15 recommendations for attracting foreign investments and improving the business environment, issued by the Cyprus Economy and Competitiveness Council (SOAK).
According to SOAK, Cyprus, as an investment destination, already offers new investment opportunities in the fields of trade, services, energy, development, shipping, education, health, technology, and tourism, making Foreign investment is an essential pillar of the development of the Cypriot economy. However, such foreign investment remains relatively low compared to other European countries. The attraction of productive foreign investments, it is stressed, is an essential pillar of the development of the Cypriot economy.
Strategies for attracting quality foreign investments:
1) Formation of a national brand that will aim at strengthening the image of the country and highlighting its comparative advantages
2) Provide open, transparent, and credible conditions and procedures for all business types, whether foreign or domestic, including ease of doing business, access to imports, flexible labor market, and protection of intellectual property rights.
3) Intensification of the actions of the Investment Promotion Agency (IPO) for the promotion of foreign direct investment.
4)The Rapid Reaction Mechanism (MTO) approved by the Council of Ministers on 3 September 2020 in the context of the effort to further attract foreign companies, as well as to quickly and efficiently serve requests received from foreign companies for establishment in Cyprus will significantly contribute to attracting foreign investment and improving the business ecosystem. It is also suggested to consider how MTD acts as a link between foreign investors and the domestic economy and as a catalyst providing top infrastructure and ready access to skilled workers, technicians, engineers, and managers that may be required to attract such investments.
5) Creating a "supplier" development program to support the matching process between a foreign customer and a local supplier.
6) Encouragement of foreign direct investors by Cypriots from the Diaspora. These entrepreneurs are more likely to form links with domestic companies and contribute to the host country's internationalization.
7) Granting subsidies/grants for investments in fixed assets that will be made in 2021 as a percentage of costs
8) Review of tax incentives and tax relief to companies and investors:
- Providing tax deductions (such as the notional deduction of interest for introducing new conditional funds) for all new capital invested in companies to expand their activities.
- Provide tax incentives in specialized areas, such as high technology as well as research and innovation activities by setting up research centers or business parks that will include:
- Subsidized lease of state land
- Grants to support employment and training (grants) in cooperation with the Human Resources Development Authority (HRDA)
- Provision of increased credits and tax deductions in case of investments for research and innovation
- Implementation/investment in environmentally friendly technology
9) Extension of tax incentives for exemption of 20% and 50% of personal income from employment in the Republic of persons who were not taxed Cyprus residents before starting work.
10)Increased tax incentives for companies to invest to save energy and water (doubling tax deductions).
11) Increased capital discount for machinery, facilities for industrial and hotel units, meaning that the budgetary cost is feasible for the State.
12) Increase in depreciation for equipment (accelerated depreciation) that facilitates the transition to the digital age and technology.
13) Development of fifth-generation (5G) networks in Cyprus.
14) Creation of a National Spatial Framework for industry, which will incorporate a National Action Plan for Business Parks development.
15) Simplify and speed up licensing procedures.
nother dimension that can be considered towards attracting foreign investment is the liberalization of specific sectors of the economy and the reduction of monopolies. Such moves lead to increased competitiveness, better distribution of available productive factors, increased efficiency, encouragement of foreign investment, diffusion of new technologies, raising public revenues and reducing costs, offering higher quality public goods to, at lower tariffs, and consequently in boosting domestic production and employment.
Need for a robust institutional framework
The Council Recommendations also emphasize the need to create a robust institutional framework (both in the sense of legal entities and in the purpose of the general framework of rules), which will ensure a credible framework on which to base the country's development. Which will lead to social progress and prosperity and the restoration of citizens' trust in public administration.
Until ... the new development model
It is recalled that the Cyprus Economy and Competitiveness Council is currently running the new long-term strategy that Cyprus should draw up for the next 15 years, defining the new development model of the country. The study is expected to be completed in September 2021. However, it is stressed that the reform effort and the business environment's improvement can not wait. Ongoing reform planning, taking into account the first-class opportunity through the Recovery and Sustainability Fund, as well as the improvement of the business environment must be accelerated, thus allowing the faster implementation of the national strategy with the consequent benefits. The Council mentioned above recommendations are, therefore, part of this framework.