Cyprus has been ranked the 5th best relocation destination in the world by an international lifestyle review (source: 2014 report prepared by Knight Frank, a leading independent, global real estate consultancy firm). Ranked by key business and leisure indicators, Cyprus was the only European country alongside Switzerland to make it into the top five – ahead of London, Madrid and Monaco. With at least 320 days of sunshine a year, Cyprus was classified the sunniest European location.
One of the most popular routes to obtaining Cyprus residency is through the Cypriot citizenship by investment program.
The minimum investment threshold for the Cyprus Citizenship Program is €2.5 million, with various investment options available including; residential real estate, immovable property, interest bearing government bonds, creation of Cypriot business, fixed deposits or mix of any of the above.
Cyprus ranked highly because of its favourable tax regime for new residents, particularly high net worth individuals. It is also an attractive financial centre. Cyprus is situated in a strategic location at the crossroads of three continents – Europe, Africa and Asia. The Cypriot taxation system is consistently voted by EU tax professionals as being the most attractive in Europe, where the newly introduced “non-domicile” regime results in zero taxation of worldwide dividends and interest income, for a period of 17 years.
Here below are frequently asked questions (FAQs), regarding the Cyprus Citizenship by Investment program, clarifying the main provisions of this program.
(1) How are Cyprus government bonds purchased for the purpose of supporting an application for Cypriot Citizenship by Investment?
It is possible to purchase Cyprus government bonds/debentures directly from the Ministry of Finance (MoF) or through the Cyprus Stock Exchange.
For the purposes of investment in government bonds as a means of obtaining Cyprus Citizenship by Investment, it has been decided that from the 1st of August 2014 onwards, only the bonds purchased from the primary market (i.e. directly from the Ministry of Finance, Public Debt Management Office through the Cyprus Stock Exchange) are eligible. The minimum lock-in period for investment purposes is three years.
The applicant is able to purchase Cyprus government bonds between the 1st and 20th of each month. Payment is remitted to the bank account of the Central Bank of Cyprus. The application for purchase of government bonds can be processed by a power of attorney issued in the name of the applicant’s local advisor (i.e. lawyer).
(2) Does a Permanent Residency Permit (PRP) help towards obtaining Citizenship?
A holder of a PRP who eventually wishes to be granted Citizenship has an advantage in that he may legally reside in the Republic for five consecutive years prior to filing an application for Citizenship by naturalisation in the traditional way (as opposed to the Citizenship by Investment route). This is the only advantage afforded even though many persons opt to obtain the PRP first, and subsequently proceed with an application for Citizenship by Investment, especially when they intend to reside in the Republic with their families.
(3) How long is the examination period for the Citizenship application?
Upon filing of a completed Citizenship application, it usually takes between two to three months before a decision is made by the Ministry of Interior.
(4) Is it a requirement that an applicant must live in Cyprus prior to or after Citizenship being granted?
There are no residency prerequisites either prior to filing the Citizenship application or following the granting of Citizenship. This is one of the many benefits of the Cypriot Citizenship by Investment program, when compared to other EU Citizenships programs.
(5) When does the successful applicant receive their Cyprus passport?
Once citizenship is granted, the applicant can receive a Cyprus passport on the same day simultaneously with the issuance of the naturalization certificate, if done in person in Cyprus. On that day, the applicant issues a sworn statement that he accepts citizenship and can then obtain the Cypriot passport issued by the Ministry of Interior, on payment of acceleration fees of €120. Alternatively, the applicant may obtain the Cyprus passport any time after the naturalisation certificate is issued, from the Citizens Service Centers at a lower cost of €70, but it could take up to two weeks to have the passport issued in this case. A Cypriot passport will also be issued to the Investor’s spouse and dependent children up to the age of 27, provided they are in full-time education.
(6) What does “acquisition of businesses or companies based in Cyprus” mean precisely?
This criterion pertains to a €5m/€2.5m (depending on whether the application is submitted as a group or individual) investment in the participation rights or shares of a Cyprus company(ies) that maintains offices and operates in Cyprus, employing a minimum of five Cypriot citizens, for a period of three years.
