GOLD issue 40

ISSUE 40 july 14 - august 13, 2014 PRICE â‚Ź4.95

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the international investment, finance & professional services magazine of cyprus

a e Living S e h t on Limassol Marina puts Cyprus on the global yachting map

+ NOBEL LAUREATE SIR CHRISTOPHER PISSARIDES ON THE CYPRUS ECONOMY BUSINESS

Hector Kolanas on entrepreneurship and startups

INTERVIEWS

Maria Kyriacou Nasos Kyriakides Evgeny Tarakanov

PROFILE

The Cyprus Fiduciary Association

Plus:

MONEY / BUSINESS ECONOMY TAX & LEGAL LIFESTYLE / OPINION

Live, dine, shop and sail in absolute luxury at the most exciting new destination in Cyprus.

Now open, call us on +357 25 020 020 limassolmarina.com

Living on the sea

Issue 40 July 14-August 13, 2014

6 EDITORIAL 8 UP FRONT 14 FIVE MINUTES WITH…

Limassol Marina puts Cyprus on the global yachting map WITH ITS BREATHTAKING VIEWS AND OUTSTANDING RANGE OF FACILITIES, THE €350 MILLION LIMASSOL MARINA AIMS TO BECOME THE MOST EXCLUSIVE MARINA RESORT IN THE MEDITERRANEAN AND ONE OF THE FINEST IN THE WORLD.

Living on the Sea

+ OPINION THE GLOBAL CLAMPDOWN ON TAX EVASION

By Amy Duff

36

FLYING PIGS AND BLACK SWANS

By Savvas Savouri

48

ATTRACTING THE CRÉME DE LA CRÉME

By Effy Pafitis 52

62 | BEYOND EXPECTATIONS

42

46 | DENTAL EMERGENCY

16

How the financial crisis in Cyprus led a dentist to change many aspects of her practice for the better.

The first ten years of Limassol law firm Nasos A. Kyriakides & Partners.

64 | THE KID DONE GOOD Hector Kolanas, who set up his latest business as a result of the Cyprus financial crisis, explains why.

49 | PROMOTING CYPRUS

66 | GAME CHANGERS FOR THE CYPRUS PROFESSIONAL SERVICES SECTOR

The Cyprus Fiduciary Association and the need for strong regulation.

The 6th Professional Services Conference

54 | “A CRISIS IS A TERRIBLE THING TO WASTE”

FEATURE

32

32| SAGE ADVICE Interview with Sir Christopher Pissarides, winner of the 2010 Nobel Prize in Economics and Chairman of the Council of Economic Advisers of Cyprus.

According to ACCA Past President Mark Gold, Cyprus needs to address its shortcomings and instigate fundamental structural changes to guarantee the survival of the island’s SMEs.

SPECIAL

SUPPLEMENT 23 | TELECOMMUNICATIONS FIRMS OFFERING BUSINESS SOLUTIONS

58 | PERFECTING THE BALANCING ACT Ingrid Hoferova on being a professional, a mother and a woman making her way in a still predominantly tly male-centricc world.

38 | BEATING THE BLUES Members of the accounting profession are not ot immune to recession, redundancy and the need ed for retraining, says CABA’s Lucy Whitehall.

42 | FROM RUSSIA WITH LOVE Evgeny Tarakanov on his love of Cyprus and e. why the island remains the apple of Russia’s eye.

4 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE ZINE OF CYPRUS

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70 72 74 76 80

{money} {business} {economy} {tax & legal} {lifestyle}

EDITORIAL

Good Vibrations

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s the second half of 2014 gets under way, it is impossible not to compare the present situation with the one we were experiencing twelve months ago. And any comparison cannot fail to create at least a small amount of optimism about the direction in which Cyprus and its economy are heading. Indeed, the contents of this month’s issue of Gold are indicative of the positive tack that things have taken, starting with our cover story about the €350 million Limassol Marina which has placed Limassol, Cyprus and the country’s tourism product in the global spotlight. With contracts in excess of €130 million already signed for its luxury residences, the remarkable level of interest surrounding the unique waterfront development has exceeded all previous experience and expectations.

On a smaller scale but continuing the business momentum that is starting to emerge, we have the personal stories of two people who dealt with the March 2013 crisis ways that led to positive change: Anna Maria Yiannikos, a pioneer in the field of Dental Lasers and Cosmetic Dentistry, tells her own story (page 46) and we meet Hector Kolanas who set up Desk&Co as a direct reaction to what he was seeing following the bailout agreement with the Troika (page 64). For Cypriot members of the ICAEW facing difficulties in the wake of the financial crisis, help is at hand from the Chartered Accountants’ Benevolent Association (CABA), as Lucy Whitehall reveals (page 38).

Of course, there is still a long way to go before Cyprus returns to positive growth and prosperity but it would appear that the private and public sectors alike are taking notice of those who are in a position to offer sound advice. Nobel Laureate Sir Christopher Pissarides, who now heads the Council of Economic Advisers, gives his views on where the economy is going (page 32) while Mark Gold, a past president of the ACCA, is the latest in a long line of experts whose ideas on how to support SMEs at this crucial juncture are definitely worth acting on.

We also talk to Ingrid Hoferova, Managing Director of Penta Investments Cyprus (page 58) and Evgeny Tarakanov, Financial Director of Bilarex Co. Ltd (page 42), both of whom are happy to be working in Cyprus but have some valuable things to say about what could be done to improve the experience for foreign investors.

Elsewhere in this issue we profile the Cyprus Fiduciary Association whose Board and General Manager have played such an important role in bringing about legislation and regulation in a key professional services sector (page 49) and we also talk to Nasos Kyriakides, who set up his own law firm at the age of 26 and, a decade later, is still looking for new challenges (page 62).

The good news continues in our specialist features, with a positive message from Dr. Michael Kammas, Director General of the Association of Cyprus Banks (page 70) and a generally positive report by the European Court of Auditors (ECA) on the reform of European banking sector legislation and the creation of the European Banking Authority (page 71). Eurozone growth is predicted in the latest EY Eurozone Forecast (page 74) and there is even good news on VAT on telecommunications, broadcasting and electronic services (page 77).

While summer 2014 is not likely to remembered as a turning point in the island’s fortunes, it undoubtedly finds Cyprus in a better position than a year ago. This is, admittedly, small comfort for those who are out of work or struggling to make ends meet but if the Cypriots have one quality it is resilience. They have survived and rebounded from worse situations and the fact that the country has returned to the international markets well ahead of schedule through its recent bond issue is a tribute to the current government and its determination to follow the Troika’s difficult but necessary recommendations. The long hot summer of 2012 may have felt more comfortable to many people but this one is unquestionably healthier and leading us all to a better future.

John Vickers, Chief Editor

john@imhbusiness.com

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THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

BANKING How Spain restructured its system

BITCOIN The Future of the Digital Currency

INTERVIEWS Peter Greenberg Matthew Kidd Alexis Tsielepis

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Effy Pafitis, Chloe Panayides CONTRIBUTORS TO THIS ISSUE

Amy Duff, George Ioannou, Savvas Savouri, Anna-Maria Yiannikos ART DIRECTION

Anna Theodosiou SENIOR DESIGNER

Alexia Petrou PHOTOGRAPHY

Jo Michaelides MARKETING EXECUTIVE

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UP FRONT

47% OF PC

RYANAIR

IN CYPRUS

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SOFTWARE

T

he advantages of using licensed software are being promoted at the centre of a new campaign launched by the Business Software Alliance (BSA) in a bid to combat piracy. It has been found that 47% of PC software devoid of proper licensing was installed in 2013 in Cyprus.Nicholas Ktenas, Advocate, Partner, Deputy head of 5PJVZPH VMÄJL *VYWVYH[L HUK *VTTLYJPHS Department of Andreas Neocleous & Co LLC, described this as “unfortunately a high percentage” and noted that this entailed “various risks” such as data loss, the inability to update unlicensed software, hacking, and compatibility, as well as the moral issue: how are programmers expected to continue producing software if they are not being re-

UNLICENSED

warded for their work due to piracy?

“The aim of the BSA is neither to punish nor [V [OYLH[LU ¶ ^L HSS RUV^ [OL ÄUHUJPHS ZP[\ation in the country at the moment – but on the other hand we want to communicate messages to people, not regarding consequences from using illegal software but reNHYKPUN [OL ILULÄ[Z VM \ZPUN SLNHS ZVM[^HYL ¹ he pointed out. According to a BSA survey for 2013, the rate at which PC software was installed without proper licensing in Cyprus in 2013 amounted to 47%, the commercial value of which totalled almost €14 million.

SALES BOOST for Luxury Real Estate

T

he luxury real estate market in Cyprus has begun to experience a much needed boost, with five properties being sold in the first quarter of 2014, according to a report compiled by Leaf Research. Luxury property sales (defined as houses

and apartments with a transaction price in excess of €2 million) showed an upward trend in the fourth quarter of 2013, following a sharp contraction during the third quarter of the year, with annual sales reaching 2011 levels of some 25 transactions in total. In the first quarter of

2014, meanwhile, five properties were sold for over €2 million each, one more than the four units sold during the same period in 2013. Of these five transactions, two properties were located in Nicosia and one each in Limassol,

Larnaca and Paphos. Leaf research predicts that the trend of increasing luxury property sales will be limited to real estate located in Limassol, with modest sales in Nicosia, Larnaca, Paphos and Famagusta.

Cyprus to Host First Comic Con

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`WY\Z ^PSS OVZ[ P[Z ÄYZ[ Comic Con fan convention dedicated to comic book culture on September 13. Having begun in San Diego, California in 1970, comic cons have become enormously popular, held annually worldwide. The events celebrate the art and culture derived from comic books, including the subsequent movies, TV series, HUPTH[PVUZ HJ[PVU ÄN\YLZ IHZLK upon original comics. In Cyprus,

the event is being organized by the Cyprus Comic Con (CCC), a UVU WYVÄ[ VYNHUPZH[PVU ;OPZ ÄYZ[ event will be “experimental,” says Despina Theocharidou, PR Manager of Cyprus Comic Con, “and will let us know what to change for the next events,” indicating that the organisation intends on making the Comic Con an annual event. The Cyprus Comic Con will be held at the European University. Admission will be free of charge.

8 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

PASSENGER TRAFFIC UP

ow-cost airline Ryanair experienced increased passenger traffic in June due to its reduced fares and improved services, the company has revealed.

Citing traffic statistics for the month, Ryanair announced that it transported 8.3 million customers in total, a 5% increase of 400,000 passengers.

Its load factor, meanwhile, increased 4%, from 84% to 88%. As a result, tolling annual traffic rose to a record 82.7 million customers, up 3%.

Ryanair recently extended its Groups Services to Cyprus via its website Ryanair.com, enabling groups and businesses to book the lowest fares available. “2014 is set to be a very exciting year for Cyprus groups and business customers,” Ryanair’s Head of Corporate Travel and Groups, Lesley Kane said, “as Ryanair’s entry into these markets will significantly lower their costs of travel.”

Cyprus Wines Cypru Promoted via Annual

LONDON L OND EVENT

T

he 31st Wine Festival opened its gates in London last month, starting a two-day celebration intent on highlighting Cyprus’ comparative advantages, culture and beauty.

Organised annually by Parikiaki newspaper, the festival – along with a trade fair – attracts Cypriots and foreigners alike. Minister of Agriculture, Natural Resources and Environment, Nicos Kouyialis, was present at the event on behalf of the Government. He noted that the Ministry is collaborating with winemakers and wine grape growers to draft a multiannual national strategic plan on viticulture, which is hoped to help boost wines produced in Cyprus. According to the Minister, between 2008 and 2013 a total of €20 million was disbursed to Cyprus from European funds to implement a national programme in support of the wine industry; available funds for the period 20142018 are approximately €23.2 million. The High Commissioner of Cyprus to the United Kingdom, Euripides Evriviades, stressed the importance of wine-making for Cyprus and highlighted the importance of the community in promoting Cyprus in this capacity.

UP FRONT

Zenobia Week Promotes

Hadjiantonas

Tourism

T

Winery Celebrates

Diving

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ast month saw the start of a campaign to publicize the fact that Cyprus is a major diving destination with a week of activities at the end of June taking place under the “Zenobia Week” banner, a reference to one of the island’s most popular diving attractions, the Zenobia shipwreck, which is being promoted as ideal for the discerning visitor, populated and decorated with sea fauna and flora, fish of all kinds, purple coral rocks decked with flowers, starfish, octopus, crabs, shells, and more. The Cyprus Tourism Organisation is now pushing scuba diving as being both a relaxing means of expe-

10th Anniversary

riencing the warm waters of the Mediterranean, whilst fathoming the enigmas of the deep. Unofficial figures estimate that around 35,000-50,000 divers visit the island annually.The Zenobia, a Swedish roll-on-roll-off ferry, was fully loaded with 104 trailers and trucks when she sunk on her maiden voyage to Cyprus in June 1980, off Larnaca’s fishing harbour. The wreck of the Zenobia now lies on her port side at a depth of 42 metres, 1.5km from the shore. The top of the wreck is 16m below the water surface. The Zenobia wreck has now become a protected artificial reef and the dive site is currently rated amongst the top ten wreck dive sites of the world.

More Honours for Hellenic Bank

H

ellenic Bank has been named the most reliable credit institution operating in Cyprus for the fourth consecutive term by the quarterly Reliability Index. Created by RAI Consultants, the index compares ratings of the 10 most prominent Cyprus credit institutions, basing results on 500 consumer ratings. The bank received the highest ratings of all, being ranked first for reliability among both the commercial banks and credit institutions used by businesses. The bank’s subsidiaries – Pancyprian Insurance and Hellenic Alico Life – have both also gained positive media attention in recent months for their impressive rankings in similar surveys.

The former was evaluated first for reliability among the non-life insurance companies in Cyprus, whilst the latter was rated first for reliability among life insurance firms affiliated to a bank, and second for reliability among life insurance institutions overall. Meanwhile Hellenic Bank has been honoured by Deutsche Bank, one of the largest financial institutions in the world, with two awards related to the quality of its service. Hellenic Bank received both the 2013 EUR STP Excellence Award, and the USD STP Excellence Award. This honour is described as being “the fruit of concerted hard work on the part of the bank to advance its technological systems, resulting in expedited process, reduction of costs, and an enhancement, overall, of the services offered to customers by the bank.”

10 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

he Hadjiantonas Winery recently celebrated ed ten years off operation in the village of Pareklishia, Limassol. During its ÄYZ[ KLJHKL [OL ^PULZ WYVK\JLK I` /HKQPHU[VUHZ OH]L ILLU TL[ ^P[O OPNO HJJSHPT IV[O SVJHSS` HUK PU[LYUH[PVUHSS` ^P[O [OL :OPYHa *HILYUL[ :H\]PNUVU ^P[O :OPYHa *OHYKVUUH` :LTP :WHYRSPUN :^LL[ 4\ZJH[ HUK 9VZL >PUL HSS OH]PUN YLJLP]LK HJJVSHKLZ PU ^VYSK^PKL JVTWL[P[PVUZ (JJVYKPUN [V MV\UKLY ;OLVKVYVZ /HKQPHU[VUHZ [OL ^PULY` OHZ ILLU H[ [OL J\[[PUN LKNL VM [OL PUK\Z[Y` L_WLYPTLU[PUN ^P[O UL^ ISLUKZ VM LUKLTPJ HUK PTWVY[LK NYHWL ]HYPL[PLZ HUK [OPZ OHZ UV[ VUS` JOHUNLK [OL JOHYHJ[LY VM *`WYPV[ ^PULZ I\[ PTWYV]LK [OLPY X\HSP[` /HKQPHU[VUHZ PZ UV^ SVVRPUN H[ [OL PKLH VM WYLZLU[PUN P[Z TVZ[ WVW\SHY ^PULZ PU TS ZPUNSL ZLY]L IV[[SLZ ^OPJO HYL HSYLHK` WVW\SHY ^P[O HPYSPULZ HUK OV[LSZ /HKQPHU[VUHZ >PULY` PZ SVJH[LK PU H [OYLL Z[VYL` I\PSKPUN [OH[ PUJVYWVYH[LZ H ZPaLHISL JLSSHY VU [OL SV^LY NYV\UK ÅVVY =PZP[VYZ HYL HISL [V SLHYU HIV\[ the fermentation process and about the use of oak barrels for proK\JPUN X\HSP[` ^PUL 6U [OL [OPYK ÅVVY [OLYL PZ H ^PUL [HZ[PUN SV\UNL YLZ[H\YHU[ V]LYSVVRPUN [OL ^PULY` NHYKLUZ

CYFIELD in Talks about

Land Opposite Hilton ommunications & Works Minister Marios Demetriades met with the management of Cyfield Group earlier this month, in the context of discussing the development of the land opposite the Hilton Cyprus in Nicosia. The meeting served as an initial briefing

C

through which an overview of the proposed project was discussed, and an analysis of the investors’ plan conducted. Over the summer, more meetings are expected to be held and they will look into further details of the project and its design. The proposal is for a mixed-use project,

comprised of office space and apartments spread across 20 floors, as well as event rooms and hotel apartments. Currently, the proposal is for development of the building via the Built-Operate-Transfer (BOT) method, and involves two plots of land, which will be granted 99-year leases.

NEW LIMASSOL

OFFICES FOR

GRANT THORNTON eading accounting firm Grant Thornton Cyprus has moved its operations into new premises in Limassol as a result of the firm’s development and expansion strategy of the firm, following its merger with Mouzouris & Polyviou. Grant Thornton Cyprus recently merged with Mouzouris & Polyviou Ltd, which specialises in serving small and mid-sized businesses across a range of industries including construction, property, investment holding and

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financing. Grant Thornton International has focused on the accurate execution of its expansion strategy throughout 2014, announcing 17 successful mergers and acquisitions around the world in the seven months to April 30, in locations including the United Kingdom, Australia, Canada, Cyprus and the Isle of Man. Grant Thornton Cyprus offers audit, tax and advisory services to private enterprises, enterprises of public interest and public sector enterprises.

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UP FRONT

THE HIGHEST-PAID

WORLD CUP FOOTBALLERS

A

fter a month of matches, the Final of the World Cup took place yesterday (July 13). Some of the best-known players in Brazil this summer are also among the highestpaid and richest sportsmen in the world. Below is the Top 10 of those who played for their country, according to their estimated earnings which don’t always correspond to the number of goals scored for their country. And a considerable part of their wealth comes from advertising and product endorsement.

1 CRISTIANO RONALDO – PORTUGAL

TOTAL EARNINGS IN 2014: $80 MILLION

(Salary: $52 million.

Endorsements $28 million) Ronaldo Won the 2013 Ballon d’Or, having scored 69 goals in 59 matches for Real Madrid and Portugal. His last 5-year contract is said to be worth $206 million.

2 LIONEL MESSI – ARGENTINA TOTAL EARNINGS IN 2014: $64.7 MILLION

(Salary: $41.7 million.

Endorsements $23 million) In addition to his contract with Barcelona, Messi has lucrative deals with Adidas and Turkish Airlines. Currently features on Cyprus TV in the Lays crisps ad.

3 NEYMAR – BRAZIL

TOTAL EARNINGS IN 2014: $33.6 MILLION

(Salary: $17.6 million.

Endorsements $16 million) Brazilian superstar Neymar (full name: Neymar da Silva Santos Jùnior) was transferred to Barcelona for 57 million last year. Frequently compared to the great Pele.

2

3

4 5

Rank:

6

1

10

7 9

4 WAYNE ROONEY – ENGLAND TOTAL EARNINGS IN 2014: $23.4 MILLION

(Salary: $18.4 million.

Endorsements $5 million) One of England’s most gifted footballers, the Manchester United forward is currently the highest-paid player in the English Premier League. His future with Man Utd. looks sure.

5 SERGIO AGUERO – ARGENTINA TOTAL EARNINGS IN 2014: $23.3 MILLION

(Salary: $18.3 million.

Endorsements $5 million) The son-in-law of Argentine legend Diego Maradona is a key player at Manchester City and earns another $5 million from deals with companies like Puma, Pepsi and Gillette.

6 YAYA TOURÉ – IVORY COAST TOTAL EARNINGS IN 2014: $21.7 MILLION

(Salary: $19.2 million.

Endorsements $2.5 million) Last year the younger brother of Kolo Touré HUK 4HUJOLZ[LY *P[` TPKÄLSKLY ZPNULK H new 4-year deal to stay at the Etihad Stadium until 2017.

7 FERNANDO TORRES – SPAIN TOTAL EARNINGS IN 2014: $21.3 MILLION

(Salary: $17.8 million.

Endorsements $3.5 million) Before joining Chelsea in 2011, he became the fastest player in Liverpool history to

12 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

8

score 50 league goals. Since then his form for club and country has been rather erratic.

8 ROBIN VAN PERSIE – THE NETHERLANDS

TOTAL EARNINGS IN 2014: $19.5 MILLION

(Salary: $16.5 million.

Endorsements $3 million) After eight years with Arsenal, Van Persie joined Manchester United in 2012 and proved to be another shrewd Alex Ferguson signing. His stunning header in Brazil remains unforgettable.

9 STEVEN GERRARD – ENGLAND TOTAL EARNINGS IN 2014: $18.7 MILLION

(Salary: $13.2 million.

Endorsements $5.5 million) Gerrard, who captains Liverpool and England, made his club debut in 1998 and has ZWLU[ OPZ LU[PYL JHYLLY H[ (UÄLSK 6UL VM [OL HSS [PTL NYLH[ ,UNSPZO TPKÄLSK WSH`LYZ

10 DAVID SILVA – SPAIN

TOTAL EARNINGS IN 2014: $16 MILLION

(Salary: $15 million.

Endorsements $1 million) The third Manchester City player in the Top 10 spent six years at Valencia before moving to his current club where his speed and passing ability have made him extremely valuable.

INTERVIEW

five minutes es with...

George Mouskides Director, Property Consultant, FOX

H

ow did you become involved in FOX? I was previously with a boutique investment firm – CLR group – through which we offered stockbroking services and managed funds. It was during the years of the booming stock market: different times, different tempos. The funds that were diverted from the stock market to real estate sparked the beginning of the infamous property bubble. CLR dealt with shares, bonds and derivatives, which are traditionally volatile, and through my personal experience with real estate, I realised that there was a certain profile of investor which was better matched to lower risk and longer-term outlooks. I entered the real estate market via an association with RE-MAX (a US agency group) who, at the time, had seven offices throughout Cyprus operating under their brand. I wanted the opportunity to acquire the know-how of a big international firm, so in 2007 we became shareholders in a new venture. A year and a half later, RE-MAX ceased its operations in Cyprus because the legal framework with regard to estate agents was too strict.

Could you elaborate?

The estate agents law has changed seven times in the past 10 years, stipulating different requirements every time. Also, the requirements for foreign estate agents to

operate in Cyprus are too high. With this legal framework, it was next to impossible for them to sustain operations. Just think: Re-MAX works out of 68 countries and it was only with Cyprus that they had a problem.

So, as a consequence, we set up our own FOX Smart Estate Agency.

What sets FOX apart from its competitors?

We focus greatly on developing an elevated degree of professionalism. For example, despite oral contracts still being common practice in Cyprus, we push for written agreements and documentation at every stage of contact with our clients.

We follow certain procedures to ensure the safety and protection of both buyer and seller.

What are the biggest problems facing the real estate sector at present?

