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ISSUE 31 OCTOBER 14 - NOVEMBER 13, 2013 PRICE €4.95

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CYPRUS BANKING IN TRANSITION How can the sector restore confidence?

+ STEPHEN JONES, DEMETRA KALOGIROU, ERIC RYAN HORIZON 2020 €80 billion EU funding programme

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Rebranded CIPA launches new camapign


Sir Michael Leigh Mark Rovinskiy Guntram B. Wolff



09/10/2013 14:14

Issue 31 October 14- November 13, 2013



em etri ades & Co. LLC


es D s s y Chr





FIRST STEPS By Dr. George Mountis




CRISIS = OPPORTUNITIES By George Theocharides


20 40


66 78




Decisions on how Cyprus can best exploit its Predictions of the eurozone’s demise are unrealnatural gas reserves will be based on many esti- istic, says the director of the acclaimed Bruegel mates and unknowns, sa ys Sir Michael Leigh. think tank.



Negative publicity has not changed the way US multinationals view Cyprus.

The firm’s new head offices in Limassol are inaugurated.

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

70 | A BRAND NEW HORIZON The EU’s new €80 billion Horizon 2020 Framework Programme is an important new source of research and development funding.


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08/10/2013 18:23


Banking on a Miracle?



ive years ago last month, the world watched in amazement as Lehman Brothers filed for bankruptcy. Here in Cyprus, we indulged our feelings of superiority by telling ourselves that at least Cypriot bankers were not as reckless and greedy as their US counterparts. Little did we know. Indeed, some of the revelations that have been made in recent months about the country’s two largest banks (until March 25, 2013 at least) and their lending policy are truly shocking. Most people know how difficult it can be to secure even a small loan to make essential household repairs or to send a child to study abroad and yet we now hear that, for years, millions of euros were being handed over to individuals and companies without the ability – and, even more shocking, without the intention – to repay them. The fact that these “borrowers” were, in many instances, members of the banks’ Board of Directors makes the whole business even more scandalous. The first and last time that we featured bankers on the cover of Gold was in August 2011. Then, they were all keen to reassure us that the banking sector as a whole was healthy and each one insisted that his/her establishment was beyond reproach. How times change. Apart from the fact that one of the big players of two year ago no longer exists, it was an extremely difficult task to persuade the senior management of even five of them to talk about the new era of Cyprus banking for this issue. And as you will see in our cover story (page 20), those who had the courage to discuss the ongoing crisis reveal a sober awareness of just how delicate the situation continues to be, even for the institutions whose customers did not lose a single euro of their uninsured deposits. They remain cautiously optimistic that, once “temporary” capital restrictions are removed, normal service will be resumed and people will gradually regain their shattered faith in the banks. It is to be hoped that the blow suffered by the financial sector was not fatal and a lot is now riding on the ability of Bank of Cyprus and Hellenic Bank, in particular, to deal with their Non-Performing Loans, as well as on the Government’s determination to find ways of reviving the economy. President Nicos Anastasiades and his cabinet appear to be serious about implementing the terms of the bailout package to the letter and they are to be applauded for this. However, the ongoing public feud with the Governor of the Central Bank is not doing the Government and its image abroad any favours. No-one likes to see any government trying to interfere with an independent authority and yet we have seen the last two Cypriot administrations do everything in their power to ignore and/or remove the last two CBC Governors. Fiona Mullen has more to say about this on page 42. And we now have the results of the committee that was set up to investigate the causes of the collapse of the banking system and the sharp downturn of the economy. Most commentators would agree that the committee was, unfortunately, ill-equipped to carry out its task and that it has achieved little, though there was something darkly pleasurable about seeing those one-time big shots from the island’s banking and political elite rushing to lay the blame on everyone but themselves. There is a lot to be said for focusing on the future rather than playing the blame game, even if it means that certain individuals will escape having to take responsibility for their foolish actions. Indeed, it is essential that our politicians realise that things changed for everyone on March 25, and not only for those in the banking sector. Unity of purpose has never been greater and it is to be hoped that we are not banking on a miracle to restore the country’s fortunes. It really is a question of now or never if today’s young generation is to have any prospects of a bright future.

John Vickers, Chief Editor



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NICOS ANASTASIADES President of the Republic of Cyprus

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editorialGOLDnew.indd 6

09/10/2013 09:32

Focus on tomorrow, starting today

We listen. We learn what you want to do and we help you create the value you are looking for. Value that is based on the knowledge that our almost 1.000 local professionals draw from 180.000 experts in 158 countries. We focus on the provision of Assurance, Advisory, Tax and Global Compliance Services.

Š 2013 PricewaterhouseCoopers Ltd. All rights reserved

up front

Future of government discussed


he findings of the “Future of government” international report were presented at an event organised in Nicosia last month by PwC Cyprus. The report focuses on the efforts of governments worldwide to meet the changing expectations of society as well as on the rapid technological developments, during a period of austerity and budget cuts. Held at a time when public sector reform in Cyprus is high on the agenda, the event gathered officials and representatives from the public and semi-government sectors, local administration and other stakeholders. The findings of the report were presented by Jan Sturesson, Global Leader of Government

and Public Services at PwC who focused on new trends affecting the future of government. “Public sector organisations need to reexamine their role and re-evaluate the ways of operating so as to effectively respond to the changing environment. They need to adopt a more agile strategy, be open to collaborations and support transparency and innovation,” he said. Emmanuela Lambrianides, Commissioner for the Reform of the Civil Service, noted that “Rationalisation of structures and procedures in public administration, quality policymaking, coordination and coherence in decision making and reinforcement of the central government will contribute to the recovery through strategic interventions and better use of resources and increases in efficiency and savings”. Lambrianides and Sturesson also participated in a panel discussion coordinated by Philippos Soseilos, Advisory Services Partner at PwC Cyprus, on the economic challenges faced by the public sector and actions that should be taken if the public sector is to meet society’s expectations. The “Future of government” report is available at




ore than 70 members of the Cyprus Women’s International Shipping & Trading Association (WISTA) from various sectors within the maritime cluster attended presentations last month by George Papanastasiou of VTT Vasiliko Ltd. and Fiona Mullen, Director of Sapienta Economics. Papanastatiou gave an update on the progress of the VTT Vasiliko project, noting that the country’s stable political situation is a main reason why Cyprus was preferred over any other country in the

region for this prestigious plan. He underlined the importance of a stable political and economic climate for project’s further development as well as for the successful creation of an Energy Hub in Cyprus. Six months after the March 2013 events, Fiona Mullen shared her insights about the Cypriot economy. Even though the worse may be yet to come, considering the extent of theTroika-imposed austerity measures, she had good news as well: the GDP decline is not as bad as was feared by the

Troika, exports are doing well and the economy appears to be undergoing a quality “re-think and re-shape”. WISTA Cyprus President, Despina Panayiotou Theodossiou announced that the theme of next year’s WISTA International AGM and Conference, which will be held in Cyprus, will be “Shipping Connects” and she presented the website which was activated immediately after this year’s global conference in Montreal, which took place the first week of October.

(L-R) Despina Panayiotou Theodossiou, George Papanastasiou, Fiona Mullen, Victoria Kostic-Nola, Martina Meinders, Stella Kazamias

New terms agreed on

Prepaid Virtual loan MasterCards from Lamda Russian


amda Card Services Ltd introduced its prepaid Virtual MasterCard to the media last month. The card works like any other debit card but it is delivered electroni-

cally instead of via a plastic card. Once registration is complete, a 16-digit card number, expiry date and three-digit security number are instantly created and displayed on the user’s computer screen. You can transfer funds to the Virtual MasterCard card from your bank account and, with the Lamda Virtual MasterCard, make online purchases wherever MasterCard is accepted. Given that most online purchases use

credit/debit cards, consumers often have no choice but to reveal card numbers and personal information to unknown merchants. The Lamda Virtual MasterCard contains no information about your bank account so it removes any risk of fraud. There are no monthly or annual fees with a Lamda Virtual Card. Apart from a 0.50 startup charge, the only fee is a 4.50% charge on each amount loaded onto the card.

8 Gold the international investment, finance & professional services magazine of cyprus


revised loan agreement between Cyprus and the Russian Federation was signed in Moscow last month by Finance Minister Harris Georgiades and the Russian Deputy Finance Minister, Sergey Storchak. The agreement for the €2.5 billion loan has been amended so that the annual interest rate is 2.5%, down from the original 4.5% while the amortisa-

tion schedule consists of eight biannual instalments from 2018-2021 rather than a single repayment in 2016. As a result of the revised terms of the loan agreement, Cyprus will benefit by €160 million up to the end of the Economic Adjustment Programme and its public debt repayment schedule will be eased.

The Marshall Islands The Marshall Islands TheCorporate Marshall Islands Registry Registry The Marshall Islands TheCorporate Marshall Islands Corporate Registry


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Thanks to its high level of confidentiality, unparalleled customer service philosophy and excellent reputation as a leading maritime registry, the RMI Corporate Registry is going from strength-to-strength. In particular, the Registry is experiencing tremendous success as one of the leading jurisdictions for initial public offerings (IPOs) on major stock exchanges. In recent years, 35 RMI business entities have gone public to raise capital on exchanges in New York and London. Moreover, several business entities are in the process of going public or are already listed on other stock exchanges around the world. First enacted in 1990, RMI corporate law is one of the most modern in the world. Although based on United States corporate law, RMI law contains unique provisions enabling the use of British-style corporate management. In addition, there are no requirements to have corporate documentation authenticated by a consular official. The RMI is a zero tax jurisdiction that statutorily exempts non-resident domestic corporations from taxation on their income and assets. Entity formation is simple and corporate documents can be issued in one day.

The RMI also permits corporate redomiciliation both into and out of the jurisdiction. The non-resident corporate program offers many unique advantages for the investor, shipowner, and international businessperson.

Maritime Program

The RMI Registry is the third largest registry in the world reaching more than 94 million gross tons and over 2,930 registered vessels by the end of July 2013. Vessel types include, but are not limited to: tank ships; LNG/ gas carriers; bulk carriers; container ships; offshore drilling, production, and service units; and passenger vessels. Vessels may be registered if owned by an RMI citizen, national, corporation, limited or general partnership, limited liability company, or a foreign maritime entity qualified in the RMI. IRI has a network of 25 worldwide offices located in Baltimore, Dalian, Dubai, Ft. Lauderdale, Geneva, Hamburg, Hong Kong, Houston, Imabari, Istanbul, London, Long Beach, Mumbai, New York (downtown and midtown), Piraeus, Rio de Janeiro, Roosendaal, Seoul, Shanghai, Singapore, Taipei, Tokyo, Washington, DC/Reston and Zurich that have the ability to register a vessel or yacht, including vessels under construction, record a mortgage or financing charter, incorporate a company, issue seafarer documentation, and service clientele. For further information on the RMI Maritime and Corporate programs, visit or contact any IRI worldwide office.

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up front

CCCI Business Forums in Dubai & Abu Dhabi


he Cyprus Chamber of Commerce & Industry (CCCI) and the CyprusGulf Cooperation Council Business Association, in cooperation with the Cyprus Ministry of Energy, Commerce, Industry &



Tourism, are organising two Business Forums in Dubai and Abu Dhabi respectively, as part of efforts aimed at promoting Cyprus as an International Business Centre. The Dubai Forum takes place on 11 November, followed by Abu Dhabi the following day. The pro-

gramme includes Business to Business meetings. Companies involved in financial and business services, tourism, construction and real estate, energy, communications, IT, merchant shipping and logistics are invited to participate.

Banc De Binary launches a recruitment campaign for its European Headquarters in Limassol


ith stickers on buses around Limassol and eye-catching “What are you waiting for?” busstop signs across the town, Banc De Binary, Cyprus’ first CySEClicensed binary options trading company, is launching a high-profile recruitment campaign. The company is expanding its Limassol staff and hiring highly-trained professionals in many departments, including Customer Service, Sales, Compliance and Communications. While the last few months have been tough on everyone in Cyprus, Banc De Binary has already exceeded its pre-crisis growth targets for 2013. The firm has enjoyed exponential

growth ever since it opened its doors for business three years ago. It has created more than 200,000 new client accounts with trading activity on a global basis. It has also been accepted as a member of the prestigious World Finance 100. The company now enjoys the prime position of industry leader, offering quality binary options services and constantly working on improving its products and services. Banc de Binary was granted a licence by the Cyprus Securities and Exchange Commission in 2012, bringing Binary Options under the umbrella of the European Union’s Markets in Financial Instruments Directive (MiFID). To submit a CV, visit

10 Gold the international investment, finance & professional services magazine of cyprus

FIABCI International World President visits Cyprus


he World President of FIABCI-International, Flavio Gonzaga Nunes, paid a three-day visit to Cyprus at the beginning of October at the invitation of the President of FIABCI-Cyprus, Lakis Tofarides. The International Real Estate Federation (FIABCI) promotes cooperation and networking among professionals in the sector all over the world. It has 61 local chapters in 48 countries, including Cyprus, which has been an active member of the Federation since 1976. Tofarides described Gonzaga Nunes’ visit to Cyprus as important since it showed that, despite the island’s financial problems, “our country’s real estate market continues to attract the interest of important international organisations in the sector and investors from all over the world”. During his visit, Flavio Gonzaga Nunes met government officials, representatives of the real estate industry and of universities. He also participated in a special meeting of the Board of Directors of FIABCI-Cyprus, during which he heard the latest news and views on the Cypriot property market and its prospects. During his three days on the island, the Eleftheria Square development project in Nicosia and Limassol Marina were among several places visited by the President of FIABCI-International.

up front

Britain’s Coolest Brands


he list of the UK’s Coolest Brands is chosen every year by an Expert Council of influencers and members of the British public. Brands do not apply or pay to be considered and the entire selection process is independently administered by The Centre for Brand Analysis. A comprehensive database of UK brands is compiled using a

wide range of sources, from sector reports to blogs. From the thousands of brands initially identified, approximately 1,150 brands are shortlisted. This shortlist is then scored by two separate groups of voters: the independent and voluntary Expert Council, comprising 37 opinion-formers, and a nationally-representative group of just under 3,000 British adults. The opinions of the Expert Council (80%) and the public

(20%) are combined. Given that the concept of “Cool” is subjective and personal, neither set of voters was given a definition but they were asked to bear in mind the following factors, which research has shown are inherent in a Cool Brand: style, innovation, originality, authenticity, desirability and uniqueness. So how cool are you? Take a look at the list.


BBC iPlayer





Aston Martin







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Virgin Atlantic





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12 Gold the international investment, finance & professional services magazine of cyprus

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five minutes with...

Mark Rovinskiy

Deputy Head of Tax Practice, Egorov Puginsky Afanasiev & Partners


ow much has recent negative publicity about Cyprus in the international press affected investors’ decisions? It is certainly the case that the image of Cyprus as a jurisdiction has been affected by the negative publicity related to what has happened in the island’s financial sector. This crisis has definitely shaken up the market to a certain extent. Furthermore, it is only natural that other jurisdictions would consider that this was the right time to promote themselves and that has only added fuel to the fire. However, the crisis has not affected those tax and legal benefits which have traditionally made Cyprus a hub for investment structuring. In general, it seems that investors who have been using Cyprus as a jurisdiction for investment structuring purposes have not left the island, though we can’t rule out the possibility that they might be considering various exit scenarios if things get worse. But for now there has not been a mass exodus from Cyprus. Everyone agrees that there has been no mass exit of Russian companies and entities from Cyprus. However, no new ones are being established. How do you view the situation and what do

you foresee for the future? The instability of the island’s financial system has raised certain doubts about whether it is worth continuing to use Cyprus as a jurisdiction for investment structuring. Some investors are anxious about possible changes to the tax environment, especially with regard to the question of financial information exchange. Guided by this type of consideration, some investors have already made their choice in favour of other jurisdictions. However, many of them continue to use Cyprus and it is expected that the situation will improve with the passage of time, especially if measures announced by the Government have a positive effect and help restore confidence in the financial system as a whole. All the necessary prerequisites for future improvement are in place and it is worth noting that there is no other hub which would be a 100% alternative for investments in Russia. Are there obstacles on the tax front that make it difficult for Russian and Cypriot businesses to cooperate? Regardless of the overall situation in Cyprus, trends and recent developments in the Russian tax arena need to be taken into consideration when structuring in-

14 Gold the international investment, finance & professional services magazine of cyprus

vestment projects. One of the core issues which heavily impacts the Russian tax environment is the development of the beneficial ownership concept as well as the “offshoreization” trend initially launched by the Russian President. Furthermore, one should not lose sight of entirely new transfer pricing legislation that came into force in 2012. Is Russia following and implementing international and European trends to combat tax evasion and money laundering? The G20’s support of the OECD’s action plan on base erosion and profit shifting (BEPS) is a significant event in the tax arena. This, as well as the main directions of Russian tax policy, demonstrates that Russia is increasingly focused on fighting for its tax base which is being eroded through aggressive tax planning arrangements. However, all this should not be considered as creating difficulties for cooperation between Russia and Cyprus. These are the realities of the new global environment which have to be taken into consideration in every project involving international tax structuring, whether through Cyprus or not.

Lunch with Gold


he Kantara Room at the Hilton Cyprus was the venue for a lunch held by Gold on 26 September to express its appreciation to the recipients and sponsors of the 2nd CIPA International Investment Awards for their contribution to the success of the Award Ceremony & Gala Dinner hosted by the magazine at the Presidential Palace on 10 September. This year’s award-winning companies were Amdocs Development Ltd., ExxonMobil Cyprus Ltd., Intership Navigation Co. Ltd., MTN Cyprus, Nest Investments Holdings (Cyprus) Ltd., Unicom Management Services (Cyprus) Ltd. and Wargaming Public Company Limited. In addition to these seven awards, three others were presented. The Editor’s Choice Award went to Jumbo Trading Ltd., Barclays received an Honorary Award and former President George Vassiliou was honoured with a Lifetime Achievement Award.

John Vickers, Gold, Hans Wolff, Barclays, George Michail, IMH, Evgenios Evgeniou, PwC, Christodoulos Angastiniotis, CIPA and Loucas Marangos, TFI Markets

Marios Tanousis, CIPA and Sotiris Nicolaides, Nest Investments (Holdings) Ltd

Hans Wolff, Barclays, John Vickers, Gold, and Deborah Page, Barclays

Charis Papacharalambous, CIPA and Evan Gavas, Barclays

Konstantina Logotheti, PwC and Deborah Page, Barclays

Liakos Theodorou and Evgenios Evgeniou, PwC

Yiannis Tinis, Amdocs Development Ltd., Loucas Marangos and Charis Charilaou, TFI Markets

Vryonis Kypereshis and Evangelos Charalambous, Intership Navigation Co. and Yiannis Tinis, Amdocs Development Ltd.

Andreas Neocleous, MTN

Christodoulos Angastiniotis, CIPA, Evgenios Evgeniou, PwC and George Michail, IMH

Deborah Page and Hans Wolff, Barclays and Charis Papacharalambous, CIPA

Igor Krasnokutskiy, Unicom Management Services (Cyprus) Ltd and Liakos Theodorou, PwC

Sotiris Nicolaides, Nest Investments (Holdings) Ltd.and Vasos Achilleoudes and Christos Makris, ExxonMobil

George Michail, IMH, Vryonis Kypereshis and Evangelos Charalambous, Intership Navigation Co.

Nicolas Theocharides and Thomas Kazakos, CIPA




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Cyprus’ banking sector, until recently one of the most valuable and prestigious pillars of its economy, suddenly found itself standing on the edge of chaos in March when the eurozone finance ministers making up the Eurogroup gave the island’s government an inescapable ultimatum: to accept a haircut of deposits or see the country’s two biggest banks close down and consequently lead the country to bankruptcy. The haircut was indeed implemented and Cyprus Popular Bank (Laiki), the country’s second largest bank, was forced into resolution. As a result, the expected chaos may have not been completely avoided but it is a fact that, following a two-week closure of all banks, the imposition of strict capital restrictions on cross-border and local transactions, and a prolonged period of uncertainty regarding the precise amount of the haircut on uninsured Bank of Cyprus deposits, things have become much more predictable. It goes without saying that pre-2013 ‘normality’ has not returned – and it never will, as the Memorandum of Understanding (MoU) with the Troika demands important reforms to the island’s banking system that will change the environment completely – but, as a result of the recent events, regulation and supervision at least will be strengthened, thereby ensuring a more credible, robust and resilient financial sector. At this point, the safest thing to say is that Cyprus’ banking sector is going through a transitional period. It is expected that, by the end of the programme in 2016, the banking sector will have benefited considerably from a broad restructuring in order to restore its solvency and viability, to reinforce its resilience and regain public confidence. The domestic banking sector, including the cooperative credit institutions which, until the beginning of March 2013, represented as much as 550% of the country’s GDP, has already been reduced significantly (to 350% of GDP) and will be further downsized through the restructuring of the cooperative credit institutions. What lies ahead is, first and foremost, a further repairing of the banks’ balance sheets, a long period of deleveraging, and significant improvement to liquidity and capital adequacy levels by the end of the programme period. Secondly, momentous supervisory reforms will be implemented, together with a drastic transformation of bank lending practices, reporting, governance and of the overall legal framework governing the financial sector. All of the above, amid a severe economic downturn, are expected to tighten lending and significantly impair bank profitability. Another major step will be the final decision on how the banks’ balance sheets will be cleaned and how their troubled assets will be handled. This is a controversial issue and the opinions are so diverse that any final decision taken is expected to be heavily criticized and questioned. For the Cyprus banking sector to finally find itself on the road to recovery, everything depends on the completion of the recapitalization and restructuring of the country’s biggest bank (Bank of Cyprus), the recapitalization of the second most important local bank in terms of size (Hellenic Bank) and the transformation of the Cooperative Credit sector. It is also largely dependent on the success of the restructuring of Non Performing Loans (NPLs). Resolving the banking crisis in Cyprus is an undeniably complex undertaking but it is crucial since a functioning banking system – one that can start lending money – is a prerequisite for growth. On the following two pages are some the most important reforms due to be executed in the coming months.


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o reduce uncertainty and build confidence, the authorities have published a milestone-based roadmap for the lifting of administrative restrictions and capital controls. The Troika, the government and the CBC have agreed on the need to relax controls as soon as possible, while safeguarding financial stability. Though motivated by real economic needs, the relaxation of restrictions to date has not been anchored within an overarching strategy, and this has led to uncertainty in the markets and hoarding of cash by the private sector. To provide for a more orderly and predictable process, the roadmap links key relaxation steps to tangible progress in the bank restructuring strategy, while retaining adequate flexibility. The Troika has stressed the need to maintain flexibility in the face of changing deposit flows and bank liquidity trends while it is understood that, if possible, any restrictions should be applied by the banks themselves.



nsuring adbillion. Looking forward, the Troika expects BoC to develop a plan to equate liquidity ensure stable long-run funding. for Bank of CyBoC is expected to swiftly adapt its governance structure and business prus (BoC) is seen as plan to the new circumstances and it has been instructed to prepare paramount to restora strategic restructuring plan with technical support. The formulaing confidence. Since tion of the plan has been undertaken by McKinsey and work is exiting resolution, BoC already underway. It is expected to be submitted, together with has regained access to the ECB’s monetary consistent capital and funding plans, to the Central Bank of policy operations. As seen by the Troika and Cyprus (CBC) for assessment by the end of October. Once the Cypriot authorities, in the short run, BoC’s it has obtained the CBC’s approval, the new restructuring liquidity can be boosted by pledging as collateral plan will become BoC’s roadmap and an important tool by for ECB refinancing the Laiki recapitalization which the CBC will monitor its progress through quarterly bond and, if needed, its own new bonds guaranteed reviews of its compliance with goals. by the Government. In this regard, the Government has already proposed raising the ceiling on the accumu- Still pending is a decision on whether the bank will be lation of government guarantees by a maximum of €2.9 split.



restructuring strategy for the credit cooperative sector tion has been passed, establishing a unit in the Ministry of Finance to manage the state’s majority stake in the CCI sector. A relationship has been agreed following an overall assessment of the capital framework between the state and the CCIs is being established to needs of the Cooperative Credit ensure that the sector, including the CCB, operates on a commercial basis, while minimizing political interference in the CCB’s business Institutions (CCIs). The assessment revealed that while the sector decisions. • Expansion of the role of the CCB to act as parent bank of remains solvent overall, it is undercapitalized, with all CCIs. capital needs amounting to €1.5 billion. The strategy is • Deep restructuring and consolidation of the sector. It based on several key criteria: was agreed that to achieve the long-term viability and prof• Recapitalization with state support, fully protecting itability of the sector, the 93 current CCIs will need to be all CCI depositors. The recapitalization strategy makes a consolidated into a maximum of 18 institutions by the clear distinction between solvent and insolvent institutions. end of March 2014. Public funds will be used to recapitalize the Cooperative Cen• The possibility to exit state control. Following tral Bank (CCB) in line with state aid rules, by the end of Octothe capital injection, and provided that adequate ber. The CCB will, in turn, inject capital into individual CCIs, so capital ratios are maintained, the CCIs and the that a Core Tier 1 ratio of 9% is achieved at a sectoral level and 4% CCB will be allowed to buy back shares from the at an individual level. state and regain their mutual status. • Insulation against political interference in the sector. Legisla-


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ellenic Bank is pursuing a private sector solution to its recapitalization needs. Following the sale of its Greek operations, the bank’s capital shortfall – as identified under PIMCO’s adverse scenario – amounts to €294 million. The bank has launched an offer for participation in the bank’s capital, including the voluntary conversion of junior debt into shares. Currently, Hellenic Bank’s junior debt amounts to €308 million, of which only half can be automatically converted into shares under the terms of the debt instruments. The House of Representatives has already passed new legislation requiring mandatory burden-sharing among junior bondholders as a precondition for the potential injection of public funds. According to the MoU the bank must be recapitalized no later than the end of December.



he Central Bank of Cyprus is taking steps to improve financial sector regulation and supervision, in accordance with the MoU. These are considered by the Troika as key to ensuring adequate monitoring and management of asset quality and to preventing vulnerabilities from building up in the future. In this respect Cyprus should implement: • The integration of CCI supervision into the CBC. Legislation has already been passed establishing the CBC as the sole supervisor of CCIs and the CCB. The CBC is expected to gradually take over operational responsibility in the coming months, in line with the implementation of the CCI restructuring strategy.

