Citywealth IFC review of Cyprus & Malta
In this IFC update, Citywealth looks towards the Mediterranean for updates on both Cyprus and Malta. We highlight the key legal and regulatory updates from these rapidly growing financial centres.
Cyprus
Developments and outlooks
Published at the start of this year, Aspen Trust’s Cyprus Economic Development 2023 and Outlook 2024 summarises where Cyprus currently stands as an IFC: “In recent years, Cyprus has demonstrated remarkable resilience, experiencing growth and expansion across various sectors such as tourism, financial services, and energy. The momentum is expected to persist, as several sectors are anticipated to remain significant global contributors in 2024. This presents numerous advantages for business owners, foreign investors, and entrepreneurs exploring opportunities in Cyprus.” The report anticipates a “remarkable development” in terms of the inflow of substantial investment funds into Cyprus – a growing €10 billion market.
The Cyprus government remains steadfast in its commitment to being a transparent jurisdiction
Government projects are in the works to create a more transparent and accessible governmental framework in the country. The report says: “The Cyprus government remains steadfast in its commitment to transforming into a transparent jurisdiction. A key aspect of this initiative is the adoption of a Commercial Off-The-Shelf (COTS) system named “Tax For All – TFA,” a substantial IT project initiated by the Cyprus Tax Department since October 2020. The implementation of Tax For All is structured across three distinct stages, each targeting different functionalities and tax types. This comprehensive project is poised to conclude by the end of 2024.”
Corporate tax rate for resident companies in Cyprus stands at 12.5%
For those unintroduced to the business benefits Cyprus offers, the report summarises: “The existing corporate tax rate for resident companies in Cyprus stands at 12.5% on their global income. The government has implemented various tax policies that specifically support high-quality and sustainable businesses across sectors such as multinational enterprises, shipping, pharmaceuticals, fintech, gaming, and digital marketing corporations.”
Conducive for group holding and finance companies
“Cyprus is particularly conducive for group holding and finance companies, offering a tax-free transmission of dividends from Cyprus to non-tax resident entities under specified conditions. Moreover, there is a complete exemption for participation and no taxation on capital gains, excluding gains originating from the direct and indirect sale of real estate within Cyprus.”
Extensive network of double taxation agreements
“The extensive network of double taxation agreements serves as robust protection against double or non-taxation, and unilateral relief is available for taxes paid abroad in cases where no double taxation agreement is in effect.”
Additionally, the government has implemented an EU-approved Intellectual Property Box regime that utilizes the ‘Nexus’ fraction approach. The benefit? An (up to) 80% tax exemption on profits relating to research and development expenditure that links to qualifying, intangible assets until the Cyprus Box.
Industry insights
To get further insights on the wealth management industry in particular, Citywealth spoke to Cyprus’s largest law firm, Elias Neocleous & Co. for some direct industry updates on the jurisdiction.
Have there been any recent significant regulatory or legislative changes in Cyprus that are set to impact UHNW individuals or their wealth managers?
“While there haven’t been specific changes directly targeting UHNW individuals in Cyprus, monitoring the evolving legal and financial landscape is crucial due to potential influences from recent economic conditions and international pressures on regulatory reforms. Key areas to watch include tax regulations, financial disclosure requirements, and estate planning laws, which are prone to revisions and could significantly impact wealth management strategies.”
Anti-money laundering (AML) regulations mean more due diligence
“Global shifts in financial regulation like increased transparency requirements—embodied in standards such as the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA)—and the rise of anti-money laundering (AML) regulations necessitate more rigorous due diligence. These trends, which call for robust compliance frameworks, may affect privacy and operational strategies for UHNW individuals in Cyprus, emphasizing the need for proactive adjustments in managing portfolios to align with global compliance standards. Regular consultations with legal and tax advisors who understand international and local laws are crucial to ensure compliance and optimal tax planning.”
What is your top-of-mind trend/issue that you are seeing in the private wealth management market in Cyprus?
“Some of the most prominent trends in Cyprus include the impact of regulatory changes on investment strategies, the growing importance of sustainable and socially responsible investing, and the rise of digital platforms and AI for wealth management services. Due to the ever-evolving financial landscape and the current challenges, such as the elevated geopolitical risks, market volatility and uncertainty, investment managers are becoming more selective and constantly monitoring their portfolios. There is a particular emphasis on sustainable and responsible investment (SRI) strategies. This shift reflects a broader global movement toward environmental, social, and governance (ESG) criteria, influencing investment choices. Wealth managers in Cyprus are now integrating ESG factors into their investment processes to cater to the growing demand from clients who seek not only financial returns but also a positive impact on society and the environment.”