The whole procedure involved in real estate – from the licensing of new properties to the issuance of title deeds and their transfer to new owners – has many problems. There are huge delays, a lack of transparency, and bureaucratic impediments. When all of these issues are addressed, then the job of an estate agent will become much simpler, and the rights of buyers will be bolstered. At present, it is very difficult for estate agents to protect the rights of buyers.

14 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Is this due to legislation?

No. The laws are actually adequate; they are not fundamentally flawed.

The problem is the interpretation and implementation of the said laws by various Government departments. Thank God for the Troika! As a consequence of the bailout agreement and adjustment programme, a lot of irregularities and anomalies within this sphere will be resolved.

How is the market faring at present?

Refreshingly, there is interest in the market at present. The economy is ameliorating, and the numbers are improving (even though we may not see it yet). I expect liquidity to improve, banks to be recapitalised even more, and a decrease in lending interest rates which will, in turn, improve the real estate sector, and aid prices to stabilise. However, there is a damaging idea circulating that the banks will sell all of the properties attached to non-performing loans (NPLs) at once, and people are thus waiting to buy from auction, expecting a more competitive deal. It is not in the banks’ interest to sell all of the properties at once. The market will disintegrate, and they know this. If anything, as the economic environment improves, and employment increases, NPLs – to a large degree – could start performing again, meaning that the banks won’t have to foreclose at all in those cases.

Living on the Sea COVER STORY

Limassol Marina puts Cyprus on the global yachting map

By John Vickers.

Photography by Jo Michaelides.

W

hen the international media coverage of a new project is unanimously enthusiastic and full of praise, you can be sure that there is more to it than an efficient PR machine. And for a change, descriptions such as ‘The most fashionable marine resort in the Med’ (Condé Nast) and ‘The hottest spot in the Med’ (The Telegraph) are not referring to Monte Carlo, Capri or Saint Tropez but to the newly-opened Limassol Marina. With its breathtaking views and outstanding range of facilities, Limassol Marina aims to become the most exclusive marina resort in the Mediterranean and one of the finest in the world. Having seen it, I would venture to say that such lofty ambitions are not at all unrealistic or out of place.

At the recent official inauguration of the waterfront development, Marios E. Lanitis, Chairman of Limassol Marina Ltd, highlighted the economic role of Limassol Marina and its contribution to “significantly boosting the competitiveness of the Cypriot economy, further improving its image, creating new job opportunities, upgrading the area of the historic centre of Limassol and offering an incentive for investments in the wider region.” At the same event, President Anastasiades spoke of the shareholders’ “vision, commitment, hard work and perseverance”, describing these qualities as “the recipe for success for all the progressive businesses of Cyprus.”

According to Michalis Hadjipanayiotou, CEO of Cybarco Development, one of the shareholder companies of the project, also

responsible for its management and exclusive sales, the marina is not only “changing the face of Limassol and Cyprus by revitalising its image on an international scale” but “attracting High Net Worth Individuals from a broad range of countries and putting Cyprus on the map in ways that few other developments have managed to do in the past.”

Few others? In reality, there has never been a development that has given such a huge and positive boost to the island and, in particular, Limassol. The marina, which is the largest infrastructure project currently being brought to fruition in Cyprus, is the very first to attract such unprecedented interest on a global scale.

Although the official inauguration took place only last month, Limassol Marina actually welcomed its first residents and yachts in 2013. Boasting a capacity of 650 berths, for yachts up to 115m in length, Limassol Marina is an official Port of Entry and the first fullservice marina in Cyprus. It combines elegant apartments and villas with its own shopping and dining area, while providing facilities and

LIMASSOL MARINA AIMS TO BECOME THE MOST MARINA RESORT IN THE MEDITERRANEAN AND ONE OF THE FINEST IN THE WORLD

16 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

exclusive

services of the highestt standard, carried out by a team of experienced marina professionals to ensure the smooth running of all operations. The Michalis Hadjipanayiotou marina has already rst made history as the first in Cyprus to welcomee and accommodate superyachts, including the stunning 75m M/Y Anastasia and 88.5m M/Y Nirvana.

With 80% of Limassol Marina now completed, the whole project is due to be wrapped up by 2017 following the delivery of the exclusive Castle Residences apartments with stunning 360-degree views of the sea.

It is natural that considerable publicity has been given to the fact that the commercial area of Limassol Marina is now open to the public. Pyxida, The Yacht Club, Crystal Marina Lounge Wagamama, Mediterraneao, KFC, Pizza Hut, Derlicious, Caffè Nero and Marina Cool Bar are now operating and Carob Mill Restaurants’ Café Calma will be opening this summer. Limegrove Spa & Fitness at Limassol Marina will offer treatments, a state-of-the-art gym, fitness classes, personal training, nutritional and fitness consultations, a hair spa, nail bar and outdoor swimming pool. Coupled with retail therapy, some of the brands confirmed for the designer boutiques include, amongst others, Ralph Lauren, Iceberg, Paul Smith, Nicole Farhi, Just Cavalli, Armani Jeans, Paul Shark, Diesel and Crocs. Most

THE MARINA IS THE VERY FIRST

infrastructure PROJECT TO ATTRACT SUCH UNPRECEDENTED INTEREST ON A GLOBAL SCALE

local yacht brokers ers are oon board representin representing brands like Ferretti, Riva, Azimut, Princess, Sunseeker, Pershing, Beneteau, Cranchi and working in cooperation with the on-site boatyard and Comar chandlery. An Alphamega minimarket, Leos Car Rentals, Dora Theophilou Pharmacy and Haute Parfumerie, Nicolaides Opticians and Cybarco Sales Office will also be present to service all residents and visitors.

But this aspect of the new development is arguably the least significant, although the importance of making the town’s residents feel that it is an integral part of the new Limassol cannot be overstated. The marina has been designed to blend seamlessly with the city’s historic harbour, old town and mediaeval castle.

The main attraction of Limassol Marina is its exclusivity and it is this key aspect that is appealing to the High Net Worth Individuals whose investment and wealth Cyprus has been particularly desperate to attract over the last couple of years. So far, contracts in excess of €130 million have been signed for the luxury residences, reflecting the high level of interest surrounding this truly unique environment, and the tally is rising. This is not surprising.

First of all, Limassol Marina is the only superyacht marina in Cyprus and it offers an idyllic community with diverse residential neighbourhoods and a wide range of berthing options.

For example, the stunning Peninsula and Island Villas offer owners the opportunity to moor their yacht outside their home or simply step out onto the beach from their own garden.

Truly capturing the essence of “living on the

sea” and surrounded by the sparkling Mediterranean, they combine the ultimate in privacy and exclusivity, and this is reflected in the prices which start from €1,751,000. Others are less expensive, though no less attractive: the beautifully integrated Nereids Residences have uninterrupted sea and marina views, landscaped gardens and a communal swimming pool, while the luxury apartments of the Thetis and Dioni Residences, close to the development’s new shopping and dining area offer a guaranteed berth within the Marina and prices range from €370,000 to €1,892,000.

Limassol Marina is operated and managed

by Camper & Nicholsons Marinas in partnership with Francoudi & Stephanou Marinas, thus combining the internationally renowned Camper & Nicholsons’ excellence in services and facilities with the best of local expertise.

Every berth has access to fresh water, electricity, fibre optic network providing high speed broadband, high-speed wireless internet and telephone, refuelling and waste removal services, haul-out and shore-side technical facilities, a boatyard for light repairs and maintenance, combined with 24-hour security and concierge services. It also has its own helipad.

However strange it may seem, Cyprus has never succeeded in attracting the wealthy yachting community to the island but this superb development has quickly gained attention and praise from around the world, thanks in part to the fact that the owners understood from the outset that they needed to create a marina resort that is capable of competing with the very best in the world. Limassol Marina has already given a much-needed boost to the country’s image by positioning Cyprus on the global yachting map and offering a new destination for living and sailing in the Eastern Mediterranean. It is attracting high-end buyers and visitors and thereby improving the quality of the island’s tourism product. Moreover, it has had an immediate effect on the economy through the creation of 500 jobs during construction and this figure is expected to double by the time the marina is fully operational.

Limassol Marina is arguably the most impressive and exciting tourism development in

T

he company bringing this prestigious project to fruition is Limassol Marina Ltd, a group of well-known developers, construction companies and investors with specialist knowledge and proven experience: Cybarco, J & P-Avax S.A, Joannou & Paraskevaides Ltd, Francoudi & Stephanou Ltd, Athena S.A., CADS Holdings Ltd, and the Limassol Marina Development Company Ltd. The project and sales are managed by Cybarco, an international contractor and property developer with a track record of more than 65 years in delivering quality projects to the highest standards.

The consortium responsible for the construction of Limassol Marina is Marina Lemesou Joint Venture, a group of experienced and reputable companies ensuring the timely delivery and high standards of the project. The four companies forming the Joint Venture are Joannou & Paraskevaides Ltd, J&P-Avax S.A., Athena S.A. and Cybarco Limited.

THE MAIN ATTRACTION OF LIMASSOL MARINA IS ITS EXCLUSIVITY AND IT IS THIS THAT IS APPEALING TO HIGH NET WORTH INDIVIDUALS

key aspect

the island’s history; it could not have been built at a better time, given the difficulties that have beset the island since the global financial crisis took hold. And it will surely play a key role in putting Cyprus and its economy back on course.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 17

Andreas Christodoulides

G

old: There was clearly a strategy to “think big” behind the Limassol Marina project, which is stunning in every way, from its overall design to the quality of the apartments/villas.

Were you ever afraid that it might be “too big” a concept for Limassol?

Andreas Christodoulides: This project is, undoubtedly, a first for Cyprus in terms of its unique design and scale. It was a challenge for all involved from the beginning but we were always confident it would complement the existing area and infrastructure well. The essence of the mixed use development, and its diverse lifestyle offering, carries so much weight by way of the impact it will have on our tourism, economy and image that it was important we didn’t compromise on the end objective. Despite the fact that it seems very big by our standards, and in comparison to what has been available in Cyprus to date, it is actually quite intimate and self-contained.

There are only 236 residences and 650 berths – it is a marina community in the heart of the city.

THE PERFECT COMBINATION

Gold: By its nature, the Marina is an exclusive project, yet you evidently want the people of Limassol and elsewhere to feel that it is accessible to them too. How do you combine these two seemingly mutually exclusive requirements?

A.C.: Quite simply by delivering the adequate balance of accessibility and security, high standards, variety, consistency in service and quality throughout. We set out to create an enticing destination not only for its residents, but also for the locals and tourists, with every intention of becoming the thriving hub of town. Limassol Marina combines privacy and community in a way that is both accommodating to the residents, offering the option of a lifestyle that meets their needs, and accessible to all. The public promenade, waterfront restaurants, cafés, bars and shops, the cultural centre, spa and fitness club and parking are there for the enjoyment and convenience of all visitors.

18 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

The design, style, location and facilities of Limassol Marina make it an investment that is sure to have an impact not only on the island’s second-largest town but on the tourism industry and the economy as a whole, says Andreas Christodoulides, CEO of Limassol Marina.

By John Vickers

COVER STORY

LIMASSOL MARINA COMBINES AND COMMUNITY IN A WAY THAT IS BOTH ACCOMMODATING TO THE RESIDENTS AND ACCESSIBLE TO ALL

privacy

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 19

COVER STORY

WE DO NOT FEEL OUR AND LIFESTYLE OFFERING HAS ANY REAL COMPETITORS IN THE EASTERN MED

location

20 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

unique

OUR LOCATION AND PRODUCT OFFERING COMPLEMENT EACH OTHER VERY WELL Gold: Over the next few years, how significant do you think Limassol Marina will be to Cyprus and to Limassol in particular?

A.C.: This development has already changed the face of Limassol and positioned Cyprus on the nautical yachting map. What it has successfully done for the image of our country, at a time when we needed it most, is truly unprecedented. It has created – and continues to create – new jobs, it is gradually raising the calibre of our tourism, attracting superyachts and investments to the area, upgrading the cultural centre of the town and boosting our economy. In the next few years, we are confident it will become an attraction for all visitors and the motive to return to Cyprus on their travels for longer periods of time. It will become a reference point for the yachting world, the business and investment world and continue to attract property buyers or yacht owners whose stay in Limassol will have a positive impact on local businesses and, in turn, the Cyprus economy as a whole.

you need to be able to offer safe and picturesque anchorages within easy reach. Cruising and enjoying everything that Cyprus has to offer is of the essence and we are looking forward to the other marinas’ development.

Their fruition can only help us in our efforts to establish Limassol Marina as an exciting destination in comparison to other Mediterranean countries.

Gold: With which marinas in the Eastern Mediterranean will Limassol Marina be viewed as a serious competitor?

A.C.: There are few marinas with similar integrated characteristics, particularly in such close proximity to the centre of a vibrant city. The superyacht marina combined with residences and commercial units, as well as an array of on-site facilities and services, is incredibly unique in this part of the Med. It is also the only new masterplan development offering luxury villas with private berths for yachts up to 60m attached to their garden.

We do not feel our location and lifestyle offering has any real competitors in the Eastern Med.

Gold: Were you forced to change or modify your plans (or property prices) due to the financial & banking crisis that affected the island, in particular after March 2013?

A.C.: March 2013 was unexpected. There was a period of time that felt very bleak for all of us. We did wonder how feasible it was for plans to progress but progress they did, merely at a very different pace. We were very fortunate that the marine works had already been completed by then. In fact, we had already spent approximately €210 million of the total estimated cost by March 2013 so we were on the path to completion. We had to persevere! There were extensive delays on the delivery of the commercial area but, otherwise, apartments were completed as planned, the marina became an official Port of Entry and welcomed the first yachts, and we managed to deliver the first show villa. In actual fact, property sales continued to rise.

Customers felt confident in our product, not just because of the companies behind its development but also because it is so unique, so we continued to sell. In the second half of 2013, we made up to €30 million in sales and reservations following the events of March. Prices were not modified as a result.

They have only ever increased!

Gold: Are you in favour of the development of other marinas around the island or will you view them as competition?

A.C.: Absolutely! There is no such thing as competition when it comes to access to other harbours, bays or marinas within a short sail.

In order to be attractive to yachts of any size,

Gold: Let’s look at the first of the three areas that are covered by the Project: Marina-related, residential and commercial.

From the yachting perspective, why did Limassol need a €350 million development of this kind?

A.C.: The development of a project of this

scale was long overdue and integral to the strategy for upgrading our tourism and positioning Cyprus on the yachting map.

Located at the crossroads of three continents, our setting, the island’s reliable climate, its safety aspect and diverse community are ideal for transient yachts looking for a versatile destination to visit on their travels.

For winter berthing, the ease of access and ability to integrate seamlessly are huge deciding factors when assessing convenience with cost of living, fuel and berthing. Offering a package to combine yachting with property, commercial facilities and services was essential for the longevity and viability of the Marina. We needed to create more than just a harbour; we needed to be more than just another port. We needed a destination that would succeed in attracting a range of visitors from all markets, including those of a higher calibre.

Gold: What sort of people will be (or are already) using Limassol Marina’s facilities?

A.C.: We have such a broad spectrum of people at Limassol Marina. It really does depend on which aspect of the development you are taking into consideration. The property residents are mostly from Cyprus, Russia, the Middle East and Europe. The yachts tend to be a combination of local long-term visitors, with transient yachts from the Middle East and the Eastern Med. Most superyachts stop over on their way to or from the Indian Ocean. Across the commercial area, we are attracting the local community, with visits from all towns, as well as tourists and professionals passing through on business.

Gold: Are yacht owners starting to invest in quality and lifestyle-based marinas such as this or do most of them view it merely as a temporary place for a short-term stay?

A.C.: It really does depend on the size of the yacht and the lifestyle on offer in each location. Many of the superyachts pass through marinas with their captain and crew so,

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 21

COVER STORY

although there is extensive use of facilities and services when available during their stay, they tend to spend more time experiencing the surrounding area without specific long- term plans. Lifestyle choices are made more by people with a prior connection to the destination itself. In Limassol, in particular, we have found that those who stay longer or enquire about properties have an affinity to the culture and the people.

Gold: Coming on to the residential aspect the Marina has 162 apartments and 74 villas, with prices ranging from €370,000 to €15 million. How have the sales gone so far?

A.C.: Sales are progressing at a very satisfying rate, with contracts in excess of €130 million already signed for the luxury apartments and villas. We have sold more than thirty units in the past year, something like €46 million in value since March 2013 which is very encouraging considering the challenges we all had to face. Buyers are identifying the unique aspect of Limassol Marina’s design. It is boosting the property market at a crucial time for us all.

Gold: Is the “Living on the Sea” concept of owning property in a residential marina one that you believe will attract many more yacht owners? How common is it elsewhere?

A.C.: It is not very common at all. In fact, aside from Miami which is instantly recognisable for this kind of product, there are very few marina developments in the world where you can moor your yacht outside your garden for such an extended period of time. The product is unique and is being recognized as a rare offering. The value of the berth in relation to the price of the villa is something a yacht owner can definitely appreciate. Limassol Marina is being identified for this element

of individuality – we do believe that, once the villas are completed, this concept will do increasingly well.

Gold: And regarding the commercial aspect, is this the one that you expect to engage local residents most, given that the marina is home to cafes, restaurants, shops, a cultural centre, etc?

A.C.: The commercial area exists to serve all residents, yachts, as well as the local community and visitors. Knowing Limassol’s trends, and the flow of traffic it entices throughout the year, it is evident that we will have a good mix of locals and tourists passing through.

Gold: I understand that the public response in June went beyond your expectations.

A.C.: It was incredible! To watch the project come to life within hours, having worked on a construction site which was closed off to the public for four years is very hard to describe.

It has been an amazing journey and the public response made all the hard work worthwhile.

Gold: When do you expect the project to be completely finished?

A.C.: The Peninsula and Island Villas are still under construction. We have also yet to begin building the apartments at Castle Residences.

We are aiming to complete the entire project by 2017.

Gold: How close to your idea of the perfect marina development is Limassol Marina?

A.C.: I am biased, I know, but we really have managed to make our vision a reality. I have visited many marinas and I would say when it comes to the perfect combination of all the above elements, we are very close! Our location and unique product offering complement each other very well.

For a private viewing of apartments & villas, call (+357) 25020020 or visit www.limassolmarina.com

22 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

A PROJECT OF THIS SCALE WAS INTEGRAL TO THE STRATEGY FOR OUR TOURISM AND POSITIONING CYPRUS ON THE YACHTING MAP

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Gold 23

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Gold 29

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30 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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POLITICIANS

SHOULD STAY OUT OF THE ECONOMY

AS MUCH AS POSSIBLE

32 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

INTERVIEW

SAGE

ADVICE

By John Vickers

S

ir Christopher Pissarides, Chairman of the Council of Economic Advisers of Cyprus, was awarded the 2010 Nobel Prize in Economics (jointly with Dale Mortensen of Northwestern University and Peter Diamond of MIT) for his work in the economics of markets with frictions. Prior to that, in 2005, he became the first European economist to win the IZA Prize in Labour Economics, sharing it again with his collaborator Dale Mortensen.

His book Equilibrium Unemployment Theory is an influential reference work that has been translated into many languages. He was knighted in 2013. In this, his first-ever interview with Gold, he discusses the present state of the Cyprus economy, the role of the Council of Economic Advisers, and the way forward.

IT IS NO SOLUTION TO THINK THAT IF

WE DO NOTHING,

THE REAL ESTATE SECTOR WILL EVENTUALLY

RETURN

Gold: How do you feel about being Head of the Council of Economic Advisers? Is it more interesting to be playing a role in policymaking than observing the economy as an academic?

Sir Christopher Pissarides: Well, we’re not actually involved in policymaking.

These are not official positions; there is no law that appoints us. When I first talked to the President, I told him that I would prefer to cover as many areas of the economy in which I have expertise as possible rather than focusing on a single aspect. In the past I had recommended the setting up of the Fiscal Policy Council – I think that the whole of Europe should have such councils but it wasn’t until the Troika arrived that they made the same point and it was done here –

but I wasn’t interested in heading that as it would be concerned exclusively with fiscal policy whereas I wanted to have a role which dealt with the whole economy.

He agreed and asked me how many people I thought should be appointed to the Council of Economic Advisers and what kind and he followed my recommendations exactly, which is why we are all independent academics. This is a big advantage in that we can identify issues that we want to study, look at them, write reports, talk to the responsible minister and the President, who is very interested and a good listener.

Gold: How would you describe the task and purpose of the Council?

C.P.: Its purpose is to advise the President on matters of economic policy. The way I see our task vis-à-vis the ministries of finance, labour, energy, etc. and the Central Bank is that they are concerned with day-to-day operations – now that there is a Memorandum, they are concerned about how to make sure that its various provisions are applied and the economy starts growing again – whereas we identify problems that are more long-term and ongoing for which ministers may not have time to discuss and deal with. They might say that we have to improve the business environment but there are so many other issues to deal with that ministers can’t always be expected to look at the broader picture. We have written reports on the banks and on privatisation issues and we are currently looking into the bureaucracy

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 33

INTERVIEW

that has built up so much in recent years and what can be done to reverse the process.

Gold: Given that economists often disagree over forecasts and the interpretation of statistics and events, are you more or less in agreement over what the Government’s strategy should be?

C.P.: We are in agreement on the overall strategy. On the details we have differences of opinion and we also differ on what we regard as the most important issues to be tackled first but we have good open discussions, which we are used to as academics, and there is unanimity in the reports we write.

Gold: Do you think that Cyprus’ economy has turned a corner? Are we going to see growth in the GDP in 2015 and 2016?

Will this growth be sustainable?

C.P.: We’re bound to see better data but we are likely to see a kind of stationality in the next year up to 2016 because of the time it takes to readjust the economy to a new structure after the collapse of the financial sector and construction. This is a problem that the whole of Europe has faced and, if anything, the depression and recession in Cyprus will be of a shorter duration than in Greece, Spain and Portugal for example, because the shock was not so deep as in those countries. The construction sector here was never as big as it was in Spain and Portugal and the debt situation wasn’t as big as in Greece but Greece was lucky because they poured money into it and helped much more than they did Cyprus.

Gold: How optimistic are you following the recent upgrades from the rating agencies and the results of the recent bond issue?

C.P.: It was to be expected that the rating agencies would eventually bring us up again in small steps, at least to the level of the rest of southern Europe, so I don’t think we have received anything that wasn’t expected. The bond issue went better than expected – it was oversubscribed – but with the benefit of hindsight it’s fairly obvious why this was the case. There are currently very few fixed income assets that offer a non-trivial rate of return around the world because of extremely low interest rates, rather stable economic conditions and no inflation expectations anywhere, so investors looking to diversify away from equity have a choice of many

I DON’T TRUST

POLITICIANS TO MAKE THE RIGHT APPOINTMENTS TO THE BOARD OF DIRECTORS OF COMPANIES IN WHICH THE

GOVERNMENT HAS A STAKE zero-rated return assets. When a country is under a Troika Memorandum and the Troika repeatedly reports that the country has been following all the rules, doing what it was asked to do, performing well and it does not foresee any problems, and that country then offers 5% on its bond, investors are going to dive in at once!

Gold: It is generally accepted that one of the three main sectors of the economy is that of services to the international investment community and High Net Worth Individuals. How can Cyprus become a better International Business jurisdiction?

C.P.: I think we have enough on the legal side – double taxation agreements, corporate tax structure, etc. – but where we have actually become a lot worse recently concerns the bureaucracy that we put investors through.

This is what the Council of Economic Advisers is looking at right now.