• The classification and reporting of NPLs and asset impairment and provisioning. To increase transparency and guard against for-

bearance, a new CBC directive has entered into force, requiring the reporting and classification as NPLs of all loans in arrears for more than 90 days and all loans whose original terms have been modified. This is expected to lead to higher officially reported NPLs (programme statistics already include these updated categories). • Loan origination. Relying on the findings of the PIMCO due diligence, as well as on international best standards, the CBC has identified key weaknesses in banks’ loan origination practices. The main finding is that, given their over-reliance on asset-based lending, the banks had disregarded the borrowers’ ability to repay. Consequently, the CBC has agreed to put in place a new regulatory framework on loan origination, requiring banks to consider affordability aspects in their lending decisions and curtailing related party lending and lending to bank directors. • A credit register. This will allow banks to make better-informed loan decisions based on a creditor’s history, while improving the monitoring of credit quality. The MoU requires the merging and expansion of the databases of the two existing credit registers for commercial banks and CCIs and requires that lenders submit data on performing and non-performing loans to the register on a regular basis.

Resolving the banking crisis in Cyprus is an undeniably complex undertaking but it is crucial






s sufficient confidence has not yet materialized, deposit outflows have continued, straining liquidity in parts of the banking system. The partial easing of administrative restrictions, while necessary to forestall economic paralysis, has allowed steady deposit outflows and without a return of confidence, fresh inflows have not materialized. Consequently, as of August 21, net outflows reached close to €8 billion or about 12.6% of the deposit base since the end of March, excluding the conversion of Laiki and BoC deposits into equity in April and May. Of these outflows, 60% correspond to nonresidents, largely concentrated among uninsured deposits. Outflows from domestic entities represent about 11% of their deposit base, with commercial banks more affected than the co-ops. Foreign banks have lost about 15% of their deposits but have more recently experienced new inflows and a stabilization in deposit trends following their exemption from restrictions. Outflows have been largely financed through own funds, including liquid asset disposals, while about 20% of outflows have been used to pay loans within the same bank, with no impact on liquidity.

• New steps to facilitate corporate and household debt restructuring to address the high level of private indebtedness. Given the large number of existing and prospective loans in need of restructuring, a need was pinpointed for a swift improvement in Cyprus’ private debt restructuring framework with a view to facilitating a reduction in NPLs and private sector indebtedness.


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“The Eurogroup’s decision in March to bail-in depositors has had a big impact on the Cyprus economy and its banking system and, as a consequence, on Hellenic Bank too. In addition, the enforcement of capital control measures has practically brought the economy to a standstill. Hellenic Bank has weathered the storm fairly well so far, consistently meeting the Central Bank’s requirements regarding capital and liquidity. However, the new market conditions coupled with the consequences of the decision to raise capital requirements from 8.2% to 9% (core tier I ratio) overnight, have forced us to revise our strategy to safeguard the bank and, at the same time adapt, our policies and practices to address our customers’ new needs. We realise that the way ahead is going to be tough; our borrowers will have difficulties in repaying their loans so our strategy now focuses on

acting proactively to communicate with our customers and assist them in planning and, where feasible, restructuring, their finances as efficiently and effectively as possible. This will safeguard the bank from heavy losses and help our customers through these dire economic conditions. An equally important matter is that of liquidity. Due to the haircut and the cash outflow from the country, we see that liquidity will be very tight in the near to medium future and that this will have a negative chain effect on the economy. We are therefore challenged to find the right balance between maintaining enough liquidity buffers internally and providing the market with as much liquidity as possible to keep the economy going.”


“Before seeing what Hellenic Bank can do to revive the local economy, it is important to understand the current state of the economy. A key characteristic of our economy is the over-leveraged (i.e. over-borrowed) private sector. Specifically, the average Cypriot household and business has borrowed three times as much as its equivalent household and business in the eurozone. What this means is that the way ahead is a long one as the Cypriot household and business start to save money to bring down their debt to ‘normal’ levels. This, of course, will have a negative impact on consumption and investment, resulting in slow or even negative economic growth, high unemployment and all the other negative effects of a recession. So, a debtridden private sector, together with a government with an increasing debt and a banking system undergoing major restructuring, makes it very difficult for a fast revival of the economy. Hellenic Bank is doing whatever it can to help turn the economy around. More people and businesses are turning to Hellenic Bank for their banking needs – we therefore aim to servicing these customers as well as possible and building long-term relationships. We offer financial services to new customers, aiming to keep their costs low and providing them with what they require for their daily needs, such as net banking and e-statement services, sight accounts and debit cards. Meanwhile, the Bank is helping its existing customers who have been hit by the crisis to restructure their finances so


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that they operate as effectively as possible. A key component of restoring trust in the banking system lies with our international customers. We are working closely with them to help them with their banking needs and to limit as much as possible any delays in their business transactions, while adhering to Central Bank regulations. Probably the strongest signal that will increase trust in the Cyprus banking sector is Hellenic Bank’s efforts to recapitalise itself using only private funds. A successful recapitalisation, which we hope to achieve in the next few months, will show that prudent local banks can be trusted, even under extreme economic conditions. We are working closely with the Central Bank and the Ministry of Finance to find ways of stimulating the economy. Cyprus is a small, dynamic country and a concerted effort by the private, public and banking sectors will make the country more competitive and lead to a shorter economic recovery time.”

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“By the end of the programme, the Cypriot banking sector will inevitably be smaller, more robust and more flexible. Banks will have deleveraged a significant part of their loan portfolio, many of the problematic loans will have been dealt with and new lending will be based more on repayment ability rather than collateral. The banks will be more prudent in their investments and will have a more balanced portfolio, without large exposure to specific customers or sectors of the economy. At the same time, the Cyprus banking sector will be very competitive and able to offer services to both local and non-local customers, utilizing

its high-calibre workforce, state-of-the-art systems and customer-oriented approach. The success of the Cyprus banking sector is fundamental to the country’s economic growth; it has been, is and will be providing the ‘fuel’ to the productive sectors of the economy. I expect the banks, in addition to being the primary lender to businesses, to be their consultant and partner, a strategy that Hellenic Bank is already implementing. Together with a driven, effective and efficient government, this is the only way forward for Cyprus to become competitive again and a hub for business and finance, for both Europeans and nonEuropeans. It is well within our grasp.”



“At the start of the Greek crisis it became evident that the big Cypriot banks were seriously exposed. With the ‘closure’ of the debt markets to the Cypriot Government, it was inevitable that the crisis would spread here as well. For these reasons, with the storm clouds gathering, when we were preparing our 2012 plans at the end of 2011, Piraeus Bank Cyprus, adopted a conservative stance and reined back on lending, gave more emphasis to liquidity buffers and planned for the diversification of cash investments. At the same time we also reduced costs, with the management team accepting voluntary reductions of salaries from January 2012. Of course, we did not anticipate the unprecedented and inconceivable events of 25 March 2013 but, given the above


Bank of Cyprus Public Company Ltd Co-operative Central Bank Ltd Cyprus Development Bank Public Company Limited Cyprus Popular Bank Public Co Ltd Hellenic Bank Public Company Limited Housing Finance Corporation


SUBSIDIARIES OF FOREIGN BANKS FROM EU MEMBER STATES Alpha Bank Cyprus Ltd Emporiki Bank – Cyprus Limited Eurobank Cyprus Ltd National Bank of Greece (Cyprus) Ltd Piraeus Bank (Cyprus) Ltd SUBSIDIARIES OF FOREIGN BANKS FROM NON-EU MEMBER STATES Russian Commercial Bank (Cyprus) Ltd Societe Generale Bank-Cyprus Limited USB Bank Plc BRANCHES OF FOREIGN BANKS FROM EU MEMBER STATES AS Expobank Baltikums Bank AS Banca Transilvania S.A. Banque SBA Barclays Bank PLC Central Cooperative Bank PLC Emporiki Bank of Greece S.A. First Investment Bank Ltd Joint Stock Company “Trasta Komercbanka” National Bank of Greece S.A. Saxo Bank A/S BRANCHES OF FOREIGN BANKS FROM NON-EU MEMBER STATES Arab Jordan Investment Bank SA Bank of Beirut SAL BankMed s.a.l. Banque BEMO SAL BBAC SAL BLOM Bank SAL Byblos Bank SAL Credit Libanais SAL FBME Bank Ltd IBL Bank SAL Jordan Ahli Bank plc Jordan Kuwait Bank PLC Lebanon and Gulf Bank SAL Open joint-stock company AVTOVAZBANK OJSC Promsvyazbank Privatbank Commercial Bank


Atlasmont Banka A.D


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measures, the Eurogroup bail-ins had no direct impact on us. No losses/haircuts were imposed on our depositors or shareholders and we did not need support from the Authorities or even from our parent Bank. To this effect, I feel that we were to a certain degree prepared for the crisis. However, by handling the problem faced by specific banks as a generalised banking system crisis, a lack of trust was created in Cyprus as a jurisdiction. The problem should have been presented for what it really was, i.e. a crisis in certain systemic banks. As a result, confidence in the banking system was destroyed overnight and it is the fall-out from this approach that

has had a negative, indirect impact on the non-crisis banks too. The serious changes to the competitive environment have created opportunities for banks to fill the void that now exists in servicing both domestic and international clients’ banking needs. Our strategy is to weather the storm and be ready and able to play a more significant role when restrictions are lifted and freedom returns. In the meantime, the drivers continue to be liquidity and capital preservation.”

’ ‘ ’ ‘ ANDREAS ’ THEODORIDES HOW CAN YOUR BANK CONTRIBUTE TO THE REVIVAL OF THE LOCAL ECONOMY AND RESTORATION OF TRUST IN THE OVERALL BANKING SYSTEM? “With respect to new clients, there is limited scope to what one can realistically do whilst restrictive measures remain in place. Viable existing clients are facilitated by adjusting their repayment schedules, providing extra liquidity and advising them on how to manage the crisis. International clients are kept abreast of developments and are encouraged to maintain confidence in Cyprus. But the issue goes beyond banking. The social impact is such that

all large organisations have a moral obligation to do as much as they can in helping those in need. We are placing extra emphasis on our Corporate Social Responsibility programme and we are pleased to be in a position to be doing more than our fair share.”


“It is obvious that there will be a period of turmoil with low liquidity, high provisioning and losses that may lead to extra capital requirements. The system has already shrunk in size and it will become smaller. It is predicted to eventually start showing elements of sustainable growth 2-3 years from now. At the end of this period I expect that the quality of our product, both for domestic and international business, will have been upgraded. The

volume of our clientele will probably be less but the quality will be higher, resulting in greater and more sustainable returns. Inevitably the banking labour market will also become healthier and more flexible. This, in combination with reduced administration and general costs, will help the banks towards sustainable profitability.”


“The decisions taken by the Eurogroup on 25 March 2013, the subsquent introduction of capital restrictions and the signing of the MoU with the Troika have clearly had an effect on the whole of the banking system and the economy of Cyprus. Historically, USB Bank has had a relatively small share of the Cyprus market. From 2011, it joined the Lebanese-owned BLC Bank - Fransabank Group and, with the support of our shareholders, we have pursued a responsible expansion strategy. The above events have


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caused the Bank to temporarily put on hold its strategy of actively pursuing expansion and the management team has had to focus on the short-term requirements of all the new regulations imposed. The Bank remains committed to its strategy of expansion, however, and this requires us to ensure that, throughout this critical period in the island’s economic history, we act in a responsible way so as to ensure that the foundations for growth remain intact.”

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“Throughout this period we have remained close to our existing clients and assisted them with restructuring their loans where necessary. The local economy is going through very difficult times with a deep recession, high unemployment levels and with companies facing financial difficulties. So the Bank is working closely with its clients to assist them with their financial management during this difficult period. It is important that the Bank’s loan portfolio is recoverable and repayments are sustainable. For business clients this is usually best achieved by supporting their underlying business so that they can survive this difficult period and continue to contribute to the economy now and in the future. The form of assistance to business clients includes discussing all aspects of their business, such as optimisation of the use of resources, crisis management and possible alternatives in order to take proactive measures. It also includes the restructuring of loans wherever necessary so that clients can

better manage the servicing of their debts. It is important that the Bank acts in a responsible, conservative manner during this process in order to protect its depositors and other stakeholders. Therefore, whilst being supportive of its clients in cases where loan repayments are not made on time, for example, the Bank is strict where its restructuring criteria are concerned and it ensures that all avenues are explored. The Board of Directors is made up of individuals with international experience of other financial crises, including the turmoil caused by the Lebanese civil war, and this is proving invaluable during this period.”



“The restoration of trust and confidence in the banks and the banking sector in general is of paramount importance. This can be achieved through the implementation of sound corporate governance principles and the adoption of policies and procedures aiming at full transparency. The island’s financial programme aims to ensure a sound banking sector which supports local economic activity. The MoU provides for the consolidation of the banking system and its downsizing to EU averages, in conjunction with the strengthening of the banks’ supervision and regulatory framework.

All of the above are expected to create a banking sector that is resilient, adequately capitalised, and able to service the needs of the economy. We expect the environment to be highly regulated, ensuring quality of service and consumer protection. New entries and new players in the market are likely, due to the new prospects of the island. This will, in turn, increase the level of competition which is to be welcomed for an efficient economy.”



“The sovereign debt crisis in the southern part of the eurozone started from Greece where, in May 2010, the first MoU was signed with the Troika. The pressure on the real economy and the banks culminated in the PSI of the Greek debt that was agreed by the Eurogroup in October 2012 and implemented in March 2013. This resulted in a (€50 billion bailout to recapitalize Greek banks. In June 2013, the National Bank of Greece Group succeeded in drawing over 10% of the necessary capital from the private sector, and with this recapitalization, NBG regained its strength and set itself on the road to a comeback, which is expected to correspond with the recovery of the real economy. For the past three years, NBG Cyprus has focused on and aimed at strengthening its capital base, increasing liquidity and improving asset quality, preferring to ignore issues such as excessive profits, credit expansion

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and market growth. As a result, the decisions of the Eurogroup in March 2013, found the Bank prepared, strong and ready to operate in this new banking environment. Undoubtedly things have changed. The environment has deteriorated and the economy has shrunk. Although, the volume of operations in the banking industry has been reduced significantly, new opportunities have arisen for banks like ours, which have the opportunity to increase rather than reduce their business and to increase their market share. Our strategic plan therefore anticipates business expansion and, to a lesser extent, increased revenue. Unfortunately, the market is still suffering from the crisis and, as a result, we are experiencing delinquencies, which have hit revenues and profits heavily and require new provisions.”

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“Throughout this period NBG Cyprus, with the blessing and support of the parent company, has fully supported its customers and, consequently, the real economy, while implementing new policies. We have approved extensions of loans where necessary, we have kept lending rates at the same level (with a decreasing trend) and helped companies and individuals to breathe during the liquidity crunch experienced in the first months of the crisis. Additionally, we decided, on a selective basis, to proceed with new financing to clients

who have decided to invest or expand their business. Through this policy, NBG Cyprus has revealed its genuine intention to contribute to the restoration of the Cyprus economy. Moreover, the fact that NBG was one of the banks whose clients’ deposits were not harmed, in conjunction with its capital robustness and the successful capitalization of the parent bank, has helped create a more positive climate among the general public as regards the maintenance of confidence in, and the security of, the banking system in Cyprus. This, combined with the NBG Group’s continuing funding of the governmental sector, has contributed to NBG Cyprus being considered one of the safest – and most loyal – banks on the island today.”



“Despite the adversities and setbacks suffered by the economy and, especially, the banking sector, the management of NBG Cyprus is optimistic that we will soon observe economic recovery and a resumption of the banking sector in Cyprus. It is being said by all – and we agree – that the development of the industry will be attuned to the growth and prosperity of the Cypriot economy.”



“The decision made by the Eurogroup on 25 March 2013 had a profound effect not only on banks but on the entire Cypriot economy and the population. All financial institutions were called upon to comply with a range of restrictive measures affecting all banking transactions and capital transfers, which have brought on multiple changes to the rules and internal procedures of every banking institution and customer banking behaviour. The banking sector has been severely affected and has already started to make its own concessions. It is obliged to satisfy recapitalisation requirements, improve its risk management policies, comply with corporate governance directives, manage in an effective manner its credit portfolio (restructuring of customers influenced by the adverse economic conditions and, at the same time, deleveraging) and proceed with ongoing cost management and improvement of production. Alpha Bank Cyprus Ltd has always been a forward-thinking and progressive organisation, constantly trying to foresee market requirements in order to fulfil the needs of its customers. It is always aiming to improve and provide products and services that reflect the current needs of the society, thus assisting its customers to deal with any difficulties that arise from the current financial situation. Improvements are not only reserved for our products and services,


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but they have been imposed on the Bank’s structure and processes as well. A component of the required amendments is the reduction in operational costs, which Alpha Bank makes every effort to implement without detriment to its workforce or their working conditions, as personnel satisfaction is one of Alpha Bank Group’s main pillars. In addition to the above, Alpha Bank Cyprus Ltd, with the unvarying support and trust demonstrated by Alpha Bank Group, is in full compliance with the capital requirements that were set in place by the Central Bank of Cyprus based on the adverse scenario created after PIMCO’s diagnostic test.”

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“On the economic front, the near-term outlook is negative. A decline in real GDP nearing 10% appears likely in 2013 with further significant declines in the following years expected due to the worsening outlook for global growth, unsettled financial conditions in the euro area, a need to reduce state deficits in a recessionary environment, the expected deleveraging in the banking sector due to scarce capital and liquidity, a stagnant real estate sector, low consumer and business confidence and rising unemployment leading to a decrease in domestic demand and investment. Therefore it is necessary to prioritize measures required for stabilizing the economy and leading to potential growth which are full compliance and implementation of the Memorandum of Agreement signed with our European partners, encourage foreign direct investments, improve productivity, implement fiscal

The road to recovery is expected to be long and difficult

consolidation measures, target unemployment and increase flexibility in the labor market. The road to recovery is expected to be long and difficult. Expectations are high as everyone’s attention is currently turned to the banking sector, which has a lot of ground to cover. Alpha Bank Cyprus Ltd will rise to the challenge through hard work and commitment, continuing to support both society and the economy in the responsible and respectful manner it has always portrayed, since the beginning of its operations in Cyprus in 1998.”



yprus’ banking sector is consists of banks incorporated in Cyprus (local banks) and banks established abroad, either in an EU or in a non-EU country – which are also located on the island as subsidiaries or branches. The kind of banking and the services that banks can conduct are indicated on the licence granted by any European Union country’s central bank upon request by the bank. The licence is valid in all EU countries. However, if a bank is incorporated in a non-EU country and wishes to operate in Cyprus, it needs a licence from the Central Bank of Cyprus (CBC). Parent companies from third countries that wish to operate in Cyprus through a bank branch also need to obtain a licence from the CBC while EU bank branches have freedom of establishment (provided that this is covered in the EU authority’s licence). The supervision of banks incorporated in Cyprus, including both their domestic and foreign subsidiaries and branches, is exercised by the CBC on a consolidated basis. Subsidiaries incorporated in the EU are also supervised on a solo basis by the host country. The same applies to subsidiaries of parent banks which are incorporated in the EU (the EU authority is the consolidated supervisor while the CBC is the supervisor on a solo basis). Branches of banks incorporated abroad are supervised by the home authority but the CBC is responsible for issues pertaining to liquidity and anti-money laundering.


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The scale of Non-Performing Loans on the balance sheets of Cypriot banks needs to be dramatically reduced

he Institute of Directors (Cyprus) recently held a panel discussion on “The Pros and Cons of having a separate independent asset management company cum development bank to manage Bank of Cyprus’ Non-Performing Loans (NPLs) and other problem loans”. Lars Nyberg, the former Deputy Governor of the Swedish Central. Bank, and Mike Aynsley, former chief executive of the Irish Banking Resolution Corporation, were on the panel. Both are independent advisers specialising in crisis management and restructuring of distressed financial institutions. Here we present a synopsis of their views and suggestions.

Lars Nyberg

Resolving the banking crisis in Cyprus is a complex undertaking. Confidence and credibility must be restored and this will involve many aspects. It will take time. Resolution is crucial, however, since a functioning banking system that can start lending money is a prerequisite for growth. Hence, cleansing the banks’ balance sheets and working out troubled assets is necessary to ”kickstart” the economy. But how big should the banking system be and how should it be funded during the transition process? A number of issues need to be addressed simultaneously. There is no universal recipe for taking care of problematic assets in banks. Countries have different legal systems and different traditions and these can weigh heavily on the ultimate solution adopted. Additionally, sources and availability of funding and/or the required speed of deleveraging can have a material impact on the solution or results achieved. Nevertheless, a number of important principles have turned out to be valid in most jurisdictions and some of them are presented in brief below. It is hoped that by highlighting these it will assist Cyprus in avoiding many of the mistakes made in other countries in the recent past.

The NPL workout organisation must have a separate management

The scale of NPLs currently on the balance sheets of Cypriot banks needs to be dramatically reduced. On this point, everybody seems to agree. The best way of doing this would be to transfer the NPLs (and those which are projected to deteriorate to NPLs within the next 12-18 months) to a separate and independent Asset Management Company (AMC) where the loans can be systematically restructured/worked out. This is one of the important conclusions from international experience. Although the transfer of NPLs is crucial, not all NPLs need to be transferred. A bank should be able to handle a normal amount of bad credits related to its core customers. Experience indicates that loans below a certain value should also stay – there are a number of reasons for this which are associated with the time and cost of transferring these loans which, in turn, are linked to that of the workout process for the loans but can also be related to the customer segments being dealt with. However, enough NPLs must be taken away from the bank’s normal operations to make the bank viable in a sustainable way and to make management credible to rating agencies and outside investors. That said, it is not always possible to create a full separation of NPLs from the bank as a legal entity. This would currently appear to be the case in Cyprus because of the practical difficulties associated with funding and possible multiple banking licences. The separation of NPLs can still be achieved in a separate department within the bank or in an independent subsidiary of the bank. Keeping NPLs on the balance sheet of the bank is always a second-best solution. The more serious the NPL problems are (or are perceived to be by external agents), the further away from the bank they may need to be if the bank’s credibility is to be restored. In the absence of full separation of the NPLs, it is likely that the process of rebuilding credibility and trust with investors will take longer – as seems to be the case with the internal core/non-core segregations promoted in some recent European cases. An important reason for putting NPLs under separate management is that it will allow the bank’s board and management to focus on restoring the ordinary banking business of lending money, which is crucial its sustainability and to the country. If the bank were not to create a separation then, with high NPL ratios, the management would spend most of its time addressing problems and the pressure to de-lever the balance sheet would prevent the flow of credit to creditworthy companies and individuals. Taking away the NPLs will allow management and board to look forward. Another important reason for separating the handling of NPLs is to make banks more transparent. Markets can handle risk but they hate uncertainty. The further away from normal banking operations that the NPLs are


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handled, the easier it will be to show a clean balance sheet and thus restore credibility. If the NPLs are kept within the bank, much effort must be put into mapping, analysing and pricing them in a transparent way. Although the eurozone banking crisis remains ongoing, there is a lot of money available in the international capital markets for speedy deployment into investments where the risks are known and where there is improved confidence in future stability. The needs of Cyprus are small compared to those of other markets. Investors will come eventually if Bank of Cyprus can convincingly demonstrate that its NPLs are being professionally handled. If the separation of NPLs is done professionally, whether externally in a separate AMC or internally in a separate division or subsidiary, it should help stop the downward trend in asset (notably real estate) prices and work to restart the market. It must be possible for the workout organisations to keep the asset until satisfactory restructuring. The workout process is, of course, also dependent on market valuation levels, the viability of any restructuring/resolution alternatives and, importantly, the time frames established. A key foundation of any workout programme must clarify the value retention assumptions – a focus on extracting maximum value; an avoidance of asset fire sale sales and the resultant negative capital consequence; a policy of working consensually with clients to repair and restructure as opposed to enforcement. In some jurisdictions it has been necessary to make trade-offs in the timing of workout programmes to accommodate agreements with external parties such as the Troika around areas such as deleveraging targets and ELA/ECB debt reduction. Philosophically, while trade-offs like this can be detrimental to asset values in the short term and make the workout programme more challenging, it is important to realise that the reason these trade offs are generally put in place is to produce some form of longer-term benefit for the country. The NPL workout organisation must have a separate management. This is true regardless of whether it is placed as a division of the bank, a subsidiary or a separate AMC. If it is kept as a division or subsidiary of the bank, it is preferable for the leader of the area to report directly to the Board and not to the bank’s CEO (this may require modification to the bank’s governance structure to allow for the necessary decision-making and accountability). The workout of NPLs may imply conflicts between the workout staff and the bankers running their normal business and this should be clearly recognised from the start. One way of doing this is to create an organisational structure with co-CEOs utilising a shared services structure. The handling of NPLs, of the magnitude being expe-

In the absence of full separation of the NPLs, it is likely that the process of rebuilding credibility and trust with investors will take longer

rienced in Cyprus (and other jurisdictions similarly affected by the crisis) needs expertise that is not generally available in banks working under normal conditions. Some less experienced bankers have disagreed on this matter but it is now internationally accepted that industrial experts, corporate finance specialists, real estate people, liquidation experts, etc., need to be found outside the bank if the objectives are to be successfully realised. Most often the necessary resources are not available domestically but need to be hired on the international market. This may be expensive but there is no other way. Discussing the best way to handle the NPLs is important as the complexities are many and the difficulties need to be well understood. It should, however, not prevent or delay action in the short term. NPLs that are not taken care of tend to quickly lose in value and many countries have seen this happen. To prevent further value destruction, Bank of Cyprus should go to the international market and immediately hire a head (or interim head if one is available immediately) of the new NPL workout department. This individual should report directly to the Board of the bank and be supported with resources to start analysing the bad loans in detail and set up the necessary organisational structure and operating protocols. If so desired – and if funding eventually allows – the workout organisation could later be transformed into a subsidiary or even sold Mike Aynsley partly to outside investors. The final form need not be decided now but the NPLs need urgent handling. We believe that it is not a good idea to transfer non-core assets to a new bank that will also work as a Development Bank in addition to operating as an AMC. An AMC should have the clear objective of regaining as much money as possible from the distressed assets and then close its business (or change itself into a real estate company if that path has logic to it). A Development Bank should have other objectives and mixing the two will just introduce uncertainty, confusion and scare investors away. The skills required to run an AMC are materially different to those required to run a going-concern bank. The people who run an AMC should not be trusted to run a bank – and vice versa.


