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Professional services: resilient mainstay of the Cypriot economy

Interview - December 1, 2015

Chairman of K. Treppides & Co., the largest independent consulting firm in Cyprus, Kikis Treppides discusses the post-crisis evolution of Cyprus’ economy and the importance of professional services to its progress. 



The professional services sector has been a standout in the Cypriot economy. How would you define its importance and participation in the on-going economic recovery?

Whilst the positive indicators for the economy are apparent, it will take some additional time for these to be reflected in the real economy in order to achieve growth from within Cyprus. The professional services sector has been and will always be a key factor for the growth prospects.

In terms of other sectors, the banking sector was and still is a driving force of the economy, but the slow recovery of the banking sector and the perception of the Cyprus banking sector being connected to Greece is slowing down the recovery and growth. The banking sector is now being restructured on solid grounds and will eventually contribute to the steady growth of the economy. At the moment, the changes in the banking sector have been partially moderated by the professional services sector, either by absorbing a large number of professionals who left the banks, or by continuing to support and promote Cypriot banks to clients.

The professional services sector, made up mainly of lawyers and accountants, have actively assessed the factors that resulted to the 2013 crisis and have managed to sustain the international business that was operating through Cyprus. Taking into consideration the current compliance and regulatory requirements in the EU and worldwide, the sector has identified opportunities available and has set the cornerstones for Cyprus to be established as a hub for investment firms, financial institutions and funds. These services are the services that will be one of the pillars of growth for the Cyprus economy.

In general, the professional services sector has contributed to the creation of jobs, assisting the recovery of the real estate sector and contributing to the collection and identification of new sources of income for the government budget.


From your experience, what are the key developments and opportunities that have allowed you to adapt and find new business so quickly?

The Cyprus services sector took a series of demand shocks during the past eight years ranging from the first Russian crisis of 2008, the banking crisis of 2013 and the Ukraine–Russia turmoil in 2014-2015, which culminated in the Russian CFC rules. These shocks served as an additional challenge to the hardships faced by the traditional service sector of special purpose vehicles (“SPV”) and tax planning via Cyprus-based companies that enjoyed a plethora of international bilateral tax treaties and benefits. No longer was the SPV setup a mainstream attraction, given the difficulty in opening bank accounts and the tax authorities in EU and non-EU countries taking great effort to stem tax-planning opportunities for their nationals via the use of offshore planning vehicles.

The above challenges however were foreseen and acutely predicted by the management of our group by redirecting resources in to more high-value engagements with a distinct TechFin (Technology and Financial) flavor.

K. Treppides & Co now boasts market-leader positions in CySEC-regulated investment firms, investment funds and Central Bank of Cyprus-regulated payment institutions/electronic money institutions. Our external audit department has won numerous tenders for government projects and our internal audit department now heralds permanent outsourced engagements with the Nicosia and Limassol municipalities.

Such successful expansions during these challenging years has permitted our group to not only remain profitable but to also expand in terms of turnover and positions of employment. We also boast one of the largest receivership and liquidation departments in the country picking up business in times of hardship for other industries. Our financial regulation and advisory arm now numbers over 45 members with three partners and a growth trajectory for the foreseeable future.

Cypriot lawmakers have additionally assisted in trying to lure more businesses to Cyprus through legislation for tax incentives, including the Cyprus International Trust Law of 2012, which gives incentives to investment fund managers to relocate their business to Cyprus and incentives for the Cyprus residency and passport.


Compliance has been a central focus since the 2013 banking crisis and an important factor in choosing where to do business. How does K. Treppides ensure compliance and collaborate with regulators for the improvement of such regulations?

It was always our philosophy that the best way to develop and enable growth is to act in a transparent matter, sharing knowledge and expertise since the government or government-related sector is always the driving force to enable the country growth. The private sector can push the rate of growth to higher levels as long as the government bodies are participating in the projects to be developed by the private sector.

This collaboration with the CySEC and the CBC and especially the constructive approach of senior officers and management has enabled Cyprus to be considered a financial sector hub for international financial services companies which are taking advantage of current and future technologies and offering services over the internet.

In our own case, K. Treppides & Co Ltd, through its subsidiary Treppides Fund Services Ltd, is offering services to investment funds – a sector that requires a proven record of reliability since the investors in the fund sector are highly educated and experienced and can be attracted to a new jurisdiction like Cyprus only if they are convinced for the compliance standards and the high standard of services to be utilized and the stability to be offered. The recent adoption of the relevant EU directives in relation to the alternative investment funds and the cooperation of CySEC is enabling a new sector to emerge which will offer long term benefits for the Cyprus economy.

It is unfortunate that the country remains associated with the old fashioned model connecting Cyprus to a low-tax jurisdiction with low-cost services. The world is changing and compliance to internationally accepted standards is the key to sustainable growth and long-term prosperity.


How would you evaluate the current business environment in Cyprus? Furthermore, which are the key developments that would promote foreign investment in the country and develop its potential?

