Minister Finance

Interview of Minister of Finance, Mr. Makis Keravnos, to the Gulf Business/Gulf News

-Latest achievements and observed trends in Cyprus Financial sector

It is true that a critical factor of our economic transformation has been the strengthening of our banking sector. Over the past decade, Cyprus has made remarkable progress in enhancing financial stability, reducing non-performing loans, and improving regulatory oversight. The banking sector today is resilient and enjoys strong capital and liquidity buffers, among the highest in the euro area. These reforms have positioned our financial institutions to support economic growth more effectively.

Moreover, the acquisition of Cypriot banks by foreign investors is a sign of health and trust for the sector and the whole economy. The nature of banking services offered is changing with both banks and customers preferring digital channels and fewer physical branches and ATMs.

More generally, financial services offered in Cyprus are much more diversified than a decade ago. While in the past banking services dominated the financial sector, diversification across financial services has grown considerably. This is a development that has taken place after targeted changes in legislation and efforts to attract talent, which built on the pre-existing ecosystem of financial and business providers in Cyprus and the available talent pool. Investment firms, fund management as well as companies operating in the fintech space, such as electronic money institutions, have grown in number and gross value added in recent years. This trend is reflected also in the employment developments across the financial sector.

Looking ahead, the continued modernization of our banking system will be crucial. Embracing digitalization, strengthening financial literacy, and ensuring access to financing for businesses and households are key priorities. Additionally, aligning with European banking standards and sustainability frameworks will further enhance the sector's role in fostering long-term economic stability. The resilience and adaptability of our financial institutions will be instrumental in supporting Cyprus’s broader economic transformation.

- Ministry’s current priorities

The Cyprus economy has demonstrated remarkable resilience, as evidenced by consistent economic growth and robust public finances, amid a very challenging economic environment.

This positive performance demonstrates the Government’s unwavering commitment to sound governance and the implementation of effective economic policies. These policies encompass prudent fiscal management, strong support for local businesses, incentives designed to foster growth and the creation of a competitive economy that appeals to investments across diverse industries. As a testament to these efforts, Cyprus is gaining increasing recognition on the international stage, receiving multiple upgrades from international Credit Rating Agencies.

Notably, Cyprus has regained its 'A' investment grade from leading Agencies, that is Moody’s, Fitch, and S&P Global.

Going forward, the Government will persist in implementing its ambitious strategy to enhance the resilience and competitive standing of Cyprus. This strategy encompasses the promotion of digital transformation and a green transition, alongside a strong commitment to modernizing the tax system to enhance the competitiveness of the economy. We will also strive to implement structural reforms aimed at enhancing efficiency and fostering sustainable economic growth, innovation and long-term prosperity.

- Strategies to keep attracting foreign investment and position Cyprus as international financial center at the forefront of technologies and innovation.

A major factor contributing to this economic success has been the considerable influx of foreign direct investment, which is largely driven by the pro-investment environment and the overall investment package that Cyprus offers. Invest Cyprus, the Government’s principal organization which is dedicated to position Cyprus as an attractive destination for investment and business, as well as the Business Facilitation Unit, have greatly assisted in attracting foreign investments.

What is particularly noteworthy is the distribution of investments across various industries in Cyprus, which underscores the successful economic diversification of the country. This achievement is critical, as it illustrates the resilience of the economy by mitigating dependence on a single sector. Significant advancements have been observed in key sectors such as information and communication technology, financial services, manufacturing, shipping, education, energy and tourism. These sectors have experienced considerable growth, fostering innovation, generating employment and positioning Cyprus as a dynamic hub within the EU and the broader region.

One of the key policies implemented in order to attract foreign investments have been the Headquartering Scheme where Cyprus provides specific tax exemptions for first employment in Cyprus when certain provisions are satisfied. This Scheme provides additional incentives for foreign businesses to consider operating from Cyprus by also bringing to Cyprus their key foreign management and staff, through establishing or relocating their main or regional headquarters in Cyprus.

Moreover, Cyprus has introduced the Notional Interest Deduction regime enables eligible companies to claim a tax deduction on new capital (equity) introduced into the company. In accordance with the Law, from the 1st of January 2015, tax-resident companies in Cyprus as well as foreign companies conducting business with a permanent establishment in Cyprus, will have the right to claim a tax allowance based on the new capital for the company by the amount of “notional” interest expenses.

Overall, Cyprus offers a compelling combination of tax benefits, strategic location and an attractive lifestyle, making it ideal for wealth optimization and luxury living.

Mr. Makis Keravnos