Gold: An in-depth look at a large number of major corporations in Cyprus reveals many fundamental structural problems: firms may be of a family nature, with no clear succession plans; there is often an absence of professional management, little corporate governance, growth based on debt, etc. What is your broad opinion of the country’s entrepreneurial and business environment?

C.P.: I agree entirely with your description, especially regarding the issue of proper

34 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

governance. They need to improve their outlook, to organise themselves and realise that it’s not a sign of success to place your son or daughter where you used to be. Family members can be shareholders, given that people want to leave whatever assets they may have to their children but it doesn’t necessarily follow that their children are the best people for the job, especially in some of the big firms. Then there is the other big problem: when asked if they have used political connections to get something done, the vast majority of businessmen in Cyprus, answer “yes”. We are the highest in Europe for this. I think politicians should stay out of the economy as much as possible. One of the main reasons that I am in favour of privatisation is that I don’t trust politicians to make the right appointments to the Board of Directors of companies in which the government has a stake, because appointments are made on the basis of political affiliations and not expertise. And this has been going on for years, with all governments and all parties, without exception.

Gold: Unemployment has reached unprecedented levels for Cyprus. Can the problem be resolved with short-term subsidies or is a long-term approach essential?

C.P.: No, the economy needs to recover.

Unemployment and especially youth unemployment is extremely high and measures like the European Youth Guarantee Scheme do help but there is too much bureaucracy involved. I’ve been told that very few countries have withdrawn any money from the fund that was set up. As an idea it’s very good to be able to have a job 4 months after finishing one’s education and there are other measures for older people such as retraining placements, subsidies to companies taking them on, etc. But these are not going affect the unemployment figures in any substantial way. The usual sequence of events is that the economy recovers, output rises, employment doesn’t rise by very much because companies work longer hours and harder to make up for their previous losses so labour productivity rises and then unemployment starts to fall but probably not until 1-2 years after the economy has recovered. In Cyprus it’s being suggested that we won’t recover until 2016 so there is some way to go.

Gold: Cypriot companies can no longer rely on bank finance for their growth,

and this situation appears unlikely to change any time soon. How can their financing problem be solved?

C.P.: The way around the problem is to deal with the non-performing loans first and then acquire liquidity one way or another, perhaps by selling the NPLs for cash. If the banks don’t have this burden there will be people willing to put liquidity into them, including other big financial institutions in Europe. As long as there is uncertainty hanging over them, it’s not going to happen.

Gold: On the question of NPLs, there has been a lot of talk about the huge debts owed by the market leaders in the Real Estate sector, with many saying that the banks should quickly repossess their mortgaged properties and start selling them in order to recover some of the debt.

Others say that this will destroy the property market. How should the banks be dealing with the real estate developers and their Non-Performing Loans?

C.P.: It is true that if the banks try and sell everything off, the real estate market will probably temporarily collapse. The people who will make lots of money when it recovers are likely to be foreigners because Cypriots don’t have much money. But they should make a start with the big firms.

Protecting the primary residence, which is what all the discussion in the House of Representatives has been about, is not the issue MPs should be talking about right now. The banks should be looking at the big developers and what loans they have – I think they are already doing this at Bank of Cyprus, even if they are not saying so in public – and they should indeed repossess some of the properties. There have already been some instances of a buyer obtaining a property for €1 but he has taken on the debt as well.

However, it is no solution to think that if we do nothing, the real estate sector will eventually return. That’s not going to work.

Gold: When you won the Nobel Prize in Economics in 2010, many people in

Cyprus were insisting that the island had been spared the effects of the global financial crisis. At what point was it clear to you that this was not true?

C.P.: Not long after I received the award, I went to Greece to give some talks and it was clear at the time that the Greek economy was unreformable and heading in one direction. I could see signs then that the Cyprus economy was heading in the same direction. The red tape and the rigidity in the market were being seen in Cyprus as well. The trade unions here had acquired far too much power to dictate what was going on in the economy, especially under the previous government, and they were refusing to compromise on anything, including things like indexation, shop opening hours, licensing, services provided by the nationalized industries and more. It was clear that this did not bode well for the future of the economy – sooner or later it was going to hit a brick wall and stop. But I admit that I never thought that the financial sector was heading towards disaster in the way it did.

Gold: Did you try to warn the government at the time?

C.P.: I did but I was told after a single meeting with one minister that we wouldn’t be talking again because they didn’t agree with me and, for the same reason, I wasn’t even invited once by President Christofias, even though he had originally asked to talk to me.

Gold: Do you think the Eurogroup and the Government could have negotiated a better arrangement than the bail-in?

C.P.: Given where we were in March, I don’t think we had any choice. It was a foregone conclusion. However, we could have negotiated before then because there had been a lot of talk and a lot of worry outside Cyprus and here we were simply ignoring the problem. If we had had a government that was listening to the media and seeing the direction of IMF and Eurogroup thinking, instead of just borrowing more and more Emergency Liquidity Assistance

it could have gone to the IMF, told them about the problem and sought to negotiate a solution that would not have involved a bailin of depositors, for example. Instead, the Government completely ignored them after receiving some response that it didn’t like and eventually the Eurogroup decided that it would wait and talk to the new president.

Even AKEL knew that Anastasiades would win the elections. I do blame the Eurogroup over the fact that, as soon as the new President came in, they basically gave him a big slap in the face as if he had misbehaved when he had actually done nothing of the sort. I have since had meetings with IMF and Eurogroup people who admit that the whole thing had been handled very badly and that the bail-in was wrong. On the other hand, I still hear from people who ask me why Cyprus should have been treated any differently from Greece, as if the two countries are just the same.

Gold: Is the government right to insist that the only way out of the crisis is by implementing the Memorandum of Understanding with the Troika to the letter?

C.P.: Yes, it is. Any talk about renegotiating the Memorandum is not serious. We have already negotiated it. It’s been agreed and finished.

Gold: On a personal note, are you happy to be back in Cyprus and playing a role in restoring your country’s economic fortunes?

C.P.: Well, my wife is always telling me that I’m too much of a patriot and sometimes I can see her point! It’s good to be helping but I can’t say that the whole experience has been positive. The entire economy of the country was destroyed and not only is no-one being punished for it but those in authority now are actually being threatened by those who should have been punished.

Indeed, no-one ever gets punished for anything, except he most trivial issues. This is an unfortunate reflection of Cypriot society.

ANY TALK ABOUT RENEGOTIATING THE MEMORANDUM IS NOT SERIOUS. WE HAVE ALREADY NEGOTIATED IT. IT’S BEEN AGREED AND FINISHED THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 35

OPINION

The Global Clampdown on Tax Evasion Coordinated action by governments is unprecedented in terms of transparency and disclosure.

W

hen the likes of Jose Manuel Barroso, Barack Obama, David Cameron and Angela Merkel sat down at the G7 Brussels summit in early June, one of the topics high on their agenda was tax, and in particular, how to tackle tax avoidance.

The issue has dominated debate among world leaders and the Organisation for Economic Cooperation and Development (OECD) in recent months. In fact, it’s the OECD that’s been driving an effort to coordinate information exchange between jurisdictions under a single global standard in an effort to develop tax transparency.

Moving on from America’s tax informationsharing agreement FATCA (Foreign Account Tax Compliance Act), which aims to stop US citizens using foreign financial accounts to evade tax, and UK FATCA, where there are agreements between the UK and Crown Dependencies and Overseas Territories to combat tax evasion, the OECD released the Standard for Automatic Exchange of Financial Account Information in February.

Clamping down on evasion and avoidance has become a priority.

The OECD Standard imposes obligations on financial institutions – the banks, brokers, funds, trusts, and insurance companies – to collect and report financial account holder information to their local tax authority. The local tax authority – in the UK’s case, HMRC – will then automatically exchange information about an account holder resident in a partner country on an annual basis.

As of March 2014, there were 44 jurisdictions committed to the early adoption of a Common Reporting Standard (CRS), which is due to start on 1 January 2016. By May, another 19 were added to the list. These jurisdictions will also comply with a Model Competent Authority Agreement (CAA), which specifies detailed rules on the exchange of information. Both of these components are intended to provide greater efficiency in reporting and reduce costs for financial institutions. And by 30 September 2017, report-

A global harmonized approach is key for the success of this important initiative

By Amy Duff

ing to partner jurisdictions under CRS should begin.

As Mariano Giralt, head of EMEA Tax Services at global investments company BNY Mellon told delegates at a breakfast briefing recently, this is the beginning of a new era for governments fighting tax evasion and avoidance. But it’s complex, and full of moving parts. What impact will the move to a global standard in tax sharing information have on businesses, organizations and citizens? Will we see obvious benefits from greater transparency? Will the system be fully workable for all stakeholders involved? And how long will it take to implement?

According to Giralt, the financial services industry is cooperating with political leaders to develop a common standard and implement an effective global automatic exchange of tax information. He says, “A global harmonized approach using the expertise of existing models, such as the European Savings Directive or the new US and UK FATCA, is key for the success of this important initiative.”

But there will be hurdles – local implementation could be a long process. And some questions remain unanswered: what happens when a country isn’t a participant, for example? Or what happens if someone puts something in an obscure tax haven? Will systems be ready? Will the tax take ultimately be worth the cost of systems enhancement? Will information be kept secure? Will governments be ready – if it’s a multilateral agreement, what sway will individual countries have?

It’s a huge initiative, points out Lorraine White, head of EMEA Securities Tax and US Tax Services at BNY Mellon. “This coordinated action by governments to crack down on tax evasion is unprecedented in terms of transparency and disclosure”. But the challenges are not insurmountable, says White.

And the cross-border gathering and exchange of information is an essential aspect of global financial markets, says Giralt. “The financial services industry continues to cooperate with political leaders to develop a common stand and implement an effective global automatic exchange of tax information.”

info: Amy Duff is the editor of economia. This article, published on economia.icaew.com, is reproduced with permission.

36 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

WELLBEING

G

iven the image of accounting as a successful and thriving profession in Cyprus and elsewhere, you may be surprised to know that the Chartered Accountants’ Benevolent Association (CABA) actually exists. Even more surprising, then, is the fact that it has been operating since 1886. Originally established to support those in penury and poverty (typically widows and orphans), its assistance has broadened over the past 128 years and, as Lucy Whitehall, Wellbeing Manager of CABA told Gold on her recent visit to Cyprus for a series of workshops, it now supports what she calls “people’s holistic wellbeing”.

The people that CABA supports are all current or former members of the Institute of Chartered Accountants in England & Wales (ICAEW), as well as students in training contracts and their dependents and

these days, it is not only retired members who are in need of assistance: “The demographic is shifting, although we still support a lot of retired members at home and overseas in various ways, including financially,” she explains. “They may have fallen on hard times or be elderly and/or with disabilities but we are helping increasingly younger people, possibly reflecting the changing ICAEW membership.

When the recession hit the UK in 2008, those who were contacting us were in their 40s and 50s, people who had probably never had to worry about getting a new job, never been made redundant, believing that they were in a job for life At that point we saw a definite increase in the need not just for financial assistance but for career support. These were people who hadn’t written a CV in 25 years, and didn’t know what communication skills they needed to work in other sectors.”

Lucy Whitehall’s own job title – Wellbeing Manager – is indicative of the change

of direction that CABA’s work has taken in recent years, moving away from the provision of financial assistance to emotional support and career coaching.

“One of our programmes is called ‘Beating the Blues’, which is very much about helping people with stress, anxiety and depression, and typical of the support we offer. We also offer career coaching to those who have been made redundant or are facing redundancy, and we support people in the UK with debt and benefits advice.”

So what is the one single problem facing Chartered Accountants around the world today that Lucy Whitehall has identified as the most serious of all?

“I would say that there are two: one is stress and the other is a lack of confidence and self-belief,” she replies without hesitation. “This is something that has been knocked out of many people, particularly those who have never had to think about changing their role. It may be that they have more work because their colleagues

Even members of the most successful professions are not immune to recession, redundancy and the need for retraining, says Lucy Whitehall, Wellbeing Manager of the Chartered Accountants’ Benevolent Association (CABA).

BEATING THE 38 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

We are dealing with extremely intelligent and well-educated people and so you can’t dumb things down have been made redundant and they are left behind; others may have discovered that their pension pot isn’t as big as they thought it was and so, instead of retiring at 65, they have to start finding new clients or doing something else on the side. This is a situation that we have seen in the UK and overseas.”

Last year, CABA became involved with local ICAEW members and the Institute of Certified Public Accountants of Cyprus (ICPAC) and it was suggested that the Association should perhaps do something here, addressing the issues of stress and building resilience. “It became clear to us that that the appetite was there,” says Whitehall. “We knew that ICAEW members in Cyprus were going through a hard time – in the UK, however bad it may have been, we never had the experience of the haircut on bank deposits, for example – so the idea of arranging a series of career support workshops came about.”

Asked about the response to the workshops in Cyprus, Lucy Whitehall beams with pleasure: “It’s been fantastic. People have been really enthusiastic and now they want more. I’ve been surprised at just how involved people have become in the workshops, given that some of them touch on very personal feelings about how they view their own behaviour and how they think.

The participants have been remarkably willing to consider a different way of thinking and discussing it with their colleagues.”

The reaction in Cyprus reflects that of the UK where CABA asks people after the courses if they feel that their wellbeing has been positively impacted and it receives ratings of 98%-99%. “We are lucky to have such extremely high quality trainers,” says

Whitehall.” We are dealing with extremely intelligent and well-educated people and so you can’t dumb things down. What we tell them has to be evidence-based.”

Is there any indication that Chartered Accountants have been affected by the recession more than other professionals?

It is a challenge to find data relating to other professions, though it does exist and accountancy is considered as one of the more stressful areas of work, with other professional services.

“In our own research carried out with our members in 2012 and 2013 we asked specifically whether they had taken time off work due to stress. Of the 15% who said they had taken time off work, 8% said it was due to stress. The figures were almost double those of the previous research. Of course, we can’t be sure whether they are feeling more stressed or just more comfortable reporting it.”

Given the positive reception to CABA’s recent workshops in Cyprus, can local ICAEW members expect more? Lucy Whitehall certainly hopes so: “It’s early days yet but, towards the end of this year, we’ll be carrying out research to decide what is needed overseas and not only in Cyprus. Having spoken with the HR heads of the top six ICAEW employers here, I feel there is both a need and an extremely positive desire for us to come back. The workshops in Cyprus have been a first for us – we’re still trying to reach our UK members, let alone our overseas ones! – but the appetite appears to be there and, if the evidence bears that out, we will certainly be coming back and supporting people. Of course, workshops only reach a certain number of people

BLUES

so we are looking into a multi-channel approach. Support can also be delivered online and by phone so we need to see if the Cypriot members are open to doing things that way. However we do it, it will be confidential and with no reporting to ICAEW.” Given that CABA operates independently of ICAEW, how is it funded?

Lucy Whitehall explains that, in the 1960s, the association was left a significant piece of land by a chartered accountant to be used as a legacy to support the welfare of other members of the profession. “The land was subsequently sold at the peak of the property boom in the ‘90s and consequently that gave us significant resources that allow us to be extremely broad in the support that we offer. People still leave us legacies. It’s been an eye-opener for me and I have never seen this level of benevolence which seems to pervade this particular profession. We don’t need to raise funds at all.”

Though a small organisation, CABA has extraordinary breadth and is able to react very quickly to changing circumstances. “Of course, there will always be more that we can do,” Whitehall acknowledges, “and we want to do more. We are prudent about we go about achieving that but as long as ICAEW members need us, we shall be providing all the assistance we can.”

Self-belief is something that has been knocked out of many people

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CYPRUS-RUSSIA

From Russia With Love STRAIGHT FROM THE SOURCE, GOLD FINDS OUT JUST WHY CYPRUS REMAINS THE APPLE OF RUSSIA’S EYE.

By Chloe Panayides Photo by Jo Michaelides

42 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

O

n seeing Evgeny Tarakanov’s enthusiasm for the Cypriot staple ice-cold café frappé, one would be forgiven for forgetting that the Financial Director of Bilarex is not, actually, from around here.

In fact, Tarakanov hails from the Eastern Russian city of Kostroma, which lies at the confluence of the Volga and Kostroma Rivers.

Despite his upbringing which seems to have been firmly grounded in a place that is worlds away from the sleepily serene Mediterranean island that is Cyprus, Tarakanov explains in earnest: “Cyprus has always been in my consciousness. I can’t remember a time when I didn’t know about Cyprus.”

Elaborating, he notes: “My first trip here was with my family, back in 1995 when I was still in primary school. For my mother and father, it was the first time they had been abroad since the dissolution of the Soviet Union. Despite its small size, Cyprus was – and still is – firmly on Russia’s radar.”

Considering that Russia is, by territorial area, the largest country in the world (constituting some 11.5% of its total landmass), it seems fair to pursue the avenue of exploration as to what, exactly, Cyprus – a tiny, unassuming island tucked away in the Eastern corner of the Mediterranean basin – possesses that has succeeded in intriguing this global giant so captivatingly.

And so it is that Tarakanov has volunteered his time – over a frappé – to share his perspective on these star-crossed countries’ story: the ‘why’, the ‘how’, and the ‘what lies ahead’.

“Cyprus serves as a gateway,” Tarakanov confides, “as a neutral location bridging the socialist world that Russians have always known, and the western world they have always wanted to explore.”

He continues: “As a child, I was very impressed with the island.

The plethora of shops, restaurants and department stores was a sharp contrast to what I was used to in Russia. I was mesmerised.”

Asked whether the same still rings true now that Russia has developed in tandem, Tarakanov replies assuredly: “In terms of landscape, the seamlessly blended green mountains and blue sea found here is very rare. Venturing further north in Europe, you would find too much rain; further south into Africa and you find deserts. Cyprus is just perfectly in between, and the prevailing sunshine is a real treasure. From this perspective, the island is truly blessed.”

And so it is that Cyprus endures, Tarakanov believes, as the apple of Russia’s eye, still surpassing its main competitors, “Russia and Cyprus have a common link as far as culture is concerned, probably spurred, in large part, by the common religious beliefs,” Tarakanov explains, “And I believe that the Church serves as a great source of trust.”

He elaborates: “The vast majority of Saints and icons are shared.

Additionally, a lot of monasteries in Cyprus (for example, Stavrovouni and Kykkos) and churches such as St. Lazarus are sites of pilgrimage for Russians and they are widely regarded in Russia as distinctive Holy sites.

“Historically, the Orthodox Church was brought to Russia from Constantinople one thousand years ago but its Greek roots are still evident. Russians in Cyprus therefore feel that they share the roots lain here.”

I hear everyone talking about ensuring that conditions get back to ‘normal’. However, Cyprus’ ‘normal’ was not good enough When grounding these facts in the Russia-Cyprus’ story, Tarakanov notes: “When considering why professionals from Russia feel comfortable about settling in Cyprus, the importance of religion shouldn’t be underestimated. Due to Russia’s communist past, religion was once abandoned. Cyprus is revered for having managed to hold on to this tradition and the island gives many Russians the opportunity to rediscover their religion alongside the revival it is currently undergoing in Russia.”

This common identity makes the transition easier for those coming to work and live here, Tarakanov reiterates: “We don’t feel that we could integrate in the same way as we do here into, say, Luxembourg, the Netherlands or the UK.” Language is an additional appealing factor, Tarakanov says: “Besides the Greek and Russian alphabet sharing some similar symbols, the majority of professionals here have learnt English as a second language. It creates a level playing field that would be entirely absent in, for example, the UK. We don’t feel uncomfortable communicating with people here, knowing that we’re all speaking a second language.”

Following his own schooling, Tarakanov studied for a degree in public administration (“essentially a combination of economics, law, tax, and leadership”) after which he sought to become a part of an international company.

“I applied to the ‘Big Four’ in Russia for an ACA training contract,” Tarakanov explains. And herein lies the catalyst that would propel this professional to this long-coveted island: a serendipitous occasion, no doubt.

“Unbeknownst to me, PwC Russia has a scheme in place in which prospective candidates may spend three of their five-year contract training with PwC in Cyprus, before completing their remaining two years at PwC Russia. As it happens, the option to remain in Cyprus following my three years of training was made available to me.

“This scheme has been exclusively struck between Russia and Cyprus: it is not available with other countries,” Tarakanov assures Gold, indicating to the depths to which these two countries have become aligned.

“Russia appreciates that Cyprus has a very long history of excel-

Encouraging international banks to establish a presence here is far more important than the upcoming stress tests THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 43

CYPRUS-RUSSIA

lence in professional services and it knows, therefore, that this small island is actually one of the best places to do one’s chartered accountancy exams. It’s beneficial for Cypriot employees as well, as the candidates from Russia who come here to do their training are highly motivated.”

Tarakanov estimates that each year, on average, some 1015% of PwC Cyprus’ overall intake for ACA training comprises Russian candidates.

Furthermore, he believes that being a part of such a big company in Cyprus has given him the opportunity to integrate smoothly, with settling-in aided by the ‘student’ environment of his training.

“Cypriots are very friendly, warm and welcoming,” he says enthusiastically, “and whilst society here may initially seem closed, people are willing to spend time on truly building a relationship and to introduce a foreigner to their culture. The presence of so many taverns bursting at the seams with delicious food helps,” he jokes.

Despite such positive ‘reviews’, the fear of Cyprus undergoing a mass exodus of foreign professionals and companies located on the island has remained a tangible one, due to last year’s unprecedented decision to bail-in uninsured depositors in the island’s two largest lenders.

Candidly, Tarakanov explains: “Cyprus certainly shouldn’t underestimate the impact of last year’s decision by the Eurogroup and the island must therefore respond accordingly to ensure the sustainability of a comfortable business environment.

“Attitudes have changed, that’s for sure,” he admits. “A great deal of fear has been felt considering the threat to uninsured (and at one point, insured) deposits. However, precisely because Russian professionals have purposely come here seeking a quality business environment, building a community in which to live and work, I don’t believe that people will abandon ship just yet.”

Still, Tarakanov is adamant: “That doesn’t mean that there isn’t more that could be done to improve conditions.”

By way of explanation, he states: “I believe that it is vital for Cyprus to stress and tend to its fundamental relationship with Russia, which, in large part, means sending a clear message: Cyprus is willing to become a more transparent centre for the investment of foreign money into Russia. Considering how isolated Russia is from the western world, this constitutes a real opportunity for Cyprus to develop its role even more as that of an entry point into Russia for other countries wishing to invest. But in order to do this, the island really needs to absolutely, unequivocally, shed its ‘offshore’ persona, and build an identity as a transparent jurisdiction. In the long run, this will

When considering why professionals from Russia feel comfortable about settling in Cyprus, the importance of religion shouldn’t be underestimated 44 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

BILAREX CO. LTD

B

ilarex Co. Ltd is an international company that has operated in Cyprus since 2002 and currently operates primarily in the areas of private wealth management and consultancy services. The constant focus of the company is the provision of the highest quality services to its stakeholders. Bilarex, via its presence in the country as well as its international operations, helps Cyprus to maintain and promote its status as one of the key business centres in Europe and beyond.

engender a more constructive, sustainable relationship.”

At the mention of transparency, the issue of Cyprus being at risk of being placed on Russia’s ‘blacklist’ cannot help but make an entrance into the conversation.

“Russia is definitely becoming more assertive in relation to its double taxation treaties (DTTs) and the idea of ‘deoffshorisation’,” Tarakanov notes.

