our local and international clients.

International Tax does not operate in isolation. It has a focal position in the Cyprus economy as a whole. Tax-efficient corporate structures and the relocation of wealthy individuals to Cyprus have positive consequences for the economy as they act as a stimulant to the economically important services sector. KPMG has been and will continue to be committed to the needs of its international clients, providing sound tax advice with the utmost professionalism, thus fostering the service sector and the Cyprus economy as a whole.

KPMG is a global leader in professional services and could not

have abstained from participating in the development of the international tax scene and the need to provide support in the field of international tax. The local operations of KPMG can be traced back to 1948 and, as a result, our firm has observed and participated in the evolution of Cyprus into a developed international financial centre. KPMG is today one of the largest professional services organisations in the Cyprus market.

Our Cyprus company comprises more than 750 people, including 37 board members, working from 6 offices throughout the island.

KPMG has ascribed particular importance to the International Tax Field. Currently the Tax Services of KPMG comprises a team of about 40 professionals led by 5 partners.

As a member of a global network of professionals, KPMG guarantees the success of correct and timely tax advice by complementing our local efforts with a broader spectrum of the opportunities available to modern-day investors. Amid recent economic developments around the world and the unprecedented challenges that economies face today, innovative international tax advice is more than essential.

For more information please contact: Costas A. Markides Board Member KPMG Limited Tel: 22209246 Fax: 22513290 e-mail: cmarkides@kpmg.com

KPMG

Office Address Nicosia: 14 Esperidon Street, 1087 Postal Address P.O. Box 21121, 1502 Nicosia Tel: (+357) 22209000 Fax: (+357) 22678200 Email: nicosia@kpmg.com.cy Limassol: KPMG Center 11, 16th June 1943 Street, 3022 Postal Address P.O. Box 50161, 3601 Limassol Tel: (+357) 25869000 Fax: (+357) 25363842 Email: limassol@kpmg.com.cy Larnaca: Millenνium Lion House 1, G. Aradippioti Street, 6016 Postal Address P.O. Box 40075, 6300 Larnaca Tel: (+357) 24200000 Fax: (+357) 24200200 Email: larnaca@kpmg.com.cy Paralimni: Tziovani Building 2, Sotιras Street (2nd floor), 5286 Postal Address P.O. Box 33200, 5311 Paralimni Tel: (+357) 23820080 Fax: (+357) 23820084 Email: paralimni@kpmg.com.cy Paphos: Atheneon Building 51, Grivaσ Dhigheniσ Avenue, 8047 Postal Address P.O. Box 60288, 8101 Paphos Tel: (+357) 26943050 Fax: (+357) 26943062 Email: paphos@kpmg.com.cy Polis Chrysochous: Akamas Gate Complex 19, Vasileos Stasikou Avenue, 8820 Postal Address P.O. Box: 66014, 8830 Polis Chrysochous Tel: (+357) 26322098 Fax: (+357) 26322722 Email: paphos@kpmg.com.cy Website:www.kpmg.com.cy Web TV: www.kpmgcy.tv Year of Establishment: 1948 Number of Employees: 750+

the international investment, business & finance magazine of cyprus

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SPECIAL advertising FEATURE

PAMBORIDIS LLC

P

amboridis LLC is a commercial and corporate law firm with offices in Cyprus (Nicosia and Limassol), Greece (Athens) and the UK (London). The firm is headed by Dr. George Pamboridis, assisted by three Partners and a number of senior and junior Associates, totalling around 30 fee-earners and employees.

The firm caters for all types of contentious and non-contentious matters and, through its experience and expertise, can add value to the businesses of its clientele.

It prides itself for offering practical, nononsense advice and in understanding – and, thus, enhancing – the commercial objectives of its clients in every transaction. Pamboridis LLC places a great deal of emphasis on being responsive and in establishing and nurturing interpersonal relationships with its clients as their business evolves. It believes that the main strength on any law firm is the calibre of its lawyers and, for this reason, it adheres to the highest possible standards in its recruiting efforts and ensures that its lawyers receive ongoing training in order for them to be in a position to maintain the high level of legal skills and knowledge it boasts of.

The team advises and has extensive experience on the full range of corporate and commercial matters and its high level of partner involvement in each transaction handled ensures the best possible outcome

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dr. george pamborides for the client and optimum efficiency. The firm particularly prides itself on its expertise in the following areas: ● M&A, Joint Ventures and commercial contracts – They ensure that their lawyers have a thorough knowledge of their clients’ industry sectors and are therefore able to evaluate each client’s needs and objectives, understand and address all regulatory, competition, tax and other parameters of each transaction and achieve the best possible results. ● Energy (Oil and Gas) – The recent developments in the exclusive economic zones of Cyprus but also Israel, have created a demand for high- level legal support in all aspects of exploration and exploitation of natural gas and oil reserves. The firm acted in a timely manner and joined forces with one of the biggest global law firms in order to expose its lawyers to this new field but also to secure the vast expertise of their global partners for its clients. ● Tax planning – They regularly advise clients on a range of tax planning matters and ensure that they tailor their advice to the needs of each client and their business. ● Private equity / venture capital – They regularly represent both sponsors and investors in connections with the establishment of private equity investment vehicles, capital raising and investment activities through to establishing and implementing exit strategies whether by private sale, IPOs, mergers or acquisitions. ● Structured finance, capital markets, securitisations – They are instructed on a day by day basis by major banks and financing institutions to advice on a broad range of

structured finance and capital market transactions The vast majority of transactions that the firm handles are of a cross-border / international nature. The main bulk of work involves transactions with jurisdictions that have a “traditional” affiliation to Cyprus, such as the former CIS states and the UK, while recently there has been a substantial increase in transactions coming from jurisdictions such as Singapore and Hong Kong. The nature of the work, aside from that of a general corporate nature, includes mergers and acquisitions, financings, structured products, restructurings tax planning.

The firm is also proud to announce the opening of a new office in London. This is a representative office and its main target is to provide London-based clients, as well as professionals (lawyers, accountants and financiers) operating from the West End and the City, with support on matters of Cyprus law, especially in transactions involving group structuring and tax planning, but also oil and gas projects.

Pamboridis LLC Office Address

45, Digheni Akrita Avenue, Pamboridis House, 1070 Nicosia

Postal Address

P.O. Box 27354, 1644 Nicosia Tel: (+357) 22752525 Fax: (+357) 22752800 e-mail: info@pamboridis.com Website: www.pamboridis.com Number of Employees: 30

Number of Employees: 114

the international investment, business & finance magazine of cyprus

Pambor

Energy

PamboridesAd_210x280mm_logos_FINAL.indd 1

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andreas neocleous

ers of choice for large, business-critical cross-border investment projects.

Personal tax and private client services

In addition to our corporate tax work we also carry out substantial personal tax work, and are the only firm in Cyprus with a specialist private client department comprising lawyers, tax specialists and trust managers. In addition our specialist trust company provides a full range of fiduciary and management services.

We advise our clients on strategies for personal wealth and succession planning and assist with all aspects of implementation. Many of our clients are highly mobile, with complex personal affairs

elias neocleous

and interests in many countries, and we ensure that assets are held in a taxeffective way and managed efficiently so as to minimise the overall tax burden and achieve the client's personal objectives. We recognise that each of our clients is unique, and we are committed to understanding their objectives rapidly and effectively and to giving them clear, practical business-oriented advice and responsive service.

In conclusion

In our tax services, as in everything we do, we strive to add value and provide our clients with world-class service. We recognise that time is at a premium in today's fast-moving business environment. Our expertise and our strategy of

specialisation help us to get things right first time, saving both time and costs for our clients.

Andreas Neocleous & Co LLC

Contact details: Andreas Neocleous, Chairman Office Address: Neocleous House, 195 Makarios Avenue, Limassol, Cyprus Postal Address: P O Box 50613, Limassol, CY 3608, Cyprus Telephone: (+357) 25 110000 Fax: (+357) 25 110001 Website: www.neocleous.com E-mail: info@neocleous.com Services: Our firm

the international investment, business & finance magazine of cyprus

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the members of patsalides L.L.C., Advocates & Legal Consultants

international tax planning scene.

It has numerous tax advantages and it can also accommodate many foreign entities using the benefits that are gained from operating as a Cypriot company.

Taking into consideration the fact that the Corporate tax rate of 10% is the lowest in Europe, there is 0% tax on dividends distributed amongst shareholders and the liberal tax regime, Cyprus is considered to be a very privileged and respected jurisdiction.

The Law Firm of Christos Patsalides L.L.C. provides services including the transfer of a registered office of a company to and from the Republic of Cyprus - Redomiciliation of a Company, accounting and banking support of the companies, registration and search of trademarks, national, community and international trademark together with the provision of the registration of tradenames, the validation of patents, national, European and international patent registration and validation. An important part of the abovementioned services is provided by our affiliated company, Christos Patsalides Corporate Management Ltd. The third sector is the representation of our

clients before the Tenders Review Authority and the Cyprus Radio Television Authority.

The fourth sector includes the drafting of wills and the administration of the property (immovable and movable) of a deceased, with the appointment of an administrator, etc.

Concerning the Litigation Department, Christos Patsalides L.L.C. provides legal representation for a wide range of law areas and especially in relation to cases for debt recovery, family law related cases (divorces, alimony, parental care and rights, property disputes); Administrative law matters, (appeals to the high court for the annulment of administrative acts relating to broadcasting related matters, issues of public tenders, asylum seekers related matters, hiring matters and promotion issues to the public sector, etc), Civil and trade law cases (contracts, torts including traffic accidents), cases of employment law, cases of European Law (cases in the European Court of Human Rights, European Community Law) and Criminal Cases ( at the District and Criminal Court).