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S Beyond Europe

Decisions on natural gas how Cyprus can be st r estimateseasnerves will be baseedxploit its on d unknowns . By John many Vickers

ir Michael Leigh, consultant and senior advisor to the German Marshall Fund of the United States (GMF), based in its Brussels office, was in Cyprus last month to take part in a workshop on Hydrocarbons and Sustainable Development in Cyprus and the Eastern Mediterranean Region. He spoke to Gold about the choices facing Cyprus regarding export markets, the chances of natural gas exploitation helping towards a political settlement in Cyprus and the possibility of an arrangement with Israel to export its surplus gas via a Liquefied Natural Gas (LNG) plant at Vasilikos. On the ‘LNG vs Pipeline’ debate, Sir Michael recognises that LNG is probably the best option, noting that, “If the identified Cypriot resources are around 5-8 trillion cubic feet, there will then be an economic basis for an LNG plant on the assumption that it would be expandable and economies of scale could come in later if there are further discoveries either within Block 12 itself or in the blocks being explored by the other licence holders. Then, further down the road, is the question whether Israel would agree to joint monetisation and, even further down the road, if Lebanon would be interested in such a thing. I think we’re approaching something like a consensus that if the resources are confirmed in this upper range, it would make sense financially for a potential investor to come in in support of an LNG project.” One disadvantage of a pipeline, he says, is that it “would lock you into exports to a given market without knowing at the investment stage what the demand levels would be and what price levels would be at the end of the pipeline. And you would be committed to a point-to-point arrangement, irrespective of tendencies in prices.” A recent GMF publication on Natural Gas Export Options for Israel and Cyprus suggests that, given that LNG tankers become commercially viable for distances greater than 4,800 kilometres, future European customers would be best supplied by pipeline while LNG tankers would provide for Asian customers. Asked if this a generally accepted rule, Sir Michael says that it is more a ‘rule of thumb’. “It’s a broad principle, other things being equal but, of course, in life other things are not equal! If the choice of export option were

to be LNG and the reason for that was an interest in premium markets in Asia as they stand at the moment, you obviously could not rule out the possibility that LNG could also be exported to Southeast Europe, for example. However, in any given case it’s going to be a question of price, the availability of quantities and the kind of contracts that can be concluded so I don’t think we should be too hard and fast about this.” Although most of the talk in Cyprus has been about becoming part of the European energy system rather than exporting further afield, Sir Michael Leigh believes that the premium prices in the Asian markets will definitely be a major consideration in the minds of potential investors who are thinking about investing in an LNG plant. “That is part of the strong appeal of LNG,” he says, “although there is also interest in a new supply corridor through the Mediterranean and people are interested in building on the cooperation that’s developed between Israel, Cyprus and Greece.” Because gas prices differ considerably in various parts of the world, some experts have suggested that LNG exports from the Eastern Mediterranean would be profitable in Far Eastern markets but not in Europe. But is it possible to predict how the situation will be by the time Cyprus is in a position to export its gas? No, says Sir Michael Leigh. “There is a lot of speculation about what will happen to prices in the future, on the assumption of an increasing abundance of gas from non-conventional sources (shale and other sources). There’s also a great deal of interest


h g i e L l e a Sir Mich

Sir Michael Leigh is a consultant and senior advisor to the German Marshall Fund of the United States (GMF), based in its Brussels office. He focuses in particular on enlargement and the eastern partnership, particularly Ukraine, Turkey’s relations with the EU and their common neighbourhood, Europe’s response to political change in the Mediterranean and Middle East, and energy questions in the eastern Mediterranean. He also has an interest in south Atlantic cooperation, especially with Brazil. He became Director-General for enlargement in 2006 after serving for three years as external relations Deputy Director-General with responsibility for European Neighbourhood

Policy, relations with Eastern Europe, Southern Caucasus, Central Asia, Middle East and the Mediterranean countries. He took on his current role after more than thirty years in EU institutions, including as a cabinet member for various Commissioners and as director in the Task Force for the EU Accession Negotiations. He began his career as assistant professor of international relations at Johns Hopkins University’ s School for Advanced International Studies in Bologna, Italy and as a lecturer in international relations at the University of Sussex. He holds a Bachelor’s degree in Philosophy, Politics and Economics from Oxford University and a PhD in Political Science from M.I.T.

viability (“This subject has raised so much interest that every possible scenario under the sun has been examined!”) but Israel is currently awaiting a decision on whether it will be authorised to export at all. If the Supreme Court rules that it can export 40% of its gas reserves, according to Sir Michael Leigh, the assumption is that exports would begin with Israel’s immediate neighbours, in particular Jordan and the Palestinians. “There are complications of a legal and political nature but if these can be overcome, a very short pipeline could take modest amounts of gas from Israel to Jordan,” he says. Similarly, there are very strong arguments for Israel supplying natural gas to the Palestinians and there is interest in the possibility of exporting gas to Egypt, given that there are pipelines already in place that can be reversed. “So, first of all

have recognised that Cyprus is fully entitled to establish its EEZ and, therefore, to delimit it with neighbouring countries.” On what he calls “Turkey’s elaborate position concerning Cyprus’ Exclusive Economic Zone and the right of Cyprus to conclude delimitation agreements,” he notes that “There are those in Ankara who would limit Cyprus to a 12-mile territorial sea and there are other arguments based on Turkey’s continental shelf that would suggest that Cyprus does not have the right to conclude this sort of agreement. However, I don’t think these arguments have had much resonance in the international community.” On the question of whether Turkey might be willing to make concessions on Cyprus in order to ensure that the Turkish

there has to be a court decision and then a government decision. There is a hierarchy of developments which will take some time to resolve but we can’t rule out the possibility of Cyprus and Israel cooperating on the question of exports.” One of Sir Michael Leigh’s main focuses of interest is on Turkey’s relations with the EU. Asked about Turkish objections to the maritime boundary agreements signed with Egypt and other neighbouring states, and whether Turkey is in a position to change them, he says quite simply, “I wouldn’t have thought so. I don’t think there are any parties that take that very seriously. Both the European Union and the United States

issue in order to unblock its own EU membership negotiations, Sir Michael Leigh acknowledges that “We are on the brink of a new initiative to address the Cyprus problem and a number of stars seem to be aligned in a favourable way on both sides at the moment” but he concedes that “it‘s anybody’s guess as to whether this latest effort is going to prove successful.” He believes that the policymakers in Ankara will be “weighing up what all of this signifies for them. One cannot exclude the possibility that among their considerations is the question of energy in the Eastern Mediterranean and the fact that Turkey would like to be part

have EZ s e t a t S d e t i the Un to establish its E d n a n o i n U n itled opea Both thethEautrCyprus is fully ent Cypriots benefit from the revenues from natural gas as well as to settle the Cyprus cognised

in whether the United States will authorise exports of LNG and what that might do to world prices. At this stage it’s impossible to say what the price situation will be at the end of the decade and therefore any investment decision has got to be based on the best possible estimate of break-even and profitability points based on different assumptions.” There has been a great deal of talk about the possibility of Israel deciding to pipe natural gas from its Leviathan field to the planned LNG plant at Vasilikos, which would enhance the plant’s commercial

the international investment, finance & professional services magazine of cyprus

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ely be it in f e d l il w arkets potential investors m n ia s A e h t prices intion in the minds of in an LNG plant Premiumon era esting v in t u o b a g a majorocaresid in think wh

What is the GMF? of these exciting new developments in some form or other. I think everyone who has followed the Cyprus problem since 1974 knows what the issues are. In both communities there is a great desire to see this problem resolved, independently of the energy question, but it could well be that a number of factors come into alignment which will encourage engagement by both sides and this might be among them.” Many commentators suggest that, were it not for the unresolved issue of the Cyprus problem, it would make more sense to pipe Cypriot gas to Turkey. However, a GMF publication notes that, in the light of uncertainties about future Turkish and EU demand for gas, costs, applicable prices, and transit fees when gas from Cyprus finally comes on stream, the commercial logic for this option is less compelling than it may appear. “The simple assumption that, in the absence of political problems, this would be the most commercially sensible and viable option needs to be looked into much more carefully,” Sir Michael says. He elaborates on this, explaining that, “As we’re projecting at least a decade forward, and any agreement on such a project would have a 20-year lifetime, we are talking about an operational period between 2020 and 2040. During this period, which stretches all the way through virtually to the mid-century, it’s entirely conceivable that there will be additional significant sources of supply to the Turkish market. Moreover, we don’t know today what the trend will be in Turkish demand and we can’t take it for granted that demand will continue to increase along present lines.” He adds that it is conceivable that the Turkish market and Turkish transport facilities through the future trans-Anatolian pipeline could become saturated and asks, “Under those circumstances, what would be the place


he German Marshall Fund of the United States (GMF) strengthens transatlantic cooperation on regional, national, and global challenges and opportunities in the spirit of the Marshall Plan. GMF does this by supporting individuals and institutions working in the transatlantic sphere, by convening leaders and members of the policy and business communities, by contributing research and analysis on transatlantic topics, and by providing exchange opportunities to foster renewed commitment to the transatlantic relationship. Founded in 1972 as a non-partisan, non-profit organization through a gift from Germany as a permanent memorial to Marshall Plan assistance, GMF maintains a strong presence on both sides of the Atlantic. In addition to its headquarters in Washington, DC, GMF has offices in Berlin, Paris, Brussels, Belgrade, Ankara, Bucharest, Warsaw, and Tunis. GMF also has smaller representations in Bratislava, Turin, and Stockholm.

of a relatively modest source of supply that would nonetheless require a large investment and infrastructure?” The development of offshore natural gas in the Eastern Mediterranean brings together two of the world’s longest-running and vexing diplomatic disputes: the Cyprus problem and the Middle East conflict. However, Sir Michael Leigh sees a great deal of positive thinking by investors regarding the region: “When one considers the persistence and the depth of the Cyprus issue or the Arab-Israeli problem, the striking thing is that companies have come in anyway; they have seen the prospects as sufficiently attractive for them to be ready to live with the political risk,” he says. He notes that in the second licensing round in Cyprus, there was a lot of international interest from American, Italian, French, Korean and Russian companies and others from further afield, all of which are fully aware of the political risk. Acknowledging that “Israel is rather special because of the

depth of the Arab-Israeli conflict and because of the attitude of countries in the Gulf to companies that work with Israel,” the number of international energy companies ready to go to Israel has until recently been very limited. Noble Energy has been leading the effort, he says, and recently there has been more interest from a number of other countries. “So, considering the part of the world where we find ourselves,” he concludes, “I would say the striking thing is that investors have gone ahead in spite of everything. Gas from the Tamar field has been brought to market in record time and this seems to me to be the predominant trend, rather than companies being discouraged.” Finally, on the EuroAsia Interconnector project [to lay a 1,000 km cable on the seabed from Israel to Cyprus, from Cyprus and Crete, and finally from Crete to the Greek mainland carrying 2,000 MW of power] which looks likely to suffer because of the economic and financial crisis in Greece and Cyprus, leaving the question of funding aside, how does Sir Michael Leigh view it as an energy project? “I know that there has been a lot of interest in this and obviously large-scale investment would be required,” he says, noting that there are technical issues and economic arguments which need to be looked into in great detail. He points to the fact that there is no single electricity grid within Europe: “The objective of the EU is to establish a complete free market in energy and to interconnect the European Union, something that has not yet been achieved, so one would have to look at what the market would be for this electricity on the receiving side and how easy it would be to transmit it on from Greece to other markets in the EU. It’s an interesting possibility but, it seems to me, not top of the agenda.”

ourselves, d in f e w e r e h w d l r o he part of tthheawt investors have gone ahead Consideringiktin g thing is the str 36 Gold the international investment, finance & professional services magazine of cyprus

A Fantastic

Jurisd i Negative publicity has not changed the way US multinationals view Cyprus By Kyproula Papachristodoulou


yprus’ image as a financial centre remains a positive one, despite the exceptionally negative publicity it has received over the past year and, in particular, following the Eurogroup meetings in March. Wishful thinking? No, it is the assessment of a number of foreign professionals, as expressed during last month’s 5th Cyprus Professional Services Conference. Eric Ryan, who spoke at the Conference and his colleague Stephen Jones, both partners at DLA Piper USA, explained to Gold how American companies structure their operations for tax advantages and how Cyprus is viewed today by US multinationals.

Eric Ryan

Gold: How has the image of Cyprus as a jurisdiction been affected as a result of negative publicity over the past few months? Eric Ryan: Amongst most US tax professionals it is widely understood that there are two distinct parts to Cyprus’s financial services industry, and that the use of Cyprusbased holding companies within tax-efficient group structures is largely independent of, and unaffected by, the problems besetting the banking sector. Many clients were nervous following the banking crisis and sought our advice but we have found that many structures involving Cyprus holding companies continue to be used, even by clients who have switched their banking to a different jurisdiction. Under US tax rules, subsidiary companies in non-U.S. jurisdictions need not do their banking with local banks, and many do not. Stephen Jones: There has been some interest in events in Cyprus on the part of the US press. However, this has tended to focus almost exclusively on the implications for the banking sector and what it means for the European and global economies. America-based

commentators tend to view the problems in Cyprus with a degree of detachment, seeing them primarily as problems affecting the Europeans – and Russians in particular – as well as Cyprus itself. The fact that the crisis was swiftly addressed is viewed a positive step. US corporate clients hate uncertainty. Gold: What are the practical changes that will affect multinationals and international investors in the coming years? E.R.: Global attitudes are changing as regards the use of offshore financial centres. There has always been some suspicion around the perceived abuse of tax havens by wealthy individuals but there is more focus now on the use of global structures by multinational corporations and this scrutiny is likely to increase. The OECD initiatives around changing tax rules to combat Base Erosion and Profit Shifting (BEPS) have been well-received by most members’ tax administrations but many practitioners are sceptical about whether global tax rules can be changed quickly, if at all. S.J.: It has been suggested by some commentators that if a further assistance package is needed from the EU, Cyprus may be required to give up its withholding tax exemption for payments to persons outside the EU (although payments between companies in different member states would remain free from withholdings). If this happens, Cyprus may become less attractive to US investors and others than other commonly-used EU holding company jurisdictions such as the Netherlands and Luxembourg. Gold: What are the advantages that Cyprus can still offer? E.R.: A key message that Cyprus needs to stress is that things stay the same There have


iction been relatively few changes to the tax regime in Cyprus and although the basic rate of corporation tax has risen from 10% to 12.5%, this is unlikely to affect investor behaviour as it remains one of the lowest corporation tax rates in Europe. In addition, there is no Cyprus capital gains tax, a 100% participation exemption from tax on dividends received, and no withholding tax. These factors combine to allow Cyprus to be a central hub for IP licensing, financing, and equity ownership. S.J.: Cyprus is a fantastic jurisdiction for many types of holding company structures. The slight increase in corporate income tax is of no real harm, particularly if all the other features of the Cyprus tax regime are relevant. The double tax treaty network continues to be a major advantage in Cyprus. The Cyprus-US treaty is a favourable, but note that the US interprets “beneficial ownership” provisions very narrowly (it has always done so; this is not a result of the banking crisis), so to access the lower rates, real substance must be proven in Cyprus. A company cannot be just a brass plate entity. E.R.: Cyprus also has a very interesting new “IP Box” tax regime with an even lower income tax rate. However, there is not a lot of experience with these regimes yet so foreign investors might take a wait-and-see attitude towards that new regime for a few years. Gold: How will the traditional way of servicing multinationals and international investors change? S.J.: Investors who use Cyprus holding companies will, in many cases, now use a bank somewhere else. It may be that advisors in Cyprus enter into strategic relationships with banks in other jurisdictions (particularly foreign banks that have a branch in Cyprus). In the future, the tax advantages of

Stephen Jones

Comparative Summary of Certain Corporate Tax Regimes

Potential Tax Rate on Non-US Income Tax concessions based upon headcount commitments? Risk of Direct US Tax on Foreign Principal Treaty Network Dividend/ Gains Tax Concessions Cost of Doing Business Generally Ease of finding qualified employees Tax regime subject to pressure? Data Privacy Compliance Burden Promotional Agency





3 - 10%




0 - 10% (base 17%) Yes









Very Good

Very Good

Very good (with ruling)

Very Good

Very Good


Possibly good Moderate






Harder (?)








High (?)





(BV only, not CV)

(but requires some employees)

From Eric Ryan’s Presentation during the 5th Professional Services Conference

Cyprus might one day be “overridden” by investor country rules applied to controlled foreign subsidiaries. For example, for US multinationals, US tax laws might change to target foreign country subsidiaries with tax rates of less than 15%. So, service providers will need to follow the OECD BEPS initiatives closely, as well as features in the tax and legal rules of key investor countries. E.R.: One opportunity for the Cyprus services sector, however, is the inevitable push globally for more “substance” in local companies. For example, it may be advisable for local companies to have more local Board of Directors meetings and management meetings

on-site, and resident employees performing the financial and operational oversight of the business. Another area of service in the future will probably relate to obtaining tax and/or legal rulings from the Cyprus authorities. Rulings on areas such as corporate residency, the applicability of treaties and transfer pricing methods or agreed profit levels would be beneficial. As rules change globally, corporate clients will want to eliminate as much uncertainty as possible. Countries such as Luxembourg and the Netherlands have wellestablished ruling practices, and Cyprus may want to review those models.

the international investment, finance & professional services magazine of cyprus

Gold 39

Guntram B. Wolff joined the Bruegel Think Tank in April 2011 and was Deputy Director prior to becoming Director in June 2013. His research focuses on the European Union economy and governance, on fiscal policy, and global finance. He is also a member of the French prime minister’s Conseil d’Analyse Economique.  He joined Bruegel from the European Commission, where he worked on the macroeconomics of the euro area and the reform of its governance. Prior to this, he was an economist at the Deutsche Bundesbank, where he coordinated the research team on fiscal policy. He also worked as an adviser to the International Monetary Fund. He currently teaches at Université libre de Bruxelles and serves on the advisory board of the European Studies center of Corvinus university Budapest. He holds a PhD from the University of Bonn, studied economics in Bonn, Toulouse, Pittsburgh and Passau and previously taught economics at the University of Pittsburgh. He has published numerous papers in leading academic journals. His columns and policy work are published and cited in leading international media such as the Financial Times, the New York Times, Wall Street Journal, El Pais, La Stampa, FAZ, Handelsblatt and others.


Here to Stay

Predictions of the eurozone’s demise are unrealistic, says the director of the acclaimed Bruegel think tank. By Kyproula Papachristodoulou

40 Gold the international investment, finance & professional services magazine of cyprus

Europe should have agreed earlier and forced Cyprus to undertake bank restructuring with the major participation of bank creditors


untram B. Wolff, Director of the acclaimed Brussels-based think tank Bruegel, will be one of the keynote speakers at the 4th Limassol Economic Forum on 26 November at the Four Seasons Hotel, Limassol. Ahead of his address to next month’s Forum, he spoke exclusively to Gold. Gold: Quantitative Easing (QE) policies in large advanced economies seem to have been effective in raising short-term growth rates, reducing long-term interest rates and supporting asset markets. The cost, however, has been an unprecedented expansion in central bank balance sheets. What kinds of risk are involved in this expansion? Guntram B. Wolff: QE is an important part of the policy tool-kit of modern central banks. It is particularly important when the central bank reaches the zero lower bound, i.e. the level at which it cannot easily move interest rates down. Taylor rules, which describe the interest rate a central bank should set sometimes find that the best interest rate would be negative. This, however, is not possible and QE is one solution for such a situation. QE can also be used to unclog certain markets. However, if QE is used for too long, risks for financial stability can arise. In particular, QE may push markets into taking too many longterm risks. Thereby, too much risk can be accumulated in the financial system. But an exit that is too early could also be harmful as it could mean that a fragile recovery is ended. Gold: How do you believe the problem of unemployment should be addressed in the European economies? G.B.W.: Low employment levels and high unemployment remain a major concern throughout Europe, but there is no one-sizefits-all solution. It is certainly of central importance to finish the banking union so that corporations throughout the union will regain normal access to credit. Several countries will also need to enact far-reaching labour market

reforms. Finally, the euro area in particular needs more supportive policies for its re-balancing. For this, Germany should also enact reforms that will liberalize its economy and strengthen the non-tradable sector. Gold: Many believe that a significant deepening of the integration process in the EU and the eurozone, together with a further centralization of policymaking at the European level, would result in an important boost to growth which would ultimately solve the unemployment problem. What is your view? G.B.W.: I agree that such reforms are a necessary condition to re-establish the foundations for economic growth and lower unemployment. However, this will not automatically and immediately solve the unemployment problem which, I believe, will last for several more years. Gold: Has monetary policy reached its limits? G.B.W.: No. With inflation rates well below 2% and core inflation falling since 2012, more could be done without risks to inflation. Gold: Have bailout policies in Greece, Portugal and Ireland succeeded or failed? G.B.W.: This is a difficult question to answer. They have succeeded insofar as the three countries remain in the euro area and they have started an important adjustment process. We should also acknowledge that the imbalances in all three countries at the beginning of the programme were really exceptionally large. So, given those circumstances, they have achieved a lot. But certainly expectations of the programme have been terribly wrong in Greece while in Ireland the programme was designed in a more realistic manner. In Greece, debt restructuring should have happened significantly earlier to relieve the country from the excessive burden. Finally, in Portugal important structural reforms have started but, in some areas, political and social stability is still not guaranteed.

Gold: You argued in March that “A Cypriot euro is not a euro any more” and that “even temporary capital controls can be hard to get rid of”. You also wrote that “the imposition of capital controls risks sending a fatal signal to the markets that could very well trigger future bank runs elsewhere”. What is your view on the capital controls imposed in Cyprus six months ago and the fact that they remain in place? Were there other options? Are there any other available options now? G.B.W.: The experience of the last six months shows how difficult it is to get rid of capital controls. Yes, there were other options. Europe should have agreed earlier and forced Cyprus to undertake bank restructuring with the major participation of bank creditors. However, after the restructuring and resolution, Europe should have clearly signalled that all the remaining banks are part of the euro area. This would have meant providing basically unlimited access to the liquidity window of the ECB. While target2 balances would have increased, no capital controls would have been necessary and Cyprus would clearly have stayed in the eurozone. Gold: Could Germany be considered as a model economy for the rest of Europe? G.B.W.: No, every country has different strengths and weaknesses and a monetary union benefits from different models and specialisations. Gold: How realistic are the predictions that the eurozone will ultimately fail? G.B.W.: The economic cost of failure is very important. Moreover, it would reverse an important historical process. I think that these predictions are unrealistic.



ruegel is a European think tank specializing in economics. Established in 2005, it is independent and non-doctrinal. Its membership includes EU Member State governments, international corporations and institutions. Through a dual focus on analysis and impact, and dynamic relationships with policymakers at every governance level, it has also established itself as a vibrant laboratory for economic policies. It is chaired by Jean-Claude Trichet and its 11 members all have distinguished backgrounds in government, business, civil society and academia. Former chairmen Mario Monti and Leszek Balcerowicz have been appointed Honorary President and Honorary Chairman respectively.  Bruegel comprises a core fellowship of top researchers from around the world, Resident, Non-resident and Affiliate, plus a team of operational staff. It also operates a Visiting Fellow programme, which allows researchers from around the world to contribute to Bruegel’s work for a limited time, normally visiting from another institution. For any questions on membership and Bruegel more generally, please do not hesitate to contact our Secretary General


Don’t Knock The Governor! If the politicians want to save Bank of Cyprus, they should be careful of trying to remove Panicos Demetriades


t is no secret that relations between the current Government and the current Central Bank Governor, and between the previous Government and the previous Central Bank Governor, have been difficult. One could say that this is only to be expected. The Governor is supposed to be independent yet he is appointed by the President of the Republic who is, by nature, a political animal. There will always be tensions between politicians and independent officials. Another reason more specific to Cyprus is that the banking system has been in crisis since at least March 2012 or, arguably, even earlier. Everyone has been looking for someone other than himself on which to pin the blame so, inevitably, the two key players in this crisis have been slinging mud at each other. Unfortunately for the economy, all this has served to do is to reduce faith in the ability of the authorities to govern, undermine confidence in Bank of Cyprus (BOC) and, therefore, put off the day when people really do believe again in the banking system and Cyprus can clamber out of recession. Things did seem to settle down for a while after the President, the Finance Minister and the Governor managed to sit together long enough to talk to the European Central Bank Chairman, Mario Draghi. I do not know what was said during this meeting but there seems to have been an unwritten agreement that everyone would just keep quiet and get on with the difficult job of fixing the economy. But then relations deterioriated again in midSeptember, when the Central Bank Governor, Panicos Demetriades, did not immediately approve the newly elected Board of Directors at BOC. This seems to have hit a red button for President Nicos Anastasiades, who declared that he would seek recourse to the Supreme Court for the Governor’s removal. While there is no denying that the Governor

Inevitably, the two key players in this crisis have been slinging mud at each other

By Fiona Mullen

arouses strong feelings among many people, there are some important reasons why trying to get rid of him is far too risky for Cyprus. The first and most important reason is that Bank of Cyprus remains fragile. While figures show that the banking system as a whole (of which the bulk must be BOC) reduced its dependence on Emergency Liquidity Assistance (ELA) to €9.9bn in August, from €11.1bn in July, it remains enormous, at more than 100% of a shrinking GDP. Secondly, the main reason why Central Bank dependence fell in August was because €1.6bn was taken from the ECB (for the first time in around nine months), so the overall liquidity demand remained the same. The third reason why this is important is because of a certain paragraph in the IMF’s 100-plus page report, where it referred to a “weak governance framework at the Central Bank of Cyprus and a strained balance sheet given the large amount of ELA extended to commercial banks”. The IMF added that “underlying procedures and controls for ELA will need to be independently reviewed by the Internal Audit Department”. My crude translation of this is that the IMF is worried about some of the dodgy assets put up by BOC (and Laiki before it) for liquidity assistance from the Central Bank. Until now, it is quite likely that the Central Bank and the ECB knew that the collateral was rather ropey but turned a blind eye in order to allow BOC to be able to keep filling the cash machines. Now that the IMF has raised the issue, the Central Bank and the ECB may have less discretion than in the past to keep doing that. In other words, in order to continue helping Bank of Cyprus, both the ECB and the Central Bank might have to stick their necks out. But if the Governor, a board member of the ECB, keeps coming under attack, how likely is that to happen? For that reason, whatever one thinks about the Governor, it is far too risky for anyone in government or the wider political class to keep calling for his head.

info: Fiona Mullen is the Director of Sapienta Economics Ltd and author of the monthly Sapienta Country Analysis Cyprus 42 Gold the international investment, finance & professional services magazine of cyprus

Do cu




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A.G.Paphitis & Co. LLC

Angelos Paphitis, Managing Director


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GP (A.G.Paphitis & Co. LLC) is one of the fastest growing, fullservice law firms in Cyprus. Since our establishment in 2006, we have taken great pride in ourselves for our firm’s rapid and solid expansion as well as in the trust and confidence that a great number of private individuals and corporations have shown us.  We strongly believe that hard work and devotion, personal attention and an immediate response to clients’ needs are what sets us apart from and beyond other traditional firms.