“It’s precisely for this reason that I think Cyprus should start thinking long-term. Overall, the island needs to change its mentality when it comes to the question of ‘blacklists’. As soon as the threat of being placed on a country’s ‘blacklist’ becomes apparent, everyone scrambles to ensure that this doesn’t happen. But why aspire simply to be just good enough to not be placed on a blacklist, as opposed to aspiring to being so good that you are assuredly, inevitably, on a country’s figurative ‘whitelist’? Cyprus definitely needs to aim higher,” Tarakanov states emphatically.

As a foreign professional working here, what is Tarakanov’s perspective regarding general improvements to the system?

“I feel there is definitely room for improvement: Cyprus should define its key pillars, address them accordingly if needs be, and promote them in a structured capacity. For example, certain Government departments need to be digitized – desperately.

Even Russia is ahead from this perspective! Moreover, Government circulars – such as those from the tax authority – should be made available in English, so that foreign professionals working in Cyprus can remain informed on relevant developments.”

He continues: “Cyprus wants foreign investors, but Government bodies are simply not transparent and efficient enough yet.

Most Russian professionals from middle to top management positions will express the grievance of having had a less than good experience at one point or another.”

When questioned as to how big a difference these details could make, Tarakanov muses: “I actually believe that more Russian companies would consider moving their headquarters here if these little details were tended to.”

As for the ailing banking sector, Tarakanov concedes that more time will be needed to address this issue, but it is vital nonetheless: “ When it comes to regaining trust, encouraging international banks to establish a presence here, as well as ensuring that all foreign capital restrictions are lifted, is far more important than the upcoming stress tests.”

Concluding, Tarakanov states: “Whilst an alliance has certainly been forged between Russia and Cyprus, now is the time for Cyprus to outperform. I hear everyone talking about ensuring that conditions get back to ‘normal’. However, Cyprus’ ‘normal’ was not good enough, nor sustainable, as evidenced by the fury with which the economy spiraled uncontrollably downward.

There should be a ‘call to arms’ to all stakeholders – both local and foreign – to ensure that things don’t simply get back to normal but, instead, far surpass expectations. Then we’ll know that the recovery is in sight.”

INTERVIEW

EMERGENCY Dr. Anna-Maria Yiannikos

Dr. Anna-Maria Yiannikos has been practicing dentistry for over 23 years and is a WPVULLY PU [OL Ã&#x201E;LSK VM +LU[HS 3HZLYZ HUK *VZTL[PJ +LU[PZ[Y` /LY *SPUPJHS 9LZLHYJO PU[V +LU[HS 3HZLYZ YLJLP]LK H .VSK (^HYK H[ [OL 0:3+ *VUNYLZZ PU )LYSPU PU :OL PZ HSZV [OL *V\YZL +PYLJ[VY PU JVVWLYH[PVU ^P[O 7Y 5VYILY[ .\[RULJO[ VM [OL UL^ PUUV]H[P]L +LU[HS )\ZPULZZ (KTPUPZ[YH[PVU WYVNYHTTL +)( VM [OL ((3A (HJOLU +LU[HS 3HZLY *LU[YL VMMLYLK QVPU[S` PU *`WY\Z HUK .LYTHU` +Y @PHUUPRVZ PZ HU (KQ\UJ[ -HJ\S[` 4LTILY VM [OL ((3A H[ 9>;/ (HJOLU <UP]LYZP[` *HTW\Z HUK H SLJ[\YLY MVY [OL 4HZ[LY *V\YZL ¸3HZLY PU +LU[PZ[Y`¹ MVY [OL 4HYRL[PUN 4VK\SL H[ 9>;/ (HJOLU <UP]LYZP[` .LYTHU` She has been a keynote speaker at U\TLYV\Z 0U[LYUH[PVUHS *VUNYLZZLZ VU 3HZLYZ PU +LU[PZ[Y` HUK OHZ YLWYLZLU[LK *`WY\Z H[ [OL >VYSK -LKLYH[PVU MVY 3HZLY Dentistry. +Y @PHUUPRVZ OHZ [^V 4HZ[LY»Z +LNYLLZ PU 3HZLYZ 4:J PU )\ZPULZZ (KTPUPZ[YH[PVU 4)( HUK ZOL YLJLU[S` JVTWSL[LK H 4HZ[LY *SPUPJPHU 7YVNYHTTL PU (LZ[OL[PJ +LU[PZ[Y` H[ <*3(

w

hen I left Cyprus on a business trip in March 2013, after a gruelling two months caused by the total renovation of my dental centre, I could not have anticipated that, upon my return, I would have to change my professional life after 23 years in dentistry due to the financial crisis in my home country.

Whereas I used to see an average of 2025 patients per day, I fell into single figures that first month, as most people were unable to pay for basic dental treatments.

Our banking system had collapsed, a large number of depositors had suffered a â&#x20AC;&#x153;hair-

46 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

BUSINESS

HOW THE FINANCIAL CRISIS IN CYPRUS LED A DENTIST TO CHANGE MANY ASPECTS OF HER PRACTICE FOR THE BETTER

By Anna Maria Yiannikos, DDS

cut” of their funds and, above all, we could withdraw only a certain amount of money from the bank. The worst part was that we had no idea when this situation would end.

It was clear that this was not just any economic crisis – we were in the eye of a black hole. I had to act immediately, set aside emotions and act outside the scope of my comfort zone. This is how I went about it.

STEP 1: 0 ÄYLK T` KLU[HS HZZPZ[HU[ ^OV OHK ILLU ^P[O TL MVY `LHYZ Management books advise us not to take this action, as the people in our practices are considered assets for the business. Yes, but this assistant was too comfortable in the office and, for her to progress, I felt that I would have to accept what I considered unnecessary behaviour.

MY FIRST ASSESSMENT OF STEP 1: Compulsory but welcome. Meanwhile, my receptionist offered to increase her duties and assist me during dental care procedures.

Despite the crisis, not only did I not reduce her salary but, after two months, I gave her an increase to thank her for her willingness and prompt action. My second evaluation of Step 1: People who do not go with the flow should be dismissed and only true talent remains with the practice.

STEP 2: 0 JOHUNLK Z\WWSPLYZ Those same management books suggest negotiating with suppliers in order to obtain materials at better prices or asking them to increase the credit period. In our case, not only was this impossible (the number of suppliers shrank immediately and the small suppliers disappeared completely) but prices skyrocketed. To obtain products I had to pay cash on delivery.

If, for some reason, I was unable to pay immediately – for instance, I was out of the office or with a patient – a supplier would leave, taking his products back with him.

Resolving this issue required a two-day trip to one of the most popular dental exhibitions and filling some suitcases with the same consumables I usually purchased from my representatives. Don’t even get me started on the prices!

I also placed a large order from one of the

manufacturing companies of the products we used often.

MY EVALUATION OF STEP 2: These choices gave us the opportunity to minimize our costs and release some tension and unneeded pressure.

I had to act immediately, set aside emotions and act outside the scope of my comfort zone STEP 3: 0 YLULNV[PH[LK T` SVHU PUZ[HSTLU[Z One of my personal principles has always been to pay my loan instalments on time. This had to change immediately. After a tough negotiation with my banker, we agreed to freeze the loan repayments for six months and for payment of the previously agreed amount to restart after this period.

MY EVALUATION OF STEP 3: Taking these measures was essential. I had to gain time and those 12 months would prove to be very significant.

STEP 4: 0 JOHUNLK T` Z[YH[LN` After obtaining my MBA, I had followed the strategic plan of Michael Porter concerning the management of my dental centre. (Porter, a famous strategist, had a clear position on this, saying that we should either be a dental practice known for its diversity, or we should offer the cheapest dental services in the market.

We should never implement both strategies and never stick in the middle.) The strategy I had followed since I opened my dental practice was one of differentiation and diversity but I cannot deny that I was tempted to reduce the prices of treatments, as many of my colleagues did. But I knew it would lead to further deterioration. Imagine the impact that a price reduction would have on the business when coupled with the reduced number of patients!

In the end, I went against the teachings of Michael Porter in this way: we continued to offer high-quality treatments without lowering our prices. However, for treatments for which, due to the circumstances, there was now no demand (bleaching, in particular), we offered the lowest prices in the market.

MY EVALUATION OF STEP 4: We experienced a high demand for this particular low-price service and the number of new patients grew by 200% over the pre-crisis figure.

Moreover, thanks to having the opportunity to meet us through this low-cost treatment, people then gave us the opportunity to introduce them to additional treatments that interested them.

STEP 5: 0 JOHUNLK T` WOPSVZVWO` For years my philosophy had been to take care of patients by providing high-quality services. I had to change this approach and, by matching my longstanding philosophy with today’s trends, we decided to inform our patients about the broader relationship between oral and general health.

MY EVALUATION OF STEP 5: We created aware patients who recognized and respected their dentist as a doctor who truly cares about their health across its wide spectrum.

STEP 6: 0 OHK [V ZH` NVVKI`L [V T` JVTMVY[ aVUL For five years I had been thinking about how much I would love to create a world-class educational and research centre for dentists and dental professionals and to train them in every aspect of dental clinic management – a mini MBA programme. For years I had been debating about the idea and I finally reached the stage where I said, “It’s either now or never!” After three trips to Aachen, we launched my dream course in May. Now, a year after the initial economic crisis, the situation in Cyprus is not as tragic as it was during the first six months. We certainly still have a long way to go but – thanks to disobeying the strategists and disagreeing with some of the accepted theories – I now feel that I have taken my professional life back into my own hands.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 47

OPINION

Flying Pigs and Black Swans The possibility of Scottish independence and a UK exit from the EU

T

here are a variety of paths the UK can follow, given that it faces an Independence referendum in Scotland and potentially another referendum - contingent on an uncertain General Election result – on it, cum or ex Scotland, departing the EU. Not only can no outcome be entirely dismissed; each will no doubt be given a different probability according to one’s viewpoint. Indeed, the probabilities as we see them today will no doubt change with time. Furthermore, one could include many other events, each with their own contingent outcomes, all of which will have knock-on effects. Most important of all, there is the issue of how events unfold economically, within the UK and across Europe. Allowing for all the fog, I am committing myself to predictions predicated on the GDP forecasts for the UK and Germany.

My central case begins with the September 18 referendum resulting in the Scots rejecting independence. This would, of course, mean Scotland still being in-parliamentary-play for the next General Election. When this is held in May 2015, its outcome will turn crucially on economic fortunes and these, I believe, will be more favourable to the Coalition than they currently are. With a following economic wind and a UKIP-neutralising EU referendum pledge, I expect David Cameron to still be Prime Minister once the counts are complete. Indeed, I believe Cameron’s prospects will be helped by developments within Scotland, even in the wake of a ‘No’ to independence and the continuation of Scottish seats in Parliament.

Having failed in its independence ambitions I am convinced that the SNP will turn its attention to a dash for Dev-Max, devolving as many powers as quickly as possible from Westminster to Holyrood. In doing so, MPs representing Scottish constituencies would be expected, as a matter of protocol, to sit-out “West Lothian Questions” – Labour would of course resist – thus making even a slim Coalition/Conservative majority “workable”.

I accept that there is a chance of May 2015 seeing a repeat of February 1974, and a short-lived minority government followed by a second vote,

The 2017 EU referendum will result in a vote for continuity

info: Dr. Savvas Savouri is a Partner and Chief Economist of Toscafund.

48 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

By Savvas Savouri

and unwelcome uncertainty in between. Only time will tell but my expectation is that David Cameron will remain as Prime Minister and press ahead with a referendum in 2017 on the UK’s membership of the EU. As for the idea the Liberal Democrat Party shifts its coalition allegiance to the Labour Party, all I can say is that such a change in partnership would require some brass-neck on the part of Nick Clegg. Of course it would be possible with a new leader but still highly unlikely in my opinion.

Returning to my central case I have little doubt that the 2017 EU referendum will result in a vote for continuity, just as I expect it to be when Scots go the polls. However, I believe the backdrops for these two votes will be quite different. For Scotland, the decision to remain united will catalyse nationalists to devolve as much power as they can.

By contrast, the outcome of the EU referendum will be heavily influenced ahead of it by Westminster gaining considerable devolution of its own.

So much then for my central-case, what some might of course see as the “pigs flying” scenario.

What of others?

However low I personally chose to put its probability, it is still possible that the Scots vote for independence (and their nation departs the Union in March 2016). Scottish independence would force me to revise upwards the probability I attach to the rump of the UK voting to exit the EU. Let me be clear: I am not suggesting that it would make it probable; simply less improbable. My reasoning is that Scottish independence could not fail to create a back-draft of English nationalism (with Wales, too, seeing an upsurge). In fact, were London’s economy to follow the impressive growth path I expect, and ripple benefits outwards around England, this too would help the cause of EUsecessionists, claiming as they would that we can go it alone economically.

As we choose to make what we consider informed judgements on likely outcomes for uncertain events, we have to deal with each one as we come to it, as well as allowing for others which we never even thought of as happening or mattering.

This is less about “Flying Pigs” as “Black Swans”.

THE CYPRUS FIDUCIARY ASSOCIATION

PROMOTING

CYPRUS

T

he Cyprus Fiduciary Association was established in November 2011 on the initiative of a number of leading firms in Cyprus providing fiduciary, management and administrative services to companies engaged in international business activities. The aim of the Association is to serve Administrative Services Providers (ASPs) by promoting their interests, supporting their operations and educating their staff.

Its vision is to assist in creating a solid and strong fiduciary sector, operating to high professional standards and with integrity.

The main goals and objectives of the Association are: • To protect, support and promote the common interests of its members • To assist its members in raising the standard of their operations and developing the required internal controls and procedures • To educate its members on topics related to the sector • To liaise with all related authorities for the development of the fiduciary sector in Cyprus • To promote Cyprus as a reputable business and financial centre • To act as a contact point for all international clients requiring information on the Cyprus jurisdiction Since the Association’s establishment, it has become a recognised representative of the sector, acting on behalf of ASPs before the Ministry of Finance, the House of Representatives, the Cyprus Securities & Exchange Commission, and other public and private authorities.

Photography by Jo Michaelides

THE NEED FOR STRONG REGULATION The Cyprus Fiduciary Association (CFA) believes that the level of the administrative services sector and the credibility of the country as an international business centre are directly related to the effectiveness of the sector’s supervisory authority. Supervisory authorities should not be treated as a burden to the governmental budget, but as organisations that add value both to the supervised entities and the country itself.

In a recent statement, the CFA reiterates its firm conviction that, with respect to the provision of administrative services, proper and independent supervision will result in the application of best practices by the supervised entities (ASPs) in the procedures for prevention of money laundering and terrorist financing, as well as in other operational procedures. “Especially today,” it notes, “when attention internationally has turned to combating tax evasion, money laundering and terrorist financing, the effective supervision of the Administrative Services sector will ensure the proper organisation and structuring of ASPs in order to avoid any negative developments in a key economic sector that would further denigrate our country internationally.”

With this in mind, the CFA believes that the supervisory authority must be fully staffed with a sufficient number of employees and ongoing training. “The workload and importance of the role it performs do not allow any discounts on the quality and effectiveness of the authority’s job,” it says, noting that its position is that “the sector supervisory authority should enjoy the necessary independence for an impartial and unhindered execution of its tasks and that all ASPs should be subject to the same regulatory framework. The administrative services sector encompasses greater and more complex risks than those related to money laundering and terrorist financing, and our view is that the

supervision by self-monitoring bodies, covering almost 80% of ASPs in Cyprus, does not ensure the survival of the sector and credibility of our country in the long term.”

The Cyprus Fiduciary Association notes that, since its establishment, it has tried to promote the supervision of the sector, in particular at a time when there was no legal framework.

“Now our objective is to support the efforts of the independent supervisory authority established by law, to provide our members with technical support and training for the proper evaluation and management of risks, and the implementation of best practices to ensure quality services and promotion of Cyprus as a business centre,” the Association says.

George Ioulianos, General Manager CFA

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 49

MEMBERS OF THE BOARD OF DIRECTORS Arno Bijl Managing Director, Intertrust Cyprus

He joined Intertrust as Business Development Manager in Luxemburg in 2005, after which he became Managing Director of Intertrust Sweden and Intertrust Denmark.

0U OL ZL[ \W [OL JVTWHU`ÂťZ VMĂ&#x201E;JL in Cyprus and was appointed Managing Director of Intertrust Cyprus. He is a Director and Member of the Board of SHYNL JVYWVYH[PVUZ 7YP]H[L ,X\P[` Ă&#x201E;YTZ and SMEs operating internationally. With X\HSPĂ&#x201E;JH[PVUZ PU THYRL[PUN ZHSLZ HUK management, he has a broad knowledge of business and organisation development, organisational restructuring and general management in various countries.

Peter Petrou Director & Head of Compliance, Vistra (Cyprus) Ltd He began his career at Lloyds of London as a Syndicate Accountant and, after qualifying with the Chartered Institute of Management Accountants (CIMA) in 1992, gained a wealth of experience working in the UK across a number of diverse sectors.

He also obtained a Management Diploma from Henley Business School. From 2003 he worked as Group Financial Controller for Work Group plc, which successfully went through an IPO in 2006. He moved to Cyprus with his family in 2007.

Christophoros Koutouroushis General Manager, Bizserve Consultants Ltd He joined Bizserve Consultants Ltd as General Manager in April 2007 following a 10- year career in banking, having QVPULK 4HYĂ&#x201E;U3HPRP Bank in 1997 as a Private Banking Portfolio Manager. In February 2001 he joined Alpha Bank as Manager of the Private Banking Unit and during his 6 years there he also served in a number of other posts. He holds a BSc in Economics from the University of Warwick, an MSc in Finance & Economics, and an MBA from Warwick Business School.

Constantinos Economides Managing Director, Orangefield Fidelico Ltd

Christos Michael Managing Director, First Names (Cyprus) Ltd A fellow member of the Association VM *OHY[LYLK *LY[PĂ&#x201E;LK (JJV\U[HU[Z (ACCA), he holds a Masterâ&#x20AC;&#x2122;s Degree in Accounting & International Finance from the University of Glasgow. He started his professional career with Price Waterhouse in 1992 and joined Chrysanthou & Christoforou in 1997.

Following the merger with Deloitte he became an audit partner. He later became a Board member of ExcelServe, which was acquired by IFG and subsequently by First Names Group, where he currently holds the position of Managing Director in Cyprus.

He has been involved in the advisory, set-up and management of a number of Cyprus companies, International Trusts and International Collective Investment Schemes, as well as acting as a tax advisor on international projects. A Fellow Chartered Accountant and a member of the Institute of Chartered Accountants in England & Wales (ICAEW), he holds an MSc in Management Sciences. He trained with Ernst & Young 3VUKVU HUK +LSVP[[L *`WY\Z ILMVYL ZL[[PUN \W OPZ V^U Ă&#x201E;YT -PKLSPJV ^OPJO TLYNLK ^P[O 6YHUNLĂ&#x201E;LSK ;Y\Z[ .YV\W PU

50 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Nicos Tsiakkas Managing Director, Totalserve Management Ltd Before joining Totalserve, where he is responsible for the management and the development of the Groupâ&#x20AC;&#x2122;s services, he worked in the IT and Treasury departments of a local bank, for its insurance subsidiary and as Finance Manager of a public company. He holds a degree in Computer Science from the University of Manchester Institute of Science and Technology (UMIST) and he is a fellow of the Institute of Chartered Accountants in England & Wales (ICAEW) and a member of the Society of Trust and Estate Practitioners (STEP).

OUR VIEW IS THAT THE SUPERVISION BY SELF-MONITORING BODIES, COVERING ALMOST 80% OF ASPS IN CYPRUS, DOES NOT ENSURE THE SURVIVAL OF THE SECTOR AND CREDIBILITY OF OUR COUNTRY IN THE LONG TERM.

Petros Livanios Managing Director, Trident Trust Co (Cyprus) Ltd

CFA MEMBER

After working for 7 years at P. L. Cacoyiannis & Co Law 6MÄJL OL QVPULK :H]ZLY Management Ltd in 1990 as a Director and Manager of the Corporate Department.

In 1992, Savser Management was acquired by the Trident Trust Group and he was appointed as Managing Director in Cyprus.

He is a member of the Society of Trust and Estate Practitioners (STEP) and the International Tax Planning Association (ITPA). He holds a Diploma in Political Science & Public Law from Athens University.

FIRMS

1. AJK Bureau of Consultants Ltd 2. Alecont Group Ltd 3. Amicorp (Cyprus) Ltd 4. A. Neocleous Trust Company Limited

Pambos Hadjisavvas Compliance Officer & Human Resource Manager, Proteas Management Ltd He is a successful executive with ÄYZ[ JSHZZ L_WLYPLUJL PU IHURPUN I\PS[ over 24 years of service with Bank of Cyprus plc. with wide exposure to International Banking Services. His areas of expertise include Relationship Management, Staff Training & Development, Compliance and Risk Management. He has a Master in Business Administration (MBA), a Management Studies Diploma in Financial Services from the University of Manchester Institute of Science and Technology (UMIST) and a Banking *LY[PÄJH[L MYVT ;OL *OHY[LYLK 0UZ[P[\[L of Bankers.

George Savvides Managing Director, Fiducenter (Cyprus) Ltd Recently unanimously re-appointed as CFA President for a second term, he graduated in Accounting & Finance from Lancaster University, UK. He is a Chartered Accountant, a member of the Institute of Chartered Accountants in England and Wales (ICAEW) and of the Institute of CertiÄLK 7\ISPJ (JJV\U[HU[Z of Cyprus (ICPAC). He is also an Associated Arbitrator, member of the Chartered Institute of Arbitrators (CIArb).

He has organised and/ or participated as a speaker in various conferences and other professional events in Cyprus and abroad.

Andreas Marangos Managing Partner, Marangos & Hadjipapa LLC & Lawmar Fiduciary Services Ltd He graduated in Law from the University of Luton and obtained his L.L.M. there in 2000. He was admitted to the Cyprus Bar Association in 2001.

His main areas of practice are Corporate and Commercial Law, Foreign Investments in Cyprus and abroad, International Tax Planning, Admiralty and Marine Law, Aviation Law, Arbitration, Property Law and Conveyancing.

He is a member of the Chartered Institute of Arbitrators and the International Bar Association and Deputy Chairman of Cyta.

5. Asoted Services Ltd 6. Aspen Management Services Ltd 7. Bizserve Consultants Ltd 8. Blaustein Corporate Services Ltd 9. Boudica Trust Co Ltd 10. Brazhnikov & Partners Ltd 11. Centaur Trust Services (Cyprus) Ltd 12. *OLZ[LYÄLSK 4HUHNLTLU[ 3[K 13. Citco (Cyprus) Ltd 14. Emerald Consulting Ltd 15. Epsilou Management Services Ltd 16. EurofastTaxand Ltd 17. Fiducenter (Cyprus) Ltd 18. Fiduciana Trust (Cyprus) Ltd 19. First Names Group 20. Freemont Corporate Services (Cyprus) Ltd

21. Guricon Ltd 22. Interstatus Business Services Ltd 23. Intertrust (Cyprus) Ltd 24. Korpus Prava Corporate Services Ltd

25. Laveco Ltd 26. Lexpro Holdings & Consulting Services Ltd

27. Mastserve Ltd 28. Midland Consult (Cyprus) Ltd 29. M.S.O. Corporate Services Ltd 30. Mutual Trust Cyprus Ltd 31. Nobel Trust Ltd 32. Opus Services Ltd 33. 6YHUNLÄLSK -PKLSPJV 3[K 34. Oxford Management Ltd 35. Pageserve Ltd 36. P.C. Nordic Finance Limited 37. Polymage Consulting Ltd 38. Profserve Holding Ltd 39. Protteco Trust Company Ltd 40. Raven Russia Management Company (Cyprus) Ltd

Demetris Achilleos Senior Manager, Corporate & Legal Department, Oxford Management Ltd A member of the Cyprus Bar Association, he has practised law since 2006 and has extensive experience in Corporate and Tax law. He holds an LLB (Hons) and a Masters of Corporate Law from Kingston University. He joined Oxford Management Ltd in 2009 and he now a senior manager, managing a diverse portfolio of corporate entities while directing a wide range of commercial transactions at an international level. He regularly W\ISPZOLZ HY[PJSLZ VU PU[LYUH[PVUHS [H_ HUK ÄK\JPHY` ZLY]PJLZ developments.