Christos Patsalides L.L.C., Advocates & Legal Consultants

Office Address 31, Evagoras Avenue, Evagoras Building Suites 41 - 43, 1066 Nicosia Postal Address P.O. Box 25617, 1311 Nicosia Tel: (+357) 22677677 Fax: (+357) 22674422 Email: info@patsalides. com.cy Email: paphos@kpmg. com.cy Website: www. patsalides.com.cy Year of Establishment: 1996

MANAGEMENT TEAM:

Christos M. Patsalides - Founding Partner, And Managing Partner Constantino|S Kokkinoftas – Partner And Head Of The Litigation Department Avgoustinos Tsarkatzis – Partner Marios Kastanias – Chief Financial Controller

LAWYERS TEAM:

Christos M. Patsalides - Founding Partner, And Managing Partner

Constantino|S Kokkinoftas – Partner And Head Of The Litigation Department Avgoustinos Tsarkatzis – Partner George Panayides Lawyer Kyriaki Violari - Lawyer Phivi Tramountanelli Lawyer Varteni Kasapian - Lawyer George Antoniades – Lawyer Maria Chronia – Lawyer Diane Constantinides – Τrainee Lawyer

ACCOUNTING TEAM: Marios Kastanias – Chief Financial Controller Despina Michael Irene Thrasyvoulou Christophoros Vasileiou

SECRETARIAL TEAM:

Georgia Solonos – Corporate Administrator Maria Constantinou

Languages spoken: Greek English Swedish Armenian French

the international investment, business & finance magazine of cyprus

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the management team of ernst & young cyprus ltd

Ernst &Young Cyprus Ltd works with some of the world’s largest multinational groups and private equity funds as well as various high net worth individuals using Cyprus as an investment platform for their international investment strategies.

Our transaction tax team assists our clients to mitigate transaction risk, to enhance opportunities and provide crucial negotiation insights. We help to make informed decisions and navigate through the tax implications of transactions. We work with our clients throughout the transaction life cycle, from initial due diligence through post-deal implementation and clean up. Our purpose is to suggest structuring alternatives to balance investor sensitivities, to promote exit readiness and help improve prospective earnings or cash flows – raising opportunities for improved returns on the investment and reducing costs. Our transaction tax team works closely with our global network of tax professionals and has vast experience in different types of transactions, local and global. The team comprises professionals with different backgrounds and experience both culturally and professionally – this enables us to solve wide-ranging client chal-

lenges. Continuous services development and knowledge sharing ensure high-quality and leading solutions for our clients.

Indirect taxation

Our dedicated indirect tax services team advises on the VAT treatment of new and complex transactions and supplies and helps resolve classification or other disputes and issues with the authorities.

We provide assistance in identifying risk areas and sustainable planning opportunities for indirect taxes throughout the tax life cycle and we provide effective processes to help improve day-to-day reporting for indirect tax, reducing attribution errors, reducing costs and ensuring that indirect taxes are handled correctly. In addition, our team supports full or partial VAT, VIES and Intrastat compliance outsourcing, identifies the right partial exemption method and reviews accounting systems. We pay special attention to our international clients and we help them understand how VAT affects their business so that they can plan their operations better and minimise potential risks in the area of indirect tax.

Office Address Nicosia: Nicosia Tower Centre 36, Byron Avenue 1096 Nicosia Postal Address P.O.Box 21656, 1511, Nicosia Tel: (+357) 22209999 Fax: (+357) 22209996/7/8 Limassol: Ernst & Young House 27, Spyrou Kyprianou Avenue 4003 Mesa Yitonia Limassol Postal Address P.O.Box 50123, 3601, Limassol Tel: (+357) 25209999 Fax: (+357) 25209998 Email: ey.cyprus@cy.ey.com Website:www.ey.com Year of Establishment: 1930s Number of Employees: 180

Management Team: George Kourris Andreas Demetriou Neophytos Neophytos Stavros Pantzaris Gabriel Onisiforou Andreas Avraamides Petros Liassides Irene Psalti Maarten Koper Philippos Raptopoulos Charis Stylianou

the international investment, business & finance magazine of cyprus

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SPECIAL advertising FEATURE

KPMG Ltd:

International Tax Professionals in Cyprus

I

n today’s dynamic economic environment there is increased pressure for modernization and adaptation to new circumstances.

Every profession is evolving in an ever-changing and borderless environment according to the prevailing conditions and the profession of the tax adviser has been particularly affected.

Given the globalised status of the economy, the rise in complexity of commercial transactions and the interaction of different tax systems, the optimization of the tax affairs of individual and corporate investors has become a pressing need. International tax planning has evolved as a tool to bring about this optimization. In conjunction with the international background of the Cyprus economy, as a platform for numerous international transactions, a specialised sector comprising international tax professionals has become a necessity, contributing positively to the island’s overall economic development.

Over the past decades, Cyprus has established itself as a reputable and trustworthy financial centre, complemented by an advanced legal, accounting and banking system, a highly skilled and multilingual workforce and an excellent infrastructure.

Cyprus tax legislation is fully compliant with the Acquis Communautaire and EU Directives. Furthermore, it is in full compliance with the code of Conduct for Business Taxation and against harmful tax competition. Most importantly, as of April 2009, Cyprus has proudly featured on the White List of the OECD alongside the world’s leading economies, having receiving the seal of approval from the world’s most influential economic organisation.

Economic activities have never been as global and as interconnected as they

58

the international investment, business & finance magazine of cyprus

COSTAS A. MARKIDES are today. The integration of national economies, advances in technology and political integration have all greatly contributed to the growth of international trade and the increase in cross-border flows of capital. Tax is, by default ,related to economic activity and naturally exceeds national boundaries.

As a result of this interaction, there is a need to find solutions and minimize the incidence of taxation and, at the same time, to maximize bottom-line profits for individuals and corporations.

This solution is commonly described as International Tax Planning. An international tax planner needs to be a professional with strong technical skills

and an academic background, equipped with an in-depth knowledge of taxation and able to think both practically and strategically so as to deliver longlasting value. The services of a tax adviser are offered from a perspective of opportunities for identifying tax laws that can be interpreted to the taxpayer’s benefit and non-aligned tax systems which give way to tax savings. Thus an adviser cannot be confined to the strict boundaries of the traditional accountancy profession and needs to go further to investigate and understand various areas of law, economics, finance and accounting.

The International Tax Department of KPMG comprises of a pool of talent and expertise originating from diverse backgrounds ranging across economics, law, accounting and finance, thus serving all the needs of the complex and challenging field of international tax.

KPMG’s International Tax Department advises international clients on complex tax issues in the area of corporate taxation, being dedicated to efficiently structuring cross border transactions for a diverse group of clients, including multinationals, small to medium sized enterprises, investment and commercial banks, private equity houses and alternative funds amongst others. Our firm provides tax services across a broad range of industries and the practice has seen work from virtually all around the globe although the main origins of our international investors are Russia and the CIS, Central Europe, India, China and North America.

Further to the activities of multinational organisations, private wealth is also a very important sector for international tax since successful individuals are those who run and control corporations. At KPMG

opinion

Where to after Greentree?

Lack of progress in the Cyprus talks has not changed the UN Secretary-General’s mind about an international conference

D

By Andreas Theophanous

It is important to study the unsustainability of the Bosnian model to comprehend the results brought by inadequate and imposed agreements

espite the fact that there was a huge gap between the positions of the two sides in Cyprus, the UN Secretary-General proceeded with his muchanticipated Greentree invitations to the “two community leaders”. As is often the case, several important personalities – including the President of the European Commission, Jose Manuel Barroso – rushed to make statements urging the two sides to take advantage of yet another historic opportunity to arrive at a settlement. Subsequently, despite the obvious absence of progress, the UN Secretary-General expressed his intention to pave the way towards a multilateral international conference in the latter part of April or early May. It remains bewildering how the Greek Cypriot side has again found itself in this very difficult position: to be negotiating on the basis of a settlement plan that it had rejected before its accession to the EU. Indeed, most people believe that the implementation of a plan along the lines currently being discussed will worsen the status quo for the Greek Cypriots. Moreover, the predicament is that again they are faced with a tight timetable and the prospect of arbitration at an international conference.

It is essential that we think outside the box.

It is important to study the unsustainability of the Bosnian model to comprehend the results brought by inadequate and imposed agreements. It makes no sense to move forward with a process which could lead to serious – and perhaps permanent – setbacks.

It would be commendable if the two sides, after years of negotiations, were to find themselves within reach of an agreement. Unfortunately, the harsh reality is that, despite the generous concessions of President Christofias, there are still fundamental divergences. This is

acknowledged by all the political parties, including those which strongly supported Mr. Christofias in his drive for a solution.

Naturally there is much scepticism on the Greek Cypriot side as well as disappointment and pessimism. The mainstream perception is that the Turkish Cypriot positions are defined

by Ankara which, in its turn, aspires to legitimize its strategic control of Cyprus.

Not surprisingly, the deadlock was sustained during the negotiations at Greentree. The key divergences between the two sides relate to major aspects of the chapters of governance, property and territorial issues, as well as perspectives on the economy and the settlers. On top of this, Turkey still insists on maintaining its guarantor rights over a member state of the EU to which it does not belong. Nevertheless, the UN Secretary-General seems determined to move forward in a conclusive manner.

The persistence of the stalemate is not a situation which is unique to the Cyprus conflict.

Experience shows that it is necessary, while we search for meaningful conflict resolution, to be ready to pursue successful conflict management. At the same time, it is important to have a clear vision for the future, a road map on issues of procedures, tactics and, moreover, a well-defined strategy. The proposed international conference at this stage will not lead to a solution based on the will of the people. So it must be avoided.

The present Greek Cypriot leadership and the current political context did not eventually avoid a very difficult outcome at Greentree.

To put it bluntly, it seems that there is a limit to what they can aim for and achieve – a limit that is not satisfactory or acceptable. It is of utmost importance that at last Cyprus has a “narrative” and that it regains the moral high ground. Before any new Greentree, therefore, it is imperative for a renewal of ideas, persons and methods to take place.

info: Andreas Theophanous is Professor of Political Economy and President of the Center for European and International Affairs of the University of Nicosia.

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Despina Panayiotou Theodossiou

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shipping

Forging

Ahead

Times are changing as more and more women are appointed to key positions in the shipping world.

D

espina Panayiotou Theodossiou considers herself to have been ‘born into’ the Cyprus shipping industry by virtue of being the daughter of a ship’s captain. Later, after graduating from University, she started working in shipping for what she believed was a temporary stop-gap period before pursuing a broader career in the finance sector. Instead, Theodossiou grew to like the industry and, despite the fact that young people were not encouraged to pursue a career in shipping at the time, she

By Costa Ioannides

decided to stick with it. Today she is the Chief Financial and Operating Officer of the Tototheo Group of Companies and president of recently-established Cyprus branch of the Women’s International Shipping & Trading Association (WISTA), in which capacity she spoke to Gold.

Gold: What’s the story behind WISTA and one of the latest additions to the family, WISTA Cyprus?