Headquartered in Limassol at AGP Chambers, our privately owned EU office architectural award-winning building at 84, Spyros Kyprianou Avenue, the firm, which was initially founded as Company Law boutique law firm, soon expanded to a full service law firm which is currently divided into three main departments.

COMPANY LAW & M&A, INCLUDING CORPORATE & FIDUCIARY SERVICES Our firm, which initially offered exclusively company law advisory to its clients, has expanded radically. In just seven years since our establishment, the firm’s Corporate & M&A department has grown to consist of six senior lawyers specializing in Company Law (exclusively) and two tax and audit consultants (members of ACA) with particular specialization in corporate governance and tax. We are well aware that the fast growth of the firm is due to our high-class expertise in consulting for large business and international groups on their company law, group structuring and corporate governance matters. We are proud to represent international groups, some of which are among the biggest groups in the CIS countries. In addition to Company Law Advisory, our Corporate & Fiduciary Services Department represents a number of companies for their day-to-day management and administration, undertaking their AGMs and EGMs and providing all the necessary minutes and resolutions in order to be in full compliance with Company Law Requirements. From 2010- 2013, we have been named by multiple organisations as Corporate Governance Law Firm of the Year in Cyprus

CIVIL, REAL ESTATE AND COMMERCIAL LAW, LITIGATION AND DISPUTE RESOLUTION Our team undertakes all kind of civil law advisory, including real estate, general commercial and immigration issues, and all kinds of court cases, including corporate and company law disputes, commercial, real estate and contractual disputes, family and matrimonial disputes, personal injuries, insurance and road traffic accident claims, landlord and tenant disputes, and general civil litigation disputes. In addition, we represent our clients in arbitration processes in Cyprus and abroad. Contact persons: Angelos Paphitis, Liza Georgiou, Marilyn Terpsopoulou, Stella Georgiadou.

BANKING, FOREX & BINARY SERVICES LICENSING AND ADVISORY: BANKING & FINANCE This is an area which our firm prides itself on its international establishment. Headed by our founder, Angelos Paphitis, the firm represents a significant number of investment & financial services companies located in Cyprus and abroad. Our Banking and Financial Services Advisory department comprises eight qualified senior professionals offering A-Z services including: legal aspects of Finance, Banking Advisory, Asset Management and Portfolio Management Advisory, Regulatory Compliance, Anti-Money Laundering and Risk Management Advisory. Our firm has undertaken licensing of a great


number of Financial Services (FX) firms in Cyprus (by the Cyprus Securities and Exchange Commission) and worldwide (New Zealand by FMA, Belize by FSC, BVI by FSC, UK by FSA (now FCA)). We have further undertaken the licensing process of the first E-Payment Institution in Cyprus, currently pending licensing by the Central Bank of Cyprus. Our services to firms applying for Investment Firm licensing include the preparation of business plans, financial forecasting, drafting of operations manuals, compliance manuals, AML and Risk Management manuals, etc. With regard to banking advisory, our team includes two former high-ranking bank employees (George Paphitis, ex-director of Alpha Bank Cyprus, and Marios Orologas, ex-Vice President of Private Banking, Societe Generale Greece), and offers high-standard banking advisory to our clients. Angelos Paphitis is recognised for his experience and knowledge by large international organisations which regularly recommend him as a highly-trusted professional who offers highest standard of advice. We at AGP are proud of our firm’s recognition in Cyprus and internationally. We have been, and will remain, dedicated to offering our services at standards of excellence. We are honoured by our international recognition, including awards from the Legal500, the world’s largest legal referral guide, as Cyprus Leading Firm 2012 & 2013, and Cyprus Recommended Lawyer 2013.


A.G.Paphitis & Co. LLC

Head Office: AGP Chambers, 84, Spyros Kyprianou Avenue, 4004 Limassol, Cyprus Tel: (+357) 25731000 Fax: (+357) 25761004 e-mail: Website:


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Areti Charidemou & Associates LLC



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reti Charidemou & Associates LLC was established in 1990 with a vision of creating a well-respected, diverse portfolio of international clientele. Through hard work, integrity and professionalism in commercial legal consultation, the firm has achieved over 2 decades of success. From the most modest of beginnings, Areti Charidemou & Associates LLC revolutionized the industry through their commitment to helping clients achieve their goals, by providing commercially-focused legal advice that consistently exceeded their clients’ expectations. Over the years and through client recommendation, the firm grew and kept growing until, in 2009, the team’s achievements were reflected in new purpose-built, head offices in Limassol that were capable of housing all the legal departments and reflecting the high quality services offered by the firm.

LOCAL EXPERTISE, GLOBAL STANDARDS In order to lead the way in the legal profession you must look to the future, maintain a willingness to discuss ideas and have the courage to let people hear your voice on issues of importance. At Areti Charidemou & Associates LLC, we have the thoughts and imagination to expand the boundaries of conformity. Through the combination of the highest Global Standards of business law and local excellence of service, our firm ensures that our clients benefit from the best legal and corporate advice and representation. We are committed to maintaining the depth, quality and scale of resources necessary to meet and exceed our clients’ expectations, wherever and whenever they arise.

LOCATION Strategically located at the hub of the European, Asian and African continents, Cyprus offers a unique and convenient European business centre to base your operations from. Cyprus encourages foreign investment. This is apparent through its laws, regulations, international conventions and treaties. The safe environment with an extremely low crime rate, along with the great weather the region enjoys, makes the

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island the preferred choice as a base for commercial operations. Add to this the highly educated workforce, friendly-natured local people and a well-established, English-based legal system and you will discover why business investment is so high. Of course, enticing taxation laws, and the highly developed international standard of telecommunications, air transport and shipping infrastructure serve as an added bonus.

OUR PROMISE At Areti Charidemou & Associates LLC, we take an integrated full service approach to our work which spans continents, practice areas and industry sectors. We pride ourselves on finding optimal solutions to complex business issues, working together with our clients. We pride ourselves on our creative way of thinking. No matter how complicated or challenging the task ahead, we are not satisfied until we have delivered the highest quality and the most commercially viable solution. Through our leadership programme we engage our senior lawyers with those responsible for setting the political and economic agenda, maintaining focused support anytime, anywhere.

INVESTING IN TALENT As a law firm, we look to the future rather than the past. We believe in creativity and a fresh mindset. The new world commercial landscape demands new legal thinking and new financial solutions. At Areti Charidemou & Associates LLC, we deliver what we promise to our clients. We recruit and train the best people within our industry. Our philosophy has attracted the highest professionally qualified personnel in the market, whilst their young, energetic, eager and charismatic personalities have become synonymous with our firm’s character and commitment to excellence. We combine this young, fresh and energetic passion with seasoned senior highlyexperienced professionals to offer the ultimate combination of knowledge and expertise to our clients.

MANAGING YOUR NEEDS Anticipating client needs is not only about understanding future client services but how our clients will want these services delivered. At Areti Charidemou & Associates LLC, we have been at the forefront of revolutionising the management and delivery of our firm’s services. Through our commitment to excellence, we have introduced IT systems and sophisticated

document management processes in order to successfully implement efficient and costeffective offshore legal support and administrative business information for our clientele. It is of paramount importance that we keep our clients up-to-date with the status of their case and are available at any time to discuss and advise as to the best way forward.

SERVICES • Corporate & Commercial Law • Shipping & Admiralty • Creation & Administration of Funds • Intellectual Property • Structuring & Advice on IPOs • Litigation • Energy • Real Estate • Immigration • Probate • Tax Consultancy • Banking & Finance • Employment Law • Mergers & Acquisitions • Trust & Trustee Services

COMMUNITY From the very beginning, our company was established to help people. Our success has allowed us to expand this philosophy beyond the boundaries of the legal system and extend a helping hand to our community. This makes us extremely happy. At Areti Charidemou & Associates LLC, we understand the importance of making a positive impact on people’s lives. It is for this reason that our approach goes way beyond the legal realms of our firm’s abilities. Through the Helping Hands Foundation, we are able to support and offer funding to children or families with special needs or to someone who has fallen down in life and just needs a friendly hand to help re-establish a balance in his/her life.


Areti Charidemou & Associates LLC Head Office: 21, Vassilis Michailides Street, Limassol 3026, Cyprus Tel: (+357) 25508000 Fax: (+357) 25508032 Website: e-mail:

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Christos Patsalides LLC


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he Law Firm Christos Patsalides LLC was established in 1996 in Nicosia, Cyprus by the Managing Partner of the firm, Christos Patsalides. Our Law firm’s goal is to provide only top quality services. It is made up of experienced and reputable advocates as well as highly-educated and excellently- trained staff in all specialised legal fields. At Christos Patsalides LLC, our values are professionalism, consistency, integrity, and efficiency.

SERVICES Christos Patsalides LLC offers a wide range of services covering all aspects of law. Our priority is to respond to the specific characteristics and needs of each client with confidence and directness, and our aim is to provide the best possible service and solutions to all legal issues that may arise in relation to our clients’ needs. The quality of our services, the special and trusted expertise of our firm’s various departments, together with the formation of the required structures for the speedy and efficient management and finalisation of all cases and claims, have marked the dynamic course of our firm in Cyprus. The firm’s Corporate and Litigation Departments both act for a particularly large customer portfolio with high expectations, with excellent organisation and professionalism, full secretarial support and sophisticated computer systems which guarantees the full implementation of all cases assigned to us.

LITIGATION DEPT The Litigation Department of Christos Patsalides LLC provides legal representation in a wide range of law areas and, especially, debt recovery, family law related cases (divorces, alimony, parental care and rights, property disputes), administrative law matters, (appeals to the Supreme Court for the annulment of administrative acts relating to broadcasting-related matters, issues of public tenders, asylum seekers related matters, hiring matters and promotion issues in the public sector, etc.), civil and trade law cases (contracts, torts, including traffic accidents),

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cases of employment law, European Law (European Court of Human Rights, European Community Law) and Criminal cases (in the District and Criminal Court).

CORPORATE SERVICES With the lowest corporate tax (12.5%) in the European Union, Cyprus is considered a very attractive jurisdiction for doing business. Our corporate services include the formation and incorporation of companies, the voluntary liquidation of a company, the establishment and management of trusts and related services such as the establishment, management and representation of Cypriot and offshore companies, the provision of trustee services for shareholders, directors, secretary and registered office of the company. A very important part of our services relates to advisory support concerning various tax matters, tax planning restructuring, consultation for investment funds, dividend distributions, tax differences, capital gains tax, stamp duties, Value Added Tax and much more. An especially important service provided by Christos Patsalides LLC is the redomiciliation of a company to and from Cyprus. Cyprus’ redomiciliation legislation was enacted on July 28, 2006, as an amendment to the Companies Law Cap.113, to permit: • Foreign (non-Cypriot) companies to redomicile to Cyprus; and • Registered Cyprus companies to be redomiciled abroad. The existing business of a foreign company continues, without interruption, as a Cyprus company since the first company is not dissolved, but simply ‘moves’ to Cyprus. Existing companies can choose to change their seat of incorporation to Cyprus without going through a liquidation and recontribution process in the current jurisdiction so it is not necessary to wind up their activities and restart under a new company shell and it is less-time consuming and more cost-effective for the clients. The ability to redomicile companies to and from Cyprus opens up a new planning dimension for investors and traders. Foreign companies can now easily benefit from the Cypriot corporate tax regime, an option that many clients prefer.

INTELLECTUAL PROPERTY Christos Patsalides LLC has a very repu-

table Intellectual Property (IP) Department. We provide services including the search and registration of trademarks, national, community and international trademarking together with the provision of the registration of tradenames, the validation of patents, national, European and international patent registration and validation. A few of the reasons why companies and individuals are encouraged to register patents and trademarks in Cyprus are the following: • Cyprus has adopted the EU directives enabling it to recognize CTM and CD registrations. • Cyprus is a party to the Madrid Agreement and Protocol and PCT through which international patent or trademark applications are recorded in Cyprus. • Cyprus is a member of the Office for Harmonization in the Internal Market (OHIM) for the registration and protection of Trademarks and Industrial Designs within the European Community. • Due to the accession of Cyprus to the European Union as a full member on May 1, 2004, Cyprus legislation has been harmonized in order to bring Intellectual Property Law into line with the requirements of the acquis communautaire. •Commercial activity on the island creates the necessity to offer protection to the IP rights of physical and legal entities in order to validate such activity. An important part of the abovementioned services is provided by our affiliated company, Christos Patsalides Corporate Management Ltd.


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

Head Office: 31 Evagoras Avenue , Evagoras Building, Suites 41 - 43, 1066 Nicosia, Cyprus Tel: (+357) 22677677 Fax: (+357) 22674422 e-mail: Website:

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Chrysses Demetriades & Co. LLC

Christos Mavrellis, Managing Partner


hrysses Demetriades & Co. LLC is a Cyprus law firm providing a comprehensive range of legal services to local and international clients. It has been instrumental to the development of Cyprus as an offshore and international financial centre and is widely acknowledged as one of the leading law firms in Cyprus in the key areas of corporate activity: Banking & Finance; Capital Markets; Corporate and M&A; Derivatives; Employment; EU & Competition; Intellectual Property; Property; Shipping; Tax; and Litigation & Dispute Resolution. It has long-established relationships with many of the world’s leading international financial institutions, professional advisers and regulatory bodies; it is consistently highly-rated in independent research studies and regularly leads offshore league tables. The firm is ranked at the highest levels of all legal directories. Its success is founded on its ability to provide practical, creative and cost-effective advice, combined with an uncompromising service commitment to its clients and a strong dedication to its lawyers, staff and the communities in which it practises. The history of the firm dates back to 1948 when it was founded by the late Chrysses Demetriades. Over the years, it has helped shape and pioneer many developments in the legal field. The firm currently has over 55 fee-earners working out of offices in Limassol and Nicosia, including 17 partners and has grown steadily through the years with an emphasis on providing quality service to its clients. The firm is structured into three principal departments – Company & Commercial, Shipping and Litigation.


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COMPANY & COMMERCIAL The Company & Commercial department provides comprehensive and specialised legal advice and services in all aspects of domestic and international business. It prides itself on the depth of its experience in all aspects of company and commercial practice, from small business start-ups to merger and acquisition work involving major international companies. The Department comprises distinct practice areas such as Banking & Finance (which includes Acquisition Finance, Asset Finance, Corporate Restructuring and Insolvency, General Banking, Project Finance, Property Finance, Trade Finance) Capital Markets, flotations and listing of companies, Corporate and M&A, Derivatives, Employment, EU & Competition Law, Private Client, Intellectual Property, Property, Regulatory & Compliance, Tax.

purchase of ships as well as the financing of these activities, shipbuilding and insurance. The location of the firm’s headquarters office in Limassol, Cyprus provides easy access to the country’s main port and the Department of Merchant Shipping which is based in Limassol. This enables us to respond promptly to emergencies and facilitates the completion of shipping transactions and related closings. Chrysses Demetriades & Co. LLC is also the official representative of the Marshall Islands corporate and maritime programme in Cyprus. The firm’s Shipping Department is very active in undertaking and completing all kinds of registry transactions involving Marshall Islands ships and the issuing of the relevant registry transaction certificates. The Litigation & Dispute Resolution practice works closely with our Shipping Department to provide advice on a variety of shipbuilding and commercial shipping disputes,. The Shipping Department focuses on a number of distinct practice areas, including:

SHIPPING The Department has a long and distinguished history in the shipping industry. Since 1963, it has been involved with the drafting and updating of Cyprus shipping laws and is regularly called upon to provide advice to the Cyprus and foreign maritime authorities. Today, it is acknowledged as the Cyprus market leader in the provision of legal advice for the entire range of legal services in the shipping industry. The firm’s clients include banks and other financial institutions, shipowners, ship managers, charterers, shipyards and insurers (including P&I clubs) covering the entire spectrum of commercial shipping and encompassing the rapidlygrowing international mega-yacht market. The Shipping Department currently represents shipowners who control approximately 50% of the Cyprus merchant fleet. It provides advice and assistance on a wide range of commercial shipping activities, including vessel registration under the Cyprus flag and all related matters, structures and contracts for the chartering/employment, sale and

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COMMERCIAL SHIPPING It regularly advises on the preparation and negotiation of a wide range of commercial shipping contracts, from the relatively simple preparation of a memorandum of agreement for the purchase of second-hand tonnage to more complex transactions involving fleet acquisitions or the sale and lease-back of vessels.

LITIGATION & DISPUTE RESOLUTION When business disputes occur, it is essential to identify legal advisors who have the experience and capability to deal with all potential issues that may arise. The huge growth in globalised business is associated with a greater scope for complex crossborder disputes. Increasingly, companies need legal advisors who can work effectively and efficiently on both a national and an international basis. Chrysses Demetriades & Co. LLC is the leading commercial litigation practice in Cyprus, representing clients involved in a wide range of complex national and international commercial disputes. It has extensive experience in the following areas of litigation: Regulatory, Competition/ Anti-trust, Fraud & Asset Recovery, Insurance, Pensions, Product liability, Securities & Corporate, Tax, Property, Construction and IT. It also has a distinguished alternative dispute resolution and international arbitration practice. In all matters, we are committed to providing clients with a swift and practical service focused on achieving their objectives in a cost-effective manner. Specific areas of practice include Administrative and Public law, Admiralty, Banking Litigation, Company & Commercial Litigation, Corporate Fraud, Investigations and Asset Recovery, Insurance and Reinsurance, International Arbitration, Personal Injury, Property Litigation, Restructuring and Insolvency Litigation.

SHIP FINANCE It advises shipowners, offshore contractors, banks and financial institutions and investors in shipping as well as their legal representatives worldwide on the financing of the construction of new build vessels and the acquisition of second-hand tonnage of all types and characteristics, as well as on rig construction and the purchase, conversion and outfitting of floating production, storage and offtake (FPSO) vessels.


Chrysses Demetriades & Co. LLC Head Office: 13, Karaiskakis Street, 3032 Limassol, Cyprus Tel: (+357) 25800000 Fax: (+357) 25587191 e-mail: Website:

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Costas Indianos & Co

Antonis Indianos, Managing Director


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ostas Indianos & Co Advocates & Legal Consultants was established in 1924. The firm has acquired over the years a local and international client base comprising businessmen, international corporations, ship-owners and ship owning companies, commercial banks, municipalities, consulting firms, real estate investors, etc. Our law firm provides a custom-made service with the focus on quality, professionalism and time efficiency. We maintain a wide network of long-term business cooperations with firms across the EU, Russia and further afield. Our firm is a member of the International Tax Planning Association (ITPA) and the Legal 500.

AREAS OF PRACTICE Our main areas of practice are the following: CORPORATE LAW Our firm has a long experience in corporate matters providing the following legal services: • Incorporation of companies / branches / partnerships: Cyprus & other jurisdictions • Administration, ������������������������������������������� Re-domiciliation and Liquidation of Companies • Cyprus International Trusts • Cyprus Investment Firms • Cyprus Investment Funds • Joint Ventures & Cross-Border Transactions • Mergers & Acquisitions • Contracts & Agreements • Due Diligence & Company Search • Escrow Agent Services • Fiduciary Services TAXATION & TAX PLANNING Together with Corporate Services, our law firm provides tax planning advice to clients wishing to optimise their international business activities.  The main advantages of Cyprus taxation are the following: • Corporate Tax 12.5%

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• Tax exemption on dividend income • No capital gains tax on sale of securities/ shares or immovable property located outside Cyprus • No withholding tax on payments from Cyprus • 2.5% effective tax on royalties • Absence of thin capitalisation rules • Unilateral tax credit relief • No estate duty • EU directives • Double Tax Treaties SHIPPING LAW With the recent Merchant Shipping Tonnage Tax Legislation 44(I) 2010 providing benefits to ship owners, managers and charterers, Cyprus remains one of the world’s largest ship registries and one of the largest thirdparty ship management centres. Shipping is one of the main activities of the firm which provides legal services to clients for shipping loans & mortgages, registration of Cyprus shipping companies, registration of ships under the Cyprus flag and registration of ships under flags of other jurisdictions.  Furthermore, our firm provides related legal services such as Sale of Vessel (Memorandum of Agreement, Addendums, Bill of Sale, etc), Purchase of Vessel, Reflagging of Vessel, Deletion of Vessel, Shipbuilding Contracts, Crew Endorsements & SISRBs, Renewal of Shipping Certificates, i.e. Radio Licence, CLC Certificate, CSR Certificate, etc. IMMIGRATION LAW The firm provides legal advice and assistance to both EU and non-EU clients for the acquisition of the following: • Residence & Work permits including the European Permanent Resident Immigration Permit (Category F) for third country nationals investing in Cyprus. • Citizenship ���������������������������������������� & Cypriot citizenship by exception: Further to the usual acquisition of citizenship, in May 2013 the Council of Ministers issued the new legal framework for Cypriot citizenship by exception under Civil Registry Law 141(I) 2002, allowing for the provision of Cypriot citizenship by exception to foreign investors for reasons of public interest. It also provides freedom of movement within the EU member states and allows the applicant to bring along family members.

Below are the six different ways in which an applicant may acquire Cypriot citizenship by exception, all including the obligation to purchase a permanent residence in Cyprus of at least €500.000 + VAT, except for point 2 below.

1. Investments & Donations to Government Funds amounting to at least €2 million with a minimum of €0.5 million for the Research and Technology Fund.

2. D irect investments of at least €5 million for a period of at least 3 (three) years.

3. C yprus banks deposits of €5 million for a minimum period of 3 (three) years.

4. Investment Combination amounting to

€5 million, combining mixed investments and donations, direct investment and bank deposits.

5. E ntrepreneurial Activities for at least

€500,000 per year in State Funds and for the purchase of corporate services during the three years preceding the application filing date.

6. C itizenship is also available for the applicant who has suffered impairment in the Bank of Cyprus or Laiki Bank on his deposits of at least €3 million as of March 15 2013 due to measures imposed on the two banks.

OTHER AREAS OF PRACTICE Real Estate Litigation Inheritance Law Family Law Intellectual Property


Costas Indianos & Co Head Office: Kermia House, 6th Floor, Offices 601-602, 4, Diagorou Street, 1097 Nicosia, Cyprus Tel: (+357) 22675231 / (+357) 22665232 Fax: (+357) 22669678 e-mail: Skype: anthony.indianos Website:

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Kinanis LLC

(L-R) Standing: Natalie Petrides, Manager Lawyer, Corporate Division Eleni Maragkaki, Junior Lawyer, Corporate Division Andri Tsangarou, Associate Lawyer, Corporate Division Marios Palesis, Assistant Manager, Audit & Tax Department (L-R) Seated: Nanette Kalava, Manager, Corporate Division Charalambos Meivatzis, Senior Manager, Head of Accounting Department Christos P. Kinanis, Managing Director Irene Christodoulou, Senior Manager, Head of Corporate Division Demetra Constantinou, Assistant Manager, VAT & Accounting Department

54 Gold the international investment, finance & professional services magazine of cyprus


inanis LLC is one of the leading business law and consulting firms in Cyprus and advises international investors and private clients on all aspects of law, tax and accounting. Kinanis LLC continues the business of Kinanis & Co established in 1983. The firm started its operations as a traditional law firm. Experience and practice over the years brought forward the need for transformation to a more innovative multidisciplinary firm of international standard, providing a full range of services combining law and accounting with our extensive expertise in corporate and tax advice to ensure that clients obtain the best possible spherical advice under one roof. Our involvement and participation in international transactions over the years have established our firm as one of the key players in the field. The firm is staffed with over 70 young, energetic and ambitious professionals, including lawyers, accountants and administrators who provide prompt, efficient and high-quality services and who are capable of meeting the current demanding challenges of the local and international business environment.

OUR NEW OFFICE As part of our strategy and development, in 2012 our firm opened an office in Malta, a jurisdiction with a favourable tax regime, with the aim of assisting all our international clients more effectively and supplementing our Cyprus based services. The office is manned with high calibre local professionals.

OUR PHILOSOPHY Our culture and values derive from the range of our work which is tailored to meet the needs and objectives of our clients’ business. Our joint commitment to quality of service results from the building blocks of our values. Our environment is welcoming and we are always ready, willing and able to lend a hand to our clients. Our straightforwardness allows us to be sincere in all our transactions with maximum reliability. Our sense of accountability makes us discover solutions to issues faced not only by our clients but also by our employees. • Our approach is quick, effective and solutionorientated

• We are pro-active and not re-active • We are flexible and simple

OUR MISSION Our core purpose is to be a leading corporate, legal and professional service firm serving local and international clients, both corporate and individuals. Meeting and exceeding our clients’ expectations is our ultimate goal.

OUR SERVICES Corporate/M&A The firm provides prompt and solid general corporate advice. Moreover, the firm advises and represents clients on crossborder M&A transactions, re-organisations and liquidation of companies and has extensive experience in transactional and procedural advice for joint venture transactions, public companies, pre-IPO compliance, as well as IPO preparation and listings in stock exchanges and markets in the EU and abroad. Taxation The firm provides consulting on all aspects of Cyprus, Malta and international tax law, to both corporate and private clients, and assists clients in international tax planning; creating tax efficient corporate structures. In addition, the firm provides administrative support in obtaining tax clear certificates and filing tax submissions. Banking and Finance The firm provides advice on banking and finance transactions for both corporate and private clients as well as for banking institutions. The banking team has an administrative role in the opening and management of bank accounts in Cyprus and abroad and liaises with banks on behalf of clients with regards to clients’ day-to-day banking operations. Company Incorporations The experienced corporate team advises clients on company matters such as incorporation, redomiciliation, administration and management of Cyprus, Malta and overseas companies. Nominee services for directors, secretaries and shareholders along with registered and virtual office facilities are also provided. Ready-made companies from various jurisdictions are available for immediate use. Trusts and Foundations The firm has extensive experience in the establishment and administration of Cyprus international trusts as well as foreign trusts and foundations. Trustee and protector services are also offered to cover the clients’ needs.