For many years now, Cyprus has enjoyed a reputation as a solid economy, and the recent economic crisis has not altered this. The existing legal system, the beneficial tax regime and the qualified professionals continue to provide high quality services to local and foreign investors. Cyprus International Trusts, which are used extensively to protect and preserve assets and family wealth, continue to provide considerable tax advantages as their provisions and application are still fully in force.

The extensive double tax treaty network of Cyprus remains an important pull for businesses. Cypriot companies of all types are still enjoying the tax incentives offered, as well as the full implementation of EU directives and a high level of confidentiality and secrecy.

The main elements of tax reform bills submitted to parliament will enhance the tax system to become more attractive, fairer, and more effective. Part of the reformation is the reduction of transfer fees on real estate transactions by 50% until the end of 2016 and the exemption from capital gains tax from the future sale of property, acquired until the end of 2016.

At the same time municipal property tax will be abolished and local authorities are to be compensated to make up for their loss of income. There will be tax deductions in fresh capital for businesses and an extension will possibly be given of capital depreciation for machinery, installations and buildings by the end of 2016.

The most revolutionary aspect of these efforts is the introduction of a new concept of domicile. Foreign individuals classed as tax-resident under the usual day-counting basis can qualify as non-domiciled if they meet certain criteria. Non-doms income from dividends will be exempted from the special defense contribution, thus capping the effective dividend tax rate at lower percentage. This will give an advantage principally to physical persons moving to Cyprus and becoming tax residents, who are also the registered shareholders of companies that are themselves tax-resident in Cyprus. Such companies pay corporation tax at a relatively low rate on their taxable profits for European standards, and they are already entitled to generous exemptions and deductions.

The target is to attract high net worth individuals and high-level professionals such as fund managers and investment analysts and to relocate professionals and their activities to Cyprus


K. Treppides is perhaps the largest independent consulting firm in Cyprus, how do you maintain your edge and compete with the ‘big four’?

Our main advantage is really our good relations with the big four and the close co-operation we have on various assignments. We like to think of it as collaboration, rather than competition.

In a more global sense, our organization has enjoyed the confidence of investors who engage us for consulting and high-level advice in relation to regulated financial entities such as the investment funds, the investment firms and the financial institutions. They recognize that the services we offer are always of the highest standards. Hence, although we are still operating with the tag of an accounting firm, K. Treppides & Co Ltd may be considered as the largest independent consulting firm in Cyprus, starting to compete with international firms based abroad.


A possible game changer for Cyprus would be the realization of the long awaited reunification. How do you see the potential in a possible reunification?

A solution to the Cyprus problem is now closer than ever following an ‘alignment of the stars’ as Mr. Espen Barth Eide, the UN Special Envoy, described the confluence of factors that are positively affecting the prospects of a solution.

There will be a multitude of benefits following the political solution to the Cyprus Problem stemming from the political stability that will ensue across the island. Foreign direct investment is expected to increase while the infrastructure projects that will need to be undertaken in the northern part of the island and especially in the port city of Famagusta will provide a much needed boost to the construction sector. The normalization of trade relations with Turkey will bring benefits such as maritime tourism, a significant increase in trade exports, and better flight connections from Cyprus, which are vital to increasing the importance of Cyprus as a services hub in the area. Equally important, the political solution will allow the exploitation of the country’s natural oil and gas reserves without negative reactions from Turkey.

In the medium term, I expect that political stability will encourage a number of multinational firms and banks to set up their regional headquarters in Cyprus, as Cyprus provides an excellent location to service the Middle East and Northern Africa while providing all the benefits of a Euro-area country.


The UK has historically been a key partner for Cyprus, how would you evaluate the importance and opportunities for development in strengthening the relations between Cyprus and the UK?

Our company is a strong proponent of the enhancement of the Cyprus–UK trade relationship and in practice holds a seat on the board of the Cyprus-UK Business Association under the auspices of the Cyprus Chamber of Commerce and Industry.

Furthermore, a few of our clients have successfully raised capital in initial and secondary public offerings via the London AIM and the LSE, and we have supported them in their projects as we truly believe that London is the premier financial hub of Europe, if not the world. It is our core principle that our clients’ needs come first and therefore Cyprus companies have the potential for AIM and LSE listings and the exposure will only improve the Cyprus brand and image in the financial heart of Europe.


Speaking on the Cyprus brand and image, there has been something of a transformation of the brand since the 2013 crisis. How would you like foreign investors to perceive the Cyprus brand?

In our opinion Cyprus is and should be re-branded. Cyprus was interconnected with economies like Greece that traditionally were much less reliable than Cyprus itself. Cyprus has been associated with being a low-tax jurisdiction with low-cost services. Unfortunately, this association has led investors to perceive Cyprus as if it was a non-reliable fragile economy with low quality services.

It has been the philosophy of our organization, which this year is completing 30 years of service to international investors, that success comes through constant high quality. Cyprus and Cypriot professionals have proven during the short period of two years that the quality of the services that can be offered through Cyprus are of the highest standards. Professionals in Cyprus adhere to the highest professional standards and offer services in professional manner and ethics.

Cyprus is now and should be branded as a high-compliance jurisdiction, either this being in the banking sector, financial services sector, the professional services sector, or the general services sector, with the people servicing in each industry offering high quality expert services.