41. S&S Management Services Ltd 42. Shanda Consult Ltd 43. SMC Med Trustees (CY) Ltd 44. STM Cyprus Ltd 45. Stratus Associates Ltd 46. TMF Administrative Services Cyprus Ltd

47. Totalserve Management Ltd 48. Trident Fiduciaries (Middle East) Ltd 49. Trident Trust Company (Cyprus) Ltd 50. Vistra (Cyprus) Ltd 51. V.M.L Venture Management Ltd

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 51

OPINION

Attracting the Crème de la Crème A simple four-point improvement plan could improve Cyprus’ profile as a destination for wealthy foreign investors.

H

igh Net Worth Individuals (HNWIs) are most certainly the cream of the crop when it comes to potential investors. As recovery in Cyprus is expected to be driven by foreign investment, foreigners with huge sums of personal wealth are – for obvious reasons – extremely attractive investment candidates for the Mediterranean island.

If these individuals are to be inspired to transfer even a mere portion of their considerable funds to Cyprus, it would surely be wise to improve certain aspects of the jurisdiction in various ways. With Cyprus’ amended citizenship scheme now viewed as more favourable for collective investors at least, the island has fulfilled one attractive investment prerequisite and begun its course to attract HNWIs, many of whom seek such second citizenship for both business and personal reasons.

Now, to continue the momentum of this recent revision, I suggest that the following four adjustments should also be made: 1. Tax Legislation: Certain aspects of Cyprus’ tax legislation need to be changed, in order to make the island even more attractive to its target investors.

Specifically, measures should be enforced, dictating that HNWIs are taxed on remittance basis. This means that the individual would be taxed on the revenue he/she makes in Cyprus rather than on worldwide income. Rather than preventing Cyprus from capitalizing on the collective wealth of an HNWI, such legislation will actually encourage these investors to bring substantial operations to the island – providing more profitable long-term benefits.

2. Entertainment Facilities: Although there is a growing number of golf courses on the island, high-end entertainment facilities currently appear limited to the golf/spa category. By expanding its entertainment offering, Cyprus will become more attractive, both to foreigners and locals, encouraging tourism as well as investment. This adjustment is already under way, with the planned development of marinas and casinos around the island. However, these developments must not stall and every effort

Bureaucratic practices offer no advantage either to the Cypriot authorities or to potential investors

By Effy Pafitis must be made to ensure their ultimate realisation.

Moreover, other entertainment avenues should also be pursued, such as theme parks and nature parks.

3. DDTs and BITs: The responsible authorities should endeavour to improve Cyprus’ network of Double Tax Treaties (DTTs) and Bilateral Investment Treaties (BITs) with other countries.

The country’s DTT network currently consists of 50 treaties. While they include agreements with a broad spectrum of strategically selected countries, Cyprus could benefit greatly from pursuing DTTs with African, Asian and South American countries. This benefit would come in the form of attracting the attention of the populations of the 2,775, 44,505, 14,150 recorded High Net-Worth Individuals in these regions, respectively.

Similarly, it is important to expand Cyprus’ BIT network. The island is currently party to 28 BITs but it is imperative to develop this network to – at least – cover all of the countries with which Cyprus has a DTT, thus providing investment protection in the investment host nations.

4. Bureaucracy: Last but most certainly not least, Cyprus must – urgently – address the issue of bureaucracy. A major hindrance, cited by the majority of professionals in the professional and financial services sectors, red tape essentially slows down the vital processes that must be completed in order for companies and HNWIs to establish themselves in Cyprus.

Bureaucratic practices offer no advantage either to the Cypriot authorities or to the potential investors and others whom they inconvenience.

The matter must be dealt with as soon as possible.

The pursuit of these measures – resulting in a more streamlined system – would not only make the country more attractive to investors of all kinds but it would also benefit the Cypriot people. Apart from encouraging economic growth, the process would result in the tangible enhancement of the country in which we live.

The key to attracting High Net Worth investors may not be as easy as ABC but it could be as simple as the 1-2-3-4 above.

info: Effy Pafitis is a member of the Gold editorial team.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES

Gold 52

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FINANCE

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“A CRISIS IS A TERRIBLE THING TO In the context of the release of the recent ACCA report entitled Financing SMEs in Cyprus: No Stone Left Unturned, Past President of the ACCA, Mark Gold, explains how wasting the opportunity of the crisis may leave Cyprus, once again, wanting in the future. Rather, addressing shortcomings, instigating fundamental structural changes and ensuring diversity in its quest to guarantee the survival of SMEs will provide the much-needed plot twist that delivers a happy ending to Cyprus’ recovery story.

By Chloe Panayides

C

yprus, it seems, is at an impasse. With economic recovery having commenced explosively in March 2013, stagnation has ensued as stakeholders struggle to untangle the problem of SMEs. To fully fathom this impediment, it seems prudent to start with a few facts: Fact 1: 92.5% of all business in Cyprus (approximately 40,000) engage up to 9 employees; 6.3% (2,600) fall within the 10-49 employee category, and 1.1% (500) in the 50249 category. A mere 0.2% (78) of companies provides gainful work for over 250 employees.

Irrefutably, SMEs (small- to medium-sized enterprises) constitute the backbone of the island’s economy.

Fact 2: The austere stipulations of the bail-out agreement of March 2013 resulted in sharply reduced lending, rising delinquencies, and unprecedented deposit flight. Indeed, deposits in banking institutions in Cyprus stood at some €70.7 billion in March 2012, barely breaking the €46 billion barrier two years later in March 2014, representing the sheer scale of capital flight (a total of 35% in two years).

With a banking system powerless to assist, businesses find themselves in a moribund state, embroiled in a struggle to survive.

Fact 3: With an economy so intimately dependent upon SMEs, the island, overall, cannot recover faster than its SMEs can keep up with it.

Recognising this discrepancy, the ACCA (Association of Chartered Certified Accoun-

tants) instigated a ‘Call for Evidence’ in March 2014, focused on isolating the unexplored opportunities for financing SMEs. With the research having been undertaken by RTD Talos, the report is the culmination of a call to arms of both local and international stakeholders in sharing their views and opinions.

It is a tour de force of out-of-the-box thinking, resourcefulness, and malleability, as it displays how Cyprus must undergo a complete metamorphosis. Only then may the island truly write its own happy economic ending.

Gold: This report seems to highlight that – further to merely creating new intermediary opportunities affording SME financing – Cyprus is in need of becoming a mature, developed financial market. What are your thoughts regarding this supposition?

Mark Gold: In many respects, Cyprus is a substantially developed financial market and the level of skills and expertise in the country is outstanding. However, the financial infrastructure for SME credit in particular is not worldclass and the sudden loss of liquidity only highlighted its shortcomings. It’s time to fix the more fundamental problems before they are hidden under a new wave of liquidity. A crisis, in other words, is a terrible thing to waste.

A key problem is missing information. As things stand today, established lenders have to work much harder than their counterparts in other countries to distinguish between good risks, bad risks and risks that will turn good as soon as the economy recovers. It’s even harder

54 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

to distinguish between illiquid and insolvent clients for the purposes of arrears management.

For new lenders setting up in Cyprus, the challenge of creating a comprehensive model for credit risk would be enormous – and the market is not large enough to justify many of these up-front costs. Creating a public repository of credit information (and scores), and giving new entrants access to it, is key to developing new product offerings and encouraging competition.

Regulation is also part of the financial infrastructure of a country. Our research found, for instance, that true leasing is extremely rare in Cyprus, in part because the regulatory framework is not there to define and support it. Finally, the report demonstrates clearly how inefficient the link to EU funds can be in Cyprus. This type of support has been around for years and isn’t going away; some of the country’s financial infrastructure needs to be rebuilt around it, and the banks need to become a support structure for SME applicants.

Gold: Where once regulation was loose and accessing loans somewhat simple, SMEs are now having to confront the opposite end of the spectrum, as conditions contract in tandem with the declining economy. How might Cyprus adequately find its middle ground?

M.G.: Loose credit in the boom and tight credit in the bust are not opposite problems; they are parts of the same problem. Credit standards are the obvious place to start. Banks that are secure in their ability to assess risk are,

WASTE”

FINANCE

after all, less likely to revise their policies dramatically. In my view and ACCAâ&#x20AC;&#x2122;s, requiring lenders to properly assess the creditworthiness of borrowers is not a burden on business. It can, however, become a burden if it is pursued through a rigid and burdensome administrative process that isnâ&#x20AC;&#x2122;t aligned to the actual drivers of credit risk. It is my hope that the development of robust credit mediation functions within the banks will help them optimise their processes quickly, and I encourage our members in Cyprus to become involved in this process on behalf of clients as much as possible.

Gold: How does a lack of reliable credit information contribute to the loans problem?

M.G.: Partly by making banks over-reliant on collateral. In a financial crisis, real estate is bound to suffer, creating a vicious circle of weakening banks and tightening credit standards. A narrow product offering can also lead to famine-or-feast situations. In the good times, banks might offer loans to businesses that would ideally need a very different facility, and then offer them nothing when times get tough. The client is under-served in both cases.

Increasing diversity in the banksâ&#x20AC;&#x2122; product offering is therefore part of the solution, and our report discusses some solutions, including leasing and invoice discounting, at length. Finally, a lack of home-grown challengers to the major banks always exposes SMEs to financing risks, as many foreign lenders will promptly abandon a market in crisis. Our report looks into ways of creating new alternative lenders through the use of public data and (occasionally) public funds or incentives.

Financing SMEs in Cyprus: No Stone Left Unturned?

The ACCA reportâ&#x20AC;&#x2122;s key recommendations are as follows:

x )LLUVWO\ \ regulators need to (re)build the financial

infrastructure for SME credit. Cyprus needs: - A fully-fledged credit bureau capable of credit scoring - A national development bank with foreign partnerships, serving SMEs - A regulatory framework that will enable leasing - And a bank administered mechanism for reconciling overdue payments x 6HHFRRQGO\ O\ the Government needs to accelerate absorption of EU structural funds. In theory, Cyprus has access to â&#x201A;Ź950 million of structural funds, and the option to tap into them in three years rather than the usual seven years needs to be explored. x 7K KLUGGO\ the banking sector needs to step up its efforts to help SMEs in the short-term by: - Better implementing the Central Bank of Cyprusâ&#x20AC;&#x2122; Arrears Management Directive - Stepping up participation in EIB/EIF funded programmes - Resisting the temptation to pay down Emergency Liquidity Assistance quickly, while it remains their cheapest financing option. x )RRXUWWKO\\ and finally, regulators must support the growth of alternative finance options, such as providing tax incentives for individual investment into SMEs by high-net worth individuals and supporting the devel opment of invoice auctioning and bartering platforms through targeted investment, free access to credit data and a favourable tax treatment.

WHEN IT COMES TO PUBLIC FUNDING, MAKING SURE SMES GET THEIR FAIR SHARE IS SOMETHING VERY FEW EU COUNTRIES ARE GOOD AT Gold: The report cites numerous foreign models that may be effectively emulated to productive ends: can you elaborate on this a little?

M.G.: â&#x20AC;&#x2DC;Numerousâ&#x20AC;&#x2122; is the operative word here, as its hard to point to a single foreign model that Cyprus ought to follow â&#x20AC;&#x201C; there are only a handful of truly comparable markets anywhere in the world, and none are facing challenges of the same scale as Cyprus at the moment. Fortunately, ACCAâ&#x20AC;&#x2122;s experience of dealing with financial sector and policymakers around the world gives us a lot of examples of good practice to choose from. On SME credit information and credit mediation, weâ&#x20AC;&#x2122;ve drawn on the experience of France, Belgium and the UK. Cyprus can replicate the combination of publicly available credit scores approved by financial regulators and a robust process that allows SMEs to challenge bank decisions (and banks to learn from their mistakes).

When it comes to encouraging new alternative finance platforms, weâ&#x20AC;&#x2122;ve looked mostly to the UK experience â&#x20AC;&#x201C; Britain hosts two of the most successful receivables trading platforms in the world and has very successfully used public funds to help one of them, MarketInvoice, gain critical mass.

Gold: You recommend processes that have been implemented by other countries that have been under a Troika memorandum.

M.G.: Yes. On forbearance and arrears management, weâ&#x20AC;&#x2122;ve drawn on the example of Ireland and on the World Bankâ&#x20AC;&#x2122;s experience of debt forgiveness in the developing world.

The key lesson from both is that we need to put financial advice at the heart of the arrears management process in order to salvage lending relationships. On the design and function of the Development Bank, we point to the example of Spainâ&#x20AC;&#x2122;s development bank, ICO, and the many local partnerships of the German and French development banks (KfW and BPIFrance).

Even the development bank planned for Greece gets a mention, although due to its extensive network of (now publically owned) Cooperatives, Cyprus is at a much better starting point. And weâ&#x20AC;&#x2122;re keen on exploring Spainâ&#x20AC;&#x2122;s experience when it comes to using securitisation (via the European Investment Bank) to release funding for SMEs. Finally, on tax incentives, weâ&#x20AC;&#x2122;ve drawn on the example of other small, open economies, but mostly from Singapore â&#x20AC;&#x201C;

56 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

which is famously aggressive in developing and harnessing SMEsâ&#x20AC;&#x2122; intangible assets.

Gold: Based on your experience of foreign markets, is the definition of SMEs (whereby small businesses constitute those that employ up to 250 people, and medium-sized up to 3,000) problematic for Cyprus considering the islandâ&#x20AC;&#x2122;s business make-up? Might it be prudent to encourage the development of a specialist lender pursuant to the sector?

M.G.: While the official SME definition carries some weight when it comes to official funding (including EU funds), banks donâ&#x20AC;&#x2122;t really think in terms of government SME thresholds.

Their client segmentations are driven mostly by turnover, or even facility size, because these help them assess how much they can reasonably spend on servicing each client. This, of course, is the heart of the matter: it costs a traditional bank almost the same to service a small business with a â&#x201A;Ź5,000 facility as a larger on with a â&#x201A;Ź500,000 facility. If the smaller business is more informationally opaque (i.e. it provides less financial information or information of a lesser quality) then it could arguably cost more.

The economics of banking have, for a long time, been stacked against smaller businesses, and regulation is adding to this pressure.

Making banks more efficient, especially when it comes to managing transaction and credit information, is a good way of delivering more funding to SMEs, but only up to a point. For something to change radically, we would need to encourage the development of specialist alternative lenders with sector expertise, that can help bring more funding to smaller businesses, as well as a sustained push for SMEs to access more and better financial advice.

Gold: There is a plethora of public funding available for SMEs via, for example, EU programmes. How far are SMEs tangibly brought in touch with this funding?

M.G.: When it comes to public funding, making sure SMEs get their fair share is something very few EU countries are good at. Our report makes a pretty strong case for turning banks into one-stop shops for access to public funding, both from Cyprus and further afield.

Itâ&#x20AC;&#x2122;s a very ambitious recommendation but, if implemented, I believe it has the potential to make support more accessible for smaller businesses.

E Pa RFEC ct a the b lancing

SHOULD AN INTERNATIONAL BIG-NAME BANK OPEN UP IN CYPRUS, WE WOULD WANT TO BE THEIR CLIENT 58 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

N TI G C

PROFILE

IN AN EXCLUSIVE INTERVIEW WITH GOLD, INGRID HOFEROVA, MANAGING DIRECTOR OF PENTA INVESTMENTS CYPRUS, SHARES HER EXPERIENCES OF BEING A PROFESSIONAL AND A MOTHER, AND A WOMAN MAKING HER WAY IN A STILL PREDOMINANTLY MALE-CENTRIC WORLD. By Chloe Panayides, Photograph by Jo Michaelides

I

ngrid Hoferova breezes into our meeting with all the poise and refinement of a swan gliding across still waters. Exuding drive and direction, she appears to be the perfect professional.

Little do her unsuspecting onlookers know that her daily life is a masterful balancing act, a blend of alter egos: Managing Director of Penta Investments Cyprus, and mother of two children. And she doesn’t mince her words as she tells Gold that, in general, she feels that the conditions for working mothers and their children are “simply brutal”.

Prior to joining Penta Investments in Cyprus some 16 months ago, Hoferova was enjoying maternity leave after giving birth to her second child, now 3, in her native Slovakia.

Her arrival here meant confronting stark changes.

Hoferova elaborates: “I actually spent four years at home when I started my family. In Slovakia, women are legally permitted to three years of maternity leave, during which a small allowance is provided every month. More importantly still, women feel safe knowing that their job is secure and that they may return to it once the maternity

leave ends. In Cyprus, I believe women are granted just four months of maternity leave. It’s not enough, for either mothers or children, by any standards.”

Based upon Hoferova’s observations, the issue of being able to develop a career in Cyprus without sacrificing a home life is certainly in need of being addressed.

What does she suggest?

“I think that there need to be some fundamental changes. The Government should increase maternity leave to at least six months, and it also needs to address the time in which it delivers its subsidies to new mothers. What’s the use of receiving your maternity leave pay three months late, when you’re on the verge of returning to work anyway? It’s very harsh on mothers.”

Besides the issue of maternity leave, Hoferova also notes what she calls the “idiosyncratic” school hours in Cyprus as being a hurdle.

“School hours in Cyprus aren’t as convenient as they could be for working professionals. With schools closing at 2 o’clock (sometimes even 1), and two working parents, we’re often at a loss come the afternoon.”

Thankfully, as Hoferova explains, the family focus in Cyprus is a true credit to the country’s society, with grandparents

often stepping in to help.

And, she says, Penta Investments is no different: “We’re very family-oriented at our office. We are very flexible in allowing our employees to work from home as and when the need arises, and we even recently toyed with the idea of creating a playroom at our office for all of our children. This kind of attention to detail in a workplace can really help assuage the already exacerbated challenge of having children and working to the best of your ability,” Hoferova states assuredly.

Turning to Penta Investments, the – until now – somewhat elusive entity, Hoferova divulges details a-plenty.

Penta was founded in 1994 as a securities trader and has since developed to become one of the most significant Central European investment groups, specialising in long-term-value investing.

“In essence,” Hoferova notes, “We used to be a typical private equity firm, buying and selling companies. However, in the last 3 years, we have changed our strategy to be a long-term-value investor, developing platforms and companies with a longer investment horizon.

“Our holding and financing activities are in Cyprus, though the businesses being bought are mostly in Slovakia, the Czech Republic, Poland, and Germany.”

Of Penta’s inception in Cyprus, Hoferova clarifies: “It actually started its operations here in 1999 with one single person overseeing the office. Today, Penta employs some 10 people at its Limassol office.”

The investment group also maintains offices in the Czech Republic, Slovakia, Poland, Germany, the Netherlands, and Jersey: so, why Cyprus?

“The stable and mature legal system was one solid reason,” Hoferova begins.

“In Slovakia, back in the 1990s, the legal system was extremely wild; it was very difficult to do business with foreigners under the Slovak legislation, which was undergoing its transition from its socialist past (subsequent EU membership helped enormously). Cyprus, on the other hand, had a mature system, with echoes of English

I’M CONFIDENT TO SAY THAT AUDIT, LAW, AND TAX SERVICES HERE ARE OF INTERNATIONAL QUALITY THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 59

PROFILE

law. Combine this with the favourable tax system and reasonable costs of doing business as opposed to, say, the UK, and it was a very attractive locale.”

When welcoming foreign nationals settling in Cyprus to work, does Penta engage its employees in training sessions to fully acquaint them with the various frameworks in place on the island?

“Yes, definitely,” Hoferova assures me.

“We systematically allocate 2% of our compensation costs to various trainings, covering law, liquidation, taxation, and other issues, all relevant to Cyprus’ system.”

As to whether or not various authoritative entities adequately provide for foreign nationals by, for example, publishing circulars in English as well as Greek, Hoferova explains: “I’m very appreciative of the existence of secretaries in Cyprus, the ‘middle man’ between the Government and businesses allocated to the latter when needed.

I can’t praise Penta’s secretary enough, helping us effectively access the Registrar of Companies, the tax offices, and more. This system works very well.”

Hoferova continues: “Moreover, I’m confident to say that audit, law, and tax services here are of international quality.

I’ve had only good experiences and all the professionals I’ve come into contact with have displayed high standards of ability.”

When probed about the group’s strategy with regard to targeting investments, Hoferova responds: “I would say that, 14 years ago, the company was more opportunistic. Now, our investment managers have truly embraced and understood the benefit of focusing on six or seven industries, actively developing companies and projects related, primarily, to healthcare, financial services, retail, manufacturing and real estate.”

Considering Cyprus’ recent economic nosedive, many investors are rightly scanning the island for opportunities, and Hoferova confirms that Penta is no different.

“We are certainly conscious of strategically increasing our scope. Cyprus is moving in the right direction but it’s too early to say definitively if moves will be made in this sphere. There are opportunities for investment; there is no doubt about that.

The financial troubles of the island mean that it’s actually a good time to buy. However, it is extremely important to intimately know the country you are investing in, and

thus our investment managers need time to fully turn their attention to Cyprus and assess its investment landscape.”

As with all companies and professionals, Penta also found itself confronted with difficulties courtesy of the disintegrating economy and subsequent implosion in March 2013.

“I actually arrived in Cyprus to take up this post three weeks before the events of March 2013,” Hoferova confides. “Call it good fortune or good thinking, but we didn’t have money in any of the ‘wrong’ banks, so, from this perspective, we didn’t

THE FINANCIAL TROUBLES OF THE ISLAND MEAN THAT IT’S ACTUALLY A GOOD TIME TO BUY suffer as harsh a blow as some other companies. However, we did have a hard time passing payments. The capital restrictions were a real burden.”

Resolutely, Hoferova advises that all stakeholders should be involved in re-inspiring trust to assist in ameliorating the otherwise deflated environment, agreeing that one way of doing so would be to encourage an international bank to open its doors on the island.

“Should an international big-name bank open up in Cyprus, we would want to be their client. There’s just a different level of trust associated with an international big name bank. Plus, it would serve as fantastic PR for Cyprus, and help engender a huge turnaround in both fortunes and attitudes.”

On the past actions of local banks, Hoferova is more reserved in her enthusiasm, stating rather: “Quite simply, banks need to stop being reckless. It’s inconceiv-

60 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

able that the banks were giving out loans to clients who didn’t possess the necessary repayment capability. If the banks want trust, they must be prudent, transparent and sensible, agreeing to undergo, furthermore, a reasonably requested audit that any authoritative entity wants to impose on them to help reestablish trust in them.”

Hoferova, it transpires, is no stranger to change and challenges.

“I was 16 in 1989 at the time of the so-called Velvet Revolution, during which, through non-violent protests, the 41-year Communist rule of what was then Czechoslovakia finally came to an end, and the country underwent its conversion to a parliamentary republic.”