EU’s broader Sustainable Finance Disclosure Regulation (SFDR)
“This trend is further driven by the regulatory changes in the European Union, which include stricter disclosure requirements that promote transparency on sustainable investments. These regulations are part of the EU’s broader Sustainable Finance Disclosure Regulation (SFDR), which seeks to improve transparency in how investment funds consider environmental, social, and governance (ESG) factors in their decisions. The regulations require fund managers to disclose how they integrate ESG criteria into their investment processes and their impact on sustainability. Additionally, these mandates are supplemented by the EU Taxonomy, a classification system that establishes a list of environmentally sustainable economic activities to guide investment decisions. The goal is to prevent greenwashing and ensure that investments labelled as sustainable meet strict criteria, thereby providing investors with clearer, more reliable information on sustainable products.”
“As a result, private wealth managers in Cyprus are increasingly offering specialized services that include ESG ratings and sustainable investment portfolios, aiming to attract a more conscientious clientele and adapt to the evolving regulatory landscape.”
Cyprus has seen an influx of technology companies setting up in the jurisdiction. Is this still the case, and are digital nomad visas being utilised? What is the current interest in cryptocurrency/digital assets in Cyprus?
“Cyprus has been very successful in attracting technology companies from around the world to its shores, suggesting a growing network effect as interest in the country continues to rise. As the ecosystem expands and Cyprus continues its journey forward as the “Tech Island”, it will however need to be careful not to fall victim to its own success by ensuring that the necessary infrastructure is on pace to keep up with relocations.
Digital nomad visas are also gaining traction
Digital nomad visas are also gaining traction, facilitating remote work within Cyprus, reflecting a broader European trend of embracing remote work flexibility. Cyprus has also enacted new employment laws touching upon remote work as it aims to catch up and further promote technology. Additionally, the Business Facilitation Unit, a government initiative to help companies set up quicker, has done an incredible job of helping companies employ skilled labour from around the world in an efficient manner.
In the realm of digital assets, Cyprus remains active, with companies obtaining licenses to operate crypto exchanges and provide custody services. This aligns with the growing interest in cryptocurrency activities in the region, as startups and crypto funds select Cyprus as their base. However, regulatory actions, such as increased scrutiny and the suspension of licenses, indicate ongoing regulatory efforts in the digital asset space, reflecting broader regulatory trends such as the EU’s 6th Anti-Money Laundering Directive.”
Malta
A small island in the Mediterranean, Malta is offers the compelling combination of an onshore jurisdiction with offshore benefits. Its favourable tax framework is big draw; a corporate income rate of 35% and a tax rebate mechanism with the potential to reduce overall effective tax rates to 5%. Malta has also brokered a number of double taxation treaties globally, which simplifies taxation matters and encourages investment relations with its fellow members of the European Union and Schengen. Capital gains and dividends also have the potential to be tax-free, when taking into account its participation exemption regime for holding companies established on the island.
One of Europe’s cheapest visa options
Despite many EU countries scrapping their ‘golden visa’ schemes since 2022, Malta is still one of the few that offers a straight-forward Permanent Residence Program that allows third-country nationals to obtain residency by investment. The processing time is only 4-6 months, making it a very effective option. The investment requirements include a qualifying real estate investment, a non-refundable contribution and a donation to a charitable organization on the island. For those who choose to purchase their real estate investment, these requirements bring the total €380,000 – or €120,000 over five years for the rental option. This makes the program one of Europe’s cheapest visa options of its kind, and highly accessible to many UHNW families. It remains to be seen if this visa will continue to be offered as countries such as Portugal and Spain make moves to pull, or at least alter, their equivalent.
MSFA’s fight for higher standards
Malta is ruled by one financial authority, the Malta Financial Services Authority (MFSA). Recent focus from the governing body has been on strengthening governance and compliance stanrds, particularly when it concerns trusteeship. It recently published the results of a thematic review of the Trustee and Company Service Provider (TCSP), which highlights areas for improvement to align practices in the sector with regulatory expectations. The letter serves as a sort of ‘best practice’ roadmap and encourages the Provider to conduct gap analyses, ensure compliance and strengthen governance structures.