Despina Panayiotou Theodossiou: It all started in the UK with a small group of female brokers who had gathered for a Christmas lunch. They enjoyed the experience so much that they decided to repeat it at regular intervals, to network and exchange views on professional matters of common interest. Over the years, contacts from other countries were invited and the group expanded throughout Europe. Eventually they decided to form an Association the Women’s International Shipping and Trading Association (WISTA) was born. It has grown extensively over the years and it now has over 1,450 members in 33 nation-

al associations. The three latest additions to the WISTA family are the associations in Belgium, China and Cyprus. In WISTA Cyprus’ short life of only a few months, we have managed to enrol about forty leading women professionals and we even have two foreign Ambassadors as members. WISTA’s main purpose is to promote networking among female professionals at management level in the maritime industry including shipping, trading and offshore oil and gas.

It also aims to facilitate the further education of its members and to provide a forum of liaison and influence with other related institutions around the world.

Gold: What are the specific challenges facing women in the maritime sector which has traditionally been maledominated?

D.P.T.: The challenges for women in the maritime sector are very similar to those in any other sector. For example, women are still earning less that their male colleagues and in many cases they do not receive well-deserved promotions. They also have

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shipping

a difficult time balancing their work and personal life, especially if they are mothers.

Of course, if we are talking about women seafarers, then things are even more difficult. Female seafarers are still very rare – only about 2% of the maritime workforce – and they face great difficulties at work, ranging from gender discrimination to reduced employment rights.

Gold: What are the most common issues that WISTA is called upon to deal with?

D.P.T.: WISTA is interested in all current issues related to the shipping industry but women’s equality and visibility in the sector are of particular interest. Women make up a significant percentage of the maritime workforce and we want to help them realize their full potential as vital members of this industry. We want to be advocates against occupational segregation in our field and to try to help expand women’s influence and their promotion capabilities. WISTA also deals with matters such as piracy and the fate of seafarers at the hands of pirates who are more violent than ever today and very well organized. Seafarers are sometimes kidnapped and held hostage for months on end.

Furthermore, the effects of piracy on the global economy are enormous, estimated at costing $7-$12 billion annually, and it is an industry on which the world depends for economic growth that is being constantly attacked. Another issue of concern is, of course, the difficult economic climate. Shipping is under pressure and we are not sure when this uncertainty will end. It is interesting to explore the role of women in this global economic crisis because, according to research, gender diver-

The effects of piracy on the global economy are enormous, estimated at costing $7-$12 billion annually

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sity at Board level leads to a performance advantage and women usually tend to balance their riskier male colleagues, a trait that is certainly appreciated in bad times.

Gold: The shipping industry has traditionally been male-dominated. Has the Cyprus maritime industry begun to opening up and offer good employment opportunities to women?

D.P.T.: Yes. It’s true that it has been male-dominated but in the last few years we have seen many more women entering the industry and rising up the ranks. If you look at the positions that WISTA Cyprus’ members hold, you will be surprised to find that most of them are key executive posts. The Cyprus maritime industry undoubtedly offers better employment opportunities nowadays than in the past but there is certainly room for improvement. As I mentioned before, professional women still tend to receive lower packages than their male counterparts and have fewer opportunities for career advancement. Having said that, I firmly believe that people should be promoted because of, and according to, their abilities. This is the message that WISTA Cyprus wants to convey. We are not a feminist organisation that seeks to promote women simply on the basis of their gender. We want to promote experienced, competent professionals and help them gain further qualifications so as to compete as equals in the maritime workforce. Many international companies recognise this and are offering equal opportunities for employment and advancement.

Gold: How do you view the future prospects of the Cyprus shipping industry?

D.P.T.: Cyprus is the tenth ship registry in the world and one of the largest shipmanagement centres. We have a competitive tonnage tax and ship registration fees and the industry is very well represented to the local and international authorities. It is clearly an attractive place for the maritime world. However, our industry is a global one and it has not remained unaffected by the economic hardship that everyone is going through. Shipping is also a cyclical industry so, in one respect, we were not completely unprepared for what has happened. On the other hand, investments made in previous

This is the perfect time for companies to focus on efficiency and quality, by improving their procedures and internal matters years were considerable and finding the money to support them today is an almost unattainable goal. It will be a matter of survival of the fittest. On a positive note, this is the perfect time for companies to focus on efficiency and quality, by improving their procedures and internal matters. It is also a time to learn lessons from our experiences in order to be wiser in the future. I do not expect to see any major investments in the near future.

What we are seeing is, for example, the scrapping of older vessels which are very expensive to run and maintain. But this, too, has a positive side since the renewal of fleets will lead to more sustainable shipping. The contribution of shipping to the Cypriot economy is evident, either directly in the form of the revenue that the Government receives from taxes and fees, or indirectly by the employment opportunities it provides to locals and foreigners.

Gold: Do you believe that shipping will eventually be dominated by the development of the offshore gas transportation sector?

D.P.T.: As far as offshore gas transportation is concerned, I think it is a bit premature to make any predictions as to whether it will dominate shipping but it will surely affect it. What will Cyprus decide about how to deal with this amazing opportunity that we have? What will be the legal and tax framework? What about the infrastructure? How will we finance it? The cost of an LNG carrier is about $200 million. Will domestic and foreign shipowners decide to invest in this direction? It really depends on how solid and transparent the prospects are and it is in our hands to turn this challenge into a legacy for future generations.

Gold: What does WISTA Cyprus’s strategic plan for the coming year contain?

D.P.T.: We mainly want to focus on providing networking and learning opportunities for our members and friends. Our focus will be on expanding our membership base and I would like to use this opportunity to invite all eligible women to contact us to learn more about the benefits of joining WISTA. Our members range from owners to directors and managers. We also have lawyers and accountants so women from the professional services sector are welcome. I am particularly proud of the fact that we are a multinational

association. To give you an indication, the six members of the Board are from five different counties and our membership base expands to even more. It is incredible to see all these women, coming from different backgrounds, working together towards common goals and our Association’s multiculturalism is representative of the maritime sector. We will naturally be promoting our events to our male colleagues as well, as our aim is to contribute to the entire maritime community. A Ship Arrest & Arbitration seminar will be held in March, the WISTA MED Conference takes place in June, there

will be a ‘Motivating the Motivator’ workshop possibly in May, as well as a Leadership Seminar given by a prestigious overseas business school. And of course our members’ meetings are held at regular intervals. We aspire to be known as a strong, capable and influential association in our sector. Another aim is to provide a positive example and, for this reason, we intend to support worthy causes such as Hope For Children – a Council of Europe campaign to stop sexual abuse and bullying against children in Cyprus – with which we have already signed an MOU.

For more details on WISTA Cyprus visit www.wista.net or write to info@wista.com.cy.

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{february 2012}

issue

11

80 + BOok review MONEY: Paper Promises: Money, Debt and the New World Order

By Philip Coggan 76

70

{money}

70 Wealth Management Services to High Net Worth Individuals A big new opportunity for Cyprus 74 Sharing Unique Insights The Moore Stephens International network

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80

{economy}

BUSINESS: Good Strategy/Bad Strategy: The difference and why it matters

By Richard Rumelt 79

ECONOMY: Boomerang: The Meltdown Tour By Michael Lewis 83

LIFESTYLE: 11.22.63

By Stephen King 89

80 Credit Where It’s Due? Credit Rating Agencies are necessary but many of the criticisms against them are justified 82 The Rise and Rise of LNG An overview of latest developments in the Liquefied Natural Gas markets of Europe and the Eastern Mediterranean

{business}

78 Future Stars Global Group Partners with Digital Start-ups

84

{tax&legal}

84 Cyprus in 2012 An exception to the global trend?

86

{lifestyle}

94 The Price of Love Online dating sites may be the answer to your desperate prayers to meet a millionaire

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wealth management

{money}

Wealth Management

Services to High Net

Worth Individuals A big new opportunity for Cyprus

O

By Kyriacos Michaelides

ver the years, Cyprus has gained a good reputation as an international business centre, attracting thousands of corporations from many countries. The development of Wealth Management (WM) services offered to the High Net Worth Individuals (HNWIs) who own these corporations has lagged behind somewhat. There is a potentially great opportunity in this sector, which could be the driver of a much larger increase in capital flows to Cyprus.

Who is a HNWI? A universally accepted definition states that HNWIs are people with at least $1 million in net financial wealth, excluding primary residence and collectibles.

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Where do HNWIs come from?

According to the World Wealth Report 2011, the global population of HNWIs is almost 11 million. Their combined wealth has reached $43 trillion, surpassing the 2007 pre-crisis peak. With 3.4m HNWIs, North America is still the region with the greatest number but the Asia-Pacific region with 3.3m is now a close second, surpassing Europe’s 3.1m for the first time. Latin America, the Middle East, and Africa follow from some distance with 500,000, 400,000, and 100,000 respectively. The global HNWI population is still dominated by the US, Japan, and Germany: these three countries together account for 53% of the total but their dominance is gradually being eroded over time. At present, Asia-Pacific is contributing the most year-on-year additions to the number of HNWIs.

Demographic profile While older men are still the majority, the HNWI demographic is progressively becoming more diverse year by year.

The vast majority of HNWIs (83%) are over 45 years old (29% are over 65) and 73% of all HNWIs are male. However, the numbers vary by region for a variety

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of reasons, including the make-up of the broader population, household size, and wealth transfer practices. In the AsiaPacific region, excluding Japan, 41% of HNWIs are 45 or younger, compared to only 17% of the global HNWI population. In the Middle East, more than 50% of the total population is estimated to be under 25 and the HNWI population is also younger than average (21% are 45 or under).

While the demographic change is a gradual one, trends show that WM professionals cannot afford to ignore the younger demographic. These younger clients may need a more global and holistic approach, one that includes a broad array of advice on overall finances, investment opportunities in faster-growing international markets, and partnerships with wealth-transfer attorneys and accountants. Younger HNWIs may also be more demanding of their WM firms in terms of transparency, efficiency, technology and convenience in everyday transactions.

Financial Assets HNWIs continue to favour specific asset classes based on market opportunity and/or long-standing preferences. For example, HNWIs from North America have long favoured equities as an as-

set class and in 2010 they held 42% of all their holdings in equities. HNWIs in AsiaPacific excluding Japan continue to pursue returns in real estate, which accounted for 31% of their aggregate portfolio, compared to 19% of the global average. HNWIs from Japan remain the most conservative in the world and held 55% of their aggregate portfolio in fixed-income and cash/ deposit vehicles in 2010. The global breakdown of HNWIs’ financial assets at the end of 2010 was: ● Equities 33% ● Fixed Income 29% ● Real Estate 19% ● Deposits 14% ● Alternative Investments 5%.