Asked whether or not this inspired her entry into the professional sphere, she explains: “Opportunities were rife at the time. A whole new world had been opened up. I attended university in Bratislava, thereafter entering employment with EY. At 26, I was appointed COO of Penta Investments in Slovakia.”

Being a woman in a then maledominated world was surely a challenge, I suggest. Hoferova is direct: “The real challenge I felt I had to overcome was in my inexperience of leading people. With the appointment came the responsibility for some 100 people, which, at the time, was not something I felt comfortable with. It was very much a case of learning on the job, being acutely pragmatic and practical, reasoned and down-to-earth. Admittedly, I was afraid to use my so-called ‘feminine’ intuition: I felt that I needed to think in a more masculine way.”

And now, I tentatively ask?

Here, Hoferova exhales and with complete sincerity, confides: “It was only after I had my second child that I felt more confident to allow this aspect of myself to flourish in the workplace, and to direct my speech and actions. It has ineffably enriched my life. In allowing this aspect of myself free expression, I feel much more in control, relaxed and tolerant.”

Perfecting the balancing act is no easy feat, but with Hoferova’s self-reflection and forward-thinking practicality, it is safe to say that she has come incredibly close to achieving it.

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LEGAL MATTERS

The ÄYZ[ [LU `LHYZ of a Limassol SH^ ÄYT

By John Vickers

W

hen Nasos Kyriakides decided to set up his own law firm at the age of 26, he was not the only one who viewed the idea as highly ambitious. After all, there was no shortage of lawyers in Cyprus – especially in Limassol – at the time and why would anyone want to entrust their complex legal needs to a young newcomer? Fortunately, the founder of Nasos A. Kyriakides & Partners was determined to follow the path that he had begun to form in his mind from a very early age. “I was I was inspired by what I read in books and saw in films,” he says. “The idea of the legal profession fascinated me. It had nothing to do with my family background or heritage – I didn’t actually know any lawyers as a kid – but from the age of 13 I was sure about my future.”

It is one thing to dream of becoming a lawyer and even obtaining the necessary qualifications and training but quite another to establish one’s own practice. Why did Kyriakides take such a bold step?

“There are plenty of fish in the sea!” he jokes. “By which I mean that the old-established law firms will always be around but there will also be opportunities for newcomers. Even though I hadn’t been working for many years, I felt that the time was right. I had gained considerable experience with my first employers and I simply thought that there was a need for fresh, new law offices. Don’t forget that this was 2003, when Cyprus was experiencing something of a financial boom, just before it joined the EU. Everything seemed right.”

Ten years later, Kyriakides’ firm is housed in its own impressive

building in Limassol, where it employs 18 people. There are two more in the Nicosia office and two in Kiev too. The founder has every reason to feel pleased.

“I can see that, in a way, things have gone beyond my expectations,” he says. “In the beginning we were dealing mainly in litigation but our engagement in the corporate sector developed quite quickly and successfully, thanks in part to the fact that Cyprus had become – and, I believe, will continue in the coming years to be – an international business centre, not only for the pioneering shipping firms but also for those operating in the financial services sector. At the same time, I could see that the country’s EU membership had created new windows of opportunity for Cyprus as a hub for investors from Russia, the CIS and other Asian countries. People wishing to invest in the European Union understood that they could take advantage of the beneficial network of Double Taxation Treaties that Cyprus has signed with many countries.”

As demand for Cyprus increased, Kyriakides and his associates invested a great deal of time and effort in that direction. “I believe that the work that the professional services industry has done has created a beneficial environment with lots of opportunities,” he says, adding, “and despite the present difficulties, I believe that our profession has a bright future.”

Today, the firm specialises in business and commercial law, encompassing areas such as capital markets, Mergers &Acquisitions, banking & finance. Asked about his favourite area of practice, Kyriakides cites the setting up of structures for clients’ asset protection

BEYOND EX 62 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

THAT IT IS NOT EASY TO FIND A GOOD ALTERNATIVE TO CYPRUS.

THERE ISN’T ONE!

and helping increase the value of those assets by liaising with mainly European banking institutions for finance. “Anything I can do to give these organisations a chance to become financially stronger and more healthy, and to increase their operations and size, gives me great pleasure,” he says.

Outside the immediate scope of his legal work, Nasos Kyriakides is currently gathering material for a book on oil & gas issues. Like many commentators, he is aware of the fact that the discovery of gas in Cyprus’ Exclusive Economic Zone (EEZ) could prove to be a blessing in more ways that one: “The actual exploitation of what is found in the EEZ will have to overcome some difficult hurdles arising from the broader geopolitical situation and, of course, the Cyprus problem,” he acknowledges. “There is huge potential for Cyprus due to the instability in the Middle East, for example. What happens to the gas found in Israel’s EEZ could prove to be a key factor in the decision to build an LNG plant. There is Lebanon and Egypt too. Cyprus is well-placed to become a regional centre for gas liquefaction.” Add to this the Crimea crisis and the EU’s growing need for a secure supply of oil and gas and Cyprus could play a decisive role as an important energy player, says Kyriakides, but he warns: “It could, at the same time, cause problems for the island since Russia is currently the main supplier to the EU and if Cyprus were to take over part of this role, there could be a clash of interests. Any agreement would need to be structured in such a way that would be beneficial for all countries, including Russia. We have nothing to gain by turning Russia into an enemy.”

So will oil & gas be the catalyst for a solution of the longstanding Cyprus problem? Kyriakides recognises that, over the years, many factors – such as Turkey’s EU ambitions – have been described as possible incentives for Turkey to be more flexible on Cyprus and yet none of them have played such a role. “Although we have not seen any movement so far, it is possible that a change in the regional interests of Russia, the US and the EU could create an environment in which Turkey is made to see that by adapting a more positive stance towards Cyprus, it has a lot to gain.”

When it comes to talk about the possibility of Cypriot gas being transported to its ultimate destination through a pipeline via Turkey, Kyriakides believes that such discussions do more harm than good.

“We are getting ahead of ourselves,” he says. “There have been many supposed chances of resolving the Cyprus issue, including Cyprus’ accession to the EU, but they have all led to nothing. In the past, however, there was no natural gas to be considered. It is a fact that we have never seen such interest on the part of the United States to help resolve the situation and, similarly, the EU has never tried to be so actively involved, so perhaps the time has come.”

Until such an eventuality, life goes on. Nasos Kyriakides describes 2013 as “not that bad”, clarifying that “We expected that, in the aftermath of the haircut last March, things might have been disastrous

for the industry but fortunately that was not the case.”

How did he deal with the immediate post-Eurogroup problems?

“I travelled a lot and had many face-to-face meetings with clients abroad. We also organised seminars in Russia and Ukraine where we explained to clients that their assets and companies in Cyprus would not be affected.” Now that the country is trying to offer a more attractive investment environment than before through measures such as the citizenship and residency schemes, it is becoming easier to convince foreign investors that nothing has changed. “Even those clients who were not entirely convinced realised that it is not easy to find a good alternative to Cyprus,” he adds. “There isn’t one! What is needed now is a continuation of the joint effort to restore confidence in the country and its professional services and I don’t believe that it will take too long.”

Is Kyriakides one of those who accepts, albeit reluctantly, that the Troika’s harsh measures were a necessary evil? “Yes and no,” he replies. “Despite the bail-in, it is clear that the Troika is not a monster that wants to harm us. It has made things happen which had to happen and to which we had closed our eyes for years. Ultimately, I think the Troika’s role will be seen to have been beneficial. However, I feel that the punishment we suffered was out of proportion with our sins. It was too harsh. The bail-in went too far and those who suffered the most from it were treated very unfairly.”

While the professional services will doubtless continue to thrive, as Nasos Kyriakides believes, most of those involved in the sector believe that many things remain to be improved. Kyriakides has his own suggestions: “We need to pay special attention to financial services,” he says. “More work is needed regarding the simultaneous listing of public companies on the Cyprus Stock Exchange and the London AIM, for example. The Government can develop a more fruitful and practical cooperation with the authorities in other countries so as to facilitate listings on other stock exchanges, the acceptance of prospectuses, etc.” He accepts that work has already started on improving the efficiency of various government departments: “Of course, we should have done much more in the past but that’s another story. Now, in the situation we find ourselves in, we need to improve certain areas and this is not actually a very difficult thing to do. There is no lack of talented, skilled and experienced professionals in Cyprus but more promotion by the Government would certainly help.”

Ten years ago, the young lawyer took the ambitious step of setting up his own firm. What are his hopes for the next ten years? “As a lawyer, I want to increase my knowledge. I love my profession and I think the number one goal for a lawyer is never to stop improving himself. There will always be challenges and I hope that our office will be at the forefront of these challenges and involved in the financial and economic development of the country once the present crisis has been overcome.”

PECTATIONS THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 63

ENTREPRENEURSHIP

THE KID

DONE GOOD

64 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

You have to be special to start a business at 17 but that’s what Hector Kolanas did.

Today he has a presence in six countries and it’s all because of the Cyprus financial crisis... By John Vickers

H

ector Kolonas, who casually describes himself as “one of those 20-something entrepreneurs you keep hearing about” is the founder of Desk&Co, a company whose aim is “to give entrepreneurs and businesses the place and the space to grow and to succeed”. Born and brought up in South Africa, he graduated from high school in Cyprus before completing a BSc in Computing with Business and Management in Manchester, which is now one of his three business bases.

Kolanas says that he has always had entrepreneurship in his blood. “From very early in my life, I loved finding ways of solving people’s problems in exchange for some form of credit.

Even though I got into trouble for selling Mother’s Day cards to kids who couldn’t write their own, the passion for business was always there.”

Becoming aware of the Internet around the age of 13 opened the young Cypriot’s eyes to a whole new way of doing business and, he explains, “reaching people I’d probably never meet. It didn’t take long for me to start building small businesses. Consulting and web development helped me cover costs whilst I learned more and more about how not to run a business, something I’m still learning about!”

When he was 17, he launched his first real business, but became frustrated with how nearimpossible it was to get taken seriously because he was ‘just a kid’, he says, recalling how he vowed to be in a position one day to help other entrepreneurs build their businesses faster. His idea was to become an angel investor by the time he turned 25 but while that didn’t go as planned, he discovered that he could actually do something ‘better’ than investing in entrepreneurs: empower them.

The concept behind Desk&Co was to change the way ambitious businesses grow by renting flexible corporate office space tailored to a small company’s needs. “We started off

sourcing affordable desks and workspace solutions and we are now rolling out a marketplace layer that builds transparent and strong business relationships across our 25+ host locations in six European countries,” he says.

Last year’s financial crisis was, in part, responsible for Kolonas’ decision to set up the company. It served as a ‘wake-up call’, he admits. “I had to ask myself what I wanted to be doing in 5 years’ time: rebuilding my marketing-solutions business or doing something different, something grander. And so my dream of helping entrepreneurs cut out the ‘noise’ and focus on what they love doing evolved into an actionable plan.”

It would appear that the old cliché about a crisis also being an opportunity is true. “I really do believe so,” says Kolanas.” There are two steps that an entrepreneur must take after recognising an opportunity: the assessment and then the realisation of the idea. In a crisis, the rules are the same as at any other time but the tides – emotional, financial or other – are much more volatile and they couldn’t care less about how stable your footing is. It takes a lot of self-belief and a clear path of execution to effectively turn a crisis situation into a business opportunity.”

In the months prior to the ‘financial freeze’ of 2013, Hector Kolanas was in the UK, looking for ways to break into the UK market with his Cyprus-based business which built Facebook and online marketing applications for advertising agencies. Although he had some clients across Europe, the vast majority were based in Cyprus. “As you can imagine,” he explains, “when I flew back in March I found that many of them were not going to make it through the crisis. This was obviously bad for my business but it was so much more horrific for the superbly-talented people who had worked in these businesses. My first concern was – honestly – the hundreds of talented individuals who were suddenly jobless and seeking some kind of normality. In an interview with Sky that first weekend, I expressed my view that it was time for the people of the island to dig deep and find a way to get through the coming hardships. This played a massive part in persuading me to step away from all my other projects/roles and do something that would better the lives of job creators, both in Cyprus and around the world.”

Asked how he views the situation on the island 18 months on, he is hesitant to comment, having trained himself “to avoid dabbling in

politics” but he believes that “there’s a lot to say with regard to how funds should be allocated to create new jobs and sectors instead of trying to save a few jobs in aging sectors.”

He now spends his time in London, Manchester and Cyprus. How different is business in Cyprus from in those two huge UK cities?

He answers at once: “It’s very, very, very different! From personal costs to people and transport options, when you’re setting up a business it’s amazing how much these seemingly unrelated elements play on your business and on your morale as an entrepreneur. Cyprus has some great engineering minds but businesses need to start addressing global pains instead of local annoyances. Manchester is an affordable creative hub and launch pad with great transportation links. London is like the matrix: you dive in and hold on whilst trying to navigate through either hypergrowth or burning failure.”

Kolanas considers himself lucky to be in a position to see what’s going on, sometimes as both an ‘outsider’ and a ‘local’ simultaneously, in all three growing ecosystems. “I am hoping that the more I can travel to the other hubs in the network, the more I’ll be able to learn about what works, where and why and make that information available, on demand, to members of the network,” explains.

How important is the currently thriving startup scene in Cyprus to the current efforts to revive the economy? Hector Kolanas is in no doubt about this.

“Entrepreneurship is a sure-fire way to create sustainable jobs, and startups give people with non-business backgrounds a crash course in running – or failing – a business. These skills can only be good for the economy in the long-run. I just wish that the Government and the European purse-holders would stop trying to build ecosystems and, instead, join us in helping actual startups grow rapidly and in a sustainable manner.”

Asked how has the success of Desk&Co has changed his life, he just laughs.

“Sorry! But I’m just getting started and I won’t see the project as a success until we see the first of our guests go from concept to creating jobs, to having to leave for a bigger office and then making desks available for other entrepreneurs.” He acknowledges, nonetheless, that “It

THERE’S NO BETTER REASON TO GET OUT OF BED IN THE MORNING THAN KNOWING THAT, THROUGH YOUR HARD WORK YOU’RE ACTIVELY HELPING OTHERS CHANGE THE WORLD IN SOME WAY has taken over my life, and inspires me more and more every single day. There’s no better reason to get out of bed in the morning than knowing that, through your hard work you’re actively helping others change the world in some way.

Kolanas’ short-term plan is to grow his fulltime team and create jobs around the project in both the UK and Cyprus, something of which he says he will be very proud. “As for the long-term,” he goes on, “I’m very passionate about building millions of business relationships across the world, including with the most talented people in the world’s emerging markets.”

What would his advice be to a newly-graduated Cypriot coming back to the island to start a career at this point in time?

“Stop asking for permission and start doing,” he says without hesitation. “Although that’s probably badly paraphrased from something the founder of Reddit once said, it hits the spot. That and, as my friend Tak Lo always says, ‘find a pain to solve by scratching your own itch’. Put bluntly, that means that you shouldn’t just build businesses because it’s cool and everyone else is doing it. Instead, take the time to find something that really annoys you so much that you’d actually be willing to pay someone to fix for you. And then build a way to fix it for hundreds of thousands of people around the world. Continuously experiment, surround yourself with amazing people, don’t be reckless and believe in yourself.”

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 65

6TH CYPRUS

CONFERENCE

PROFESSIONAL

SERVICES TO INTERNATIONAL BUSINESS

GAME CHANGERS FOR THE CYPRUS PROFESSIONAL SERVICES SECTOR

CONFERENCE

6th Professional Services Conference

T

he 6th Professional Services Conference (Wednesday 24 September 2014, Hilton Park Hotel, Nicosia) will present the latest institutional policy trends and changes, as well as developments in servicing international investors, whether High Net Worth Individuals or organisations. It will bring together HJJV\U[PUN [H_ HUK SLNHS Ă&#x201E;YTZ HKTPUPZ[YH[P]L ZLY]PJLZ Ă&#x201E;K\JPHY` Ă&#x201E;YTZ IHURZ PU[LYUH[PVUHS JVYWVYH[PVUZ and the government to discuss and exchange practical ideas on how Cyprus can preserve and enhance its position as an international business centre. This yearâ&#x20AC;&#x2122;s event aspires to gather the most updated knowledge and expertise from organisations and professionals around the world, and combine it with local knowledge and practice in order to signify the era of change for the professional services sector.

Often described as the most important sector or the â&#x20AC;&#x153;powerhouseâ&#x20AC;? of the Cyprus economy, the professional services sector has found itself in the eye of the storm since March 2013. Initially faced with the threat of losing much of its business, as the Troikaâ&#x20AC;&#x2122;s measures dictated the bail-in of bank deposits, the closing of the countryâ&#x20AC;&#x2122;s second largest bank and a higher rate of corporate tax, the sector was further hit by accusations leveled against Cyprus concerning alleged corruption, money laundering, dishonest business practices and tax evasion. Despite these setbacks, the professional services sector has proved resilient and Cyprus continues to fulfil the criteria to remain an international business centre and even strengthen its position. However, Cyprus and the sector need to take a different course if they are to regain the trust that was lost following the events of March 2013.

Furthermore, the island needs to consciously work towards transforming its status and becoming a jurisdiction of substance. This will not only improve its reputation as an international business centre but it will also positively impact several sectors of the economy. Lastly, the sectorâ&#x20AC;&#x2122;s professionals need to stay tuned to the changes enforced in countries from which Cyprus traditionally

attracts clients and, at the same time, to penetrate new markets.

The 6th Professional Services Conference is divided into four sessions: The first looks at International Taxation and the Global Markets for Professional Services (Peter Oâ&#x20AC;&#x2122; Dwyer, Managing Director, Hainault Capital Limited, Ireland), Modern Structures and Product Offerings: Building a Product Portfolio for the Next Decade and Beyond (Paolo Panico, Managing Director, Private Trustees SA, Luxembourg), The Professional Business Sector on course for Significant Change (Paul Malin, Partner, Haines Watts, UK), G20, OECD, BEPS, EU U.S. Tax Reform Initiatives (Michael W. Hardgrove, Partner, International Tax, DLA Piper LLP, USA) and Automatic Exchange of Information â&#x20AC;&#x201C; Current Developments (Dr. Niklas J.R.M. Schmidt, TEP, Partner, WOLF THEISS LLP, Austria) Session 2 deals will legislative and regulatory developments in Russia and their impact on the Cyprus Professional Services Sector, looking at De-offshorization Measures of Russian Society and Their Possible Impact on Existing International Structures (Dmitry A. Pentsov, Senior Associate, FRORIEP, Geneva, Switzerland), Tax Structuring for Russian Clients: Practical Implications of Legislative Changes in Russia for Existing and New Structures (Antoaneta Proctor, Partner, Taylor Wessing LLP, UK) and In this New Order, Is the Use of Trusts and Foundations Still Possible in International Tax Structuring?

(Andrew Terry - Partner & Joint Head of CIS

66 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Group, Withers LLP, UK).

The third session is entitled New Frontiers and Opportunities for the Cyprus Professional Services Sector and looks at How American Companies Structure their Operations for Tax Advantages, and How Cyprus is Generally Viewed by U.S. Multinationals (Michael W. Hardgrove, Partner, International Tax, DLA Piper LLP, USA) and China (speaker to be announced soon).

The fourth and final session is on Cyprus and will deal, among other issues, with Citizenship Programmes: A comparison of various jurisdictions (Cyprus, Netherlands, Malta, Portugal, Spain and UK) with regards to their Residency and Citizenship Programmes (Philip Barth, Head of Immigration (Europe & Asia), Withers LLP, UK), The Cyprus Funds Industry and CIFAâ&#x20AC;&#x2122;s Role in Supporting its Growth (Angelos M. Gregoriades, President of Cyprus Investment Funds Association, Chairman and Head of Tax and Corporate Services, KPMG, Cyprus) and Risks, Challenges and New Opportunities for the Cypriot Professional Advisor (Neophytos Neophytou, International Tax Advisor, Cyprus) Conference details: Wednesday 24 September, 2014, Hilton Park Hotel, Nicosia Main Sponsor: Bank of Cyprus Sponsors: Powersoft, Lamda Group, Cablenet, Amicorp Organisers: Gold magazine and IMH Supported by: CFA, CIPA, CIFA, ICPAC, Advanced diploma in International taxation Tel: 22505555 e-mail: events@imhbusiness.com Website: www.imhbusiness.com

In-depth d analysis anlocal n research o, from business rvices e retail and sking to ban y. and industr

THE LEADING BUSINESS MONTHLY FOR MANAGERS AND ENTREPRENEURS IN CYPRUS

+

BECOME A SUBSCRIBER TODAY FOR JUST â&#x201A;Ź54 Subscriber to the print edition and get FREE access to the IPad and Android digital editions each month.

Visit www.imhbusiness.com or call 77777741

A great cup of coffee.

1. Engomi 2. Strovolos (Aretaieio) 3. Strovolos (Athinon) 4. The Mall of Cyprus 5. Pallouriotissa (Kantaras) 6. Larnaca (Finikoudes) 7. Limassol (Makariou Aven.)

8. Ayia Napa (Makariou Aven.)

22 252134 22 250345 22 311984 22 570177 22 434395 24 622224 25 251136 23 722818

{July 14 – August 13, 2014}

ISSUE

40

78

+ BOOK REVIEWS MONEY: Secrets of the Wealth Game: What They Hoped You’d Never Find Out

By Eric L. Stevens

71

BUSINESS: The Culture Map

By Erin Meyer

70

{money}

74

{economy}

73

ECONOMY: The Consolations of Economics: How We Will All Benefit from the New World Order

By Gerard Lyons

75

70 Reinstating Trust The Association of Cyprus Banks will continue working towards restoring trust in the local banking sector.

74 Eurozone Growth Forecast The eurozone is forecast to grow by 1.1% this year, according to the Summer 2014 EY Eurozone Forecast (EEF).

TAX & LEGAL: Confidence Games: Lawyers, Accountants and the Tax Shelter Industry

71 Important First Steps The European Court of Auditors (ECA on the European Commission’s reform of banking sector legislation

76

LIFESTYLE: I Think Therefore I Play

72

{business}

72 Internet Advertising to Overtake TV Advertising in 2018 73 Sustainability & the Importance of Total Impact Measurement and Management

{tax&legal}

76 Family Business Transfers a major challenge in Europe The results of the first EFB-KPMG Tax Monitor 77 Countdown to Simpler and Fairer VAT From 2015, VAT on telecommunications, broadcasting and electronic services will be due where the customer and not the supplier is located.

By Tanina Rostain & Milton C.Regan Jr. 77

By Andrea Pirlo & Alessandro Alciato 81

78

{lifestyle}

78 Sail On, Sailor Investing in Yachts 82 A Day In The Life Maria Kyriacou

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES OF CYPRUS

Gold 69

banking

{MONEY}

Reinstating

T

TRUST

he Association of Cyprus Banks will continue working in cooperation with its members and with all relevant institutions within and outside Cyprus, towards the earliest possible reinstatement of trust in the domestic banking sector and a timely and successful adjustment to the emerging new environment. This is the message from Dr. Michael Kammas, Director General of the Association of Cyprus Banks in its recently-published annual report.

Key points of Dr. Kammas’ message: “Despite the very difficult challenges of the past year, the Cyprus banking sector has shown remarkable determination to implement all necessary reforms, to comply with the Troika requirements and to overcome the adverse economic conditions, with the goal of ultimately restoring itself back to health and regaining the trust of depositors and markets alike.