Financial services and Funds The firm offers legal, regulatory and administrative support including the obtaining of licenses in setting up investment firms and funds in Cyprus and Malta such as International Collective Investment Schemes (ICIS) and Undertakings for Collective Investments in Transferable Securities (UCITS). Accounting Services for maintaining proper books and records and up-to-date management reporting in compliance with international financial reporting standards are provided. The team of accountants also provides VAT advice, VAT compliance services and payroll services and assists in the efficient and effective completion of the statutory audit requirements by liaising with external independent auditors. Intellectual Property The firm advises and offers services relating to all aspects of Intellectual Property at a Community level (CTM), national and international level and also handles trademark oppositions. Immovable Property The firm advises local and foreign clients on all legal issues regarding the acquisition, sale, leasing, obtaining of permissions and licenses and general dealings with real estate. Litigation The firm’s litigation lawyers effectively handle all court work in all fields of civil and commercial matters such as contract, corporate disputes, banking, insurance, trusts, personal injury claims, employment, intellectual and immovable property and torts. Corporate Liquidation The firm provides advice on the procedure of corporate liquidation and dissolution of Cyprus or international companies in Cyprus and handles all matters before the Registrar of Companies. Immigration/Migration The firm advises and assists individuals on all matters regarding immigration and migration to Cyprus and abroad, including the obtainment of temporary residence permits such as for employment, students and domestic workers.

Contact Information

Kinanis LLC

Head Office: 12 Egypt Street, 1097 Nicosia, Cyprus Tel: (+357) 22558888 Fax: (+357) 22762808 e-mail: Website:


Korpus Prava (Cyprus)

Artem Paleev, Managing Partner


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f you are involved with international contacts, investment, foreign partners, seeking tax management or wealth protection solutions you need professional advice. Korpus Prava provides qualified assistance on these matters as well as on other business issues related to legal norms, tax treaties and strategic planning. Korpus Prava (Cyprus) was established in 2006. Together with our offices in Russia, Hong Kong, Malta, Ukraine and Latvia, we offer clients a truly international service. Our highly qualified and friendly staff is available to provide clients with a flexible, reliable and efficient service in the areas of legal consulting, international tax planning and corporate services.

OUR MISSION The mission of the company is to raise the business value of our clients and reduce their risks. Our experts take into account the requirements of each customer and offer tailored solutions, carefully designing all stages of the project, such as tax inquires and legal opinions, registration of companies when structuring a group, analysis of economic operations, and many other aspects. The specialists of Korpus Prava (Cyprus) are highly qualified professionals in the field of tax and law. They are fluent in a variety of languages including English, Greek and Russian, which enables smooth and prompt communication with clients, financial institutions and public authorities and helps resolve procedural matters.

A UNIQUE PRODUCT A unique product that Korpus Prava proudly

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offers its clients is a complete solution for international projects or transactions. The offices of Korpus Prava are well integrated and our experts prepare the projects, enabling clients to receive a final result, where the various stages in different jurisdictions and transitions – usually quite painful – remain unnoticed. We do not sell services, we sell solutions that work. Korpus Prava organises international conferences, seminars, workshops and round table discussions devoted to business restructuring, tax optimization and changes to legislation. Since 2004, the company has published Korpus Prava. Analytics, a tax and legal journal for business owners and managers. The co-publisher of the journal is the leading Russian law school, the Moscow State Law Academy (MSLA). The company traditionally presents annual tax and legal reviews.

ACTIVITIES Consultancy Services Verbal and written consultations on legal matters, double taxation agreements, corporate and tax legislation of various jurisdictions. Corporate Services • Incorporation and administration of companies in various jurisdictions • Preparation of all kinds of shareholders’ agreements • Opening of accounts in foreign banks • Assistance in communication with the courts, tax authorities and financial institutions Korpus Prava (Cyprus) provides corporate services such as: • Creation of infrastructure when one part of the holding company promptly communicates in a national jurisdiction with its foreign counterpart • Formation of document flow between local and foreign companies • Organisation of the fast transfer and exchange of information and documents

Local and International Projects • Tax and Legal Reviews on the Client’s business • Due Diligence • Audit, Financial Expertise and Transformation of Reporting • Business Restructuring, Setting Up of Holding Companies • Supporting of Capital Transactions, M&A Pprojects • Real Estate Transactions • Intellectual Property Creation and Support of Offshore Investment Funds • Portfolio Investment funds, including Hedge Funds • Private Equity Funds, including Venture Capital • Real Estate Funds Our specialists work directly with the client, they participate in negotiations with his/her counterparties starting from the consultation until completion of the project. The specialists of Korpus Prava (Cyprus) design solutions for various business sectors and provide customers with maximum professional support. Korpus Prava (Cyprus) is a client-focused, multilingual, highly skilled team. With Korpus Prava, you can always be assured of a safe, accurate and clearly developed strategy for your business.


Korpus Prava (Cyprus)

Head Office: 84, Grivas Dighenis Avenue, Office 102, 3101 Limassol, Cyprus Tel: (+357) 25582848 Fax: (+357) 25582868 Website:

09/10/2013 12:46


Pamboridis LLC

George Pamboridis, Senior Partner


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amboridis LLC is a commercial and corporate law firm with offices in Cyprus (Nicosia) and Greece (Athens). Our team of lawyers is dedicated to working in an efficient and speedy manner, providing full legal support to demanding clients operating in a competitive corporate environment. We aim to offer solution-oriented and practical assistance and support The firm values its people as its most important asset and is committed to continuing its investment in increasing the expertise of its team through the continuous training of its members. We strive to work to the highest level of professionalism.

AREAS OF EXPERTISE CORPORATE LAW The firm’s team is geared to provide full support at all stages of our clients’ business expansion, be they single-owner start ups or publicly listed multinationals. The establishment of new corporations, expansion into new fields of business, group structuring or restructuring, increase of share capital and alternative methods of financing, listing on public markets and all issues of corporate governance are among the fields of expertise of the members of the firm. COMMERCIAL LAW The firm has extensive experience in drafting and negotiating on behalf of our clients commercial transactions, extending from simple agreements to more elaborate instruments like SPAs or shareholder agreements incorporating put or call options, tag and drag along clauses, Russian-roulette or Texasshootout clauses and deadlock avoidance provisions. Commercial contracts varying from the sale of goods and services to joint ventures or franchisings are part of the dayto-day business of the members of the team.

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MERGERS AND ACQUISITIONS Members of the team have been involved in significant M&A transactions both locally, within Cyprus or Greece, and extending beyond the boundaries of the jurisdiction where they operate offices. The firm has expertise in all stages of M&As including negotiations and drafting of agreements and supporting instruments, conducting legal due diligence investigations on target companies, tax advice on the specific transactions (including group restructuring) and HR matters as well as in matters of competition and anti-trust law. CAPITAL MARKETS & PUBLIC LISTINGS The firm has been engaged by companies to act as their legal advisors in their flotation on the Cyprus Stock Exchange and has acted on behalf of companies during their IPOs, both in Cyprus and abroad. Members of the firm have carried out independent legal due diligence on companies seeking to list financial instruments on capital markets and advised on issues pertaining to the offering document and corporate internal “tidying up” prior to listing. INTERNATIONAL SHIPPING LAW The firm provides regional and international support to shipowners, cargo interests, insurers and P&I clubs as well as bankers dealing with the shipping industry. The firm regularly provides ship registration services and flagging advice to its clients and engages in all aspects of S&P as well as finance dealings, including negotiations and drafting of agreements and security instruments as well the drafting of legal opinions based on the results of a due diligence on the ship-owning vehicle. ENERGY We are able to represent clients throughout the energy sector, from major international oil companies through to independent juniors and state-owned companies and the government. We are able to provide a comprehensive range of services and consider that we have considerable expertise in advising in projects

concerning upstream and midstream infrastructure projects and downstream dissemination of products as well as acquisitions and disposals of oil and gasrelated interests and assets, shipping and trading of natural gas and financings, including funding acquisitions, project financing for developments, funding cash calls, security structures over asserts and trading of oil products. GENERAL LITIGATION & DISPUTE RESOLUTION The firm maintains a strong litigation department offering support to clients before the Cyprus courts at every level. We specialise in commercial litigation but the department also acts on behalf of clients in matters of administrative law disputes, admiralty issues and labour law matters. The litigation department also handles alternative dispute resolution cases and engages in regional and international arbitrations and mediations. The firm also is committed to a very strict anti-money laundering policy and strives to fully comply with all relevant laws and regulations of the EU, the Republic of Cyprus and the Cyprus Bar Association. We regularly run internal seminars, updating our staff on any developments in this area and we work closely with our clients secure their interests through strict KYC procedures. Our firm operates a policy under which members are encouraged to undertake work for and on behalf of NGOs, nonprofit organisations and charities on a pro bono basis.


Pamboridis LLC

Head Office: 45, Dighenis Akritas Avenue, Pamboridis House, 1070 Nicosia, Cyprus Tel: (+357) 22752525 Fax: (+357) 22752800 e-mail: G  eorge Pamboridis, Senior Partner Yiota Kythreotou-Theodorou, Managing Partner Electra Papadopoulou-Makedona, Partner, Head of Non-Contentious Department Website:

09/10/2013 10:42


Patrikios Pavlou & Associates LLC


atrikios Pavlou & Associates LLC is a top tier, multi-award winning law firm based in Cyprus with considerable expertise in the international legal market. In 2013, the firm proudly celebrates the completion of 50 years in the provision of professional, efficient and dedicated legal services in Cyprus and abroad. Founded in 1963 by Patrikios Pavlou, a Barrister (Gray’s Inn, UK) from Limassol, the firm developed into a partnership, Patrikios Pavlou & Co, in the mid-1970s. Through the years, the Firm’s vision, dedication and experience led to a steady and successful growth and since July 2010, the law Firm has evolved into a new entity, Patrikios Pavlou & Associates LLC.

(L-R) Standing: Lia Iordanou Theodoulou, Corporate Finance Partner Stavros Pavlou, Senior & Managing Partner (L-R) Seated: Chrysostomos Nicolaou, General Litigation Partner Ioanna Nicolaou, Partner-Litigation Department Patrikios Pavlou, Senior Internal Consultant Stella Louka Pavlou, Banking Partner

A truly international culture is implemented in the Firm’s internal and external operations: The firm has close links with reputable international law firms and a distinguished network of associates in Europe, Russia and the CIS countries, Middle East, and Asia. Through the years, the firm has built a diverse client portfolio which consists of individuals, entrepreneurs, banks, financial institutions and multinational private and public companies from around the world, who receive top quality legal services. International experience is continuously gained by consulting and representing clients involved in various key sectors such as Oil & Gas, Energy & Environment, Technology & Communications, Banking, Transport & Logistics, Trusts, Capital Markets and Construction & Real Estate. Furthermore, the firm, either directly or through its associates, is a member of various professional international bodies such as the


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International Bar Association (IBA), the Society of Trust and Estate Practitioners (STEP), Euroadvocaten, International Tax Planning Association (ITPA), Association of International Tax Consultants (AITC), Asociaciόn Europea de Abogados (AEA) and others.

TESTIMONIALS The capabilities of the firm’s lawyers are substantial and their multi-talented skills are recognised by top international legal directories such as The Legal 500, Chambers and Partners and others. Some of the recent comments received are the following: • “Efficient and very proactive, with a good understanding of the local legislation and procedures” • “Really excellent. Helpful, and quick to respond” • “Patrikios Pavlou & Associates LLC provides excellent service and delivers required results and its lawyers are real experts in Cypriot and international law” • “Strongly recommended from peers” • “Discipline of excellence, enthusiasm and proactive approach”

PRACTICE AREAS The highly qualified legal team of Patrikios Pavlou & Associates LLC specializes in specific practice areas and, with their combined skills and knowledge, its members provide expert comprehensive legal solutions according to the client’s particular needs and requirements. Lawyers provide distinctive advice on national and international law in the following specialized practice areas:

CORPORATE, COMMERCIAL AND M&AS: This is one of the internationally recognised and multi-awarded areas of the firm with a reputation for providing high-quality and solutionsoriented consultancy services. The department handles complicated cross-border transactions including major mergers and acquisitions and assists large groups of companies and prestigious international law firms on Cyprus law issues. Recently, the legal team advised the buyers of shares in a shareholder buy-out involving

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one of the largest international producers and traders of natural gas operating in the CIS and Baltic states, in a subject matter value of US$400 million.

LITIGATION AND DISPUTE RESOLUTION: The largest and traditionally the strongest department of the Firm handles cases in conventional and alternative forms of dispute resolution, including litigation, arbitration of international and domestic disputes and mediation. The department’s transnational capabilities and experience are substantial since lawyers have successfully arbitrated many commercial disputes in arbitration courts in many countries. BANKING AND FINANCE: The department continues to expand rapidly, offering expert advice on financial and banking services to major international banks and other companies in the financial services sector. One of the recent projects was advising a major Russian bank in relation to the granting of a facility to two Cypriot co-borrowers in the amount of US$1 billion for the financing of the acquisition of shares/global depository receipts in a Russia- based global energy company dealing with geological explorations, the production and sale of gas and oil. The department also has extensive experience in the provision of legal advice in the listings of major companies on local and international stock exchanges such as the London Stock Exchange, Hong Kong Stock Exchange and others. CORPORATE MANAGEMENT SERVICES: Through its close associate Pagecorp Group, the firm offers comprehensive corporate management, administrative, trustee and fiduciary services to several hundreds of companies operating in Cyprus and abroad at competitive rates. TAX LAW AND INTERNATIONAL TAX PLANNING: The department provides comprehensive advice on Cyprus tax law matters, complicated tax structures and on possible tax implications arising from cross-border mergers and acquisitions.

REAL ESTATE, TRUSTS & ASSET PROTECTION: The department handles commercial and residential property-related matters, asset protection with the use of Cyprus international business companies and also the use of trusts. Clients benefit from a broad range of services involving Cyprus International Trusts, sale and purchase agreements, lease agreements and other property finance matters. OTHER PRACTICE AREAS: The firm’s lawyers and legal consultants also provide professional legal assistance in the areas of IT, Internet and e-commerce, competition and EU, intellectual property, matrimonial, family, administrative and constitutional law and ship registration. The 50th Anniversary of Patrikios Pavlou & Associates LLC marks the superb course that the firm has followed thanks to its creative approach, sense of responsibility and high standard of service. The firm invests continuously in developing its knowledge and skills in order to maintain quality legal services and client satisfaction. Its participation in international professional associations, its prominent relationships with international law firms and the strengthening of collaborations with professional associates are the cornerstones of the firm’s future plans and strategies. Patrikios Pavlou & Associates LLC is looking forward to the future and the challenges it will bring and reiterates its commitment that, with team spirit, the firm will continue to provide high-quality legal services with the same passion, dignity and professionalism for the next 50 years and even longer.


Patrikios Pavlou & Associates LLC

Head Office: Patrician Chambers, 332 Agiou Andreou Street, 3035 Limassol, Cyprus Tel: (+357) 25871599 Fax: (+357) 25344548 e-mail: Website:

09/10/2013 15:53


Tassos Papadopoulos & Associates LLC


assos Papadopoulos & Associates LLC is one of the leading law firms in Cyprus that provides a full range of legal services. The firm comprises a platform of talented professionals committed to providing high quality legal services, a fact which is reflected in its valued clientele. Originally founded in 1971 by the late former President of the Republic of Cyprus, Tassos Papadopoulos, the firm Tassos Papadopoulos & Associates LLC was established in 2007 by the majority of the partners and associates of the former Tassos Papadopoulos Law Firm. It is thus one of the oldest law firms on the island, deeply rooted in the Cypriot legal world. The firm continues to honour the tradition of excellence that draws from its wealth of experience, philosophy and professionalism.


Nicos Papaefstathiou, Managing Partner

The firm enjoys a reputation for the high quality level of services offered and its ability to provide its local and international clients with legal services against the entrepreneurial backdrop of today’s demanding business world. It is operated by a select group of advocates and legal advisors with a wide range of expertise and an education in various legal backgrounds. In an ever-changing business environment, our team always keeps abreast with and adapts to new regulations and trends. While the principal practice base of our firm is Nicosia, we collaborate with local firms in other districts. We are a member of major international networks of independent law firms such as TagLaw and the Association of European Lawyers with wellconnected lawyers in over 90 countries.


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SERVICES LITIGATION The firm boasts a strong team of highly-experienced litigation lawyers in every major field of Civil Litigation and Arbitration including Banking, Finance, Competition, Corporate and Commercial, Construction, Insurance, and Contracts. TRANSACTIONAL - NON CONTENTIOUS BUSINESS The focus of our firm’s work is on Banking and Finance, Energy law, Corporate law, Financial services law, Acquisitions of companies and property, Public Tenders, Mergers and Joint Ventures, the financing of major capital projects, IPOs and Public Listings. CORPORATE LAW, TAX, COMPANY ADMINISTRATION The Firm has substantial corporate activity with a keen practice in the field of company formation, administration and tax planning, not only in respect to companies registered in Cyprus but also in foreign jurisdictions. MIGRATION DEPARTMENT The recent increased interest by international clients in Cyprus Migration Schemes and the real estate sector has led our firm to expand its core business and establish a dedicated Migration Department. Our legal team has the local know-how and is in full cooperation with all Government Authorities, closely monitoring progress in this area of the law. We advise clients from the outset to the granting of Citizenship or Residency and the completion of their investment transactions.

CLIENTELE AND AWARDS Our firm’s clientele includes local and international Banking Institutions, semi-government organisations including the Cyprus Stock Exchange, the Cyprus Ports Authority,

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Municipalities, individuals, local and international building and engineering contractors, pharmaceutical companies, shipping enterprises, local and international information technology companies, publicly listed companies, investment firms, insurance companies, large business concerns in commerce, tourism, hotels, oil and other fields. The firm has traditionally been involved in Mergers & Acquisitions activity in Cyprus, advised on mergers of Insurance companies in Cyprus and acted in takeover work by venture capital firms. Our Firm was chosen as the winner of the Corporate INTL Magazine 2010 Legal Award for: “Mergers & Acquisitions Law Firm of the Year in Cyprus”. We have regularly represented local and international companies before the Cyprus Competition Commission on competition law issues arising from takeover, joint venture and merger agreements as well as in alleged cartel cases. We have extensive experience in public procurement law and the firm was recently awarded the Corporate INTL Magazine global legal award in this field, thus being recognized as the leading law firm in public procurement law in Cyprus. Furthermore, we have acted in the past for economic operators in the island’s Airport and Marina Projects and are currently acting on behalf of financing agents in the construction of the Paphos-Polis Highway and the Larnaca and Episkopi Desalination Plants. In October 2012, the firm was honoured by the Council of Ministers which appointed Managing Partner Nicos Papaefstathiou as one of the four non-executive Members of the Board of the Cyprus State Hydrocarbons Company which was established to handle all aspects of the island’s natural gas, including its import, liquefaction, transport and export.

RECENT LANDMARK CASES 1.)In the case of Civil Appeal 21/2009 Stavros Demosthenous and others v. Electricity Authority of Cyprus (EAC), the Supreme Court, in its judgment dated 29 November 2012, held that the EAC’s practice of installing pylons and high voltage cables on private property is an obstacle to the development of one’s own land. Thus, where an owner is obstructed from developing his property, the EAC is obligated to compensate the owners of such affected properties. In this case the Supreme Court awarded our clients the amount of €825,254.49 plus interest by way of compensation for such obstruction.

2.)In the case of Civil Appeal 143/2011 Ermes v. Attorney-General, the Supreme Court, in its judgment dated 23 October 2012, held unanimously that the provisions of the Law regarding Conditions of Advertisement or Announcement of Sale of Products at Discount Prices of 1990, which restricts the right of sale at discount prices within defined periods of time, is contrary and incompatible with the provisions of the European Directive 2005/29/EC regarding Unfair Businessto-Consumer Commercial Practices in the Internal Market.


Tassos Papadopoulos & Associates LLC Head Office: 2, Sofouli Street, Chanteclair Building, 2nd Floor, 1096 Nicosia, Cyprus Tel: (+357) 22889999 Fax: (+357) 22889988 e-mail: / Website:

09/10/2013 10:54


First Steps

Positive measures will help restore banking confidence but others are needed to tackle unemployment


fficial statistics indicate that non-performing loans (NPLs) reached 30% of total loans in April 2013 and they will be significantly higher in September (the actual figures will be announced soon). Nevertheless, provisioning for loan losses stands at only 30% of total loans, well below the average ratio of 50% for EU banks. This suggests that Cypriot banks’ profitability will be significantly affected going forward. As expected following the March crisis, the credit supply has contracted in the face of rapidly deteriorating loan quality and tight liquidity. As a result, corporate credit contracted by 9% YoY in June, with mortgage lending and consumer credit falling by 3% and 7% respectively. To increase transparency, a new Central Bank of Cyprus (CBC) directive requires the reporting and classification of all loans in arrears for more than 90 days as NPLs, as well as all loans whose original terms have been modified! This is expected to lead to significantly higher officially-reported NPLs than those currently being reported. Also, the CBC has agreed to put in place a new regulatory framework on loan origination, requiring banks to consider affordability aspects in their lending decisions. To allow banks to make better-informed loan decisions based on the creditor’s history, while improving monitoring of credit quality, the authorities have decided to merge and expand the databases of the two existing credit registers for commercial banks and CCIs and to require lenders to submit data on performing and nonperforming loans to the registers on a regular basis. The CBC, which will oversee the registers and the banks’ contributions, will also develop tools to use the information for macro- and micro-prudential purposes. Importantly, new steps have been agreed to facilitate corporate and household debt restructuring to address the high level of private indebtedness. Given the large number of existing and prospective loans in need of restructuring, the IMF has stressed the need for swift improvement in Cyprus’s private debt restructuring framework

The current private sector debt-to-GDP ratio is the highest in Europe and about double of the EU average

Dr. George Mountis is Managing Partner, The Parthenon Partners & Co. 64 Gold the international investment, finance & professional services magazine of cyprus

By George Mountis

with a view to facilitating a reduction in NPLs and in private sector indebtedness. The Cypriot private sector is currently highly leveraged. The current private sector debt-to-GDP ratio is close to 280%, which is the highest in Europe and about double of the EU average. Corporate credit has been concentrated in the real estate and construction sectors. For households, housing loans account for more than half of the total, leading to high exposure of the banks to the decline in house prices that began in 2009. Confidence in the banking sector is yet to be restored. The extent of the impact of the banking crisis on households and corporates, as well as on vital service sectors of the economy, will be larger than anticipated. These could result in a deeper and more prolonged recession, as well as in weaker long-run growth, with dramatic consequences for debt sustainability (IMF, 2013). On the external front, continued economic weakness in the EU could dampen demand for Cypriot exports. On the upside, tourism service exports could benefit from political turmoil in competing destinations and stronger non-EU demand (e.g. China and Russia). Development of the gas sector could also provide an upside to investment and growth over the longer term. Unfortunately, unemployment has been taking the brunt of the adjustment, increasing from 11.7% in June 2012 to 17.3% in June 2013, the steepest increase observed in the EU the last few years. Much of this increase also takes into account the employees of Bank of Cyprus and Cyprus Popular Bank who took up the voluntary redundancy schemes. Also, the rapid increase in youth and long-term unemployment is particularly worrying, displaying a rate of more than twice that of total unemployment. The authorities should look for ways to promote employment in key areas within their limited policy space. No-one can argue that Cyprus is suffering from severe economic dislocations, the full effects of which remain to be seen. The authorities are resolved to restore Cyprus’s economic health and ensure its long-term sustainability. Cyprus has placed itself in a good position to prosper in the coming years but the island still faces tough days ahead.

em etri ades & Co. LLC


D s e s s y r Ch Chrysses Demetriades: The Visionary Lawyer

Demetriades began his legal practice at a time of growth and optimism in Cyprus. He had the vision of promoting Cyprus as a shipping and international business centre and expanded the firm into these areas of international legal practice. In the early ‘60s, Chrysses Demetriades envisioned the creation of the Cyprus Shipping Register, which he helped establish in 1963 as a member of House of Representatives. In the ‘70s, Chrysses Demetriades became a leading advisor to the offshore shipping sector, helping the first ship management companies to establish themselves in the port city of Limassol. Such was his foresight that, since then, Limassol has become one the largest third-party ship management centres in the world, and the Cyprus flag third largest. Over the years, Chrysses Demetriades joined forces with the late lawyer and parliamentarian John Agapiou and other lawyers

with exceptional skills and experience in business, litigation and shipping and gradually the firm evolved into its present-day form. In 1978, it merged with M.M. Houry & Co., one of the oldest and successful practices on the Island with a legal presence since 1919, as a result of which Stuart McBride and Christos Mavrellis became partners, and the late Michel Houry became a consultant. The firm has continued to grow over the years. In 2003, it proceeded with a successful ground-breaking merger with P.L. Cacoyiannis & Co., a move that made the firm’s litigation department the largest and most dynamic practice in the country. As Chrysses Demetriades & Co. enters its seventh decade, it continues to grow and to expand the scope of its services in Cyprus and abroad.

Today’s Firm: Chrysses Demetriades & Co.