There is a potentially great opportunity in this sector, which could be the driver of a much larger increase in capital flows to Cyprus

Investments of Passion Individual preferences play a large part in HNWIs’ decisions to commit to investments of passion, especially given emotional variables such as aesthetic value and lifestyle/status appeal. But HNWIs also view many investments of passion as an alternative means for preserving and appreciating their capital over time, diversifying their portfolio exposure or even capturing

short-term speculative gains.

HNWIs’ allocation in investments of passion at the end of 2010 was: ● Luxury collectibles (automobiles, boats, jets, etc.) 29% ● Art 22% ● Jewellery/Gems/Watches 21% ● Other (coins, wines, antiques, etc.) 15% ● Sports investments (sports teams, sailing, race horses, etc.) 8% ● Miscellaneous (club memberships, travel, guns, musical instruments, etc.) 5%

Concerns of HNWIs The major concern of HNWIs in the precrisis years was the return on their investments. Today, by contrast, their concerns reflect the state of the global economy the international investment, business & finance magazine of cyprus

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wealth management

Cyprus can be considered a retirement haven with only 5% income tax on pensions and no inheritance tax

and the impact of the sovereign debt crisis on the developed countries. They worry about the effect of the economy on their financial goals and fear that tax rates will be hiked, reducing income and net portfolio returns and potentially making the movement of assets across jurisdictions more inefficient and costly. HNWIs also worry that their assets may not last their lifetime, that the next generation will not be able to properly manage their inheritance, and that income will not keep up with inflation. It will be a challenge for WM advisors to develop a proposition in an environment in which HNWIs may be fearful of risking capital to generate returns to fund their financial goals.

The HNWIs market for Wealth Management professionals in Cyprus Assuming that the percentage of HNWIs in Cyprus is the same as in the rest of the broader European area, we estimate that there are about 3.000 HNWIs on the island. The higher standard of living than the European average suggests that the number may be bigger. Bearing in mind that there are tens of thousands of (active) companies registered in Cyprus but belonging to non-Cypriots, then thousands of non-resident HNWIs are potential clients of the local Wealth Management units. The demand for offshore Wealth Management services is on the rise, as more and more young High Net Worth entrepreneurs (who have created their wealth, not inherited it) have extensive business interests outside their home country and are generally more international in their thinking. Already, the number of foreign clients in Private Banking units in Cyprus is much higher than that of local clients, with a ratio of at least 3 to 1. But the potential of foreign clients has not really

The global population of HNWIs is almost 11 million with a combined wealth of

$43 trillion

been exploited yet. Today, the bonuses and dividends paid through Cypriot banks to the top management and shareholders of international companies working through Cyprus are sent abroad to other international financial centres (such as Switzerland, London, Luxembourg, etc.), where the Wealth Management industry is a prominent feature. Only a tiny fraction stays in Cyprus but the growth potential (in deposits and investments) is huge, if this possibility is fully explored.

The advantages of Cyprus There are a number of advantages that Cyprus has to offer to HNWIs, starting with a very favourable tax regime. There is no capital gains tax, no tax on foreign dividends received, no withholding taxes on interest and dividend payments made from Cyprus abroad, no withholding tax on income repatriation, and a tax-free status for Cyprus International Trusts.

Cyprus can be considered a retirement haven with only 5% income tax on pensions and no inheritance tax. It offers a combination of tax-advantaged residency and a very good quality of life.

The island provides EU-regulated financial services (MiFID), while at the same

info: Kyriacos Michaelides is Director of the Wealth Management Division of Marfin Laiki Bank.

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time it has high quality professionals in the legal, accounting, and banking sectors. It is a one-stop location for international corporate and personal financial services, with a long tradition of a client-focused approach in the services industry.

Last but not least, the cost of financial services for HNWIs is much lower in Cyprus than in other international business jurisdictions.

What needs to be done In order to exploit this major new business opportunity for Cyprus, there are a number of issues that should be considered and/ or implemented: ● A tight fiscal policy is needed to improve the country’s ratings ● Macroeconomic and tax stability must be ensured and safeguarded ● Local banks must remain well-capitalized and maintain comfortable liquidity levels ● Wealth Management services providers need to invest more in qualified professionals and specialists ● IT systems have to be upgraded as technology has become a very important part of the servicing ● More promotion of Cyprus as a Wealth Management services centre and resident destination is required ● Regulatory bodies must be enhanced in both manpower and their services offering.

All major international financial centres boast a premium Wealth Management offering. We need to develop the same in Cyprus if we are to fully exploit the potential offered by a huge international client base built up over the years. The riches of such success will not be confined to WM service providers, but will spill over to the real economy at large. We need to be ambitious, confident and brave!

opinion

Europe’s unilateral rebel Germany, not the UK, is the EU country that insists on playing by its own rules

I

By Dr. Savvas Savouri

Not since Nero fiddled as Rome burned has a European leadership been so negligent

am sick and tired of being told that Britain is the EU’s most recalcitrant team player. Let us begin with this historic detail: the European Unitary Economic Project is an anachronism. When the Iron Curtain stretched across Europe, when China was closed and Africa and South America were lost continents, there was every reason for Western Europeans to seek cohesion. Since those days, however, the economic world has grown spectacularly and Continental Europe has shrunk dramatically within it.

Let us continue with this simple fact: the Swiss, Norwegians, Russians and Turks have not done altogether too badly outside the EU and they would not be unwelcoming of the UK into their “non-aligned” group. As for the claim that the UK’s EU Treaty recalcitrance has made it suffer a loss of credibility in the eyes of potential inward investors, this is plainly fanciful.

The chilling reality is that the problems facing Europe today are as considerable as at any time since WW2. This is not hyperbole but an undeniable fact. Blame Germany, not Greece or Ireland and certainly not the UK for this.

Not since Nero fiddled as Rome burned has a European leadership been so negligent.

It is not the UK but Germany that is being stubbornly unilateral. Remember, it behaved exactly the same way twenty years ago and, in so doing, caused the ERM system to spectacularly and expensively rupture and the UK Treasury to enrich George Soros in its forlorn defence of the system that Frankfurt had built but was unwilling to protect. It was, after all, Germany that forced the UK out of the ERM in September 1992. It was Germany – or rather the Bundesbank – that made the ERM shift exchange rates around, wasting years of hard work by others to create the semblance

of stability. In the summer of 1992, had the Bundesbank not been playing its own game in holding rates when all its ERM team-mates were pleading with it to cut them, the pound would not exist now and the euro would be stronger. This is what Chancellor Merkel forgets; Germany kept rates high to sort out it own mess when it reunified. It quite simply made all those in the ERM pay for its own poor judgement by making them imitate its overly high interest rates. Some team player!

Then again, by being stubborn in 1992, Germany inadvertently helped the UK break free from the centralised European monetary project, and quite frankly what an escape that was.

The stakes this time are far higher and yet Germany continues to play by its own rules, seeing inflation risks when Europe is on the precipice of structural deflation. Even the sharp falls in its exports to Europe don’t seem to be waking it from its inflation hallucinations. It is ironic that the Germans fail to realise that those very Europeans whom they are criticising for excesses have provided German factories with generous orders for cars, fridges, TVs and much else.

In France, President Sarkozy appears to be reflecting his annoyance that London is Europe’s centre of finance, arts, culture and wealth and not Paris.

Maybe if the Parisians didn’t insist on four day weeks they might be able to compete rather than trying to scupper London with a tax on financial services and a tax bill to bail out countries whose mistakes have nothing to do with the UK. Anyway, there is every chance that Sarkozy may soon exit the decision scene like Berlusconi – no great loss, if you ask me. As for Frau Merkel, she has a looming German recession to deal with, one that may bring about a thaw in her obsession with thrift.

info: Dr. Savvas Savouri is a Partner and Chief Economist of Toscafund. the international investment, business & finance magazine

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{money}

Sharing Unique Insights The Moore Stephens International network ensures that the needs of multi-national clients are met with seamless service throughout the world.

M oore Stephens International is one of the world’s major accounting and consulting networks with 314 independent firms and 638 offices of member firms in 97 countries, encompassing almost 21,000 partners and staff. While size is never a substitute for quality, it certainly ensures that the network has the scope to provide its clients with all the solutions and expertise they require, wherever they choose to do business.

Moore Stephens Cyprus is represented in Nicosia and Limassol with a focus on both local and global clients. Its clients’ interests cover the whole world from South Africa to Russia, from the USA to China, and they range from construction and shipping to media, retail and Insurance, to name only a few. The firm offers clients a full service practice with specialists in all sectors of financial advisory compliance and taxation services.

Access to global expertise As business becomes increasingly international, clients require local advice and specialist assistance wherever they choose to operate. The geographical reach of the 74

Moore Stephens International network ensures that the needs of multi-national clients are met with seamless service throughout the world.

“The company’s objective is simple,” says Senior Partner George Stylianou. “To be viewed by clients as the first point-ofcontact for all their financial, advisory and compliance needs. We respond by providing sensible advice and tailored solutions to help clients achieve their commercial and personal goals. Unsurprisingly, clients tend to stay with Moore Stephens member firms for many years.” Moore Stephens member firms across the globe share common values: integrity, personal service, quality, knowledge and a global view, notes Stylianou. “It is this commitment, which ensures we meet the needs of clients while providing a stimulating working environment for our people.

Moore Stephens International maintains a cohesive network to ensure modern and comprehensive global services that meet standards of professionalism and deliver value in each country.”

The company’s aim is to develop and grow by providing valuable solutions.

Its success in fulfilling its ambitions is evidenced by the fact that the Moore Stephens International network continues to grow, despite the challenging economic environment.

Relationships Client relationships are key to everything that Moore Stephens does. As George Stylianou points out, “By investing time in developing strong relationships and gaining an in-depth understanding of our clients, we deliver efficient, perceptive and

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valuable services, with the aim of not only reacting quickly but of offering challenging advice too.”

Each client’s affairs are handled by an individual partner or principal, who provides the focal point for client enquiries.

Stylianou recognises the importance to clients of easy-access to high quality, professional advice. “The Moore Stephens partners not only lead assignments, ensuring the utmost quality and efficiency, but they are also highly visible to management.

