On May 27, 2020, the Cyprus government announced further stimulus measures to revive the economy, impacted by the COVID-19 crisis. After a cabinet meeting, President Nicos Anastasiades, in a televised address, announced major input from the European Investment Bank (EIB), in the form of loans worth ?1.7 billion, along with interest rate subsidies for businesses and housing loans. The revised package will inject more than ?1.2 billion into the economy, worth about 6% of the country's gross GDP, to help rescue and restart the economy.
The President provided a 10-point set of measures to support small and medium sized businesses, along with employees, in the form of fresh liquidity and subsidies.
Outline of the 10-Point Economic Plan for Cyprus' Revival
By utilising the tools provided by the European Union and European financial institutions, these 10 major decisions have been taken by the Cyprus government.
The primary focus of this package will be an ?800 million liquidity grant to small and medium sized enterprises (SMEs), from EIB funds, through the Cyprus Entrepreneurship Fund. Funds will be allocated through commercial banks, with the government putting a 50% state guarantee. The beneficiaries of this fund will only be SMEs that employ up to 250 people.
Additional Liquidity for Mid-Cap Enterprises
To provide loans to Cypriot SMEs and mid-cap companies, the government, along with the EIB, has decided to increase the lending scheme by ?500 million. Beneficiaries of this fund will include companies registered and working in Cyprus, employing up to 3,000 workers.
Pan-European Guarantee Fund
With the approval of the Council of Ministers, Cyprus will be a part of the Pan-European Guarantee Fund, which has been set up by the member states of the EU to deal with the COVID-19 crisis. Cyprus is expected to draw ?300-?400 million from this fund, for its SMEs and mid-cap companies, hit by the crisis. Loans provided by this fund will be 80% guaranteed by the Pan-European Guarantee Fund.
Interest Subsidy Scheme for New Business Loans
Interest rate on business loans will be subsidised for 4 years. In the first two years, the subsidy will be up to 3.5 percentage units, while in the third and fourth year, the subsidy rate will be 2 percentage units for SMEs and 1.5 percentage units for large companies. This applies to all loans contracted as of March 1, 2020, up to December 31, 2020.
Housing Loan Subsidies to Encourage Home Ownership
The Council of Ministers have decided to subsidise home loan interest rates for a specific duration and fixed a maximum loan amount. Loans will be subsidised for 4 years, at 1.5 percentage units of the interest rate. This will include all loans up to ?300,000, contracted as of March 1, 2020, till December 31, 2020. The average interest rate on such loans is 2%, at present. The construction sector will benefit from this move.
Subsidy Scheme for Very Small and Self-Employed Enterprises
Lump-sum grants and subsidy schemes are being extended for
50,000 very small companies in the country, along with
self-employed enterprises that employ up to 50 workers. The total
amount of subsidy is more than ?100 million. The aim is to provide
urgent working capital to these companies, so that they can cover
rent and operating costs.
Companies that had enlisted for the government's partial or full suspension scheme between April 13 and May 12, 2020, directly impacted by the health and safety provisions, will be eligible for direct grants of:
- ?1,250 for up to one person
- ?3,000 for two to five persons
- ?4,000 for six to nine persons
- ?6,000 for ten to fifty persons
Companies that laid off workers or are considered "not viable" by the state or the Labour Ministry's Social Insurance Department, will be left out of this scheme.
Invitation of Immediate Tenders for Development Activities
All competent authorities have been instructed by the Council of Ministers to invite immediate tenders for major public development related works. These will include tenders that had been announced earlier but were suspended or which are considered mature to be taken forward, irrespective of when they were budgeted to commence.
Incentives to Strengthen the Tourism Sector
The tourism sector and connectivity of Cyprus will get a major boost through additional incentives amounting to ?6.3 million. Air and sea connectivity resources will stand at ?15.7 million by the end of 2020.
Reduction of VAT for Tourism Industry
Further steps to boost the tourism and hospitality sectors will be taken in the form of reduction of VAT from 9% to 5%, from the period July 1, 2020, till January 10, 2021.
Liquidity Boost for Agriculture Sector
To help support and revive the agriculture industry, the government will increase its aid from ?12 million to ?22 million.
The President pointed out that the total amount of liquidity grants by the State, for providing working capital to SMEs and self-employed family businesses, stands at approximately ?430 million currently. The government is also in a position to draw loans up to ?1.7 billion to inject liquidity, without considering the interest rate subsidies being offered on business and housing loans.
With the help of doctors and the scientific community, Coronavirus cases in the country have stayed low, at 941, as of May 29, 2020, of which 784 have already recovered.
The government re-opened the economy on May 21, 2020, after two months of lockdown, but keeping international travel closed for now. The country expects tourism to revive by July 2020. Meanwhile, the measures taken by the government are aimed at encouraging renewed foreign investments in the economy.
Cyprus: An Ideal Post-Pandemic Destination for Investment
There has never been a more viable time for companies to venture into the EU economy. The Cyprus Investment Programme, one of the top-ranked in the world, aims at attracting foreign direct investments and encouraging high net worth individuals to settle in the country. It offers a great opportunity to take advantage of the country's favourable business climate, tax advantages and the potential for EU citizenship.
Now, with the ?2 billion revival package, the country is in a good position to make it easier for companies to launch and conduct business here. For instance, SMEs and mid-cap companies, employing up to 3,000 workers, could find it easier to gain access to new liquidity lines, sanctioned under the EIB's recently approved Pan-European Guarantee Fund. This fund will further provide banks with loan agreements, with up to 80% guarantee. If companies apply for new business loans before December 31, 2020, they will benefit from interest rate subsidies for up to 4 years.
The government has also decided to speed up its processing of passport applications under the Cyprus Investment Programme. This offers exciting opportunities for individual investors to benefit from the real estate sector, since Cyprus is one of the most prominent European markets for real estate-linked investments.
Furthermore, there are tax benefits under the Corporation Tax regime in Cyprus, if the individual/business owns property in Cyprus. Under specific conditions, foreign dividends received by a Cyprus tax resident company can be exempted from taxation in Cyprus. Now, the government is extending home loan interest rate subsidies for 4 years, which will be an added bonus.
Investments in projects centred on improving online access to public services will be given special impetus too.
All new businesses intending to invest in the Cypriot economy will need to ensure the registration of their incorporation. Applications for registering as a Cypriot company need to be filed to and examined by the Companies Registrar and Official Receiver and based on specific products/services the company provides. The company might also need to apply for a specific license.
Originally published 2 July 2020.
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