Chrysses Demetriades & Co. was founded on the principle of providing its clients with

66 Gold the international investment, finance & professional services magazine of cyprus

President Anastasiades officially inaugurated the new Limassol headquarters of leading law firm Chrysses Demetriades & Co. LLC on 7 October. The impressive new building in Karaiskakis Street houses the head offices of the company whose history stretches back to 1948, the year its founder, the late Chrysses Demetriades, was called to the Bar in England and returned to Cyprus to set up his own practice.

precise, up-to-date, practical and cost-effective legal services, and servicing their evolving requirements. The Firm has grown and developed into the largest law firm in Cyprus, with offices in Limassol (headquarters) and Nicosia and an associate office in Piraeus, Greece. The firm is a full service law firm with over 50 qualified lawyers and a large number of paralegals and professional support staff. Its lawyers have a broad and deep understanding of the firm’s clients’ industry sectors, which is the key to providing an effective full range of advice and integrated solutions based on knowledge and professional experience. This translates into a value-added service that benefits clients. The firm’s strategic relationships with global law firms in Europe, Asia, the United States and other parts of the world enable it to offer global expertise within a Cypriot context and to help clients realize their business goals both domestically and internationally. Chrysses Demetriades & Co. has a large client base, including foreign government agencies, domestic and foreign publicly held and private companies, professional corporations,

investors, banks, insurance companies and other financial institutions, real estate developers, and individuals. It provides competitive full service legal support, aiming always to provide the highest standard of quality, professionalism and responsibility at every level. To ensure that each client receives the best possible specialized legal assistance, the firm is organized into three separate departments: Corporate, Tax & Commercial; Shipping; and Litigation. This division allows the firm’s lawyers to specialize in industry specifics and disciplines and to provide the best possible counseling to each client. Lawyers in each department are constantly keeping themselves appraised of the latest industry developments. The firm recognizes the importance of a good work environment, teamwork and sharing of knowledge in producing the best possible result for its clients. Each lawyer’s work is subject to supervision by a more senior and experienced lawyer in the same department, usually a partner. This ensures that it can deliver value-for-money advice coupled with strong legal-industry expertise. Under the leadership of Christos Mavrellis, the firm has grown to be recognized as a major player on the Cypriot socio-economic scene.

Corporate, Tax & Commercial Dept.

Throughout its history, the firm has played a pivotal role in aiding and assisting Government agencies in developing policies and regulations for the attraction of foreign investment in Cyprus. It is well placed to provide complete advice across all areas of business and commerce and to advise its international client base on all legal, regulatory and tax aspects of investing and establishing operations in Cyprus. The firm is recognized as having one of the most sophisticated teams advising both on corporate finance and financial regulation, a sector that has been in the forefront of the development of the firm in the last few years. Finance teams both in the corporate and shipping department have advised major investment banks in Equity and Capital market transactions, High Yield Bond issues and fleet financing. As a result of this the firm is consistently ranked as a leading/top tier firm in this field by leading rating organisations. The firm has also developed its expertise in advising on financial regulation where it counts some of the world’s top financial institutions as its clients. Recently the firm has become active in advising a wide range of clients in connection with their options arising out of the opportunities connected with the promising energy findings in the Cypriot EEZ, including on

regulatory, environmental and financial matters. The large Corporate, Tax & Commercial department deals with a full range of complex company and corporate matters and provides integrated solutions for some of the largest public companies on the island, as well as many large multinational groups operating in or out of Cyprus. The department also possesses one of the largest units on the island for registering companies both in Cyprus and in other jurisdictions and also delivers advice on trusts and estates. It has a dedicated and specialist EU, Competition and Regulatory unit that has acknowledged experience and expertise in a whole range of EU competition matters, and maintains a Russian-speaking specialist team, which assists its Russian-speaking clients.

Litigation Dept.

The Litigation Department of Chrysses Demetriades & Co is regarded as one of the leading litigation practices in Cyprus and has been ranked in the top tier of litigation firms in Cyprus by the international press.. The litigators of Chrysses Demetriades have recently been involved in major high- profile corporate cases involving international structures and multi-million euro claims .It is ever increasingly geared to high-level corporate and financial litigation, offering sophisticated service to international standards. Additionally, it advises on administrative law as well as insolvency and recovery matters. It is retained by major local and international banking institutions to advise and take action in connection to recovery in relation to nonperforming loan obligations and restructuring as well as labour and employment issues. The insurance practice is regarded as a standard in the market and has and does act for the major domestic and international players.

Shipping Dept.

Chrysses Demetriades & Co has a long and committed presence in the shipping industry, having been active in shipping since 1963 and involved with the drafting and updating of all of Cyprus shipping laws since then. The firm’s clientele comprises many of the world’s largest ship owning and ship management companies which it advises on a wide range of issues. It currently represents ship owners who control approximately 60% of the Cyprus merchant fleet as well as most of the world’s largest banks and other financial institutions involved in the

financing of ships and multi-jurisdiction fleets, advising them on the intricacies of finance transactions where Cyprus law, or a Cyprusflagged vessel is involved. The Shipping Department provides legal services including the negotiating, reviewing, drafting and conclusion of all kinds of shipping-related contracts and transactions. The Ship Finance unit, comprising of dedicated finance lawyers and experienced paralegal staff, has developed over 40 years a unique expertise in all aspects of ship finance, both in Cyprus and abroad. The unit offers comprehensive advice to banks and financing institutions, as well as to ship owners and other parties involved in ship financing transactions.

The New Building

The new building is a state-of-the-art construction that enables its users to work with all the modern technological and ergonomic amenities whilst offering comfortable surroundings in which they can meet their lawyers and conduct their affairs. The area of the building is just under 5,500sq.m. with additional parking space in two basements of 4,000sq.m., allowing for parking capacity of 120 cars. It has been built with the maximum energy efficiency in mind and has a developed IT system which is not found anywhere else on the island. In taking delivery of the building, the firm has shown its commitment to the future and the optimism that, whatever short-term difficulties the Cypriot economy may face, its prospects are good and the hard work and entrepreneurship of its work force will help it regain its rightful position.

the international investment, finance & professional services magazine of cyprus

Gold 67


The Quest for Fair Taxation “The hardest thing in the world to understand is income taxes.” Albert Einstein


he issue of “fair” taxation, the taxation of profits in the countries where large multinational corporations carry out their activities and consequently profits arise, seems to be taking a new twist following the European Union’s decision to conduct an investigation into the tax systems of Ireland, the Netherlands and Luxembourg. According to the EU, these countries appear to have offered written assurances to large multinational corporations that they can pay tax at much lower rates than those that would have been normally due. Indicative is the example of Apple, which managed to lower its tax bill by $9 billion in a single year (2012) and pay corporate tax at the rate of 2% in Ireland instead of the 35% which would have been payable in the US. Google and the coffee chain Starbucks have also received their fair share of negative publicity in recent months as, according to information made public, it appears that the taxes paid by these companies in Britain in recent years are minimal or negligible when compared to the level of their sales which are worth billions of pounds. This is not the result of ingenious or sophisticated tax planning, however. In a very simple – yet legal – way, profits (or at least a large part of them) arising from sales in Britain have been diverted in the form of royalties and interest to the companies’ subsidiaries in Ireland and The Netherlands. This income has subsequently been subject to a much lower effective tax rate than what would have been statutorily required. One can easily understand the reasons for the persistence of the G8 and, more specifically, of the American President and the British Prime Minister in wanting to eliminate unfair tax practices and harmful tax competition in the name of “fair” taxation. Their argument sounds reasonable but a closer look at the bigger picture casts doubt info: Costas Markides is a Board Member of KPMG. 68 Gold the international investment, finance & professional services magazine of cyprus

Google and the coffee chain Starbucks have received their fair share of negative publicity in recent months

By Costas Markides

on how much they are on a bona fide crusade for “fairness” in the field of taxation. Britain for example, has actively adopted a similar tax regime in the last few years and, according to David Gauke, Exchequer Secretary to the Treasury, “a key ambition [of the UK] is to create the most competitive tax system in the G20. As well as lowering tax rates, the government wants to make the UK the best location for corporate headquarters in Europe.” To my mind, this statement duly mutates (if not cancels) the arguments about fair taxation which David Cameron has so often proclaimed. The US Congress, on the other hand, provided the perfect tax planning tool for US multinational companies with operations outside the US and their subsidiaries (which facilitates profit shifting) when, during President Clinton’s administration, it adopted legislation which permits the longterm deferral of such profits from taxation in the US. As a result, the profits of US multinationals arising outside the US can escape taxation (in the US) until and when the time such companies decide to repatriate those funds back to the US. It is estimated that these companies have reserves of up to $1.8 trillion outside the US today. So why does Congress and the current resident of the White House allow this to happen instead of correcting the situation by adopting legislature which can permanently and decisively put an end to it? The answer is simple. The powerful lobbies of the multinational corporations that benefit most from the current situation ensure that this issue is never on the agenda of the Finance Committee of Congress. It won’t be long before the US President realises that it is very difficult, if not impossible, to close tax loopholes and rectify errors which benefit large and powerful multinational corporations. That was the same conclusion reached by one of his predecessors: none other than Benjamin Franklin in 1737.






he recent banking crisis in Cyprus has created a new array of liquidity and accessto-finance issues for Small-Medium Sized Enterprises (SMEs) in Cyprus, on top of the difficulties already faced by many enterprises prior to the events of March, regarding growth stimulation and innovation investment. However, the European Union, which has become the new ‘swear word’ for many and the ‘root of all evil’ for others, has always offered vast opportunities for the funding of innovation and development projects, and as the EU 2007-2013 programming period comes to an end, it promises that new funding programmes, covering 2014-2020, will help boost SMEs’ productivity and improve the marketisation of new products and services. Innovation is a broad concept


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WITH THE INCREASING STRENGTH OF LOCAL UNIVERSITIES IN CYPRUS, ACADEMIA-BUSINESS COLLABORATION SHOULD BE FURTHER PROMOTED, ESPECIALLY AS INSTRUMENTS HAVE BEEN CREATED TO PROVIDE ACCESS TO FINANCE at EU level and one which has been included as a flagship initiative in the Europe 2020 strategy. Innovation, as a principle, refers to the development of new products and processes, new ways of marketing, or an original approach to organisational methods. All the organs of the EU – especially the European Commission – recognise that supporting innovation can play an important role in delivering high quality and cost-effective public services, in creating jobs and in strengthening the European economy. Recent impact assessments have shown that there is a strong relationship between internationalisation and innovation but it appears that SMEs are not aware of the EU’s support programmes. Not understanding the benefits of internationalisation creates serious problems since internationalisation creates opportunities for further cooperation, better synergies, a wider market reach, more job creation and a greater innovation potential. The EU plays a crucial role in the promotion of research and innovation and its new €80 billion Horizon 2020 Framework Programme is an important new source of research and development funding for enterprises, organisations and research facilities across Europe. Horizon 2020 is one of the main European funding schemes and the new European programme for research kicks off in January 2014, offering major funding opportunities for the creation of new products and services and their promotion at a European and international level. The objectives of Horizon 2020 are to

stimulate new growth and jobs in Europe and strengthen the EU’s capacity in science and its leadership in innovation. The Programme also aims to address major issues such as climate change, renewable energy, food safety and the challenges of an ageing population as well as smart, green and integrated transport, sustainable agriculture and innovative and secure societies. Horizon 2020 places great importance on promoting competitiveness and making Europe an attractive location in which to invest in research and innovation. It aims to stimulate the growth of SMEs by facilitating access to risk finance. Horizon 2020 reflects Europe 2020, the key strategy document for the future initiatives and pillars of development for the European Union, bringing all EU research and innovation funding together in a coherent scheme. It will place special emphasis on less-developed economies within the EU in order to promote equilibrium in research-oriented activities among member states. The commitment to innovation throughout Horizon 2020 further supports and entrenches the idea of an ‘Innovation Union’, which is one of seven flagship initiatives of the Europe 2020 strategy for a smart, sustainable and inclusive economy. The Innovation Union plan contains over thirty actions points, with the aim of achieving three key objectives: • To make Europe a world-class performer in science; • To remove obstacles to innovation – such as expensive patenting, market fragmentation, slow standard-setting and skills

shortages – which currently prevent ideas getting quickly to market; and • To revolutionise the way public and private sectors work together, notably through Innovation Partnerships between the European institutions, national and regional authorities and business. Cypriot enterprises and any other type of legal entity may apply for funding to turn their project concept into commercially-exploitable reality. Horizon 2020 will particularly help innovative enterprises develop technological breakthroughs into viable products. It offers a real market-driven approach and includes the formation of partnerships among various types of legal entities such as private organisations, public authorities, academia and researchers, aiming at the creation of project Consortia eligible to receive funding. Furthermore, the new Horizon 2020 Framework Programme proposes the creation of public-private partnerships in the form of Joint Technology Initiatives (JTIs). They represent the joining of forces between the EU and industry and provide vital funding for large-scale, longer-term and high risk/reward research. JTIs bring together companies, universities, research laboratories, innovative SMEs and other groups and organisations around major research and innovation challenges. With the increasing strength of local universities in Cyprus, academiabusiness collaboration should be further promoted, especially as instruments have been created to provide access to finance.

info: Irene Demetriou is Business Development Manager for Andreas Neocleous & Co LLC.


main_story4_fhor.indd 71

Gold 71

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+ BOok reviews BUSINESS: The Manager: Inside the Minds of Football’s Leaders By Mike Carson 77

economy: Europe’s Deadlock: How the Euro Crisis Could be Solved – and Why it Won’t Happen By David Marsh 81


86 Global Competitiveness Cyprus remains fairly competitive among global economies, according to the World Economic Forum

TAX & LEGAL: Deep Sea and Foreign Going: Inside Shipping, the Invisible Industry That Brings You 90% of Everything By Rose George 85

72 Best-Performing Frontier Markets The MSCI Frontier Markets Index is 10.3% higher this year

88 Time for Action CIPA launches campaign to attract foreign investment

LIFESTYLE: One Summer: America 1927 By Bill Bryson 89




78 Going…Up! Executive Compensation in World’s Largest Corporations Increases by 5.5%

89 Introducing Cy-Tera Cyprus is home to the region’s biggest supercomputer



80 Taking control of FATCA With the FATCA withholding tax coming into force as early as 2014, now is the time to act, says PwC Cyprus

90 Latest Tax News Registers for trusts established in Cyprus / Immovable Property Tax Rates for 2013

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92 High Tax Area Tax levels in the EU remain high 93 IRD Tax Clarifications The Inland Revenue Department (IRD) has published a document intended to assist professionals and corporations



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the international investment, finance & professional services of cyprus

Gold 75


BestPerforming Frontier Markets {money}

The MSCI Frontier Markets Index is 10.3% higher this year


rontier markets are a sub-set of emerging markets, which have market capitalizations that are small and/or low annual turnover and/or market restrictions unsuitable for inclusion in the larger EM indexes but nonetheless “demonstrate a relative openness to and accessibility for foreign investors” and are not under “extreme economic and political instability.” They fall roughly into three groups: small countries of relatively high development level (such as Estonia) that are too small to be considered emerging markets; countries with investment restrictions that have begun to loosen as of the mid 2000s (such as the countries of the Gulf Cooperation Council); and countries at a lower development level than the existing “mainstream” emerging markets (such as Kenya or Vietnam). Frontier Markets have lower market capitalization and liquidity than the more developed, “traditional” emerging markets. The frontier equity markets are typically pursued by investors seeking high, long term returns and low correlations with other markets. A recent report from Bank of America Merrill Lynch showed that while $2.1 billion exited emerging market funds between January and mid-August, frontier market

Frontier equity markets are typically pursued by investors seeking high, long term returns funds saw inflows of $1.5 billion in the same period. The shift in sentiment is also reflected in the performance of equity markets since the start of this year. While the MSCI Emerging Markets Index is down 13.8% so far this year, the MSCI Frontier Markets Index is 10.3% higher. Below are the top-performing frontier markets with percentage gain figures for the MSCI index for each individual country year-to-date as of August 28, 2013, as presented by CNBC.

1. Bulgaria:

Returns 55.6%

Emerging Europe has been in luck this year, benefiting from both the focus on frontier markets and the nascent recovery in the eurozone. Bulgaria is the standout gainer from improving

76 Gold the international investment, finance & professional services magazine of cyprus

sentiment but be warned: the index only includes two components – the pharmaceutical firm Sopharma and holding company Chimimport. However, Bulgaria also benefits from a healthy macroeconomic outlook, albeit one accompanied by a fragmented political landscape, following a hung election result in May. “The region has also benefited from a pronounced lending boom (more prevalent in Romania), while the fiscal position in Bulgaria has been relatively benign, given accumulation of a sizable fiscal surplus in the boom years preceding 2007,” Mehta told CNBC.

2. United Arab Emirates: Returns 48.1%

The United Arab Emirates (UAE) is home to the Middle East’s top performing stock index. It also contains two of the biggest companies listed in the MSCI Frontier Markets Index – Emaar Properties and DP World – worth $4.9 billion and $2.6 billion respectively. The UAE is a member of the Gulf Cooperation Council (GCC), along with Bahrain, Saudi Arabia, Oman, Qatar and Kuwait, an area whose equity markets offer an at-

tractive risk-reward profile, according to HSBC. Bank of America forecasts that earnings per share for UAE companies will grow by 12.5% in 2013, and flags up the UAE’s increasing oil production and China’s recovering industrial activity levels as upbeat signs for the country.

3. Ghana: Returns


Ghana has been a darling of Africa investors since “black gold” was found off its coast in 2007. It got a further boost when production started in late-2010. Frontier Strategy Group ranks Ghana as its top frontier/emerging market for stable growth in 2013, and forecasts that its economy will grow by 7.6% during the year, with around three-quarters of GDP derived from private consumption. In June, the International Monetary Fund said Ghana was nearing middle-income status, noting its robust growth, strong democratic institutions, favourable prospects for oil and gas, and significant foreign direct investment. Ghana has benefited from strong interest by international investors to get involved in frontier markets.

4. Kenya: Returns


With gains of almost 30% this year, Kenya’s stock index is one of Africa’s top performers, The discovery of oil off Kenya’s coast last year has also helped the country’s equity market. It plans to start exporting the oil in 2016, which will diversify its export earnings and act as a catalyst for infrastructure spending. According to Bank of America, emerging market funds have increased their positioning in Kenyan stocks in the last 12 months. It forecasts that Kenyan companies will post earnings per share (EPS) growth of 22.1%t this year, way above an emerging market average of 12.3%. However, Kenyan valuations are becoming expensive, and specific stock selection is advised.

5. Argentina:

Returns 23.4%

Argentina is home to Latin America’s best-performing stock index this year. Argentine stocks are benefiting from high domestic liquidity, as increasingly strict capital controls mean that investors have few other options. Meanwhile, hyperinflation (HSBC forecasts that inflation will average 24.9% this year) means that people have little incentive to save. “It is not so much an endorsement of the economic model, but the fact that it is very difficult to take money out of the country,” says Stuart Culverhouse, chief economist at Exotix. HSBC retained its overweight rating on Argentina in July but said this was based solely on a sharp weakening of the peso, rather than macro or fundamental credentials.

6. Pakistan: Returns


Investors seeking a truly alternative frontier market opportunity might consider Pakistan, despite its troubles with Islamic insurgents and strife along its border with Afghanistan. The MSCI Pakistan Index’s performance could be attributed to the elections held in May, which resulted in a peaceful handover of power from the military to a civilian government, and was praised by international lenders. However, the market has been boosted by the Karachi Stock Exchange’s unusual amnesty, enacted in January 2012, which allows investors to purchase shares with no questions asked about the origin of the money. Trading volumes have more than doubled since then, leading to speculation that it is being used for money laundering.

7. Qatar: Returns


Qatar has the second biggest country weighting in the MSCI Frontier Markets Index after Kuwait, but it will soon leave the frontier market club as MSCI has upgraded the country (along with the United Arab Emirates) to emerging market status, effective from May next year. Frontier Strategy Group attributes Qatar’s healthy performance to its strong decoupling from the

G-7 countries and fears of an end to stimulus measures by developed world central banks. Bank of America has a “modest” overweight on Qatar, citing a re-acceleration of domestic money growth and strong oil production in July. In addition, the recent pick-up in industrial production from China could provide a further catalyst for Qatari growth.

8. Romania: Returns 15.7%

Solid growth, low public debt and a crackdown on corruption have all boosted Romania’s appeal, since it joined the European Union in 2007. Moreover, the International Monetary Fund recently updated Romania’s growth outlook to 2.0% in 2013 and 2.2% in 2014. For equity investors, Romania’s appeal also lies in its largescale privatisation plans and the strong performance of large companies on its stock exchange. Romania’s OMV Petrom is a company to watch, as it should benefit from both high oil prices and continuing liberalisation of the domestic gas market. In addition, IPOs are in the pipeline for Romgaz, Romania’s largest gas producer, and Hidrolectrica, the producer of nearly all the country’s hydropower.

9. Trinidad & Tobago:


Better known for sun-andsand holidays, this Caribbean island also houses a top-performing stock index. The index’s rise is partially due to its weak performance in previous years as well as the better economic picture in the country. From a macro perspective, economic conditions have improved somewhat in Trinidad and Tobago (T&T) from the years following the global economic crisis. This has not just resulted in improved financial performance of some listed companies but it has caused investor confidence to increase. The index has also been boosted by this month’s IPO by state-owned bank First Citizens. The country is also experiencing high levels of liquidity, coupled with low interest rates from banks and other financial institutions.

the international investment, finance & professional services magazine of cyprus

Gold 77



Going... Up! T

Executive Compensation in World’s Largest Corporations Increases by 5.5% he global average cash compensation of a top executive in a corporation with more than 100,000 employees is €1.35 million gross per year. This amount is almost equally divided in €660,000 base compensation and €690,000 short-term bonus. Base compensation increased by 5.5% compared to the previous year while total cash compensation, including the bonus, increased by 3.4%. These are the key findings of a global survey conducted by the executive search firm Pedersen & Partners among 1,700 executives in 330 companies in 17 countries. The top executives of this survey were CEOs and Board Members of international corporations with 129,000 employees, a turnover of €40 billion and profits of €3.9 billion on average. These corporations constitute the global elite of large enterprises and their business results in many instances were successful in the last year. They increased their turnover and profits each by 6% on average and created more than 1.5 million new jobs in the last 12 months, increasing their number of employees by 3.5% on average. “Size of responsibility is the key driver for

Conrad Pramboeck

Executive compensation in the Top 100 enterprises is 40 times higher than the average salary of a white collar employee

Table 1. Average top executive remuneration in companies with more than 100,000 employees

Base salary


Total Cash Compensation

Stock Options

United States United Kingdom Germany Other Western European Countries

€558,500 €747,200 €701,100 €650,000

€758,400 €544,100 €740,000 €644,000

€1,316,900 €1,291,300 €1,441,100 €1,294,000

€393,100 €31,200 €95,000 €82,200

Table 2. Average top executive compensation in companies with 20,000 to 50,000 employees.

United States United Kingdom Germany Other Western European Countries Japan China India South Africa

Base salary


€408,500 €515,700 €495,000 €549,800 €555,600 €199,800 €85,400 €254,500

€371,900 €258,100 €319,000 €210,000 €215,600 €58,900 €31,400 €144,900

78 Gold the international investment, finance & professional services magazine of cyprus

Total Cash Compensation

€780,400 €773,800 €814,000 €759,800 €771,200 €258,700 €116,800 €399,400

Salary Increase

4.0% 4.4% 4.0% 4.1% 2.2% 6.8% 9.7% 8.8%

the remuneration of executives,” says Conrad Pramboeck, Head of Compensation Consulting at Pedersen & Partners and project manager of the survey. “Executive compensation in the Top 100 enterprises in Europe and the United States is on average seven times higher than the salary of general managers in small and medium-sized enterprises and 40 times higher than the average salary of a white collar employee.” Total cash compensation for top executives in large corporations is very similar in most Western countries. Their remuneration including the short-term bonus is usually between €1.3 and 1.4 million gross per year. In addition to their cash compensation, USAmerican top executives were granted longterm incentives, mostly stock options, valued at €393,100 on average. In contrast, European top managers only received stock options worth €76,500 on average. Since executive compensation is closely linked to the size of the company, Pedersen & Partners’ survey also compared the salaries of top executives in large companies of the same size – 20,000 to 50,000 employees – in various regions of the world. On a global level, executive compensation is on average still highest in the United States and Western Europe. “Top earners in large enterprises in emerging markets, like China, India, or South Africa receive compensation on the level of Western countries. However, executive compensation is, on average, still below the remuneration of their counterparts in Western Europe and the United States” says Pramboeck. Top executive compensation is currently increasing by 4%-5% on average in Western countries and between 7% and 10% on average in emerging markets. “International comparisons of executive compensation must always be regarded with a certain amount of caution,” explains Conrad Pramboeck. “China, for example, is a huge country with a great variety of compensation levels. Salaries in Shanghai, Hong Kong, or Guangzhou have reached similar levels to Western Europe while many other regions have substantially lower compensation levels.”

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Taking control


ost financial institutions in Cyprus, including banks, investment firms and insurance companies, are affected by the Foreign Account Tax Compliance Act (FATCA). The penalties for non-compliance are significant – they include a 30% withholding tax on any incoming payments relating to US-sourced income. PwC Cyprus recently published a guide to FATCA and advises companies to take steps before it is too late. The key pieces of information in the leaflet Taking Control of FATCA are the following:

What is FATCA?

The Foreign Account Tax Compliance Act (FATCA) is a piece of US tax legislation which was enacted as part of the Hiring Incentives to Restore Employment (“HIRE”) Act in March 2010 to prevent and detect US tax evasion and improve taxpayer compliance. FATCA forms a new chapter of the US Internal Revenue Code – Chapter 4 – and focuses on strengthening information reporting and withholding compliance with respect to US persons who invest through, or in, nonUS entities, such as Cyprus resident financial institutions.

Who is impacted by FATCA?

Two broad categories of entities are impacted by FATCA:

Foreign Financial Institutions (FFI)

An FFI is any financial institution which is a foreign entity and is not created or organized under the laws of a possession of the United States. For this purpose, an FFI is any entity that: (i) accepts deposits in the ordinary course of a banking or similar business; (ii) as a substantial portion of its business, holds financial assets for the account of others; or (iii) is engaged (or holding itself out as being engaged) primarily in the business of investing, rein-

With the FATCA withholding tax coming into force as early as 2014, now is the time to act, says PwC Cyprus.

vesting, or trading in securities, partnership interests, commodities, or any interest in such securities, partnership interests, or commodities. Examples of FFIs include Cyprus-based banks, custodians, brokers, investment funds, pension funds and insurance companies.

What will NFFEs need to do to comply with FATCA?

Any foreign entity that does not meet the definition of an FFI. Examples of Cyprus based NFFEs may include privately-held operating businesses, professional services firms and certain other non-publicly traded entities which are not involved in banking or investment management.

In general, in order to avoid the 30% FATCA withholding tax, an NFFE (other than an excepted NFFE) must provide the withholding agent with either a certification that the NFFE does not have any substantial US owners (generally owners with more than 10% interest), or the name, address and US Taxpayer Identification Number (TIN) of each substantial US owner. Where the NFFE provides information in regard to substantial US owners, the withholding agent must report that information to the IRS.

What will FFIs need to do to comply with FATCA?

What are the consequences of non-compliance?