And although our service is partner-led, it is not only partners that add value – clients benefit from all members of their Moore Stephens team.” The growth of Moore Stephens continues to be based on a vision to be the best in its chosen markets. From the start of their career, those working for the company are encouraged to focus on specialist sectors and areas. The scope of services to clients thus extends beyond the delivery of compliance to providing sectorspecific solutions and niche advice, which helps clients take informed and confident decisions about their future.

Team Organisation Moore Stephens’ client portfolio is split among service teams which proactively schedule ahead of project deadlines, inform clients of these deadlines and achieve them. With a zero tolerance policy in place, new internal systems make sure that no delays occur on what the company promises to deliver.

SERVICES The most common tasks undertaken are audit assurance work along with effective corporate tax structuring. Moore Stephens

Firm Partners (left to right): George Stylianou, Brigit Chrysostomou, Yiannis Soteriou and Constantinos Schizas

While size is never a substitute for quality, it certainly ensures that the network has the scope to provide its clients with all the solutions and expertise they require

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is the specialist of choice globally with regards to its shipping expertise and through its collaboration with other network member firms it can service clients’ interests in their shipping concerns in a truly global and seamless way.

Other services include: • Business rescue & recovery • Corporate finance • Forensic accounting • Governance, risk & assurance, • Insolvency • IT consultancy • Litigation support

Audit Methodology and Procedures Audit quality is a major concern for all accountants. The Moore Stephens International audit methodology is ISA compliant and assists in the delivery of consistent quality. As well as general auditing, there are specialist procedures available for charities and not-for-profit organisations, lawyers and pension schemes. For clients, this provides assurance that the firm has a compliant audit methodology and works to quality standards worldwide.

TAXATION SERVICES • Direct Taxation At a local level, Moore Stephens employs taxation specialists with expertise in all Cyprus tax matters helping local and international clients navigate the more than 40 double tax treaties that are available to them.

On a global scale, taxation experts from all over the network collaborate in face-toface meetings around the world, as well as on monthly tax brief e-publications which keep the Cyprus offices updated and informed about current events taking place

From the start of their career, those working for the company are encouraged to focus on specialist sectors and areas 76

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in their jurisdictions. “This collaboration enables us to give our clients advice on structuring opportunities, which will help them minimise their taxation liabilities even further,” explains George Stylianou.

Some of the questions that Moore Stephens helps its clients answer: • Do I need to register for VAT in Cyprus?

• Do I need to appoint a tax representative?

• How do I reclaim foreign VAT and on what?

• In which country is VAT payable on international services?

• How can I best meet my VAT obligations in other countries?

• When and how do I pay VAT when importing goods?

Clients can depend on the Moore Stephens Europe VAT Community, a group of VAT specialists located in different EU member states who work together to advise international clients and exchange information and best practice.

• Indirect Taxation Moore Stephens also deals with clients’ VAT and VIES status and advises them accordingly on their rights and duties as regards claims and exemptions. VAT is an EU-wide tax, with a common set of rules applying across the whole of the European Union. However, the way in which these rules are interpreted and their detailed implementation can vary significantly from one member state to another. The cost of getting it wrong could be huge.

FINANCIAL REPORTING The complexities of IFRS and US GAAP can be immense. Moore Stephens’ specialist centres of excellence provide advice and assistance to clients on these and other accounting-related issues. Moore Stephens also uses e-IFRS resources produced by the IASB giving immediate access to the latest IFRS developments and updates.

“As the world grows smaller, it becomes more complex,” says George Stylianou. “Moore Stephens’ reach and100 years of experience afford unique insights into that future. Moore Stephens Cyprus is here to share these special insights with its clients.

BOOK REVIEW Paper Promises: Money, Debt and the New World Order

By Philip Coggan (Allen Lane, 2011) RRP: £20.00 (£14.28 from Amazon.co.uk)

N

ot many people understand how the world got into such a financial mess.

Philip Coggan is the best possible guide. He explains the world of finance with a clarity that is really quite surprising, given the complexity of the subject matter. And he tells stories that grip the reader from the start. In this remarkable book he shows how the current financial crisis has very deep roots indeed – in the very nature of money itself. Societies from ancient Greece to revolutionary France have experimented with all kinds of money, from seashells to tobacco, before finally settling on the paper version we have come to know so well. Coggan examines the flawed structure of the global finance system as it exists today, and shows that the world is facing even deeper imbalances than we are yet grappling with. Where will the world go next? How will we get out of the debt crisis? The answers can be found in surprising places from Mississippi swamps, through Chinese economic strategy, to The Wizard of Oz.

opinion

Price and Prejudice

Looks and social status are becoming more important than professional qualifications

P

By Eleni Vickers

If you want lots of rich clients, you and your staff have to act like them and look like them

ick the odd one out: Fashion, Catwalk, Haute Couture, Paris, Accounting.

I bet you would never have guessed that the right answer is Paris but I can confirm that every morning at 8 o’clock in a specific street in Limassol there is a fashion show going on. The employees of one of the largest international companies arrive at their workplace in their Mercedes convertibles, BMWs and Range Rovers, park their modest vehicles and then engage in a glamorous catwalk-type rehearsed walk along the specific strip, pausing briefly behind their oversized sunglasses to greet their audience which waits patiently in a traffic jam until the models of the business world have strutted their stuff across the zebra crossing which, coincidentally, perfectly complements their red Louboutin high-heeled pumps.

Jane Austen’s masterpiece Pride and Prejudice begins with the famous sentence: “It is a truth universally acknowledged, that a single man in possession of a good fortune, must be in want of a wife.” This might have been true in 1813 but in today’s business world this statement has been tweaked to “must be in want of clients”.

Audit and accountancy firms, law firms and even the Cypriot Courts have been transformed into fashion arenas, where beautiful young things battle it out on a daily basis with ammunition from Fendi, Chanel, Louis Vuitton and Hugo Boss, while their own bosses cheer on the sidelines. The maths speaks for itself: clients = money and money = an expensive lifestyle and apparel. Add to this the fact that even psychology recognises how people are drawn to others who resemble themselves, then…bingo, if you want lots of rich clients, you and your staff have to act like them and look like them.

I was present in several interviews where clever, educated and eager candidates were rejected by my superiors for wearing cheap-looking clothes, faux bijoux and carrying fake leather bags. I was screaming inside my head; the insanity was too much to bear! We were not hiring the people who desperately needed the work, who were perfectly qualified to do it and were

willing to work extra hard to make a living, simply because their humble appearance could potentially harm the firm’s image. I witnessed candidates being hired because they had rich parents who could direct a certain clientele towards the firm. One candidate even said that we should hire her because she needed something to do in her spare time and didn’t care about the salary because her dad had lots of money! As you might have guessed, she got the job.

Connections, Connections, Connections.

Elizabeth Bennet was slammed by Fitzwilliam Darcy for the inferiority of her connections in which he could not rejoice. He was an uptight British aristocrat who represented everything proper and classy, whereas she was an alluring and smart maiden who belonged to a family of low connections, this being an impediment to her marrying well. He was too proud and she was too prejudiced.

It seems the theme of connections is a timeless issue in any society or microcosm. So many employees in Cyprus are hired for their looks, their social status and their ability to service the firm’s image and not for their professional capabilities. They have become a marketing tool for attracting and servicing a particular type of client who is retained by handsomely groomed professionals in expensive suits and fashionably glamorous ladies who have trained themselves to believe that they are Jackie Kennedy reborn.

Employees who are not hired for their professional capabilities and knowledge do not work efficiently, do not produce high quality work and have sometimes been responsible for the collapse of entire departments. Similarly, employees who are hired for their connections do not care about scoring high in their appraisals.

They exude arrogance and show no respect for authority. Elizabeth Bennet ended up marrying Darcy and becoming the rich mistress of Pemberley. She sealed the deal by sticking to her core values and staying true to herself and what she represented in society. The novel is all about simplicity and how this is the core essence of everything. It is about Coming, Seeing, Conquering. Veni, Vidi, Vici. Nowadays it’s all about Veni, Vidi…Visa.

info: Eleni Vickers is a graduate of the University of Warwick with a BSc in Accounting and Finance and a Chartered Accountant with the Institute of Chartered Accountants in England and Wales. She is the Financial Controller of a Limassol-based Fiduciary company. the international investment, business & finance magazine of cyprus

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Future technology

{economy}

Stars Global Group Partners with Digital Start-ups

By Richard Maino, London Press Service

S

ome of Europe’s most promising and exciting start-up technology companies have been chosen to join a programme designed to discover and support similar emerging firms. The scheme – set up by the UK division of global food and drinks group PepsiCo – aims to link PepsiCo with 10 of the top European technology startup companies to help it to find fresh ways to advertise and sell its brands online. A spokesman said this year’s standard of entry has been “phenomenal” and that those chosen are the “real tech and digital stars of the future”.

Picked by PepsiCo from more than 130 innovative technologies, the winners will now work with some of PepsiCo’s leading brands in the UK, including Walkers crisps and Pepsi, to initiate pilot marketing programmes.

The chosen 10 will receive the support and mentorship of top investment group Highland Capital Partners; OMD, one of the world’s foremost media communications specialists; Mashable, the largest independent news source dedicated to covering digital culture, social media and technology; and Wired, that covers current and future trends in technology.

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The PepsiCo 10 ➊ ChartsNow.mobi Limited

➏ Slingshot Shopping

is a mobile music service.

is a programme which enables users to add products to their existing online retailers’ shopping baskets from third party locations, such as brand websites, Facebook pages or mobile devices.

(UK: www.chartsnow.mobi) ➋ ParcelPoke, ParcelGenie

(UK: www.parcelgenie.com)

is an instant gift text messaging service, which enables the user to send real products to friends and family by text.

➌ Roamler BV

(Netherlands: www.roamler.com)

is an application which uses a network of consumers as a mobile “workforce”, enabling them to earn rewards by performing small tasks on behalf of corporations, organisations and individuals.

➍ Screenreach Interactive Limited

(UK: www.screenreach.com)

is a platform allowing consumers to use their smartphone as a device to create real-time two way interactive experiences with public digi- screens or the mobile device itself. For example, consumers could use their mobile phone as a controller to play a game.

➎ Shahmoon TV

(UK: www.shahmoon.com)

uses transferable 46″ HD video posters to bring big-screen advertising to small scale shops, enabling businesses to interact with passers-by, feed live information or “tweet” direct to the street.