An eligible company/business can also be one that was acquired by the Investor up to three years prior to filing his citizenship application.
In all cases, the Investor must demonstrate the correlation with the companies or businesses purchased. This requires the investor to continue to be an owner or be directly involved in the operations of the businesses acquired.
(7) How many Citizenship by Investment applications have been submitted to date?
Since 2013, there have been over 2,000 successful applicants under the Cypriot Citizenship by Investment program, with the Minister of Interior, Mr Socrates Hasikos, reporting (November 2015) that in excess of €3 billion in investment has been generated.
(8) Does the Citizenship by Investment scheme have an expiry date?
As at present, no expiry term has been designated for the program.
(9) One of the financial criteria requires a fixed deposit of minimum €5 million in banks operating in Cyprus. Which are the eligible banks?
The eligible banks are local banks and subsidiaries of foreign banks in Cyprus. The Central Bank of Cyprus maintains a list of these eligible banks which can be found at http://www.centralbank.gov.cy/nqcontent.cfm?a_id=8154&lang=en. Excluded from this list are branches of foreign banks, in Cyprus. It is possible to deposit the investment amount in several of the eligible banks, and it is also possible for the amount to be in a currency other than Euro, provided the total value of the investment is the equivalent of €5 million.The interest rate applied to the fixed deposit depends on the terms of offer of each eligible bank. The beneficiary of the interest accrued is the depositor/applicant.
(10) In regards to satisfying the financial criterion of investment into real estate, are real estate properties purchased by the applicant in the past eligible?
Any property purchased three years prior to filing the Citizenship application is eligible. Additional properties may be purchased in order to meet the total sum required for this investment criterion, namely €5 million (or €2.5 in the case of a group application).
(11) Are re-sale properties eligible for the real estate investment criterion and/or the private residence requirement?
Investors can purchase resale properties, where it should be noted VAT is not applicable, for both purposes.
(12) How can the Investor maintain Citizenship granted?
To maintain Cyprus Citizenship acquired via the Investment Program, the investor must always honor the conditions on which citizenship was granted. This includes maintaining possession of a residential property in Cyprus of a minimum value of €500,000. The relevant investment (i.e. real estate, government bonds, fixed deposit account etc.) can only be disposed of/liquidated after the expiration of the three year period.
(13) Does Cyprus allow dual citizenship?
Yes, it does, which is very beneficial for many reasons, including:
- Cypriot citizens enjoy the freedom to live, work and travel throughout Europe;
- Cypriot passport holders are entitled to travel visa-free to more than 157 countries;
- Cypriot passport holders can quickly and cost effectively obtain visas for other countries;
- Dual citizenship offers an effective tool for international tax planning and provides financial privacy.
(14) Can the residential property be sold or rented out once Citizenship is granted?
Since the Investor is not required to reside in Cyprus, it is possible to rent out their privately owned residence. It is also possible to replace the residential property with another residential property of the same or higher value than €500,000at any time.
(15) Are there any acceptable exceptions to the requirement to acquire and maintain residential property of €500,000?
Where the applicant invests solely in a residential property (can be one or more properties) valued at €5 million and over (or €2.5 million and over in the case of a group application) as a means to satisfying the financial criterion for the Cyprus Citizenship by Investment route, then it is not necessary for the Investor to acquire an additional residential property valued at €500,000, provided one of the investment properties meets the requirements of the residential property, which must be maintained throughout the citizenship. In the event the deemed residential property is sold after the three year lock-in period, the investor would be required to purchase and maintain another residential property of at least €500,000 to replace the initial property(ies).
(16) What are the government fees for submitting an application?
The fee upon submission of the citizenship application is €2,000 per applicant. On the issuance of the naturalisation certificate an additional €5,000 is payable, per applicant.
(17) Are medical tests required or a health insurance prior to applying for a citizenship?
No medical tests are required prior to applying for Cypriot Citizenship by Investment. Obtaining health insurance is not obligatory for the applicant.
(18) Where an applicant for a Cypriot Citizenship by Investment is the holder of a European permanent residency, is it required for the residency to be revoked prior to applying for Citizenship in Cyprus?