Significant progress has been achieved from mid-March 2013, when financial institutions operating in Cyprus were forced to remain closed for approximately two weeks.

Unsecured depositors of the two largest banks had a large portion of their deposits converted to equity and all depositors were faced with serious restrictions in movement of capital. The level of progress has allowed the gradual lifting of capital controls, in accordance with the road map developed by the Central Bank of Cyprus and the Ministry of Finance in Cyprus together with the Troika.

The banking system is beginning to show signs of stability. The level of deposits following the first shock caused by the Eurogroup’s decision about a year ago shows clear signs of stabilization, as public trust to banks is gradually being restored. The Bank of Cyprus,

THE MAIN ELEMENTS OF THE BANKING UNION ARE ABOUT TO BRING SUBSTANTIAL CHANGES TO THE ENTIRE BANKING SECTOR IN EUROPE, INCLUDING CYPRUS

the biggest domestic bank, as well as the cooperatives, are in the process of implementing their restructuring plans, while the second biggest domestic bank, Hellenic Bank, has been successfully recapitalized by private sources.

Cyprus is already outperforming its fiscal targets set by the Memorandum, a feat acknowledged by European institutions as well as the IMF. A year after the unprecedented events in Cyprus, the island is making headlines again in international media over its admirable efforts towards recovery and stability. The third review of the implementation of the Economic Adjustment Programme by the Troika was completed last March, leading Cyprus’ creditors to comment positively on the attainment of fiscal targets that were met to an extent better than projected, the progress of structural reforms and the completion of the recapitalization of the banking sector.

The outperformance of fiscal targets amounts to approximately 2.5 percentage points of GDP.As far as the economic performance is concerned, 2013 was a year of deep recession which was, nevertheless, milder than initial forecasts had anticipated. Specifically, in 2013, GDP contracted by 5.4%, a performance much better than the 8.7% decline that was initially forecasted by the Troika. For 2014 the recession is expected to slow down, with GDP contracting by 4.8%, whereas 2015, according to the projections

70 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

of the European Commission, will mark the end of the recession and the return to growth, with GDP increasing by 0.9%.

Highlighting all the positive outcomes which came about as a result of diligent efforts in Cyprus to implement an Adjustment Programme and a decision that has never before been tested anywhere in the EU, is in no way intended to ignore or underestimate the huge challenges lying ahead in the short and medium term. Nevertheless, in spite of these difficulties, Cyprus has in place a comprehensive recovery plan.

This plan is in the process of being implemented, while all relevant stakeholders are aware of the obstacles ahead and are prepared to make necessary adjustments to the plan as the need arises.

In Europe, the banking sector is in a transitory stage towards implementation of the Banking Union. The main elements of the Banking Union are about to bring substantial changes to the entire banking sector in Europe, including Cyprus. The assignment of the regulation of systemically important credit institutions to the European Central Bank has a lot of benefits but is fraught with significant challenges.

At the same time, we ought to take global trends into consideration. The banking sector is still in a period of austerity and strict regulation, which has resulted in the streamlining of operations, and the reduction of regulated institutions and operating costs.

The Association of Cyprus Banks will continue working in cooperation with our members, and with all relevant institutions within and outside Cyprus, towards the earliest possible reinstatement of trust in the domestic banking sector and a timely and successful adjustment to the emerging new environment.”

banking

IMPORTANT

FIRST

{MONEY}

STEPS

A

report published at the beginning of July by the European Court of Auditors (ECA) reveals that the Commission’s reform of banking sector legislation and the creation of the European Banking Authority were important first steps in response to the financial crisis.

The report notes that the European Banking Authority has provided the elements of a new regulatory and supervisory system for the banking sector, taking into account its resources and limited legal powers. However, shortcomings were identified in cross-border banking supervision, the assessment of the resilience of EU banks, and the promotion of consumer protection.

“The financial crisis sent shockwaves throughout the EU’s banking sector, resulting in the economic and sovereign debt crisis, and the EU acted to stabilise it,” stated Milan Martin Cvikl, the ECA Member responsible for the report. He went on, “However, the European Banking Authority lacks the authority to make or enforce decisions on supervisory convergence and had a limited legal mandate and staff to conduct the 2011 stress tests. Now, with the agreement on the single supervisory mechanism and other elements of the banking union further important activities are underway.”

In response to the financial and economic crisis, emergency action was taken in a bid to restore confidence in financial institutions, followed later by regulatory and supervisory reforms. The Court reviewed this, focusing on the period 2011 to early 2013. It found that the Commission and the European Banking Authority had reacted to the financial crisis with a broad regulatory agenda.

However, there was limited time for stakeholder consultation and there was no cross-

BOOK REVIEW

sectoral impact assessment.

The European Banking Authority contributed to improving the cross-border supervision of banks as a facilitator and coordinator of the work of national supervisory authorities. However, the day-to-day supervision of banks was carried out by national supervisory authorities, and the European Banking Authority did not have direct access to financial institutions. Supervisory convergence through the colleges of supervisors was limited, and colleges spent too much time discussing procedures rather than focusing on risks. The European Banking Authority lacks the authority to make or enforce decisions on supervisory convergence and to resolve disputes between NSAs. The European Banking Authority had a limited legal mandate and staff to conduct the 2011 stress tests which were conducted without financial ‘back stop’ measures at EU level. Although stress tests were helpful in initiating the recapitalisation of a large number of banks, they revealed the limitations of such exercises when not combined with an assessment of the quality of the asset portfolio.

The EU auditors put forward a set of recommendations aimed to increase the effectiveness of the colleges of supervisors, reliability of bank stress tests and to ensure a successful banking union and effective banking supervision.

The ECA considers that successful EUwide banking supervision requires a clear division of roles and accountability between EBA, the ECB and the NSAs, both those in and those outside the SSM. To avoid the risk of overlapping tasks and unclear responsibilities in some areas between the ECB, NSAs and EBA, the EU auditors recommend that roles and responsibilities be further clarified in legislation or memoranda of understanding. The ECA also recommends that proce-

SECRETS C S OOF THEE WEALTH GAME: WHAT THEY HOPED YOU’D NEVER FIND OUT

BY ERIC L. STEVENS (XLIBRIS CORPORATION, 2014) R.R.P. £12.01 (£12.01 FROM AMAZON.CO.UK)

F

rom the inception of the industrial revolution into our information age, those who have wealth continue to proliferate. Did you ever consider why, at school and in college, we are taught how to be capable employees but not wealthy business owners? Calculated design or just an oversight? Many people come into large sums of money, either through hard work, inheritance, or thanks to a lottery ticket, but they are unable to hold on to their wealth. Why is wealth obtained and sustained by some, while, obtained and dwindled away by others? Is there a “Wealth Game” in progress to which you never received an invitation? Are there Secrets? Eric Stevens, CEO of The Zurich Group LLC, thinks so and here he takes us into the world of wealth and reveals how the “Founding Financial Fathers” of the USA obtained and sustained their wealth through multiple generations. He reveals their strateNPLZ HUK [OL ÄUHUJPHS [VVSZ [OH[ ^PSS LUHISL `V\ [V [YHJR [OLPY MVV[WYPU[Z [V ÄUHUJPHS Z\Jcess, wealth protection and the ability to sustain both.

SUCCESSFUL EU-WIDE BANKING SUPERVISION REQUIRES A CLEAR DIVISION OF ROLES AND ACCOUNTABILITY dures be set up to ensure close and frequent cooperation and information exchange between the different bodies and that particular attention should be paid to the period of transition before the SSM is fully established.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 71

internet

{BUSINESS}

TOTAL ENTERTAINMENT AND MEDIA SPENDING ON DIGITAL IS FORECAST TO ACCOUNT FOR 65% OF GLOBAL ENTERTAINMENT AND MEDIA SPENDING GROWTH.

T

otal entertainment and media spending on digital (excluding spend on Internet access) is forecast to grow at a 12.2% compound annual growth rate (CAGR) between 2013 and 2018 and account for 65% of global entertainment and media spending growth, with Internet advertising poised to overtake TV advertising in 2018. Advertising is leading the way; in 2018, 33% of total advertising revenue is forecast to be digital, compared to 17% of consumer revenue. However, monetising the digital consumer will not just be about the application of technology. It will be about applying a ‘digital mindset’ to build the right behaviours, advancing from a digital strategy – to a business strategy fit for a digital age, according to PwC’s Global Entertainment and Media Outlook 2014-2018.

Mobile Internet penetration will reach 55% in 2018, which will help drive digital advertising to increase its share from 14% of total advertising revenue in 2009 to 33% by 2018. With Internet advertising growing at a 10.7% CAGR (compared to a total advertising CAGR of 4.4%), the industry is approaching a significant tipping point: in 2018, Internet advertising will be poised to overtake TV advertising.

NINE HIGH-GROWTH MARKETS ARE POWERING GLOBAL ENTERTAINMENT AND MEDIA REVENUE: CHINA, BRAZIL, RUSSIA, INDIA, MEXICO, SOUTH AFRICA, TURKEY, ARGENTINA AND INDONESIA

INTERNET ADVERTISING

TO OVERTAKE TV ADVERTISING IN 2018

Spending on digitally delivered content will only account for 17% of total consumer spending in 2018 (excluding spending on Internet access), compared to 33% of total advertising spending. However, the growth of ‘24/7 access’ and micro-transactions suggest that the key to monetising the digital consumer is to adopt flexible business models that offer more choice and better experiences.

Electronic home video over-the-top (OTT)/ streaming and digital music streaming are two of the fastest-growing consumer sub-segments in the Outlook, set to rise at a CAGR of 28.1% and 13.4% respectively.

Nine high-growth markets are powering global entertainment and media revenue: China, Brazil, Russia, India, Mexico, South Africa, Turkey, Argentina and Indonesia are markets to watch, collectively forecast to account for 21.7% of global entertainment and media revenue in 2018, up from just 12.4% in 2009.

OTHER KEY FINDINGS OF THE OUTLOOK ARE: • Internet TV advertising will double its share of total TV advertising revenue in the next five years.

• Mobile advertising will overtake classified Internet advertising in 2014.

• Digital consumer magazine advertising revenue is much larger than digital circulation.

• Digital out-of-home (DOOH) advertising revenue will see significant growth in the fastgrowth markets.

• Subscription TV will not be daunted by the rise of OTT, as it grows across global markets. Box office resilience underscores the continuing popularity of the cinematic experience.

72 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

• Digital newspaper payments are taking off, but won’t prove transformational. Rising digital consumer revenue may be driven by 24/7 access.

• Global electronic home video revenue will exceed physical home video revenue in 2018.

• Digital recorded music revenue will surpass physical recorded revenue in 2014.

• All-you-can-read subscription services are yet to take off but will be transformational.

• Internet gaming is widening gaming participation and micro-transactions are helping to grow revenues.

DIGITAL SPENDING

Digital revenue consists of fixed broadband and mobile Internet access; satellite radio subscriptions; digital PC and console gaming; online and mobile gaming; electronic home video; digital newspaper circulation revenue; digital consumer magazine circulation revenue; digital trade magazine circulation revenue; consumer, educational and professional e-books; online and mobile Internet advertising; digital out-of-home advertising revenue and digital recorded music revenue.

ABOUT THE OUTLOOK

PwC’s 15th annual update of the Global Entertainment and Media Outlook 20142018, is a comprehensive online source of global analysis for consumer and advertising spend. With like-for-like, five-year historical and five-year forecast data and commentary across 13 industry segments in 54 countries, the Outlook makes it easy to compare and contrast consumer and advertising spend across segments and countries.

growth

SUSTAINABILITY & THE IMPORTANCE OF TOTAL Impact Measurement and Management

By George A. Ioannou

O

ver the past decade, sustainability has moved from the fringes of the business world to the top of shareholders’ agenda. The concept of sustainability has gained momentum among corporate employees, regulators, and customers, too. Consequently, any miscalculation or misjudgement of matters related to sustainability can have serious repercussions on how the world judges a company and values its shares. Also, stakeholders are having an increasing influence over business and are demanding more and better information as they look to higher standards of responsibility and greater openness and transparency. Unfortunately, in many cases, current business reporting fails to embed sustainability issues at the core of the organisation.

At the same time a ‘new norm’ is created in which economic growth is more dynamic, there is a gradual shift of the economic balance of power towards emerging economies, the traditional competitive advantage model (focus on low labour and material cost) is being reassessed, new technology enables the

globalisation and opening up of new markets and demographic changes and shifts create new opportunities and challenges. The threat of climate change, including the depletion of natural resources and loss of biodiversity, is gradually becoming an important aspect that businesses are considering in their decisionmaking processes.

All of these changes call for a new definition of growth. This is growth that will not deplete resources forever and will not ignore communities with respect to sharing economic success. ‘Good Growth’ looks beyond output and profit and is real, inclusive, responsible and lasting.

PwC has been working with clients to find ways of addressing these important goals and the result of this exercise is the Total Impact Measurement and Management (TIMM) approach.

This approach takes a total – holistic – view of the social, environmental, fiscal and economic dimensions, it looks beyond inputs and outputs to outcomes and impacts, it

{BUSINESS}

quantifies and monetises (measures) the impacts and it evaluates options and optimises trade-offs (manages). TIMM has been developed in order to help businesses make more informed decisions. It provides an integrated understanding of how the business activities deliver value to the supply chains and communities in which it operates. This is done by contributing to the economy and public finances and managing its impact on the environment and society. The illustration shows the different dimensions of impact considered within TIMM. In order to address each dimension of impact, TIMM, draws upon a wide range of methodologies and tools, examples of which are the Total Tax Contribution, the economic impact analysis assessment, the environmental impact measurement and social impact measurement.

BBOOK O RREVIEW THE HE CULTURE MAP

BY ERIN MEYER (PUBLICAFFAIRS, 2014) R.R.P. £17.99 (£13.88 FROM AMAZON.CO.UK)

W

hether you work at home or abroad, business success in our ever more globalized and virtual world requires the skills to navigate through cultural differences and decode cultures foreign to your own. Renowned expert Erin Meyer is your guide through this subtle, sometimes treacherous terrain where people from starkly different backgrounds are expected to work harmoniously together.

Even with English as a global language, it’s easy to fall into cultural traps that endanger careers and sink deals when, say, a Brazilian manager tries to fathom how his Chinese suppliers really get things done, or an American team leader tries to get a handle on the intra-team dynamics between his Russian and Indian team members. Living and working in Africa, Europe, and the United States prompted Meyer’s study of the communication patterns and business systems of different parts of the world. In her book she combines a smart analytical framework with practical, actionable advice for succeeding in a global world. It will be useful and possibly essential to managers everywhere. info: George A. Ioannou is a Director at PwC Cyprus Sustainability Business Services, Performance Improvement Consulting and Global Sustainability and Climate Change Network THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 73

eurozone

{ECONOMY}

1.1% Growth Forecast for Eurozone AFTER TWO YEARS OF FALLING OUTPUT, THE EUROZONE IS FORECAST TO GROW BY 1.1% THIS YEAR, FOLLOWED BY EXPANSION OF 1.5% IN 2015 AND A SLIGHTLY FASTER PACE IN 2016-18, ACCORDING TO THE SUMMER 2014 EY EUROZONE FORECAST (EEF). xports are strengthening and a gradual pickup in domestic demand will drive a return to modest investment growth, says the latest EEF. However, the threat of deflation persists. Inflation in the eurozone was down to just 0.5% in May. Widespread deflation, or even a period of very low inflation, would add to the problems of sluggish growth by raising real levels of debt and by delaying spending and investment decisions.

Part of the reason for weak price growth has been the strength of the euro in recent months. In response the European Central Bank’s (ECB) package of measures earlier this month will have some impact, and with the US now moving toward tighter policy, the euro should start to weaken later this year and in 2015. As such, EEF expects inflation to start to pick up, easing deflationary fears and supporting the wider recovery of investment and consumer spending.

Tom Rogers, Senior Economic Adviser to the EY Eurozone Forecast comments: “Recent developments in the eurozone underline that a gradual recovery is continuing but that it remains divergent across Member States. Countries that have done the most to improve competitiveness are

reaping the rewards, but others are continuing to lag. And we remain concerned about the weakness of price growth and the risk that internal or external shocks might push the eurozone toward a damaging deflationary spell. Recent moves by the ECB

THE EUROZONE IS IN A FAR STRONGER POSITION THAN IT WAS EVEN 12 MONTHS AGO, BUT ECONOMIC RECOVERY REMAINS A MUTED AFFAIR demonstrate that it has the capacity to act, and we are encouraged by its intention to focus any quantitative easing programme directly on the debt of non-financial firms.”

Mark Otty, EY Area Managing Partner for Europe, Middle East, India and Africa adds: “We shouldn’t forget that the eurozone is in a far stronger position than it was even 12 months ago, but economic recovery remains a muted affair. As on many other occasions throughout the last six years, it is still a case of two steps forward and one step back. Progress yes, but many challenges still exist.”

The scenario continues to vary across the eurozone. Although the past pattern of the

74 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

core economies outperforming their counterparts in the periphery looks set to be less evident this year, EEF still expects intraarea divergence in economic performance.

Greece and Italy are likely to be among the weakest economies in the eurozone, along with Cyprus and Finland. On the other hand, GDP growth in Spain and Portugal is expected to pick up quite sharply this year as the reforms implemented over the past few years begin to bear fruit.

While GDP growth in the latter two economies will probably be close to the eurozone average, both are likely to outperform some of the weaker core economies such as France and the Netherlands, which have been slow to address their fundamental economic problems.

However, there are still large divergences in the amount of spare capacity in the region’s core and peripheral economies.

The EEF estimates that Germany is now running close to full capacity. By contrast, GDP in Italy and Spain is still around 6% below potential and the size of the Greek output gap is likely to be significantly larger.

In 2013, eurozone export volumes grew by just 1.4%, the weakest annual gain since the global financial crisis. Although the further strengthening of the euro since the beginning of the year suggests that exporters may be set for another tough year, EEF expects export growth to accelerate to 3.5% this year and then to 3.8% in

NOTE:

The forecasts and analyses presented in the EY Eurozone Forecast are based on the European Central Bank’s model of the Eurozone economy.

This model embeds state-of-the-art economic theory and techniques and is used by the ECB to produce its quarterly forecasts of the euro area.

EY is a global leader in assurance, tax, transaction and advisory services.

2015 as global demand continues to rise.

Consumers and businesses face continued tight credit conditions in most eurozone countries as banks to try to repair their finances ahead of the findings of the ECB’s asset quality review, due for release in October. Nevertheless, household spending, which started to inch up last year, looks set to gain momentum over the coming quarters. The European Commission’s measure of consumer sentiment is now at its highest level since late 2007 and the ECB’s bank lending survey suggests that demand for loans from households is growing.

In addition, there are tentative signs that the labour market has now reached a turning point. Although the unemployment rate remains close to its record high, at just below 12%, employment is beginning to rise.

Otty says: “Unemployment rates remain stubbornly high across the eurozone.

More has to be done to improve labour market conditions. Governments have to be forward-looking, particularly in easing the path for businesses to

REAL DISPOSABLE INCOME GROWTH IS LIKELY TO REMAIN BELOW THE RATES RECORDED PRIOR TO THE GLOBAL FINANCIAL CRISIS

create new jobs for young people.”

Despite some positive signs, a period of strong household spending growth seems unlikely in the region as a whole. The high level of unemployment will ensure that wage growth remains subdued by historical standards. Accordingly, real disposable income growth is likely to remain below the rates recorded prior to the global financial crisis.

Rogers says: “While weak or negative inflation may be a positive development for consumers in the near term, a sustained period of deflation would dampen spending in the medium term, as it would both encourage consumers to delay major purchases and would squeeze employers’ ability to increase or even sustain current wage levels. Falling prices would also raise the real value of households’ outstanding debts, potentially prompting them to try to pay down their debts even more quickly.”

While the chances of a major re-intensification of the eurozone crisis have continued to ease, risks arising from outside the eurozone itself lie toward the downside. The most obvious near-term risk is from political tensions in Ukraine. Not only could this lead to higher energy prices and shortages if eurozone energy supplies were disrupted, it could also impact negatively on business and consumer sentiment and prompt a reversal of the capital inflows into the peripheral economies. In such a scenario, it seems likely that the eurozone’s fragile recovery would at least temporarily fizzle out.

Another significant risk is that parts of, or even the entire eurozone, suffers from a sustained period of cost and wage deflation.

Although the ECB remains alert to the threat of deflation, some Governing Council members’ aversion to the use of unconventional measures such as quantitative easing suggests that the ECB will remain loathe taking more decisive action.

Rodgers concludes: “While encouraging signs come from exports, consumer confidence and capital inflows into newly competitive economies, we must not lose sight of the work that remains to be done in cementing fiscal sustainability, restoring sound banks and lending, and improving prospects for growth and in particular job creation.”

B BOOK RREVIEW THE CONSOLAT THE CONSOLATIONS ATIONS OF ECONOMICS: HOW WE WILL ALL BENEFIT FROM THE NEW WORLD ORDER

BY GERARD LYONS (FABER & FABER, 2014) R.R.P. £16.99 (£11.55 FROM AMAZON.CO.UK)

I

n the next twenty years the world economy will enjoy one of its strongest periods of growth. Greater innovation and technical change will increase opportunities. Life expectancy, income and educational standards will rise. The West’s share in the global economic cake may get smaller, but there will be more cake than ever before. These are the predictions of Gerard Lyons, a leading international economist who, after thirty years working in the City, is now chief economic adviser to the Mayor of London. He has consistently been ahead of the game in predicting the major economic trends that we now take as a given. His book is a lucid and accessible attempt to look objectively at the changing global economy, what is happening and what it means. He shows how we can embrace change, rather than hide from it. The results are fascinating, refreshing and unusually cheering. Lyons, an expert on the world economy, macro-economic WVSPJ` HUK ÄUHUJPHS THYRL[Z ^HZ YHURLK

by Bloomberg as the number one global forecaster in 2010 and 2011.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 75

efb-kpmg tax monitor

{TAX&LEGAL}

FAMILY BUSINESS TRANSFERS

CONTINUE TO BE A MAJOR

T

CHALLENGE IN EUROPE

he results of the first EFBKPMG Tax Monitor shows that in many European countries, governments still impose a tax on intergenerational family business transfers. Many European countries apply relief; however, if one is not prepared, the tax obligations can be severe.

TAX DUE ON SUCCESSION THROUGH INHERITANCE:

Of the 23 surveyed countries, seven – including Cyprus – impose no taxes whatsoever. Assuming that no reliefs are applied, the potential tax burden varies from €0 to €4 million. The figures highlight the importance of early preparation because the tax landscape changes dramatically when tax exemptions are taken into account.

The number of countries which impose no tax then rises from seven to 13. But even with exemptions, certain countries impose comparatively high levels of tax, the maximum being €1.5 million.

TAX DUE ON SUCCESSION ON RETIREMENT:

Of the 23 surveyed countries, six impose no taxes whatsoever – Cyprus is one of them.

Once again, assuming no reliefs, the potential tax burden can be significant, with the top four countries levying between €2.8 million and €4.2 million upon a transfer of the business. When we look at the tax landscape with reliefs, major changes occur. Now 13 countries apply no tax, but the top six still levy a comparatively high amount of between €0.3 million and €1.5 million.

TRANSFER OF FAMILY BUSINESS IN EUROPE STILL A MAJOR CHALLENGE: What is clear from the study is that family

THE ISSUE OF TAXATION IS LIKELY TO REMAIN HIGH ON THE AGENDA OF FAMILY BUSINESSES businesses can face an uphill struggle if they want to keep running the business within the family. Taxes are charged in many countries, but no cash has been generated by the individuals or the business as a result of the business transfer.