(UK: www.slingshotshopping.com)

➐ SoDash

(UK: www.sodash.com)

is a social media monitoring dashboard that uses Artificial Intelligence to help users monitor and interact with their chosen markets.

➑ Sports Team Space

(UK: www.sportsteamspace.com)

has developed Bluefields, a social network helping hundreds of amateur football clubs across the country to easily manage their leagues, teams and subsidies online.

➒ TvTak

(France: www.tvtak.com)

is a mobile app which lets users access additional content about a TV show or commercial they are watching, by pointing their smartphone or tablet at their TV screen for just one second.

➓ Waxwired Ltd, Flypost

(UK: www.flypost.co.uk)

is a location-based game on the iphone which enables users to discover and interact in real-time with live events happening in their city.

BOOK REVIEW

The selected start-up companies include a range of social commerce and mobile technologies. One of them is ParcelGenie UK, that describes itself as “the world’s first instant gift text-messaging service that makes sending gifts to friends and family almost as simple as sending an email or a text message”.

It says that customers can easily send a present to someone by providing the recipient’s mobile phone number – no delivery address is required. The recipient is immediately alerted via a text message and can then choose where to have his/her gift delivered.

ParcelGenie describes its mobile app as “Making it possible to ping a pal a prezzie in a matter of seconds, narrowing the gap between thought and action.”

Another imaginative company, Slingshot Shopping (SDMV), is the work of two recent UK university graduates who created a programme set to revolutionise digital commerce.

“Online shopping should be easy,” said a spokesperson. “Slingshot allows you to add items to your online basket of your favourite stores from almost anywhere. Instead of writing lists and aimlessly searching the hundreds of shelves in store, you can add a product to your basket there and then from a Facebook page, a website or even a link shared by your friends.”

Speaking at the PepsiCo announcement, Mitch Vidler, aged 22, a founder of the

“We only graduated last year so it’s hard to imagine that the technology we created in our university halls will now be used by a global, leading company like PepsiCo” company that owns Slingshot, said: “We are thrilled to have been chosen We only graduated from university last year, so it’s hard to imagine that the technology we created in our university halls will now be used by a global, leading company like PepsiCo. We can’t wait to start working with one of PepsiCo’s UK brands.”

Speaking for PepsiCo, Bonin Bough, its global director of digital and social media, said: “This year’s standard of entry has been phenomenal and we faced a tough task selecting the final 10. Having now found promising technologies both in Europe and the United States, we will continue with our global quest to engage the best digital talent. I believe the next step for PepsiCo10 will be to tap the potential of Latin America or Asia.”

Ian Ellington, general manager for Walkers Crisps, one of the brands that will benefit from the PepsiCo10 technologies, added: “I’m really pleased and excited about our final 10 – in particular the variety of different technologies our brands will get to pilot. PepsiCo10 gives us a real advantage in spotting and nurturing the real tech and digital stars of the future.”

Good Strategy/Bad Strategy: The difference and why it matters

By Richard Rumelt (Profile Books, 2011) RRP: £12.99 (£7.01 from Amazon.co.uk)

S

hortlisted for the Financial Times and Goldman Sachs Business Book of the Year Award 2011, this well researched, thoughtful and compelling title explains how, in the author’s view, “The ultimate worth of a strategy is determined by its success, not its acceptability to a council of philosophers or a board of editors. Good strategy work is necessarily empirical and pragmatic. Especially in business, whatever grand notions a person may have about the products or services the world might need, or about human behavior, or about how organizations should be managed, what does not actually `work’ cannot long endure.”

Rumelt explains what a good strategy is, as well as what is and isn’t a strategy, good or bad. Moreover, he cites dozens of real-world examples to illustrate which strategies succeed, which fail, and why. Among them are How Steve Jobs saved Apple and General Norman Schwarzkopf’s “Desert Storm” strategy. Described as ‘A milestone in both the theory and practice of strategy’ in one of many rave reviews, this is a must-read book for anyone heading an organisation.

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79

credit rating agencies

{economy}

Credit Where It’s Due? are necessary but many of the criticisms against them are justified

By George Theocharides

T

he main Credit Rating Agencies (CRAs) received considerable attention last year as growing budget and debt problems in a number of eurozone countries resulted in multiple downgrades for the troubled nations and their banking sectors. The downgrades led to increased financing costs for new debt and the inability of some nations

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to repay their existing debt, prompting them to ask for help from the European Financial Stability Facility (EFSF) with all the negative consequences that such a move entails. Even the United States was not immune to this negative economic environment, and on August 5, Standard and Poor’s downgraded its long-term debt to AA+ (from the top AAA rating that the country had held for 70 years). Critics of the rating agencies reiterated the need for more supervision and transparency, accusing them of behaving irresponsibly and downgrading without properly assessing the economic prospects of an issuer.

Some went even further and proposed the establishment of an independent European rival to the big three agencies (Standard & Poor’s, Moody’s, and Fitch).

Given the importance that these agencies

have in shaping the economic future of nations, companies, agencies and just about anyone that they rate, it is useful to understand their role and to examine whether the criticisms against them are justified.

A major criticism of the agencies concerns what is said to be their own inadequate monitoring of ratings. The corporate scandals of Enron and WorldCom in 2001-2002, and the Global Banking Crisis of 2007-2008 which led to the loss of billions of dollars are still vivid in the memory. The rating agencies did not act promptly enough and they were late to downgrade the corresponding issues, which led to huge losses for investors and the collapse of giants such as Lehman Brothers.

Based on past experience, it has since been suggested that banks and other financial institutions should use market spreads

In their effort to build close relationships with their customers, the agencies may be tempted to give inaccurate ratings

(corporate bond spreads or credit default swap spreads) as an indication of the risk of their portfolio. In fact this was the case with the downgrade of General Motors and Ford to “junk” status by the CRAs on May 5, 2005. The spreads on their corporate bonds had been “junk” long before the actual downgrade, indicating that the market had already taken the problems faced by these companies into account before the agencies decided to react. The same occurred during the Enron debacle and the eventual default in December, 2001. The credit default swap (CDS) spreads of Enron clearly indicated that the company was heading for default long before the downgrades by the CRAs. Of course, it can be argued that this is a natural consequence of the fact that the market spread is the collective outcome from the input of numerous investors, while the rating scale depends on the judgment and the input of only one agency (no matter how knowledgeable or sophisticated that agency might be).

I believe we should make an important distinction among the above examples, however. What happened in the cases of Enron and WorldCom clearly indicates

Credit Rating Agencies:

What do they do?

1.

2.

3.

CRAs help make the market more efficient by improving transparency and disseminating information to investors. Efficiency implies lower borrowing and lending costs.

By rating the debt issued by relatively unknown entities (or start-ups) they make it possible for them to raise needed capital.

They are useful both to the issuers (by providing an independent source of verification for their level of creditworthiness), as well as to government regulators (such as the Central Bank, or the Securities and Exchange Commission).

failure or incompetence on the part of the rating agencies whereas the case of the structured finance products of 2007-2008 was clearly a failure of the whole financial system – regulators, agencies, companies, and investors.

In the last few years, the trend seems to have been reversed and the agencies are now becoming much more proactive – perhaps downgrading too early – which has resulted in a vicious circle for the issuers from which they cannot escape, ending in defaults. Every downgrade causes an increase in the interest rate (financing rate) that the issuer must pay on new debt, creating a downward spiral that can lead to missed interest payments (considered a default event) and eventual bankruptcy.

One reason why the agencies are acting in such a manner nowadays may be due to the criticism and abuse that they received over the corporate scandals and crises of earlier years. By being proactive, they risk the break-up of a good relationship with the issuer (their customer) but, on the other hand, they avoid loss of reputation since even if they are not correct in their assessment, a rating downgrade is an information event that will affect market spreads in a way that confirms the correctness of the agency’s action.

A second significant criticism relates to the use of improper tactics that might be even described as blackmail. This was the case with Hannover Re. and Moody’s unsolicited ratings. Moody’s had urged the company to pay for this service and use the agency to rate its issues. When Hannover declined to pay, Moody’s continued to provide ratings, gradually lowering them and causing massive losses for the company. This happened, despite the fact that other agencies with more expertise in the industry, continued to give high ratings

to the company. A major reason for the above criticisms is surely the structure of the payout method in the industry. The rating agencies are being paid by the very same issuers that they rate and not by the investors who use the ratings to make investment decisions. Furthermore, apart from an evaluation, they often offer consulting services to their clients, helping them achieve the desired ratings. This is a clear conflict of interest as, in their effort to build close relationships with their customers, the agencies may be tempted to give inaccurate ratings.

Additionally, although the main goal of the agencies is to bring transparency and efficiency to the financial markets, some of their own practices do not reflect these goals. Investors are kept in the dark regarding the models on which the CRAs base their decisions. Moreover, many investors have limited confidence in the capabilities and experience of the analysts used by the agencies to perform very complicated tasks.

Another concern is the structure of the industry – it is an oligopolistic industry with high barriers to entry, dominated by Standard and Poor’s and Moody’s and, to a lesser extent, Fitch. The main agencies have been designated National Recognized Statistical Rating Organizations (NRSRO) by the Securities and Exchange Commission (SEC). This designation implies that they receive preferential treatment from regulators and are favoured by investors, which makes it extremely tough for other agencies to compete with them.

Given these shortcomings and the importance of shaping the present and future economic environment, it is essential that regulators, investors and the agencies themselves give serious thought to ways of properly addressing the many concerns expressed about the CRAs and their work.

info: George Theocharides is Director of MSc in Finance & Banking at the Cyprus International Institute of Management (CIIM)

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natural gas

{economy}

The Rise and Rise of LNG An overview of latest developments in the Liquefied Natural Gas markets of Europe and the Eastern Mediterranean

By Costis Stambolis

O

ver the last forty years, natural gas has played an important role in energy developments worldwide and it has considerably increased its share of the global energy mix. In 1980, natural gas represented 17% of primary energy demand whereas by 2009 the share had increased to 21%, and natural gas use had more than doubled.

According to the latest IEA analysis and the conclusions of other think tanks, the outlook for gas for the next 30 years is positive with the prospect of an even bigger share in the overall energy mix. The global natural

gas resource base is vast and widely dispersed geographically. Conventional recoverable resources are equivalent to more than 120 years of current global consumption, while the total recoverable could sustain today’s production for over 250 years.