No, it is not required for the European permanent residency of any country to be revoked in order to apply for Citizenship in Cyprus.
(19) In case an applicant already owns residential premises in Cyprus, will he still be required to purchase an additional permanent residence of at least €500,000 for the purposes of the Citizenship by Investment application?
Provided the existing residential premises owned by the applicant were purchased for a value of at least €500,000, then it will not be required to purchase an additional permanent residence. If however, the acquisition price at the time of the purchase was below €500,000, then the applicant will be required to purchase an additional residential property(ies) to satisfy the €500,000 residential property criterion.
(20)Can an unmarried couple simultaneously file a Cyprus Citizenship by Investment application where the investment will be made solely by one of them as the main applicant and the unmarried partner will be considered the spouse?
No, a couple is required to be married before they can simultaneously file a Cyprus Citizenship by Investment application as spouses. It is however possible to approach such scenario in two-steps as follows; one partner to file the citizenship application as the main applicant, and once the couple is married, and subsequent to the main applicant’s successful application, the new spouse to file an application. In such cases, no additional investment will be required by the new applicant spouse in order to obtain citizenship.
Our firm has long established itself as a leader in the field of immigration services, and we are well positioned to assist clients with the preparation and filing of a citizenship application. We are frequently engaged by some of the world’s largest and most reputable international law firms, accounting firms and family offices. Our team of highly experienced professionals can advise you further on obtaining Cyprus Citizenship by Investment, on the basis of your particular facts and circumstances.
Please feel free to contact Charles Savva at [email protected] to discuss how we can be of assistance to you.
COVID-19 and PCL property – a market on the rise?
By Alpa Bhakta, CEO of Butterfield Mortgages Limited
Over the last five years, demand for prime central London (PCL) property has been fairly inconsistent. Sudden peaks in interest from buyers could be followed by periods of stagnate price growth. Nonetheless, the advantages of PCL property investment, particularly by international investors, has remained well known.
Well-funded development and neighbourhood re-generation schemes, alongside an influx of overseas investment, has resulted in a vibrant market with a diverse range of opportunities for prospective buyers.
Nonetheless, the PCL market has not been immune to the impact of the COVID-19 pandemic. During the first half of the year, the lockdown meant physical valuations and onsite inspections could not take place. People in the UK were also discouraged from moving properties unless they found themselves in extreme circumstances.
However, as we now enter the final weeks of 2020, I believe there’re plenty of reasons to be optimistic about the future prospects of the PCL property market. Buyer demand has resulted in a new wave of activity, and this is resulting in significant house price growth. Indeed, it was recently revealed by Halifax that the average rate of house price growth in November was at a four-year high.
Obviously, there are multiple factors that have helped sustain this strong level of house price growth. Most notably, the Stamp Duty Land Tax (SDLT) holiday has succeeded in coaxing buyers back to the property market––be they seasoned buy-to-let (BTL) investors or first-time buyers––by offering up to £15,000 in tax savings on any given property purchase.
However, it’s worth considering the other factors underway in London’s property market. With the UK in a second national lockdown, many investors will be keen on hedging against future COVID-imbued market uncertainty through acquiring safe-haven assets like British property. As you’ll read below, this is having a positive impact on the PCL market.
Investors are flocking to PCL opportunities
The PCL property market has managed to be one of the most active areas of the UK’s real estate market during the whole of 2020. When discussing why this is so, we must first begin by understanding the behaviours of overseas buyers.
Given that international investors represented over half (55%) of all the PCL property purchases recorded in the second half of 2019, anything to further incentivise or dissuade such foreign actors would hugely impact PCL property transaction figures.
Earlier in the year, alongside the announcement of the aforementioned SDLT holiday, UK Chancellor Rishi Sunak indeed announced that he would be implementing 2% SDLT surcharge for non-UK based buyers of British property from April 2021 onwards.
So, for those seeking properties worth over £5 million in the UK capital, a 2% additional cost may represent a substantial amount of wealth. To avoid this, many overseas buyers who may have been contemplating a PCL property acquisition have rushed to buy such properties before this surcharge is applicable. This trend will undoubtedly continue until 1 April, 2021.