The funds to meet the tax levy must be found from other sources. This reality can severely hinder the future growth and investment capacity of a business. Finally, the differing tax treatment of inheritance and retirement is interesting, and such policy differences can often result in changes to the families’ behaviour. For example, the leaders of family businesses may hold on to control of the business for tax reasons, which can be frustrating for the next generation and act as a constraint on business growth.

Roger Pedder, EFB President commented: “This study is important and revealing. We see that the potential tax burden of family businesses who want to transfer the ownership to the next generation can be significant. It is encouraging that many of the surveyed countries have reliefs for family business, which implies that there is a recognition of the importance of the sector. Exercises like this one highlight best practices across Europe which we hope others will follow”.

Gary Deans, Tax Leader for Family Business at KPMG in the UK and Europe, said: “The impact of tax on a family business can vary dramatically from country to country. This is no surprise as the lack of clarity around reliefs, exemptions and how to qualify for them can be challenging. Not

76 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

everyone’s situation will qualify for the various reliefs, of course, but our study shows that they can make a dramatic difference to the amount of tax payable when they do apply.

“The issue of taxation is likely to remain high on the agenda of Family Businesses especially when it comes to dealing with issues around succession, so it is now more important than ever that Family Business leaders fully understand the tax implications of their personal objectives.

Our study shows how dramatically the tax burden can vary between countries given the same fact pattern.”

EUROPEAN FAMILY BUSINESSES (EFB) is the federation of national associations representing long-term family owned enterprises, including small, medium-sized and larger companies.

EFB represents €1 trillion in aggregated turnover, which is 9% of European GDP. EFB’s mission is to press for policies that recognise the fundamental contribution of family businesses in Europe’s economy and create a level playing field when compared to other types of companies.

KPMG’S GLOBAL FAMILY BUSINESS CENTRE OF EXCELLENCE is designed to leverage KPMG member firms expertise on Family Businesses, enabling them to offer specialized insight to clients. This cross-border initiative aims to position KPMG member firms as leading advisors to family businesses. KPMG operates in 155 countries and have over 155,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

value added tax

{TAX&LEGAL}

COUNTDOWN TO

SIMPLER AND

BBOOK O RREVIEW

FAIRER VAT

F

rom 2015, VAT on telecommunications, broadcasting and electronic services will be due where the customer and not the supplier is located.

The six-month countdown has begun to a major change in the EU VAT system, which will ease life for many businesses and ensure fairer revenue distribution between Member States. From 1 January 2015, VAT on all telecommunications, broadcasting and electronic services will be due where the customer is based, rather than where the supplier is located.

This changeover will ensure a more level playing field for businesses, and fairer taxation rights amongst Member States.

In parallel, a mini One Stop Shop will be launched, greatly reducing costs and administrative burdens for businesses concerned. With the mini One Stop Shop, businesses supplying e-services to customers in more than one EU country will be able to declare and pay all their VAT in their own Member State. This is consistent with the Commission’s goal of reducing tax obstacles and burdens for cross-border companies in the Single Market.

The Commission has invested greatly over the past few years to ensure that national tax authorities and businesses are well-prepared and equipped to ensure a smooth transition to the new system next year. This work continues, along with an intensive information campaign, to ensure that both Member States and companies can reap the full benefits of these important changes.

Algirdas Šemeta, EU Tax Commissioner, said: “We want fair taxation that facilitates business and delivers healthy revenues to national budgets. The change in the VAT rules next year delivers on all fronts. Businesses will enjoy a simplified system and a more level-playing field, which should encourage cross-border expansion, particularly for startups and SMEs. Member States will have more

CONFIDENCE GAMES: LAWYERS, ACCOUNTANTS AND THE TAX SHELTER INDUSTRY

THE CHANGE IN THE VAT RULES NEXT YEAR DELIVERS ON ALL FRONTS

BY TANINA ROSTAIN & MILTON C.REGAN JR. (MIT PRESS, 2014) R.R.P. £20.95 (£20.95 FROM AMAZON.CO.UK)

equitable taxing rights, creating fairer tax competition within our Union.”

Under current rules for e-services within the EU, VAT is due where the supplier is based, and at the rate set by that Member State. With the standard rate of VAT varying from 15% to 27% across the EU, businesses frequently establish in a Member State with a low standard rate, which then applies to the e-services they supply to all private customers throughout Europe.

The change in VAT rules from January will mean an end to this, as VAT will be charged at the rate of the customers’ country. This will apply whether it is an EU or non-EU business doing the sale. So a customer living in Copenhagen will be charged the Danish VAT rate, regardless of whether the supplier is from Denmark, Luxembourg or the USA. This change will bring important benefits.

First, it will ensure fairer competition between domestic and non-domestic businesses selling the same services. Second, it will create a more level playing field for SMEs and other companies that cannot relocate to a lower-tax Member State and who, up to now, may have lost out to more mobile competitors. Finally, it will ensure fairer distribution of tax revenues between Member States, as they will receive the tax on the services consumed by their own residents.

The mini One Stop Shop will greatly simplify the VAT obligations for companies as they comply with the new rules. Instead of having to declare and pay VAT to each individual Member State where their customers are based, businesses will be able to make a single declaration and payment in their own Member

I

n the 1990s, some of America’s most WYVTPULU[ SH^ HUK HJJV\U[PUN ÄYTZ created and marketed products that enabled the very rich to avoid paying [OLPY MHPY ZOHYL VM [H_LZ I` JSHPTPUN ILULÄ[Z not recognized by law. These domestic tax shelters brought in hundreds of millions of dollars in fees from clients and lost the US Treasury billions in revenues before the Justice Department stepped in with criminal prosecutions. Rostain and Regan describe the rise and fall of the tax shelter industry during this period, offering a riveting account of the most serious episode of professional misconduct in the history of the American bar. They describe a beleaguered IRS preoccupied by attacks by anti-tax and anti-government politicians, heightened competition for professional services, the relaxation of tax practitioner UVYTZ HUK [OL JYLH[PVU VM JVTWSL_ ÄUHUJPHS instruments that made such shelters harder to detect. By 2004, the tax shelter boom ^HZ V]LY SLH]PUN MHPSLK ÄYTZ KPZNYHJLK professionals, and prison sentences in its wake but Rostain and Regan’s cautionary tale remains highly relevant today.

State. Suppliers will use a web portal in their Member State of establishment to account for the VAT due on sales in other Member States.

The tax authority in the business’ Member State will be responsible for forwarding this information and revenue accordingly. Thus, businesses will have to deal with just one administration (with which they are familiar) rather than up to 28 different ones. Such a system has been in place since 2003 for non-EU e-service suppliers selling to EU consumers, and has been very effective in simplifying their VAT obligations.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 77

{LIFESTYLE}

Sail on, SAILOR

By Chloe Panayides

FURTHER TO AFFORDING A MEANS OF TRAVERSING THE SEVEN SEAS IN SATIATED STYLE, YACHTS HAVE EVOLVED TO BECOME THE MUST-HAVE ACCESSORY OF BILLIONAIRES THE WORLD OVER.

investing in yachts

nvesting in a yacht equates with investing in lifestyle itself. According to reporter Veronica Dagher: “It’s an investment in your mental health. Owning a yacht is reserved for the wealthy. And many times, that wealth comes with a lot of stress.”

At the time of her epiphany, Dagher was – not by chance – breezing upon the open seas aboard the opulent sailing vessel of none other than Jack Desmond, CEO of COX Engineering.

Historically, the aristocracy has long reserved veneration for luxurious vessels, with the Ancient Egyptian Pharaohs, as early as 3000 BC, reportedly being buried alongside their beloved elegant oared barges, in the hope that they would be carried to the afterlife with the

same grace with which they used to traverse the Nile.

Nowadays, numerous reports suggest that no billionaire is complete without a yacht to his or her name: the Wealth-X and UBS Global Billionaire Census suggests that the average billionaire spends at least $22 million on yachts.

Furthermore, a Wealth-X study that ranked the most expensive luxury asset acquisitions of all time revealed that eight of the top ten purchases were – you guessed it – yachts.

Far from being a moribund industry, seismic shifts in world economics have opened up fissures in the market, out of which a bountiful economic eruption is pending: the so-called BRIC countries (Brazil, Russia, India and China) are said to account for more than 50% of world productivity, and only 7% of world investment, equating to growth potential a-plenty.

And yet, navigating the world of yachts is as trying as aspiring to steer through tempestuous seas. Besides the monetary commitment related to buying a yacht, it can take days, months and even years to fully engage with the ins and outs of the industry, understanding what options are available.

As Kim Kavin explains in her connoisseur’s guide: “There are countless new and brokerage yacht models available; some are built on a production scale and others custom-designed.

You can pay hundreds of thousands or tens of millions of dollars depending on the quality, size, and personalisation you desire.”

Thus, understanding precisely what options comprise the basic categories – and focusing one’s wants and desires accordingly on entering into such a venture – is paramount prior to setting sail upon this journey.

Whether considering a motoryacht or a sailing yacht, there are, Kavin details, four basic categories: production, semi-custom, fully custom and brokerage.

Akin to the automobile industry, production yachts are built on a factory line that creates models of the same style, shape, and size. The economies of scale mean that for new yachts, production models are typically the least expensive. Whilst options to personalise are limited, delivery time tends to be considerably faster than that needed for custom-built models.

Cost meets characteristics when it comes to semi-custom yachts, affording time efficiencies

FULLY CUSTOM YACHTS COULD SET A POTENTIAL BUYER BACK BY A BREATHTAKING $100 MILLION akin to production models, with many of the same optional features and design nuances privileged to custom-built vessels.

Kavin explains: “If you purchase a semi-custom build well before it is due to be launched, then you can often change far more than just the interior décor.”

In select cases, a client may even be able to alter the number of cabins in the original design, the configuration of the cabins, as well as on-deck features, such as hot tubs and bars. Provided that hull design, key systems and critical bulkheads remain intact, semicustom yachts present a fair opportunity for personalisation, at a fraction of the price of fully custom-built yachts. Many semi-custom motor yachts, for example, fall within the $25 million range, with sailing semi-customs typically commanding some 20% less.

Fully custom yachts, in contrast, could set a potential buyer back by a breathtaking $100 million.

Whilst reflecting the most expensive and time-consuming of the four categories, custom yachts uniquely cater to the customer’s wants and needs. Every single item on board is crafted and built to the buyer’s specifications, right down to the colour of the screws and nails, Kavin reveals.

She elaborates: “For some clients, the process of building the yacht is just as much fun as owning and using it. They relish in the construction process itself, making monthly visits to the shipyard and working hand-in-hand with naval architects and interior designers to achieve the exact yacht of their dreams.”

Good things come to those who wait, as they say, and the same rings true when commissioning a custombuilt yacht: models can often take two to three years from conception to launch, often requiring time thereafter to acquire a bay in one of the world’s most in-demand shipyards.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 79

investing in yachts

BIGGER, FASTER, BETTER

According to Wealth-X in 2013, the following eight yacht purchases are the most expensive of all time. One extra yacht – hailed as being the singular most expensive vessel, named so in 2014 – has been added for good luck.

4 1.

Azzam, $627 million

The largest and most expensive yacht in the world is a staggering 590 feet long (longer than some commercial cruise ships) and owned by Sheikh Khalifa bin Zayed al-Nahyan, President of the United Arab Emirates. It took German shipbuilders Lürssen Yachts four years to build this behemoth of a ship, which is rumoured to have up to 50 private suites. According to Wealth-X, the $627 million purchase was only about 3.5% of Sheikh Khalif’s net worth of $17.9 billion.

2.

designed superyacht belongs to Russian oligarch Andrey Melnichenko. Among its luxurious amenities are bath taps worth $40,000, staircase banisters worth $60,000, and a bed that rotates at the touch of a button, allowing for perfect views of the sunrise and sunset. A has had its fair share of controversies, however, as the Melnichenkos are currently suing Dutch paint corporation Akzo Nobel, claiming the yacht’s WHPU[ PZ UV[ HZ YLÅLJ[P]L HZ they had requested.

Eclipse, $485 million

Russian oligarch and owner of Chelsea FC, Roman Abramovich, purchased the 536-foot-long Eclipse in 2010, when it still held the title for world’s largestt yacht. ya Eclipse has two helipads, elipads, a disco, cinema, cinema hair salon, and restaurant, plus it’s bel believed to have a laser defence system sys against paparazzi trying to photoNYHWO NYHWO OPNO WYVÄSL guests. g

3.

.ThisA,elegant, $323 million Philippe Starck-

Serene, $330 million

9\ZZPHU ]VKRH KPZ[YPI\[VY @\YP :JOLMÅLY owns this 440-foot yacht, which has turquoise neon lights that give it a nighttime glow. It has a combined 48,000 square feet of covered space on its seven decks, including indoor and outdoor pools, 12 staterooms, and an outdoor ZJYLLUPUN YVVT :JOLMÅLY W\YJOHZLK [OL 0[HSian-designed yacht for $330 million in 2011.

Pelorus, $300 =5.million

Music mogul David Geffen purchased Pelorus from Russian oligarch Roman Abramovich in May 2011. Since one helicopter pad just isn’t enough, this superyacht has two, in addition to two swimming pools and a collection of smaller boats on the tender deck. One guest suite has a wall that lowers to transform into an ultra-private veranda.

=5.

by Blohm + Voss in 2006. At 524ft in length, it’s the third-largest private yacht in the world and it boasts seven decks, a squash room, helicopter pad, and even a small submarine.

7.

Radiant, $286 million

Originally commissioned by Russian oligarch Boris Berezovsky, this 360-foot yacht was sold to Abdulla Al Futtaim, a billionaire car dealer from the UAE. Radiant’s amenities give a James Bond twist to the typical superyacht experience. It’s equipped with sonic guns that would burst the eardrums of attackers, along with water cannons that could sink an approaching boat from 100 yards away. There’s even a smaller ZWLLKIVH[ KLZPNULK ZWLJPÄJHSS` MVY H X\PJR escape.

8.

Dilbar, $263 million

Alisher Usmanov, an ultra-high net worth individual from Russia, bought this 360-foot superyacht for $263 million in 2012.

Dilbar, named after the billionaire’s mother, has accommodation for 20 guests and up to 47 crew members, in addition to a helicopter pad, swimming pool, and swanky formal dining room.

Dubai, $300 million

The Dubai, which currently belongs to Mohammed bin Rashid Al Maktoum, Sheikh of the emirate of Dubai, was the most expensive yacht in the world when it was built

And the winner is: History Supreme, $4.5 billion The price is no surprise, given that the 98-foot yacht is plated with 100,000kg of gold and platinum, and, furthermore, houses a luxury liquor bottle featuring an 18.5ct diamond, one of the world’s rarest. On the inside there is a statue made out of a T-Rex’s bone and many other extravagant pieces such as meteorite parts. The yacht, which took three years to complete, was designed by jeweller Stuart Hughes (creator of the most expensive suit in the world, as well as the most expensive iPad and iPhone).

800 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

The final category of yacht available is brokerage: this is yacht world market speak for “used” and brokerage yachts of every size and style, from 25-foot sailing yachts to 250-foot motor yachts, may be found.

Compared to new models, brokerage yachts present a price advantage, though they may be victims of wear and tear. Thus, buyers would be wise to factor in the post-sale refit cost into their overall budget.

Once ascertaining which category of yacht best resonates with one’s desires, seeking out a trusted yacht broker is key. Kavin explains: “Working with yacht brokers is much like working with real estate agents: they typically all have the same inventory but some know it better and can help you more than their less-savvy colleagues. Much of your brokerselection process will boil down to finding a personality that you enjoy working with regularly.”

Auspiciously, Cyprus is home to numerous companies that tend to this very need, serving as a seasoned go-between, bringing client and yacht intimately in touch.

Princess Yachts, for example, has been operational in Cyprus since 1997, and is the sole distributor in Cyprus of the Princess range of luxury motor yachts. Its specialist brokerage department is dedicated to sales of Princess motor yachts and other power boats up to 10 years old.

Meanwhile, EKKA Yachts Cyprus commenced business in 2000 as the sole importer and distributor of the famous Italian shipyard Ferretti. Subsequently more shipyards were added – such as Pershing, Riva, Itama, Bertram, Mochi Craft, and CRN – and, today, Ferretti Group has become one of the largest groups of shipyards in the world producing luxury yachts from 40 feet to 80 meters.

Blue Point Yachting, likewise, represents major brands of the yachting world in Cyprus, such as Azimut, Benetti Group, Sea Ray boats and Elan Sailing.

For those whose curiosity

FOR SOME CLIENTS, THE PROCESS OF BUILDING THE YACHT IS JUST AS MUCH FUN AS OWNING AND USING IT

has been piqued, though lack adequate funding to effectively enter the market, numerous additional avenues are available for the aspirant skipper: namely, yacht timeshare, and chartering.

SmartYacht – a yacht financing and boat share company – cautions that key factors need to be heeded to ensure a successful yacht share.

The company clarifies: “The concept of a yacht share puts the expensive asset motor yacht within easier reach for the discerning and ambitious through saving major costs at purchase and maintenance of a yacht. However, co-ownership can be successfully optimised, only if a buyer considers key factors.”

One such example is the securing of one’s property: Co-ownership is often mistaken for yacht timeshare models, which do not involve actual ownership. Indeed, there is often a degree of uncertainty here, and SmartYacht advises that the necessary legal structure be put in place prior to proceeding. Individual agreements can vary greatly, and clarification must be sought as to whether the deal involves co-ownership, or purely leasing and right-to-use status.

Moreover, ensuring flexible usage of the yacht is paramount to a pleasurable yacht owning experience, and thus rules must be demarcated clearly at the outset of the venture.

Finally, costs must be fairly and proportionately divided according to the yacht share percentage.

With regard to chartering, the premise is simple: one’s yacht is entrusted to a yacht charter company, with a certain time period every year set aside for personal use. Outside of this bracket, the yacht is utilised for private charter – or ‘rented’ – affording the owner income throughout the year.

Nautimar Marine Marketing is one such company in Cyprus to offer this ownership format, with fully functioning yacht management and yacht chartering departments.

Certainly, investing in a yacht requires deep pockets and rich

know-how: but to all intents and purposes, it’s a lifestyle statement few would turn down the opportunity to make. So, sail on, sailor: fair winds and following seas.

THE AVERAGE BILLIONAIRE SPENDS AT LEAST $22 MILLION ON YACHTS

BOOK REVIEW I THINK THEREF THEREFORE FORE I PLAY

BY ANDREA PIRLO & ALESSANDRO ALCIATO (BACKPAGE PRESS, 2014) R.R.P. £9.99 (£6.89 FROM AMAZON.CO.UK)

A

UKYLH 7PYSV PZ VUL VM [OL ÄULZ[ footballers of his generation – a World Cup and Champions League winning playmaker and one of the most deadly free-kick takers the game has known. This is his story, in his words, written with a level of humour and insight which confound his image as a dead-eyed assassin on [OL ÄLSK VM WSH` (SS [OL IPN UHTLZ HYL PU OLYL! 3PWWP (UJLSV[[P *VU[L 4HSKPUP Shevchenko, Buffon, Kaka, Nesta, Balotelli, Gattuso, Berlusconi and Ronaldo (“the real one”) but they’re not always at work. We hear Berlusconi playing the piano and telling “various types of QVRLZ¹ H[ 4PSHU»Z [YHPUPUN NYV\UK HUK ^L see Pirlo and Daniele De Rossi drawing Nesta’s ire as they take him on a mystery tour of the German countryside in a hire car days before a World Cup semiÄUHS 7HJRLK ^P[O MHZJPUH[PUN KL[HPSZ from his whole life, this is not a conventional autobiography but, with the 2014 World Cup being his last international tournament, this is a timely salute to a very special talent.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Gold 81

A Day in the Life

Maria Kyriacou M.P., Barrister at Law, Head of the 1LFRVLD 2IÀFH RI $QGUHDV 1HRFOHRXV & Co LLC, on managing two careers, time management and living in Cyprus.

“My day normally begins at 6.30. I live near the

Acropolis Park which I helped my dad create – I remember planting and watering the trees with him – and so I’ll take my dogs for a walk around the park first thing. I always have breakfast which kicks off the day well. As an MP, I’m often called by the radio stations in the morning so I need to read the news and know what’s going on before the phone starts ringing at 7.30am. Once I’m at the office (we start at 8am), I never know how the day is going to turn out and even though I try to organise my timetable beforehand, new things always come up. At the office I encourage teamwork. In any group of lawyers, there will always be different interpretations and views and I think you give value to the client when you have more than one person working on a case. I didn’t always want to be a lawyer or a politician. My first love was (and still is) history and I wanted to become an archaeologist.

Archaeology is a kind of detective work – you uncover facts and make up a case. The good thing is that no-one is around to tell you that you are wrong so you can interpret the facts as you like! But before deciding what to study, I went to the

Cyprus Museum where I was told that it was unlikely that there would be any vacancies when I graduated so I decided to focus on my second choice.

I had always had a very strong sense of justice from childhood and I decided that I should become a lawyer or a judge. I have no regrets about my chosen career. Law is a fascinatingfield to work in but I didn’t try to persuade my son to become a lawyer. I brought him up to be a free thinker who could decide what he wanted to be and while he showed a great love of music as a child (my mother was a soprano and his godfather is the pianist Cyprien Katsaris), he actually became an economist and a civil engineer like his father. Meanwhile, I had always been interested in politics but more as an outside observer like my dad. Being an MP may have been in my stars but it was not in my plans! At the time my vision was simply to be fair, which is something I inherited from my father, a very good journalist who spent his time criticising the politicians, so becoming an MP was the last thing I ever imagined doing. When Mr Anastasiades asked me to be a candidate that his party would

Strauss waltzes are among my musical favourites

82 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

Good reads: I enjoyed these very much

support, I originally refused because I loved my work – I was the Registrar of Companies and I felt that I had done a lot of good things there, especially at the time when Cyprus was becoming an international business centre – but then I thought that instead of watching the TV news and saying “What are these people doing?” perhaps I should become one of them and do things better. So I took up the challenge and I am now in my third term.

If there is one bad thing about my life, it’s that I often feel I don’t have enough time for myself. That’s why I enjoy the early hours of the day. I’m usually at the office until 7.30pm but I still have to do things at home so all 24 hours are full. I love bak-

ing and during the holidays, when we have more time together as a family, I love making bread and cupcakes.

I often have professional obligations in the evening so I don’t have much time for relaxation. I used to read a lot but I rarely have time for anything apart from financial and legal magazines. I may read a book by someone I know and sometimes I’m asked to talk at a book launch so, obviously, I need to read it first.

Two recent ones that I enjoyed were Olga iTipota (Olga or Nothing) by my cousin Lito Pitiri, and Klironomisa Oles tis Files tis Mamas Mou (I Inherited All My Mum’s Friends) by Elisabeth Papadopoulou who honoured me by asking me to present her book when it was published. I also love music and I listen to all types, from classical to today’s lighter Greek songs. I like Strauss very much and I have special memories of dancing the waltz with my husband in Vienna. I used to travel a lot, especially to Athens where I feel very much at home. My mother was born in Volos, my grandmother was from Tsagarada and my grandfather from Corfu, so my heart is split between Greece and Cyprus. I love being here. Cyprus is a wonderful place, a real paradise, and I don’t think I could live in a better place.”

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