Commenting on the findings, MFSA’s Deputy Head of the TCSPs Supervision function, Petra Camilleri said: “TCSPs play a crucial role in facilitating business activity and acting as gatekeepers to Malta’s financial system. Through this review, we positively observed an increased commitment to enhance governance structures and compliance practices. This is a testament to the sector’s dedication to maintaining high standards. We are confident that through the sharing of best practices in this ‘Dear CEO’ letter, we will see further improvements across the sector that are ultimately aimed at ensuring a more resilient TCSP sector in Malta.”
Christopher P. Buttigieg, MFSA’s Chief Officer Supervision added: “This Thematic Review underscores our ongoing commitment to fostering robust governance and compliance standards within Malta’s financial landscape. While we commend the strides made by TCSPs, it’s imperative to continuously assess and enhance practices to ensure alignment with evolving regulatory expectations.”
Malta is pushing this to the international stage, as seen by the recent MFSA conference on regulating trustees and company services providers which saw over 400 delegates from the likes of regulatory authorities, international organisations, and foreign authorities.
Combatting financial crime
Alfred Zammit, Director of the FIAU said in his opening remarks: “The role of TCSPs in combatting financial crime has become increasingly important now that there is a heightened awareness on the implications of beneficial ownership and how legal persons can be misused for the purposes of money laundering and terrorism financing. Changes to the FATF methodology to assess countries will also reflect the weight that is being given to the non-financial sector in their evaluation. With TCSPs’ exposure to risk being recognised in Malta’s National Risk Assessment, it is fundamental that we all act as partners in combatting crime.”
Andrew Lebrun, Deputy Executive Secretary of MONEYVAL, gave an overview of the changes that will come into place with the launch of the new methodology for country evaluations: “With this new methodology come new FATF standards in the areas of risk assessment and supervision, as well as new expectations for TCSPs. One of the expectations is for business risk assessments to be more comprehensive, taking into account group structures. A mechanism also needs to be in place to ensure customer accounts and transaction information can be shared throughout the entire group.”
Superyachts – a significant player in the world of yachting
Aside from its established financial services sector, Malta is a significant player in the world of yachting and eGaming. A number of recent changes are shaping Malta into one of the top jurisdictions for those dealing in superyachts and the like.
Alison Vassallo, Partner at Fenech & Fenech Advocates (one of Malta’s oldest firms and its leading shipping law firm), explains a tax development from April of this year: “The most notable local development from a VAT /tax perspective in the realm of superyachts is undoubtedly the introduction of a special 12% VAT rate on charters commencing in Malta. This was introduced by the Malta tax authorities by virtue of Legal Notice 231 of 2023 titled the Value Added Tax Act (Amendment of Eight Schedule) Regulations, 2023 with effect from 1st January of this year. Subject to a number of conditions, charters will be able to benefit from a special 12% rate which is therefore lower than the standard 18% Malta VAT rate. The Malta tax department also published guidelines to accompany the Legal Notice to better assist the industry in the application and interpretation of these Regulations.”
Conditions for this VAT rate require that the place of hiring is in Malta and that the charter is conducted in accordance with a charterparty agreement concluded for a specified term.
Port Notice by Transport Malta: some are exempt from complying with the provisions
Vassallo adds: “These were also followed by the recent publication of a Port Notice by Transport Malta, which clarifies that visiting yachts calling at Malta for the purpose of commencing a charter operation and/or for berthing/mooring purposes and/or to receive a service but whose normal course of operations and navigation is outside Maltese territorial waters, are exempt from complying with the provisions of the Commercial Vessels Regulations. However, such yachts must provide a copy of the registration document indicating the commercial status of the yacht and if applicable a valid licence or permit to operate commercially as may be required by their flag state.”
Thank you to all of the professionals who contributed to this article.
Key Takeaways
- Cyprus shows resilience with growth in key sectors and a projected €10 billion investment market.
- The government of Cyprus is committed to transparency, implementing the ‘Tax For All’ system by 2024.
- Malta offers an attractive Permanent Residence Program and a low effective tax rate for investors.
- Both jurisdictions are enhancing governance standards and combating financial crime through regulatory updates.
- The demand for sustainable investment is rising, driven by regulatory pressures in the EU, affecting strategies in wealth management.
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