Gas demand in OECD Europe is likely to reach nearly 670 billion cubic metres in 2035. Power generation accounts for about three-quarters of the additional gas demand over the outlook period. Most of this change will occur in the early part of the outlook period when demand for liquefied natural gas (LNG) will increase to offset lower growth in nuclear power. Within the gas sector, LNG is playing an ever increasing role. Like all natural gas, LNG is cleaner than coal or oil, and it offers an opportunity to diversify energy sup-

plies. The decreasing cost of LNG is making it more competitive in more markets and, at a time of heightened concern about political instability, it can also be a more attractive option than international pipelines that cross multiple borders. As a result, LNG demand is forecast to grow more quickly than for gas in general, at about 10% a year over the next ten years. Global demand for natural gas may double by 2030, with that for LNG growing perhaps fivefold – driven by continued cost reduction.

Despite the capital intensity of LNG projects and the complexity of the value chain, LNG supply capacity is increasing rapidly. Existing schemes are being expanded and many greenfield projects are moving ahead.

Although the spot market for LNG is

Quite frankly, austerity is not a suitable backdrop for collective intraEuropean trade growth

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LNG demand is forecast to grow more quickly than for gas in general, at about 10% a year over the next ten years growing, new projects continue to be under-pinned by long- term sales contracts.

Competition for supplies is increasing price connectivity between regions. Seizing the opportunities for this business requires the ability both to develop gas supplies and liquefaction capacity and also to connect this to emerging and premium markets.

Today’s LNG industry is very different from that of the 1990s. In 1990 there were nine LNG production sites with just 13 liquefaction trains. Eight countries imported 56 million tonnes of LNG, with Japan accounting for two thirds. Last year there were sixteen LNG production sites with 70 liquefaction trains, supplying 15 importing countries with over 140 million tonnes. Japan was still the largest importer but its share of the market declined to about 40%.

Last year LNG accounted for 7% of the world’s natural gas demand. According to market sources this is just the beginning. The IEA forecasts that liquefaction capacity will increase fivefold by 2030. That means about a hundred new liquefaction trains. Importing countries will need to build about 700 million tonnes per annum of regasification capacity.

And the world’s LNG shipping fleet will need to increase from 200 operational ships to 600.

Those increases are already well underway.

New liquefaction capacity to supply about 70 million tonnes a year is under construction with a record number of ships (75) ordered last year and many more potential projects have been identified. This activity underlines the fact that investors and project developers have real confidence that the LNG market is going to continue to grow. This increase in production has been enabled by a significant reduction in LNG unit costs.

The IEA’s analysis has shown that total capital costs for new LNG projects increased by about 40% from the mid 1990s to 2010, with the greatest cost reduction being seen in projects to expand existing facilities and to build larger trains. While liquefaction costs

have been systematically reduced over the past 20 years through the introduction of newer and more efficient trains, the more recent improvement has come through the increase in ship capacity – an increase of the order of 30% when 200,000 cubic metre ships come into service. Combined, these developments make LNG viable over longer distances than ever before.

Furthermore LNG allows access to otherwise inaccessible suppliers and can hence improve gas supply security. During the late 2000s, LNG markets began to globalise with a growing spot trade supplementing the traditional long term contract business and creating new opportunities for all players involved in it. With the exception of Greece and Turkey, Southeast Europe lacks LNG import facilities and cannot benefit from the availability of cargoes at what may be attractive prices.

The development of LNG-related infrastructure would impose a substantial burden on already strained budgets in the wider Balkan peninsula, which may therefore be unable or unwilling to assume if the countries of Southeast Europe are at an obvious disadvantage to competitors which are in a position to offer LNG suppliers both more sizeable gas markets and higher import prices. Nevertheless, the Southeast European region may still have a powerful incentive to develop LNG import capacities due to its persistent lack of supply diversification and ensuing vulnerability to disruptions.

LNG will play an increasingly important role in European gas supply. Today LNG represents approx 20% of European (i.e. EU30) gas imports estimated of 300 billion cubic metres in 2010. Total EU30 gas consumption for that year reached approx 560 billion cubic metres. The main European LNG supply sources so far include Algeria, Nigeria, Libya and Egypt although, of late, Qatar has also started supplying LNG to European destinations. The appetite for LNG imports in Europe looks likely to continue with everrising demand. The current eurozone crisis and economic depression in certain European consuming countries is expected to have only marginal impact on LNG trade. In that sense, potential LNG exports from the proposed Israel-Cyprus axis are welcome since they will add one more supply point to what is at present a rather limited supplier base.

BOOK REVIEW Boomerang: The Meltdown Tour

By Michael Lewis (Allan Lane, 2011) RRP: £20 (£11.16 from Amazon.co.uk)

L

ewis is the author of two superb books (The Big Short and Liar’s Poker) and fans of those will not be disappointed by this one, which was voted Economics Book of the Year by The Sunday Times. In his immensely entertaining survey of five countries and the economic crisis, Lewis visited Iceland, Ireland, Greece, Germany and the US (California) to discover why they came to be crippled with huge financial liabilities.

He doesn’t spare the bankers and the politicians but he also makes clear that the actions of citizens in these countries bear just as much responsibility: in Greece, a crippling public finance deficit with a breezy disregard for paying taxes; in Ireland, a property bubble that was clearly unsustainable; and in Iceland, the people’s ready acceptance of the replacement of their fishing-based economy with a hedge fund-driven mentality that allowed their banks to borrow and splash out billions on overseas assets of which they had no real understanding.

A great, easy read and essential for anyone interested in the eurozone crisis, which is surely all of us.

info: Costis Stambolis is Executive Director, Institute of Energy for S.E. Europe (IENE). This article is adapted from his presentation to the recent Cyprus Energy Conference.

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Luxembourg is now emerging as the competing jurisdiction which Cyprus needs to consider carefully

the international investment, business & finance magazine of cyprus

It is a high time that investors realized that tax planning now involves much more than the simple registration of a company

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online datining

{lifestyle}

Mixing business with pleasure may be considered a taboo but putting business before pleasure is seen as being smart

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The Price

of Love Alone again this Valentine’s Day? Online dating sites may be the answer to your desperate prayers to meet a millionaire

By Nathalie Kyrou

“I

don’t care too much for money/Money can’t buy me love” sang The Beatles 48 years ago and while it may be true that you can’t really buy happiness or love, the reality is that money gives you a chance to at least rent the idea of potential love. Within our constantly growing population, more and more people are – paradoxically – starting to feel more isolated and lonely than ever before. In a society that has become over-dominated by technology, they have developed a need to go online and it follows that they will use the Internet to do what they have traditionally done in person: go out and meet someone new, go on an actual date and maybe even find love.

No one leaves anything to chance anymore. Today, we control our own fate thanks to the Internet which has changed the way we obtain our news, watch television, read books and shop. So why wouldn’t it also change the way we date?

We still may not be able to buy love, but we can buy our ticket for the lottery of love. The cost is minimal, compared to the chance of finding that special someone (the jackpot), so why deny ourselves little help – everyone else is doing it! – even if it costs something? It is so much easier and, arguably, safer to connect to the web and click to find yourself a date or at least have

fun chatting online to someone rather than to go out into the real world. It therefore comes as no surprise to see that entrepreneurs have tapped into this evolving trend in psychology and social behaviour as an easy way to enrich themselves from other people’s innate human need and right to find love. Online dating sites have become the answer to many prayers and they are making huge amounts of money for their owners.

Take match.com for example, Europe’s largest dating network, which offers thousands of men and women the chance to find love. The procedure here is the same as with most sites: at first you are asked to enter some basic information about yourself, followed by an option to add more personal info. This first stage of the registration process – which is usually free – allows you to browse photos of thousands of friendly singles who are looking for love (a clever way to hook you and tease you) and, by answering questions about yourself and what you are looking for, you can narrow down your search according to what you hope to find in a partner. If you create an interesting dating profile which will give others an idea of not just how you look but also of your personality and interests, you may increase your chance of getting noticed. But here’s the catch: when you do find someone who looks interesting, you must subscribe in order to connect with

him/her. This is where money comes in (and heads straight to the website owner’s account).

On match.com, without a subscription all you can do is “favourite” someone or “wink” at another online. In order to view a profile, send or reply to messages and e-mails, you need to subscribe first. You can choose the special offer for 6 months at €12.90 per month, 3 months at €24.90 per month (which the small print says you will be invoiced in one payment for), or a monthly subscription at €34.90 per month. This may not seem like a lot of money at first (probably much less than you would spend on a date or a night out looking to meet someone) but it does add up, especially if it becomes a lifestyle habit.

Not only is love not free, it is not guaranteed either. Of course, if you consider yourself wealthy then money is not going to be the issue. You will probably not mind paying a small enough fee to get yourself a date and you may even see it as an investment of sorts. This is why dating sites targeting the rich (or those wishing to meet them) work on a slightly differently basis.

Mixing business with pleasure may be considered a taboo, but putting business before pleasure is seen as being smart.

The sites out there right now for wealthy singles – or singles who wish to date wealthy singles – understand this, so much so that most of them insist on verifying the international investment, business & finance magazine of cyprus

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online datining

Romance, sex and lifelong partnerships are such fertile grounds for moneymaking that dating website services are multiplying constantly

their members’ income levels in order to assure you when you join that you are visiting a professional and safe place where you won’t waste your time beating about the bush. Designed for those with money and those with money in mind, these dating services take a different marketing approach. They are blatantly reserved for those looking to enjoy a wealthy lifestyle or wanting to find someone with a certain income. As long as you are clear about who you are (i.e. how much you make) and what/who/how much you want, you may actually stand a chance of making it worth your while. It may sound shallow, but like everything else whose marketing is pitched at our emotions and needs, it is also a serious business.

MillionaireMatch.com is rated as one of the top sites catering for wealthy singles and it is one of the original dating services for affluent individuals. It offers members the chance to post a lifetime personal ad and respond to messages for free, which is perhaps one of the reasons for its popularity. The DatingSitesReviews.com community has voted Millionaire Match as its top pick in the “Wealthy” category for 4 years in a row, and it won top choice among the 18 Wealthy Dating Websites that No1Reviews.com reviewed recently. According to Millionaire Match’s homepage, “This is the first, most effective and largest site in the world to connect with, date and marry successful, beautiful people. Our members include CEOs, pro athletes, doctors, lawyers, investors, entrepreneurs, beauty queens, fitness models, and Hollywood celebrities, just to name a few.” A strong statement indeed, but it is supported by two of the leading financial publications, Forbes.com and The Wall Street Journal.