Non-Financial Foreign Entities (NFFE)

FATCA requires FFIs to employ enhanced due diligence procedures in order to identify, document and report on all US persons to the Internal Revenue Service (IRS). In addition, FFIs must withhold and pay to the IRS, 30% of any payments relating to US-sourced income where the payment is made to either a non-participating FFI or recalcitrant account holders, i.e. those who have not provided sufficient information to determine whether or not they are US persons or substantially owned by US persons. Such “withholdable payments” include any sources of US income that is a fixed and determinable annual or periodical payment (FDAP), e.g. wages, dividends, interest, rents, royalties, or the gross proceeds from the sale of US property that is capable of producing US source interest or dividends. The 30% withholding tax also applies to any withholdable payment paid to any NFFE unless the NFFE identifies each substantial US person that owns a direct or indirect interest (generally owners with more than 10% interest), or certifies that it has no such substantial US owners.

80 Gold the international investment, finance & professional services magazine of cyprus

Most financial institutions in Cyprus, including banks, Cyprus investment firms and insurance companies, are affected by FATCA and could face significant economic and reputational consequences if they fail to enter into an agreement with the IRS and meet the FATCA requirements. The penalties to be imposed include a 30% withholding tax on any incoming payments relating to US-sourced income. In addition, failure to comply with FATCA may involve reputational issues which could disrupt business relationships with other financial institutions which are FATCA compliant (e.g. counterparties) and lead to loss of business. PwC Cyprus has a dedicated team of FATCA experts who, in cooperation with the PwC global network of FATCA specialists, can provide tailored advice and support on the technical and operational consequences of FATCA. Contacts for FATCA matters at PwC Cyprus are George Lambrou (Partner - Risk Assurance Consulting), Elina Christofides (Senior Manager - Risk Assurance Consulting) and Yiannis Zarvos (Manager - Risk Assurance Consulting).

The 12th

ΙΜΗ and PwC Cyprus present one of the most influential people in HR Strategy


Dr Constantinos Markides




“Among the 50 top thinkers worldwide” -

“One of the 50 most influential management gurus” - Harvard Business Review

“Author of 7 top management books” - Financial Times


Short Biography


• He is a professor of Strategic and International Management and holds the Robert P. Bauman Chair of Strategic Leadership at the London Business School • He has participated as a speaker in the World Economic Forum (Davos) and in many other international conferences • He is a consultant for top multinational companies such as Unilever, Nestle, Boeing, Credit Suisse, Roche • His articles appear in journals such as the Harvard Business Review, Business Strategy Review and the Journal of International Business Studies • He is the Associate Editor of the European Management Journal and is on the Editorial Board of many well known management journals

The conference is addressed to: General managers and managers/directors in various sectors of economic activity, human resource managers, officers and professionals including training and development professionals, relations professionals, HRM consultants, etc.

Wednesday 13 November 2013 | Hilton Park Hotel | Nicosia For further information contact: IMH, 5 Aigaleo Str., 2057 Strovolos, P.O.Box 21185, 1503, Nicosia, Cyprus Tel.+357 22505555, Fax. + 357 22679820, e-mail:, website: Corporate Clothing Sponsor

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Luxury in the Sky Emirates Business Class makes the journey to an overseas meeting a special experience.


mirates Business Class has earned itself a particularly good reputation among entrepreneurs whose work requires them to take frequent trips abroad. Jaber Mohamed, Emirates Manager for Cyprus told Gold why the airline is so popular with business travellers. Gold: What are the features that make it unique? Jaber Mohamed: Emirates Business Class is all about luxury in the sky. There are

various features that help travellers to unwind through their journey, including flatbed seats, delicious and healthy meals, and great in-flight entertainment. On selected routes from Dubai onwards, premium passengers on the exclusive Emirates A380

Travelling Business Class offers passengers the chance to escape from the daily grind on the ground

82 Gold the international investment, finance & professional services magazine of cyprus

can enjoy the onboard lounge area where Business and First Class travellers can network and talk business over a drink at 40,000 feet. All Emirates’ A380s are fitted with Wi-Fi, allowing full connectivity with the ground.   Gold: And Emirates makes a point of stating that service starts before passengers are in the air. J.M.: That’s right. In Cyprus it begins on the ground with chauffeur-driven transfers from with a 60 kilometre radius of Larnaka International Airport, dedicated check-in areas, a generous 40kg baggage allowance, and exclusive access to the Emirates Lounges at major airports, including Emir-

ates Terminal 3 in Dubai. Travellers in Business Class can use the Emirates Lounge as an extension of their office Jaber with full Mohamed, Emirates business cenManager for Cyprus. tre facilities. Or they can use it as a place of relaxation with tempting gourmet cuisine, a fully stocked bar, and shower facilities to freshen up before the journey ahead. Gold: Emirates lounges have also earned an excellent reputation. J.M.: Yes. Last January (2013), Emirates opened Concourse A, the dedicated home of its A380 fleet and the world’s first purpose-built facility for the aircraft at Dubai International. The concourse, part of Terminal 3, comprises 20 A380-capable contact gates, as well as Emirates’ flagship First Class and Business Class lounges, the largest in the world. Unlike any other airport facility in the world, First Class and Business Class lounges have dedicated floors that offer direct and convenient access to aircraft boarding gates. The lounges, which extend the entire length of the concourse, are the largest in the world and offer customers’ fine dining with showcase kitchens, conference rooms, business centres, a Timeless Spa, entertainment zones, and dedicated smoking areas.   Gold: What’s your answer to a frequently-asked question these days: Why is it worth paying that bit extra to travel business class? J.M.: Travelling Business Class offers passengers the chance to escape from the daily grind on the ground. We all know that people lead busy lives, juggling careers, commitments and families. Demands on their time are ever-increasing and the runup to a trip can prove particularly stressful. We want our clients to arrive at their destination feeling refreshed to enjoy the rest of the day and ready to attend their business meetings. In other words, our customers

Our customers are better placed to be productive at their destinations, meaning more cost-effective business trips, an important factor in these challenging economic times are better placed to be productive at their destinations, meaning more cost-effective business trips, an important factor in these challenging economic times.   Gold: Do you offer loyalty schemes to frequent business travellers? J.M.: Yes and it already boasts impressive membership numbers. Our Skywards frequent flyer programme offers more than the average loyalty programme. One of the most exciting aspects of being a Skywards member is the ability to earn and spend Skywards Miles both with Emirates and our global partners. Members earn Skywards Miles through flights with Emirates, our partner airlines and through our nonflight partners.   Gold: How can businesses benefit from the new Business Rewards scheme? J.M.: The worldwide Business Rewards scheme is a travel benefits programme tailored to meet the needs of SMEs and similar-sized organisations. Each time registered company members book their Emirates flight through Business Rewards, the business or organisation earns Business Rewards Miles, while individual travellers continue to earn their Miles from the Skywards programme. The business/organisation can then redeem accumulated Business Rewards Miles against future flights on Emirates. In Cyprus, Business Rewards is doing very well. Some 95 organisations already have 520 company members benefiting from this scheme. Gold: Have you opened any new routes recently that are of particular interest to the Cypriot business community? J.M.: From its hub in Dubai, Emirates flies to more than 130 destinations across six

continents, including Cyprus. Each of our four weekly flights continues onwards to Malta and returns to Larnaca on the same afternoon. The route has opened up several opportunities for the business Cypriot community connecting Cyprus with Dubai and many eastbound destinations. Another plus point concerns the very convenient connection times to long-haul destinations such as Australia, China, India and now even Brazil and Argentina.

BOOK REVIEW The Manager: Inside the Minds of Football’s Leaders By Mike Carson

Bloomsbury Publishing, 2013)


RRP: £16.99 (£11.55 from nsightful and powerful, the author’s personal interviews with the best football managers of our time provide valuable insights into the leadership qualities that make them successful. Carson links the leadership qualities that succeed in managing football to those that succeed business. The issues are the same, he says, whether you’re managing a Premier League football team or a FTSE 100 company. Thirty of the biggest names in football management explain their methods, give examples of lessons they’ve learned along the way, and describe the decisions they make and the leadership they provide. Among the managers talking are Arsène Wenger, José Mourinho, Sir Alex Ferguson, Andre Villas-Boas, David Moyes, Roy Hodgson and Harry Redknapp. Offering valuable lessons for business leaders and fascinating behindthe-scenes insights for football fans, this is an unprecedented look at the world of top-level football management. If you are a football fan, you will love this book. If you are a business manager, you will gain much from the study of what drove these managers to the top.

the international investment, finance & professional services magazine of cyprus

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wC Cyprus in collaboration with the PwC chair in Business Research at the University of Nicosia recently carried out a survey entitled “ Cypriot Tourism: Opening the treasure box”. The survey aimed at identifying and recording the views and attitudes of the two main parties that shape the industry: tourists and local services providers. According to the findings of the survey, sun and sea are still the key and most important criteria for choosing Cyprus as a tourist destination. 95.6% of tourists visiting Cyprus stated that sun and sea is the main factor behind their choice for a holiday. Regarding specialist tourism, cultural tourism continues to be ranked as the most important type. However, only one in two respondents, from 58.6% who had cited cultural tourism as an important criterion for choosing Cyprus, had actually had any experience of cultural tourism. The survey also confirmed that, as anticipated, the increase in tourist arrivals from Russia and other Russian-speaking countries has, due to shared religious beliefs, increased demand for religious tourism. It is also worth mentioning that health & wellness tourism is more popular than other types of tourism such as sports, conference and agrotourism. Concerning the topical issue of casinos,

the survey reveals important information about trends and perceptions which are often different from those portrayed by local providers in the tourism industry. At a first glance, the survey confirms that tourists currently targeted by Cyprus do not represent a target group for casinos. However, a closer look at the findings shows that even from the existing tourist market, a significant percentage (30%) is interested in such initiatives. This means that, of the current 2.5 million tourists who visit the island each year, 750,000 could be considered as a possible target group for casinos. As regards the promotion of the island’s tourism services, the survey identifies considerable room for improvement. The main issue concerns the use of the Internet, one of the most efficient means for the promotion and brand building of tourist destinations. Despite the fact that almost one in three respondents said that the Internet affects their tourism destination choice, the websites and social media accounts of the tourism authorities in Cyprus do not seem to enjoy the desired traffic. Some 85% of respondents said that they had not visited the official website of the Cyprus Tourism Organisation, while 66.8% had not visited any other official website. According to Angelos Loizou, Partner in charge of Hospitality & Leisure Services at PwC Cyprus, “During 2013 and possibly 2014 the tourism sector, like other




sectors of the economy, is expected to be adversely affected by the recent developments in Cyprus as well as by the downturn in the European economy. Nevertheless, the tourism industry represents one of the most important industries of our country and that is why we must continue to invest in the sustainable enrichment of our tourism product in order to differentiate ourselves from neighbouring destinations. To achieve this, we need to focus on the promotion of Cyprus as a tourist destination, the improvement of the existing infrastructure and the quality of services on offer, as well as on the utilisation of the Internet and social media”. The survey is available on cyprus-tourism-study.


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08/10/2013 18:10


The Quest for Fair Taxation “The hardest thing in the world to understand is income taxes.” Albert Einstein


he issue of “fair” taxation, the taxation of profits in the countries where large multinational corporations carry out their activities and consequently profits arise, seems to be taking a new twist following the European Union’s decision to conduct an investigation into the tax systems of Ireland, the Netherlands and Luxembourg. According to the EU, these countries appear to have offered written assurances to large multinational corporations that they can pay tax at much lower rates than those that would have been normally due. Indicative is the example of Apple, which managed to lower its tax bill by $9 billion in a single year (2012) and pay corporate tax at the rate of 2% in Ireland instead of the 35% which would have been payable in the US. Google and the coffee chain Starbucks have also received their fair share of negative publicity in recent months as, according to information made public, it appears that the taxes paid by these companies in Britain in recent years are minimal or negligible when compared to the level of their sales which are worth billions of pounds. This is not the result of ingenious or sophisticated tax planning, however. In a very simple – yet legal – way, profits (or at least a large part of them) arising from sales in Britain have been diverted in the form of royalties and interest to the companies’ subsidiaries in Ireland and The Netherlands. This income has subsequently been subject to a much lower effective tax rate than what would have been statutorily required. One can easily understand the reasons for the persistence of the G8 and, more specifically, of the American President and the British Prime Minister in wanting to eliminate unfair tax practices and harmful tax competition in the name of “fair” taxation. Their argument sounds reasonable but a closer look at the bigger picture casts doubt

Google and the coffee chain Starbucks have received their fair share of negative publicity in recent months

By Costas Markides

on how much they are on a bona fide crusade for “fairness” in the field of taxation. Britain for example, has actively adopted a similar tax regime in the last few years and, according to David Gauke, Exchequer Secretary to the Treasury, “a key ambition [of the UK] is to create the most competitive tax system in the G20. As well as lowering tax rates, the government wants to make the UK the best location for corporate headquarters in Europe.” To my mind, this statement duly mutates (if not cancels) the arguments about fair taxation which David Cameron has so often proclaimed. The US Congress, on the other hand, provided the perfect tax planning tool for US multinational companies with operations outside the US and their subsidiaries (which facilitates profit shifting) when, during President Clinton’s administration, it adopted legislation which permits the longterm deferral of such profits from taxation in the US. As a result, the profits of US multinationals arising outside the US can escape taxation (in the US) until and when the time such companies decide to repatriate those funds back to the US. It is estimated that these companies have reserves of up to $1.8 trillion outside the US today. So why does Congress and the current resident of the White House allow this to happen instead of correcting the situation by adopting legislature which can permanently and decisively put an end to it? The answer is simple. The powerful lobbies of the multinational corporations that benefit most from the current situation ensure that this issue is never on the agenda of the Finance Committee of Congress. It won’t be long before the US President realises that it is very difficult, if not impossible, to close tax loopholes and rectify errors which benefit large and powerful multinational corporations. That was the same conclusion reached by one of his predecessors: none other than Benjamin Franklin in 1737.

info: Costas Markides is a Board Member of KPMG.

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Institutions and Innovation Increasingly

Important for Competitiveness Cyprus remains fairly competitive among global economies, according to the World Economic Forum By Kyproula Papachristodoulou

yprus has maintained its competitiveness ranking among global economies despite the major economic and financial problems it has faced over the past few months, according to the latest rankings published annually by the World Economic Forum. In its most recent survey, released at the beginning of this month, the Forum ranks Switzerland first in the world in terms of competitiveness. As in previous years, this year’s Top 10 is dominated by European countries, with Switzerland, Finland, Germany, and the United Kingdom confirming their places among the most competitive economies. Three Asian countries also figure in the Top 10, with Singapore remaining the second-most competitive economy in the world, and Hong Kong SAR and Japan placed 7th and 9th. The vast majority of the ten most competitive countries share strengths in innovation and a strong institutional framework. The Forum, which hosts the annual gathering of global business and political leaders in the Swiss ski resort of Davos every winter, ranks a country’s competitiveness according to factors such as the quality of its infrastructure and its ability to foster innovation. The 2014 report assesses the competitiveness landscape of 148 economies, providing insight into the drivers of their productivity and prosperity. The Report series remains the most comprehensive assessment of national competitiveness worldwide. The World Economic Forum is an independent international organisation committed to improving the state of the world by engaging business, political, academic and other

leaders of society to shape global, regional and industry agendas. Cyprus scored 4.3 points (out of a maximum 7) and was ranked 58th among the 148 economies evaluated. Even though the island scored the same number of points and gained the same position last year, the latest report points to a number of negative developments, the most important being the worsening of

What is a competitive economy? ‘Competitiveness’ refers to the set of institutions, policies, and factors that determine the level of productivity of a country. The level of productivity, in turn, sets the level of prosperity that can be earned by an economy. Institutions, Infrastructure, the macroeconomic environment, health and primary education, higher education and training, goods market efficiency, innovation, business sophistication, market size, technological readiness, financial market development, labour market efficiency are all factors that determine the level of competitiveness.

the ranking related to the macroeconomic environment. The country scored 3.7 points in the latest report, to be placed 126th while in last year’s report it scored 3.9 to take 117th position. Furthermore, Cyprus received a poor assessment on all macroeconomic environment factors: government budget balance (125th position), gross national savings (134th), general government debt (134th) and country credit rating (74th). Interestingly, the country did well in the first evaluation pillar (institutions) with two exceptions: it suffers in the areas of efficacy of corporate boards (110th position) and wastefulness of government spending (71st).

86 Gold the international investment, finance & professional services magazine of cyprus


achieves an enviable 8th position in health and primary education A major setback appears in the financial market development factor where Cyprus scored 4.1 points (64th) in relation to last year’s 4.6 points and 38th place. Overall, Cyprus receives a very favourable assessment for its institutions, infrastructure, health and primary education, goods market efficiency and labour market efficiency pillars. The island ranks 42nd in institutions and 44th in infrastructure and achieves an enviable 8th position in health and primary education. In the areas of business sophistication and innovation the island is

Sub-Saharan Africa ub-Saharan Africa continues its impressive growth


rate of close to 5% in 2012 (with similar projections for the next two years), providing something of a silver lining το an otherwise uncertain global economy. Indeed, only emerging Asia registers higher growth. Growth has largely taken place on the back of strong investment, favourable commodity prices, and a prudent macroeconomic stance. There are, however, some regional variations and, in terms of underlying competitiveness, Sub-Saharan Africa continues to reflect significant regional variations in the Global Competitiveness Index, ranging from Mauritius (overtaking South Africa and coming 45th this year) to the lowest ranked Chad (148th). Economies with closer ties to advanced economies, such as South Africa, have not yet returned to pre-crisis growth rates. More generally, Ssub-Saharan Africa as a whole trails the rest of the world in competitiveness, requiring efforts across many areas to place the region on a firmly sustainable growth and development path.

ranked 44th and 56th respectively. Greece, on the other hand, despite the numerous challenges ahead and after falling over the past several years, has improved its ranking to 91st place. Although it remains the lowestranked EU country and its results in the macroeconomic environment pillar continue to raise concern (second to last in 147th position this year), Greece has started to show improvements in a number of other areas, perhaps indicating that its reform efforts are beginning to bear fruit. Slight improvements are seen in the country’s institutional environment, the efficiency of its labour markets, and technological adoption. Although some progress is being made, public institutions (e.g., government efficiency, corruption, undue influence) continue to receive a poor evaluation (102nd) and confidence has not returned to financial markets in the country (138th). As the Forum comments, the country’s inefficient labour market (127th) continues to constrain Greece’s ability to emerge from the crisis, although this has improved somewhat

since last year, perhaps reflecting recent efforts to increase both the retirement age and labour market flexibility: “In working to overcome its present difficulties, Greece has a number of strengths on which it can build, including a reasonably well educated workforce that is adept at adopting new technologies for productivity enhancements. With continued efforts toward growth-enhancing reforms, there is every reason to believe that Greece will continue to improve its competitiveness in the coming years,” the report notes. The Russian Federation, one of Cyprus’ major financial partners, ranks 64th, an improvement of three places on last year. The country’s macroeconomic environment has continued to improve – up from 44th two years ago to 19th this year because of low government debt and a government budget that has maintained a surplus. Other strengths include its high level of education enrolment (especially tertiary level), its fairly good infrastructure and its large domestic market (8th), all of which represent areas that can be leveraged to improve Russia’s competitiveness.

itzerland Why is cSewss ful? so suc


his year marks Switzerland’s fifth year at the top of the Global Competitiveness Index (GCI) rankings. The Global Competitiveness Report has long singled out Switzerland for its extraordinary competitiveness levels. What is the formula that makes this small European country so successful? Amid the travails of the euro area in recent years, Switzerland has displayed an impressive growth performance. Its macroeconomic environment is among the most stable in the world at a time when many neighbouring economies continue to struggle in this area. According to the latest competitiveness report, the successful implementation of the “debt brake” a decade ago – overwhelmingly supported by a large part of the population – has been one of many steps taken toward a stable macroeconomic environment. Despite Switzerland’s decision to remain outside the EU, its economy is highly integrated with other European markets, notably through bilateral agreements that are in place. Three of the most important drivers of Swiss competitiveness are its excellent institutions, the dynamism of its markets, and its capacity for innovation.

On the other hand, the country continues to receive a poor assessment of its public institutions (118th) and shows a lack of innovation capacity (78th). Russia also suffers from inefficiencies in the goods (126th), labour (72nd) and financial (121st) markets.

global competiveness index 2013-2014 rankings

country / Economy

Switzerland Singapore Finland


United States Sweden

Hong Kong SAR Netherlands Japan

United Kingdom Norway

Taiwan, China Qatar


Denmark Austria


New Zealand

U.N.A Emirates Saudi Arabia

2013-2014 Rank

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20


5.67 5.61 5.54 5.51 5.48 5.48 5.47 5.42 5.40 5.37 5.33 5.29 5.24 5.20 5.18 5.15 5.13 5.11 5.11 5.10

2012-2013 Rank

1 2 3 6 7 4 9 5 10 8 15 13 11 14 12 16 17 23 24 18

country / Economy Australia

Luxembourg Ireland Spain

Azerbaijan Malta

Poland Turkey

Mauritius Italy

Portugal Latvia

Bulgaria Cyprus


Russian Federation Greece Libya

Egypt Chad

2013-2014 Rank

21 22 28 35 39 41 42 44 45 49 51 52 57 58 62 64 91 108 118 148


5.09 5.09 4.92 4.57 4.51 4.50 4.46 4.45 4.45 4.41 4.40 4.40 4.31 4.30 4.25 4.25 3.93 3.73 3.63 2.85

2012-2013 Rank

20 22 27 36 46 47 41 43 54 42 49 55 62 58 56 67 96 113 107 139

the international investment, finance & professional services magazine of cyprus

Gold 87


Time for Action {economy}

Andrey Dashin

CIPA launches campaign to attract foreign investment

A collective effort is needed to reverse Cyprus’ image abroad; this is imperative

ast month the Cyprus Investment Promotion Agency (CIPA) held a press conference to present its new Action Plan to restore Cyprus’ reputation as a reliable investment destination and attract new foreign investment. The plan, which contains a number of initiatives that are already being implemented, includes specific measures aimed at making Cyprus an even more attractive destination for foreign investment which, CIPA officials stressed, is needed to restart the economy. The first step in this latest effort focuses on improving the overall image of the country abroad and restoring foreign investors’ trust. CIPA Board member Nicolas Theocharides said that “Cyprus continues to enjoy specific comparative advantages, which it needs to showcase and develop further, so that it can continue to be an attractive

investment destination and develop into an even higher quality Business Centre”. He added that, “Following recent developments, a collective effort is needed to reverse Cyprus’ image abroad; this is imperative.” Theocharides noted that CIPA has taken on the role of central coordinator of cooperation between the private sector and the Government. In a comprehensive and detailed presentation, CIPA Director-General Charis Papacharalambous analysed the actions to be taken on a local and international level during September-December 2013. Highlights:

CIPA will:

• Organise targeted events in key markets such as Russia, Ukraine, China, Scandinavia, Germany, the UK, Belgium, France, India, Israel, the Gulf States, etc. The events’ main goal is to update the media and potential investors on developments in strategic priority sectors, such as energy, tourism, shipping, major development projects, the audio-visual industry, research and innovation, and professional services. • Intensify promotional efforts in priority markets, via advertising and communication through TV, print and online media.

88 Gold the international investment, finance & professional services magazine of cyprus

Charis Papacharalambous

• Participate in international conferences and fairs, including the Annual Investment Meeting in Dubai, the COI Fair and the World Forum for Foreign Direct Investment in China, the Business & Economic Cooperation Forum in Ukraine and the EFAMA Investment Management Forum in Brussels. • Host representatives of international media such as The Economist, TIME, the Financial Times, FDI Magazine, Bloomberg, CNN, Vedomosti, RBK and others). During the press conference, the Agency also presented its new brand strategy, based on the slogan “Invest in Cyprus; Invest in Us”. The rebranding project, which focuses on Cyprus as an investment destination and not on CIPA itself, includes a new logo, new messages and promotional material, which presents facts and positive developments, underlines the island’s history and Cyprus’ timeless significance as a commercial centre since ancient times, and stresses the human factor, which, CIPA believes, may be the island’s most powerful competitive advantage.


Introducing Cy-Tera


Cyprus is home to the region’s biggest supercomputer


ast year the Cyprus Institute established the first national supercomputing centre in Cyprus by installing and running the most powerful computer open to academia in the Eastern Mediterranean region. Cy-Tera, which has been available to Cypriot researchers since May 2012, is a hybrid machine introducing novel computational elements previously unknown to Cyprus. Its computational power is 30 Tflops, which means it can perform 30 trillion multiplications per second. Given the Government’s stated aim of making the island a regional educational and research hub, the establishment of a supercomputing centre is perfectly aligned with these plans. The Cyprus Institute believes that Cy-Tera will enable the country to establish itself as an educational leader in computational science and a research bridge between the Eastern Mediterranean and the EU.

For more than a year, the computational power of Cy-Tera has been used as a research tool by more than 100 scientists working in a variety of specialist research areas, including climate science, energy, medicine, fundamental physics and nanomaterials. For example, climate research scientists from The Cyprus Institute used advanced analysis tools to simulate global dust formation and travel, with a special focus on the Easter Mediterranean region. Furthermore, regional climate change simulations confirmed and refined past predictions that identify the Eastern Mediterranean as a climate change hot spot. Thanks to CyTera, scientists will be in a position to make more accurate predictions of dust events in Cyprus. In another instance, research scientists from the University of Cyprus used Cy-Tera to carry out Molecular Dynamics simulations for drug design purposes. The studies of certain proteins, which defend against conditions such as asthma, stroke and heart attack, will contribute to the future design of more effective pharmaceuticals. To put Cy-Tera’s computing power into perspective, it would have taken a standard laptop 456 years to carry out the same amount of computation as Cy-Tera has completed during its first year of operation. Furthermore, the scientific simulations that were performed on Cy-Tera produced data in the order of 70TB (Terabytes) – equivalent to the content of 17 million copies of the bible. The Cyprus Institute shares expertise and enjoys a close collaboration with some of the world leading computational centres such as NCSA located at the University of Illinois, USA and the Juelich Supercomputing Centre in Germany. These partners were instrumental in establishing such an advanced and sustain-

It would have taken a standard laptop 456 years to carry out the same amount of computation as Cy-Tera has completed during its first year

able computational infrastructure in Cyprus. Cy-Tera was funded by the European Regional Development Fund and the Republic of Cyprus through the Research Promotion Foundation. The Cyprus Institute also secured additional funding from the EU for user support and training activities.

