Coming in the aftermath of the Second World War, one of the primary aims of the founders of the EU was to prevent a recurrence of war between European nations. The Treaty of Rome, which established the European Economic Community, proclaimed its prime purpose as "ever closer union among the European peoples" and its intention "to confirm the solidarity which binds Europe".
As recently as December 2012, receiving the Nobel Peace Prize on behalf of the EU, its president, Herman Van Rompuy, used the opportunity to "remind people across Europe and the world of the Union's fundamental purpose: to further the fraternity between European nations, now and in the future." However, this appears to have been mere lip-service to the European ideal: Mr Van Rompuy went on to say that, "When prosperity and employment, the bedrock of our societies, appear threatened, it is natural to see a hardening of hearts, the narrowing of interests, even the return of long-forgotten fault-lines and stereotypes."
How prophetic those words proved to be. Many would argue that one of the principal reasons for the maligning of the Cyprus business sector and the draconian terms on which international financial assistance was made available in March this year was the success of the business services sector in Cyprus, which motivated certain other European countries to take advantage of the opportunity to handicap a rival that they were finding it hard to compete with. This is borne out by the fact that since the Eurogroup decisions regarding Cyprus became known, the Cyprus media have been flooded with advertisements from professional and financial services firms in Northern Europe seeking to attract away the very same deposits and business that they had previously claimed were tainted.
Nevertheless, despite the damage inflicted on our banking system Cyprus remains among the most attractive international financial centres in Europe and, indeed, in the world, offering an unrivalled environment for cross-border investment both into and from Russia, Central and Eastern Europe, India, the rest of Asia and elsewhere.
Cyprus has a stable, reliable commercial and legal infrastructure, a robust and open legal system based on common law, which investors are familiar with, excellent professional and financial services and a simple, transparent tax regime based on low rates of tax. At 12½ per cent Cyprus's corporate tax rate is among the lowest in Europe and securities, including shares, units in funds, GDRs and many other instruments, are exempt from corporate taxes.
Since the dissolution of the Soviet Union, Russia and Central and Eastern Europe have become the most important destinations for investment via Cyprus. They are also a significant source of investment via Cyprus. Not only are there strong cultural links based on a common Orthodox religious heritage, but there are also substantial financial incentives for businesses in Russia and Central and Eastern Europe to establish Cyprus holding and finance structures. The double tax agreements between Cyprus on the one hand and Russia and its neighbours on the other generate significant savings in withholding taxes. Furthermore, the exemption of capital gains on shares (including shares in "property-rich" companies) from tax provides the potential for a tax-free exit.
Cyprus also offers the potential for a tax-free exit from investments in India, since under the double tax agreement between the two countries any capital gains on disposal of shares is taxable only in the country of residence of the disponor of the shares. Among India's other double taxation agreement partners, only Mauritius offers the same benefit, and the Indian government is seeking to renegotiate its agreement with Mauritius in order to restrict it.
In addition to these particular benefits for investments in Central and Eastern Europe and India, Cyprus also offers substantial tax benefits for certain activities or sectors. It has an intellectual property rights "box" that exempts 80% of income derived from intellectual profits from taxation, resulting in an effective tax rate of less than 2½ per cent on such income, by far the lowest in Europe. Gains on disposal can be fully sheltered from tax of any kind. In most cases immediate economic and tax savings can be made by transferring intellectual rights currently held by entities located in low or no tax jurisdictions to Cyprus resident companies.
Another sector in which Cyprus offers particular savings is international shipping and ship management activities. Its EU-approved tonnage tax system provides for taxation on the basis of the tonnage of vessels operated or managed, offering substantial savings compared with taxation based on actual profits, together with a wide range of tax exemptions relating to shipping activities.
The Cyprus International Trust provides a secure and tax-effective "wrapper" for investments in Cyprus or elsewhere. The International Trusts Law of 1992 was completely updated and modernised in 2012 and gives settlors unrivalled flexibility, control and asset protection. A new regulatory regime, introduced in December 2012, provides effective oversight of trust and fiduciary service providers, giving complete security.
The recent downsizing of the banking sector in Cyprus affected only the customers of the two largest domestic banks. Its effects were unnecessarily severe due to the arbitrary deadlines imposed from outside Cyprus. Nevertheless, since there is no requirement for Cyprus companies, trusts or other entities to maintain bank accounts in Cyprus, recent events do not in any way diminish the benefits of Cyprus holding and finance structures and trusts, which continue to provide a secure, tax-effective framework for cross-border investment.
The government is determined to maintain Cyprus's competitiveness in this regard. It is clear that our European partners cannot be relied upon to support us, and we must take responsibility for ourselves. The recent disbursement of the first tranche of funds under the European Stability Mechanism marks the first step on the road to rebuilding our economy.
Cyprus's history as a mercantile nation reaches back beyond Biblical times. Over the course of those five millennia Cyprus has faced many times of adversity and has overcome them all. My colleagues and I are confident that the advantages of doing business in Cyprus and the quality of the services available here will be apparent, notwithstanding recent setbacks.
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