Remote working and PCL
On the topic of the PCL market’s future, many property speculators were concerned earlier this year that London’s property market would potentially collapse entirely as a result of remote working. With homeworking set to remain the norm for the foreseeable future, commentators predicted that professionals would escape the capital en-masse in favour of roomier, cheaper properties farther from their London employer’s offices.
While there have been some signs of shifting demand from urban London neighbourhoods to suburban ones, according to Rightmove statistics, there has been no recordable effect on the UK’s property market as a result.
Conversely, property specialists Savills have actually discovered that over half of all transactions including properties worth more than £5 million in the UK this year were all located in just five central London postcodes.
A busy few months
Given the performance of the PCL property sector in 2020, I only foresee this market growing stronger and stronger in the years ahead. Recent developments in the production of COVID-19 vaccine have many hoping that we may return to normality by Spring 2021, which would represent fantastic news for those involved in bricks and mortar, should it transpire.
In the coming months, I anticipate a surge in activity across the PCL market as buyers look to take advantage of the tax breaks on offer. As such, it will be important that these buyers have access to the financing needed to complete these transactions quickly. If not, there is a risk any purchase they attempt might be concluded in April 2021 when the current tax breaks in place are removed.
Overall, I cannot help but be impressed by the performance of the property market more generally during the pandemic. Having experienced slow growth in the years following the EU referendum in June 2016, it is clear that buyers are eager to take advantage of the opportunities on offer. This is particularly true when it comes to PCL property.
An outlook on equities and bonds
By Rupert Thompson, Chief Investment Officer at Kingswood
The equity market rally paused last week with global equities little changed in local currency terms. Even so, this still leaves markets up a hefty 10% so far this month with UK equities gaining as much as 14%.
The November rally started with the US election results but gathered momentum with the recent very encouraging vaccine news. This continued today with the AstraZeneca/Oxford vaccine proving to be up to 90% effective in preventing Covid infections. This is slightly below the 95% efficacy of the Pfizer and Moderna vaccines already reported but this one has the advantage of not needing to be stored at ultra-cold temperatures. One or more of these vaccines now looks very likely to start being rolled out within a few weeks.
Of course, these vaccines will do little to halt the current surge in infections. Cases may now be starting to moderate in the UK and some countries in Europe but the trend remains sharply upwards in the US. The damage lockdowns are doing to the recovery was highlighted today with the news that business confidence in the UK and Europe fell back into recessionary territory in November.
Markets, however, are likely to continue to look through this weakness to the prospect of a strong global recovery next year. While equities may have little additional upside near term, they should see further significant gains next year. Their current high valuations should be supported by the very low level of interest rates, leaving a rebound in earnings to drive markets higher.
Prospective returns over the coming year look markedly higher for equities than for bonds, where return prospects are very limited. As for the downside risks for equities, they appear much reduced with the recent vaccine news and central banks making it clear they are still intent on doing all they can to support growth.
Both factors mean we have taken the decision to increase our equity exposure. While our portfolios already have significant allocations to equities and have benefited from the rally in recent months, we are now moving our allocations into line with the levels we would expect to hold over the long term.
Our new equity allocations will be focused on the ‘value’ areas of the market. The last few weeks have seen a significant rotation out of expensive high ‘growth’ sectors such as technology into cheaper and more cyclical areas such as financials, materials and industrials. Similarly, countries and regions, such as the UK which look particularly cheap, have fared well just recently.
We think this rotation has further to run and will be adding to our UK exposure. This does not mean we have suddenly become converts to Boris’s rose-tinted post-Brexit view of the UK’s economic prospects. Instead, this more favourable backdrop for cheap markets is likely to favour the UK.
We will also be adding to US equities. Again, this does not represent a change in our longstanding caution on the US market overall due to its high valuation. Rather, we will be investing in the cheaper areas of the US which have significant catch-up potential.
We are also making a change to our Asia ex Japan equity holdings. We will be focusing some of this exposure on China which we believe deserves a specific allocation due to the strong performance of late of that economy and the sheer size of the Chinese equity market.