Both have chimed in with their opinion confirming Millionaire Match’s premier status and leadership in the wealthy dating category.

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Romance, sex and lifelong partnerships are such fertile grounds for money-making that dating website services are multiplying constantly. Take Match.com’s spin-off service, MatchAffinity, which promises you the chance to find someone on your wavelength for a lasting relationship with “real affinity”. Compared to its sister company, is MatchAffinity for the more serious (desperate?) individual who wants a genuine connection with a real match? Who knows? Apparently the site’s matchmaking system seeks to recognise its members’ core beliefs and characteristics through a questionnaire/personality test in order to suggest like-minded members with whom

Top 10 Wealthy Dating Websites ❶ Millionaire Match ❷ Millionaire Mate ❸ Date A Millionaire ❹ Sugar Daddie ❺ Seeking Arrangement ❻ Wealthy Men ❼ Sugar Daddy For Me ❽ Seeking Millionaire ❾ Millionaires Club 123 ➓ Date Wealthy Women they could be destined for a strong, lasting relationship. You even get an “affinity score” (another tactic by which to hook people as with online games) And you may be able to send a first message for free but if you want to carry on the conversation you have to subscribe and pay in order to enjoy the full benefits.

If money is no issue (or if money is the only issue), then Wealthymen.com is a well-known dating service for people

who focus on the financial fruits of love.

It shares the same slick, fashionable look of other similar sites, featuring good quality photos of good-looking people. The home page states: “Ladies, meet successful men with verified photos, professions and incomes, and ask men who are gentlemen with a great career and make over $85k/ year and want to meet beautiful and interesting women to sign up for free as well”.

Options are presented to sign up or, if you want to test the waters first, to perform a search. The parameters offered at this stage are minimal (sex, age and location) and as a non-registered user, you can see only the first page of members’ listings after performing a search (venturing beyond the first page will land you on the registration page). If you have an interest in your search prospects and want to initiate contact, you will have to choose between two memberships types: “Silver” allows you to respond to messages while “Gold” lets you use e-mail to initiate contact or respond to interesting members. The site has few extraneous features (no ‘flirts’, chat, or Instant Messenger here) and it essentially offers a member database and communication system (e-mail), which makes it useful for those who know what they want from a portal like this and are not embarrassed to ask for it.

In fact, in the world of the wealthy – or of those intent on joining – there is no room for coyness. No matter what you want, there is no shame in being transparent about it.

Whatever you are into, you are bound to find a service which promises to help you find it. Sugardaddie.com, for example, which has been featured on television programmes such as the Richard & Judy Show in the UK and Dr. Phil in the US, is a site where you can find millionaires and models.

It’s not all that different from SeekingArrangement.com, which sees itself as an ‘arrangement’ website, a growing sub-category in the wealthy dating business. Its welcome

page serves as a quasi-advertisement, geared towards getting you to try the site with some attention grabbers. “Join free” is the most prominent message on the page. The site is unabashed in stating loud and clear that it is “The Elite Sugar Daddy Dating Site for Those Seeking Mutually Beneficial Relationships”. So, if you’re a “goal seeking sugar baby” looking for a “modern sugar daddy” then look no further. Yes, it may be more than a little kitsch, but it can work if you understand the lingo. Check out the bottom of the page where you will find definitions for sugar daddy, sugar mommy and sugar baby. If you’re still not sure what they are going on about, click on the button “What’s an arrangement”, where you can read a whole spiel about how it’s human nature for successful people to want younger and more attractive partners and that it’s also natural for younger men and women to seek out more experienced, sophisticated, wealthy and generous partners, specifically those who have the means of providing them with comforts and luxuries. It even goes so far as to remind you that anthropologists say these tendencies are ingrained in our genes and that it is human instinct to be attracted to beauty, wealth and power!

Typically, as with most wealthy dating sites, you can register as a Sugar Dad or Sugar Mom and use the site as a standard (free) member or upgrade to a premium membership. Benefits of the upgrade are primarily the ability to contact all members by e-mail, to use the advanced search section and to see who has viewed your profile. A search here, as on other similar services, will turn up a cross-section of beautifully-photographed members and this particular site even has a feature for identifying verified millionaires. It’s good in theory, but does it actual produce any

Cyprus

real results? Overall, the site is interesting but somewhat confusing, and you may end up unsure of what is really being offered and to whom (perhaps this is simply another successful business snare). These specialists in ‘arrangements’ may offer good value for money, if we are to believe the online reviews, but in the big business of online dating, while there may be some successful stories about people clicking their way to love (and maybe even money), it is likely to be the site owners who are reaping the real rewards at the end of the day.

Dating services may still face some difficult challenges – such as overcoming the widespread notion that people who use them are desperate, undesirable or somehow out to take advantage of others – but these online agencies are trading on the powerful desire of singles to connect and it is something that works to make them a lot of money. You might be surprised to learn that they generate more income than online pornography. In fact, online dating sites rank as the third most popular Internet revenue-making machine, behind digital music and video games. Online dating revenues are also growing steadily: in 2007, dating sites earned about $1.03 billion and in 2012 that figure is expected to climb to $1.65 billion. The price of love keeps going up but the slow-down in consumer spending appears not to have cramped this industry at all. If anything, it seems to have made people more eager to settle down

Online dating sites rank as the third most popular Internet revenue-making machine, behind digital music and video games

• www.loveawake.com is a universal dating site but has 1,232 members registered in Cyprus, and its own separate local branch: www.loveawake.com/free-online-dating/Cyprus-dating-service.html.

It’s the same with www.lavaplace.com, connectingsingles.com and mingle2.com which all are universal but have dedicated Cyprus sections.

• www.cyprusdating4u.com and www.metrodate.com/cy are Cyprus-based online dating services.

with Mr/Ms Right.

11.22.63

BOOK REVIEW BOOK REVIEW

By Stephen King (Hodder & Stoughton, 2011)

S

RRP: £19.99 (£9.00 from Amazon.co.uk)

tephen King’s latest novel marks a return to his brilliant best and many critics are already describing it as his best ever.

The basic premise is this: a time portal is opened to 1958. Once someone has emerged from the other side there is an opportunity to change the course of events so that history is altered, either in a small way or on an international scale.

The adventure becomes a mission to prevent the assassination of John F. Kennedy in 1963 – hence the title of the book. The main character, Jake, is keen to try but can he succeed? This book works on many levels. King deals with the 53-year time regression extremely well and we are transported into a world where you could be in a different universe, such have been the social and technological changes since the late 1950s. Then there is the consideration of the Lee Harvey Oswald controversy – was he working alone or are the conspiracy theorists right? This is a wellnarrated story which you won’t be able to put down.

the international investment, business & finance magazine of cyprus

89

the last word

Marketing is Jazz Like jazz, marketing

is relentless innovation

I

By Peter Economides am what some might call a global citizen.

Call me a gypsy if you like. I have lived on four continents and worked in just about every country you care to name since leaving South Africa in 1982. And I have lived in no fewer than twelve houses. In Hong Kong, Athens, Mexico City, New York and, once again, Athens.

I have learnt that the secret to moving in well is to move out well. And that means to pack well – even though I have probably spent more on packing material over the years than I have on the stuff that has been packed. And every time I move there are some boxes that remain unopened. Like the five boxes I discovered during my recent move that bore the logo of a shipping company in Hong Kong.

Wow, Hong Kong – that move was eighteen years ago!

Opening up a box that you last closed in 1984 is like opening up a surprise birthday gift. Believe me, you have no idea what’s inside.

So there I was like a little kid, tearing at aged cardboard., only to uncover my beloved collection of vinyl records. All 3,000 of them. Having gotten over my amazement that they had not been reduced to a collection of warped frisbees, I rushed

out to buy a turntable. Remember those things? Something of a technological relic in the age of iPods which offer you 10,000 songs in your pocket...

And what a collection it is: rock, blues,The Rolling Stones, Bob Dylan, The Beatles, Pink Floyd, Muddy Waters, John Lee Hooker....and my jazz collection! Miles Davis, McCoy Tyner, Herbie Hancock.

Jazz is amazing music.

Jazz is relentless innovation. A jazz group never plays the same song in the same way. No way. Improvisation is the essence of jazz. And if you hit the wrong note, so what? It becomes part of the way you play the music. You recover. You make it work.

You can’t play jazz if you don’t really understand music deep inside.

But you have to let go of what you know.

You can’t practice marketing if you don’t really understand it deep inside Lose the fear. That’s what makes it swing.

A jazz group comprises multiple expressions of the same mind. Everyone plays their instrument in their own way, to the best of their ability, without taking instructions. But everyone plays from the same sheet, even though there is no sheet music.

Players in a jazz band are aligned.

Even though there is a leader, there is no hierarchy in a jazz band. Everyone is on an equal footing. The music chooses the leader. And that is what makes the music great.

And then I thought about marketing…

Marketing is relentless innovation. A marketing team never goes to market in exactly the same way. No way. Improvisation is the essence of good marketing. And if you hit the wrong note, so what? It becomes part of the way you market. You recover.

You make it work.

You can’t practice marketing if you don’t really understand it deep inside.

But you have to let go of what you know.

Lose the fear. That’s what makes it swing.

A corporation comprises multiple expressions of the same mind. Everyone does their job in their own way, to the best of their ability, without taking instructions.

But everyone plays from the same sheet.

Even though there is no sheet music. People in a corporation are aligned.

Even though there is a leader, there is no hierarchy in a good marketing department.

Everyone is on an equal footing. The situation chooses the leader. And that is what makes marketing great.

They say that marketing isn’t a science. Yes it is. But when you truly understand that science you have to let go. That’s when it becomes art.

Marketing is jazz.

info: Peter Economides is a Brand Strategist and founder of Felix BNI. He is a former Executive Vice President and Worldwide Director of Client Services at global advertising agencies McCann-Erickson Worldwide and TBWA\Worldwide. He has worked on some of the world’s most iconic brands including Coca-Cola, Apple, Absolut, illy, Audi and Nike. In Cyprus, he has been involved in branding projects for Bank of Cyprus, Sigma Television and easy-forex. Peter is based in Athens.

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the international investment, business & finance magazine of cyprus