BOOK REVIEW Europe’s Deadlock: How the Euro Crisis Could be Solved – and Why it Won’t Happen By David Marsh (Yale University Press, 2013)


RRP: £7.99 (£7.83 from n this short, sceptical examination of the euro crisis, right up to the Cyprus bailout, Marsh argues that the single currency cannot work without fiscal and political union and that five years of continuous crisis management have not only failed to resolve the eurozone’s problems but have actually made things worse. As austerity-wracked southern states descend into misery and resentment, creditor countries, led by Germany, fear that they will be forced to subsidize the weaker partners indefinitely. With voters in Greece and Italy rebelling against externally imposed hardship, and the sums needed to bail out failed economies reaching ever more staggering proportions, the contradictions at the heart of the European project are becoming more and more obvious. Marsh warns that the current succession of complex technical fixes cannot sustain the eurozone on life support indefinitely but he recognises that without leaders who are strong enough to take drastic decisions (i.e. move towards greater political union), Europe – and the eurozone in particular – risks a depressing future of permanent decline.

the international investment, finance & professional services magazine of cyprus

Gold 89



Band Rate


First €40,000 Next €80,000 Next €50,000 Next €130,000 Next €200,000 Next €300,000 Next €2,200,000 Above €3,000,000

0.6 0.8 0.9 1.1 1.3 1.5 1.7 1.9

(Information courtesy of Andreas Neocleous & Co. LLC) 90 Gold the international investment, finance & professional services magazine of cyprus

KPMG Academy Seminars


he KPMG Academy has scheduled a number of English-language seminars for November. Some of them follow CySEC’s decision to enforce a directive requiring all certified persons on the public register to attend professional training courses each year. All the seminars may contribute to continuing professional development requirements (CPD Units) and some are subsidized by the Human Resource Development Authority. Suitable subsidies will therefore be available to all HRDA qualifying participants.

New Developments in the Banking Sector 05/11/2013

Developments in the banking Sector are numerous and on many fronts. A few of them are the revised Capital Requirements Directive, Internal Governance, State Aid Measures and Restructuring Plans, Recovery and Resolution Plans, Banking Union in the eurozone and the MoU for Cyprus. Net Investment after the HRDA’s subsidy for all eligible participants: €214.60 (incl. VAT)


Correct completion of VAT returns, VIES and INTRASTAT declaration forms 12/11/2013 Training on how to correctly complete VAT returns, including what information should be declared and the boxes in which each amount should be entered, when and how to correctly complete VIES statements and what information should be declared on INTRASTAT arrivals/dispatches forms. Language: Greek with English slides and handouts Net Investment after the HRDA’s subsidy for all eligible participants: €263 (incl. VAT)

CRR/CRD IV: Changes in the Basel II, Pillar 1 Framework 18/11/2013

An overview of the CRR/CRD IV changes, explaining in detail how the Pillar 1, capital adequacy calculations of CIFs, banks and cooperative institutions should be amended to comply with the new regulatory framework. Net Investment: €283.20 EUR (incl. VAT)

Tax and VAT Regulatory Amendments and Implications for Cyprus Investment Firms 25/11/2013

Introducing Cyprus Investment Firms to important Tax and VAT issues affecting their business. Various concepts will be discussed and illustrated through examples, raising awareness and understanding of how Tax and VAT impact Investment Firms in Cyprus. Net Investment: €295 (incl. VAT)

For more information regarding the seminars and discounts, contact the coordinator of the KPMG Academy, Persa Papademetriou on 22209053 or via e-mail:

the international investment, finance & professional services magazine of cyprus

Gold 91




Tax Area

Tax levels in the EU remain high


n 2011, the overall tax ratio (i.e. the sum of taxes and social contributions in the 27 Member States of the European Union) was the equivalent of 38.8% of the union’s total GDP, more than 40% above the levels recorded in the United States and Japan. The tax level in the EU is high not only compared to those two countries but also compared to other advanced economies; among the major non-European OECD members, only Canada and New Zealand have tax ratios that exceed 30 % of GDP. As for less developed countries, they are typically characterised by relatively low tax ratios. Based on the latest figures issued by Eurostat in its report Taxation Trends in the European Union, from a peak in 1999, the overall taxto-GDP ratio started decreasing from 2000. This trend continued until 2004, when then increased until 2007 in the euro area and 2006 in the EU-27. The crisis led to a decline in the ratio which dropped sharply from 39.3% in 2008 to 38.4% in 2009 where it remained in 2010 (38.3%). In 2011, the tax-to-GDP ratio rose by 0.5% to 38.8%. Absolute tax revenues also increased in 2010 and rose once again in 2011, reaching pre-crisis levels. In 2011, tax revenues in terms of GDP increased substantially, which was due to absolute tax revenues increasing along the same path as in the previous year, but nominal GDP growing less than tax revenues. This reflects pro-active tax measures taken by Member States in recent years to correct their deficits. Eurozone tax revenue as a percentage of GDP remains at a slightly higher level than EU tax revenue (38.8 % of GDP in the EU27 and 39.5 % of GDP in the eurozone). This recovery in tax revenues can at least partly be attributed to active revenue raising measures in some Member States such as increases in the VAT rate and the introduction of new taxes, such as additional taxes on financial institutions (bank levies, surtaxes, payroll taxes), air passenger duties and property taxes. As for future trends, Eurostat points out that quarterly national accounts data for general Georges Bock, KPMG Luxembourg government shows that tax revenues, both in absolute terms and as a ratio to GDP, are set to increase again in 2012. The increase is ex-

pected to be particularly strong for direct taxes. Income Tax revenues (19.4%) than in all othIn absolute terms, all the main tax categories er EU-27 countries. On the contrary, Personal followed a rising trend in 2012. Income Taxes do not contribute much more than half of EU-27 average to the total tax revenues (11.9% compared with 23.5% for Cyprus the EU-27). Social contributions account for The tax structure of Cyprus’ tax system, as Eurostat comments in its report, stands out in 24.8% of receipts, more than eight percentage several respects. In 2011, the overall tax burden points below the EU-27 average of 33.5%. Last December, the House of Representatives (including social contributions) decreased by voted a number of new and amending bills 0.4% to 35.2% of GDP, which more than included in the 2013 Budget Law in order to offsets last year’s increase of 0.3%. These developments keep Cyprus’ tax burden below the pursue the fiscal consolidation effort. It inEU average of 38.8%. Cyprus displays the sixth cluded an important set of revenue-generating tax measures aiming mainly at increasing conhighest share of indirect taxes in the EU-27. It derives 41.9% of tax revenues from indirect sumption taxes, improving the corporate tax taxes (EU-27 34.5%), of which VAT accounts design as well as stabilizing the financial sector. In particular, it foresaw (a) a 1% increase for almost 60%. This is due to the high share of consumption in the economy, as VAT rates in the main VAT rate to 18% in 2013, (b) an increase to 9% from 8 % in the reduced are among the lowest in the EU. Direct taxes VAT rate in 2014, (c) a limitation of the carry account for a proportion of revenue (33.3%) slightly above the EU average (33.2%). How- forward trading losses up to five years, (d) the ever, they are more heavily based on Corporate abolition of all exceptions currently in place for paying the annual company levy of €350 and (e) an increase from 0.095 % to 0.11% of Cyprus displays the sixth the bank levy on deposits raised by banks and credit institutions in Cyprus. Following the highest share of indirect March 2013 decisions of the Eurogroup on taxes in the EU Cyprus, the country raised the corporate tax rate from 10% to 12.5%.

Overall tax-to-GDP ratio (incl. SSC) in the EU, US and Japan in 2011 40%




30% 25.2% 20%







Source: Commission Services and Eurostat (ESA95) (gov_a_tax_ag) for the EU, OECD (SNA2008) for the US and Japan

92 Gold the international investment, finance & professional services magazine of cyprus

IRD taxation


Tax Clarifications


he Inland Revenue Department (IRD) has published a document intended to assist professionals and corporations in taking the necessary action so as to avoid the imposition of fines. The clarifications addressed by the IRD include the following:

1. Income from financing activities and loans between related companies: Loans between related companies are considered to be part of the normal operating activities of a company which are taxed under Corporation Income Tax (CIT) and not Special Defence Contribution (SDC). The pre-accepted profit margins by the IRD are only for transactions between related companies which are free from credit and currency risk. Alternatively, the IRD has the right to calculate deemed income which is subject to CIT. 2. Balances between related companies/ related parties: Balances between related companies, excluding loans to parent companies, must carry interest based on market rates. If no interest is charged or the interest rate used is lower than the market rate, the IRD is entitled to adjust the interest rate and charge a notional income which is subject to CIT (not subject to SDC). The above provisions came into effect from January 1 2011 and until December 31 2010, a 9% notional interest p.a. was charged on related companies’ balances, which was subject to SDC. Until December 31 2011, the IRD would charge 9% notional interest on loans given by a company to its shareholder or director (only if a physical person). Since January 1

2012, the notional interest is considered a benefit to the director/shareholder and not to the company. The 9% notional interest must therefore be taken into account when calculating the Pay As You Earn (P.A.Y.E) for directors/shareholders and must be taxed as any other income from employment. Since January 1 2012, there is no SDC applicable on this notional interest. For directors/ shareholders (physical persons only) who are not Cyprus tax residents and owe money to their companies, the no-

Balances between related companies must carry interest based on market rates tional interest 9% is calculated based on the days that they have spent in the Republic. In case the debt of a shareholder, (physical person and Cyprus tax resident) is written off, then this transaction is considered to be a distribution of dividends and is subject to SDC at the prevailing rate.

3. Deductions for Interest paid:

Until December 31 2011, any interest paid for the acquisition of shares or deemed to be interest paid for the acquisition of shares was a disallowed expense for tax purposes (applied for the first seven years from the acquisition of the investment). From January 1 2012, any interest relating to the acquisition of 100% of the shares of subsidiaries in Cyprus or abroad is now a tax allowable expense under some circumstances. Any interest paid for the purchase of interest bearing securities is also considered an allowable tax expense.

BOOK REVIEW Deep Sea and Foreign Going: Inside Shipping, the Invisible Industry That Brings You 90% of Everything By Rose George (Portobello Books Ltd, 2013)


RRP: £14.99 (£10.34 from here are 40,000 freighters on the seas. Between them they carry 80% of the world’s trade and 90% of its energy. Nearly everything we eat, wear and work with has spent some time on a ship. And yet this massive global industry has remained largely unexamined: it passes by out of sight of most of us and, through the ‘flags of convenience’ system, its dubious practices often slip under the radar of regulators. In this unique investigation, Rose George has travelled the high seas and seen powerful naval fleets, pirate gangs, and illegal floating factories. She has visited the ports and their land-bound dockworkers, tycoons, missionaries, stevedores, border control guards, and ship-spotters. She meets the beachcombers who track the 10,000 containers that are lost every year, the robots who are gradually replacing human crews, and the environmentalists campaigning to resist the tide of marine pollution. Intrepid, informed and tenacious, George steers a sure course through the murky, character-rich waters of the international shipping industry which is so important to Cyprus.

info: Information courtesy of Eurofast. the international investment, finance & professional services magazine of cyprus

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Pl e as e


Postman! Investing in STAMPS. By Chloe Panayides

investing in stamps

Cyprus’ Distinction

Fans of philately appear to be confronting a fearful future, as interest in the age-old pastime of collecting postage stamps seems to be dwindling. However, they should not despair just yet: stamp dealers are now catering to new-age investors for whom stamps have more than just sentimental value and collecting serves a whole new, profitable purpose.


espite bleak reports from various stamp collecting organisations noting their steadily diminishing membership numbers, stamp dealerships are conversely telling the world that they are bursting at the seams with worldwide interest and additional custom from people and entities who, though lacking market knowledge and know-how, are nonetheless keen to invest. Indeed, far from agreeing that stamp collecting is on the decline, the dealers are earnestly sending out a different message: stamp collectors are alive, well, and as passionate as ever; if anything has changed, it is simply that a new type of collector has emerged and is requiring of attention. The so-called ‘pure investor’ may well admire stamps for both their historical and aesthetic value but his focus is on making a financial return on investment-grade stamps, whether owned directly or indirectly via a third party. Michael Hall, Chief Executive at Stanley Gibbons, explains of the changing season: “We have had people calling up from all


One of Cyprus’ first stamps

“The most important non-variety stamp of Cyprus”

We have had people calling up from all over the world saying they want to put £1 million into stamps over the world saying they want to put £1 million into stamps and asking us to advise them.” Indeed, confidence has soared so steeply that Stanley Gibbons posted profits of over £5 million in 2012 and further increases are expected by this year’s end. Whilst stories of incredible sale figures of various rare stamps resound, details of the exhaustive and meticulous study, time, and

he origin of the postal service in Cyprus is credited to the Venetians, who were the first to organise a means of correspondence for merchants and dignitaries. It is thought that the first letter to be sent out of Cyprus travelled from Famagusta to Constantinople (now Istanbul), dated August 17, 1353. Many letters were initially devoid of postmarks, bearing instead the initials ‘C.D.G’: ‘Che Dio Guardi’ (‘God is Guarding it’). Under British Administration from 1878, all postage stamps utilised in Cyprus were the same as those issued in Great Britain. Soon after, in 1880, British stamps began to be overprinted with the distinguishing mark, ‘Cyprus’. Specialist collectible websites suggest that fine condition examples of stamps from the British Commonwealth constitute some of the most collectible stamp investments in circulation. Moreover, according to the Commonwealth Rarities Index, the top 30 specimens have shown an 8.5% per annum average increase since 1998. Consider, then, the discovery of a 1921-23 Cyprus half piastre black stamp, complete with King George V’s profile. Prepared for use but never issued, and purportedly the last remaining example of the 240 preliminary stamps printed, the piece was valued in 2012 at £55,000. Furthermore, a specialist auctioneer has dubbed the piece the “most important non-variety stamp of Cyprus”. patience required to accrue a valuable collection are often innocently omitted from such tales of investment victory. Consider the noted 20th century businessman, Sir Humphrey Cripps. An avid stamp collector, his life’s collecting efforts (a reported 80-plus stamp albums), became

Victorian Penny Red sheet the international investment, finance & professional services magazine of cyprus

Gold 95

investing in stamps Chinese stamps have been appreciating in value

The Right Kind of Wrong


arer stamps than those erroneously produced may be hard to come by. In a unique instance in which perfection does not always reign supreme, stamps representative of a malfunction during production possess have always been intriguing for collectors. Errors may span design, paper texture, colour, perforation, and more; whatever the error, few misprinted stamps ever make it into public circulation, being either destroyed or recalled. Thus, when one is discovered, it is revered as an extremely prized collectible. In December 2011, a rare 1982 British Motor Cars 19.5p postage stamp sheet, subject to a double-grey printing error producing of a somewhat ghostly vehicular apparition haunting one of the main cars featured, sold for £10,925 (999% above its

estimate). A year earlier, in November 2010, a stamp from the 1966 British technology series that was decidedly erroneous came up for auction with Grosvenor. The original design featured the profile of Queen Elizabeth II, alongside four quintessentially British cars. The misprinted version was glaringly missing the blue Jaguar E-type, which should have been dramatically hovering above the Mini. Selling in fine, un-mounted and mint quality condition, the erroneous stamp commanded £40,000. Enduring as the rarest of them all, however, is the USproduced 1918 24c carmine rose and blue, also known as the ‘Inverted Jenny’. Due to the overall complex design requiring multiple trips through the printing machine, the invert error resulted in the Jenny aeroplane – featured predominantly in the design – being printed upside down.The history of

available for auction in 2011 courtesy of Spink Auctioneers of London. Sold over an 18-month period, the entire collection was expected to reap £20 million. Taking into account that the single – albeit elusive – Post Office Mauritius two penny blue stamp bought by Cripps in 1972 for £29,000 sold for £1 million at Spink Auctioneers in 2011, the projected overall taking for the whole collection does not require too much of a stretch of the imagination. Still, the pleasing numbers say nothing of the years and years of dedication and pursuit involved in accumulating the best of the best. Assuming that many investors opting to explore alternative means of channelling This sheet sold for $2.7 million

the Inverted Jenny is long and illustrious. A day after issue in 1918, buyer William T. Robey purchased a sheet of 100 for $24 at the New York Avenue Post Office window in Washington DC. A mere week later, Philadelphia-based stamp dealer, Eugene Klein, purchased the sheet for $15,000. Klein thereafter sold the sheet to renowned collector, Colonel Edward HR Green for $20,000. With the sheet subsequently having been broken up into singles and blocks, the history of the stamps becomes a little harder to track. What is certain is that out of the 100, many have been mishandled and poorly stored

96 Gold the international investment, finance & professional services magazine of cyprus

and the whereabouts of some is even entirely unknown. Thus, when those that are still in good condition make their way into the market, they simultaneously make waves: the top price for a single Inverted Jenny stamp was recorded in November 2007 when one buyer paid $977,500 at auction to acquire it. More famously still, a block of four Inverted Jennies was sold in 2005 by billionaire collector Bill Gross for $2.7 million: a world record price for a US philatelic item, and the lending of credence to the caveat in stamp collecting that ‘wrong’ is sometimes terribly ‘right’.

The market is evolving and there is demand from wealth managers and institutions. They’ve realised the viability of rare stamps as an asset class their capital are not simultaneously excited by the prospect of devoting a lifetime to becoming masters of the market (as Cripps was), stamp collecting cannot help but undergo a change. Enter the stamp dealer. Having identified a gap in the market, stamp dealers are now devising schemes that allow professionals to dabble in stamp investing, without necessarily having to become collectors. Keith Heddle, Investment Director at Stanley Gibbons, elaborates on the rising interest: “Three years ago, we were being treated with distant, polite curiosity at private banking conferences we were always asked to speak right before lunch! But in

With stamp collecting having been banned in China under Mao until 1976, the Chinese market is abuzz with activity the last 18 months, family offices, private banks and hedge funds have started to engage much more seriously with us.” According to Heddle, it was an anonymous banking conglomerate in Switzerland (as opposed to a lifelong collector) that was responsible for the purchase of the valuable Swedish Treskilling Yellow stamp, which was bought at auction in 2010 for £1.6 million. Heddle continues: “The market is evolving and there is demand from wealth managers and institutions. They’ve realised the viability of rare stamps as an asset class, but they want to deal in a fund structure.” Such demand is not limited to Europe. Capitalising on the global interest being voiced, Stanley Gibbons has opened additional offices in Hong Kong, Singapore and Brazil this year alone. Indeed, it is reported that Asia has spiked so sharply as a key contender in the game, that all eyes and efforts are being focused accordingly. Asiabased clients are credited by Heddle as being smaller in number than their worldwide counterparts, though big investors nonetheless. Said to make up about 5% of investment in terms of volume, Asiabased clients represent almost 18% in terms of value. Heddle specifically details the growing number of high-net worth individuals in China exploring stamps as both a means of alternative investment and a diversification of their portfolio, as well as the personal pursuit of reclaiming there heritage. With stamp collecting

having been banned in China under Mao until 1976, the Chinese market is abuzz with activity, as some 20 million-plus investors seek out both a profit and their past. Thus, Chinese rarities – particularly stamps from before the 1920s – have been appreciating greatly in value. Still, iconic British stamps seem to stand strong upon the industry’s pedestal, credited as being the most constantly and widely sought after. An Edward VII 6d stamp overprinted with ‘RI Official’, is-

the message of the philatelic market is being received loud and clear as select investors are responding with their stamp of approval

Thereafter, quarterly fees of £300 apply to all products. The portfolio purchased may be kept at home, or stored and insured at the company’s headquarters. With such fervent activity, the message of the metamorphosed philatelic market is being received loud and clear as select investors are responding with their stamp of approval.

BOOK REVIEW One Summer: America 1927


By Bill Bryson (Doubleday, 2013)

sued in 1904, sold to a Singaporean investor in 2010 for £375,000. A few years later, the advent of 2012 saw the Plate 77 Penny Red sell for an even more impressive £550,000 in Hong Kong. Tracking the prices of 30 of the rarest British stamps available and traded on the open market, the GB30 Index – quoted on Bloomberg Professional – reveals an average annual compound return of 10.27% since 1998 (although, it should be noted that the market is considered fairly illiquid due to the rarity of the stamps and infrequency of trading). The potential is seemingly palpable. Stanley Gibbons thinks so, too, hence the introduction of several stamp-based investment products. The Capital Growth Plan is a straight ‘buy and hold’ means of investing for the medium to long term, requiring of an initial £10,000 input; the Flexible Trading portfolio – likewise with a £10,000 buy-in – alternatively allows clients to add or sell items; and, finally, the Portfolio Builder serves as a savings-like plan, into which clients make regular payments over time following an initial £1,000 contribution.

RRP: £20 (£10 from he wonderfully readable Bryson’s thesis here is simple: In the summer of 1927, America may not have realized it but it was taking its first steps as a world leader – in economics, in the arts, in sports, and in technology. Some of these developments were good, while others were reprehensible. Bryson manages to find either the humanity or the hilarity in each development – sometimes both. It was a time when the US had a booming stock market, a president who worked just four hours a day, a semi-crazed sculptor with a mad plan to carve four giant heads into an inaccessible mountain called Rushmore, a devastating flood of the Mississippi, a sensational murder trial, and a youthful aviator named Charles Lindbergh who started the summer wholly unknown and finished it as the most famous man on earth. (So famous that Minnesota considered renaming itself after him.) Add to the mix the execution of Sacco & Vanzetti, why a “Ponzi Scheme” is called that, and much, much more. A great read.

Stamps with the missing E-Type Jaguar have sold for £40,000

the international investment, finance & professional services magazine of cyprus

Gold 97

Demetra Kalogirou A Day in the Life

The Chairwoman of the Cyprus Securities & Exchange Commission talks about the pros and cons of her job, her love of music and her extremely limited cookery skills. “I get up at 6.30am every day. Breakfast

consists of two sips of coffee because I’m always in a hurry. I have exactly half an hour to get dressed and get my two daughters ready for school so that we leave at 7.10am. I drive the children to school myself – my husband does it if I’m abroad for work or if I have a very early morning appointment. I get to work shortly after 8am and my first job is check the day’s news and see if there is anything about the Securities Commission in the media that may need a response or an announcement. I also have to check all the incoming correspondence and assign work to the officers and managers for the coming days. Once that is done, I have appointments and meetings throughout the day, either outside the office to visit companies that we supervise or at the office when people come to obtain information about the role of the Securities Commission or to submit an application for a licence to provide investment services, etc. We have a lot of foreign visitors whom I inform about the state of the economy and about how we regulate the local financial industry. The industry is very much a man’s world but

I’ve been working in it for 15 years, so people are used to my presence at meetings by now! I think a woman often has to prove herself twice but if she knows her subject and she acts professionally, then she is accepted. I believe that having a woman’s intuition actually makes it easier for me to put over the right messages. The best thing about my job is the fact that it’s very challenging – every day there are new problems that need resolving and I wouldn’t want to be doing exactly the same thing all the time. I also like the fact that my position gives me greater access to people who can get things done. The worst thing about this job is the hours that I spend on it. I eat a very light lunch if I can. Otherwise, I may not eat at all and I’ll have something when I go home. Luckily I don’t have to watch my weight at all but I try go to the gym at least twice a week to keep fit. I don’t have a fixed time for going home. Our official finishing time is 3.30-4pm but I may not leave until 5pm, 6pm or 7pm, depending on my workload. Once I’m home I have to see my children and make sure that

Every two months I go to Paris for work

98 Gold the international investment, finance & professional services magazine of cyprus

Dad bought this album

they have done their homework, otherwise I have to sit and help them with that and with their other activities. I have a lot of help from my mum and my mother-in-law who devote most of their time to my children, otherwise I wouldn’t be where I am. One of my “disadvantages” is that I only know how to cook two dishes – spaghetti

One of my only two specialities

bolognese and roast chicken and potatoes – which is another reason why we are very happy to have help from our respective mothers! I often take work home with me, especially if I need to prepare for a meeting the next day. It’s difficult to combine work and being a mother. I am very focused on my job and very ambitious but I would like to have more time for my kids. I do what I can to make sure that we have quality time together. I usually manage to “switch off” from work after 9.30 when the girls have gone to bed and I can relax in front of the TV. I don’t have a great deal of time for reading apart from during the holidays. The last book I read for pleasure was The Secret by Rhonda Byrne. I also like music and I used to play guitar at university. I’ve always liked pop music. The first record I remember having at home was a Boney M album that my father bought. Now I listen to whatever my kids are listening to. I usually go to bed around midnight. Every two months I have to go to Paris for work and there are other work-related invitations. If I had to choose anywhere else to live it would be London since that’s where I studied and I like it there, apart from the weather! I’m a naturally optimistic person, even after what happened in Cyprus six months ago, and I always try to overcome any problems in a positive way so that I can move forward.”









With global know-how, it’s easier to cut through. When you have access to global expertise, navigating complexity becomes much simpler. At Barclays, the focal point is your dedicated Relationship Manager, who will channel the knowledge and skills of the entire Barclays Group on your behalf. They will diagnose needs and identify relevant solutions for your international business. To find out more about how Barclays can help your international business, call us on +357 22 654477* for our Nicosia office or +357 25 208000* for our Limassol office or visit

Wealth and Investment Management

*Available between the hours of 0830 and 1700 Monday to Friday. Calls may be recorded for security reasons and so that we may monitor the quality of our service. Call costs may vary. Please check with your telecoms provider. Barclays offers banking, wealth and investment management products and services to its clients through Barclays Bank PLC and its subsidiaries. Barclays Bank PLC is registered in England and authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered No. 1026167. Registered Office: 1 Churchill Place, London E14 5HP. Barclays Bank PLC is regulated by the Central Bank of Cyprus in the conduct of its banking and investment business in Cyprus. Barclays Bank Plc Cyprus branch is now recognised as a Foreign Bank under the Enforcement of Temporary Restrictive Measures on Foreign Banks in case of Emergency Third Decree of 2013 (the Foreign Banks Decree). In accordance with the Foreign Banks Decree, Barclays Bank Plc Cyprus Branch can only service International Clients as defined by the Foreign Banks Decree.

Gold Magazine  

Issue 31 14 October - 13 November, 2013

Gold Magazine  

Issue 31 14 October - 13 November, 2013