On the fixed income side, we will be reducing our allocation to short maturity high quality UK corporate bonds, where return prospects look particularly limited. We are also taking the opportunity to add an allocation to inflation-linked bonds in our lower risk, fixed income heavy, portfolios. These have little protection against a rise in inflation unlike our higher risk portfolios, which are protected through their equity holdings.
Optimising tax reclaim through tech: What wealth managers need to know in trying times
By Christophe Lapaire, Head Advanced Tax Services, Swiss Stock Exchange
This has been a year of trials: first, a global pandemic and, now, many countries facing the very real possibility of a recession. For investors, private banks, and wealth managers, these tumultuous times have manifested largely in asset price volatility, ultra-low interest rates and uncertainty about when things may level out, as well as questions about what can be done to safeguard portfolio performance.
The answer here lies within identifying and creating efficiencies to maximise performance and minimise cost, and while there is a slew of options as to how to do this, they are often siloed or have a single USP. Tax optimisation, on the other hand, provides benefits to all, not just in increasing returns for investors, but also in creating economies of scale across stakeholders, creating millions – if not billions – in savings for banks.
Evolving tax reclaim
The tax reclaim process used to be a tedious one banks had to manage themselves, and required detailed, industry and country-specific knowledge to stay on top of constantly shifting requirements and regulations. And when we consider that many countries – such as the UK – allow for capital gains exemptions, tax optimisation may not seem like an integral part of the process. However, this isn’t the case for all countries, and can lead to severe after-tax implications on global portfolios.
Furthermore, even if you’re able to avoid double taxation, getting the money back is not always as simple as it sounds. This, combined with the fact that countries often have contradictory taxation rules or requirements, makes navigating the tax reclaim space a challenge even for those with the right expertise and experience.
Ultimately, providing tax optimisation to investors ends up being a heavy lift for private banks and wealth managers, who often don’t have the right solutions, are relying on outdated technology and manual processes. While this is generally fine for business, it is no longer fit for the purpose when it comes to tax optimisation. To date, knowledge and expertise have been the key to protecting and maintaining profitable investments and avoiding tax leakage. However, through tax optimisation services starting to emerge, portfolio managers can now manage and reinvest easily.
Today, technology has evolved the process so that banks are able to access and submit tax reclaim – and the relevant documentation – online, leaving the tech provider to coordinate next steps with custodians and tax authorities behind the scenes. In essence, taking the legwork out of the process while assuring consistency and completeness in execution.
Simplifying tax through tech
While tax optimisation may seem like an easy choice in theory, it is not always the go-to for every private bank or wealth manager. Without the right supports and setup, including innovative technologies and automation, tax reporting must be done manually, leading to labour intensive processes and huge time wastage. Changing these processes can be overwhelming for those used to a certain way of operating.
By making tax reclaim digital, banks will be more able to optimise returns and gain efficiencies while reducing redundancies and unnecessary complexities. Cloud based solutions or platforms can offer a safe and secure solution for banks, wealth managers, and investors to access and submit any information required, processing the data automatically for conformity and completeness.
It is critical that providers who intend to offer tax services are able to do so efficiently with the right software and data processing capabilities. Not only does this drive continuity in service and efficiencies in process, but it is the only sustainable way to handle such a complex landscape sustainably without wasting time or money.
End-to-end, technologically driven tax services offer a huge number of advantages to private banks and wealth managers, the most important of which is the ability to provide continuity through tumultuous times. As we move through the end of 2020 into 2021 this will only be increasingly important as banks, managers and investors look to provide new services to clients and strengthen existing relationships in a difficult market.
As investors seek to find returns amid the global economic downturn, the demand for innovative solutions will only increase. Technology like cloud-based software, AI, and data optimisation can all serve to improve not just the tax reclaim processes, but the overall client experience within capital markets. Private banks and wealth managers are suitably equipped to provide these innovative solutions, but those who do not prepare themselves effectively and keep ahead of trends will run the risk of losing current and new clients to someone who can offer more for less.
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