Cyprus has been on the radar screen of HNWIs and their advisers for many years. It has been in a spotlight on and off since 1994 when it became a very popular jurisdiction for Russians to do business through. Many of them immigrated to Cyprus at that point and obtained citizenship or leave to remain visas through various residency or citizenship by investment programmes available at the time. It is hard to believe now that when I first visited the country in 1992, the immigration officers came out of their booths to look at me as I was the first Russian they had ever seen. With its political stability, favourable tax regime, friendly people and fantastic climate, Cyprus has a lot to offer.
Cyprus joined the European Union in 2004 and adopted the Euro as its official currency in January 2008. It turned out to be a less than ideal choice due to the financial crisis that started adversely affecting both the financial stability of the region and the Euro itself around that time. For a while, Cyprus was riding out the crisis quite well and suffered less severe adverse effects than the rest of the Eurozone up until 2012 and grew faster than surrounding countries during that time.
And then came 2012 and the bubble burst. The high interest rate the investors enjoyed turned out not to be the result of some savvy investments but just a classic example of Cypriot banks’ exposure to the overleveraged local property companies. The Greek government-debt crisis did not help and the inability of the government to restructure the troubled Cypriot financial sector led to thousands of people losing billions of dollars. So all in all Cyprus has not enjoyed an easy ride lately.
But the phoenix had to rise again and the Cypriot government and its financial community needed to reinvent themselves and attract new investors and woo the old ones back. Though the initial draft of a Citizenship-by-Investment program was first introduced in 2011, the programme has undergone several updates since and started to be actively promoted from 2012.
The Cypriot Government is currently reviewing the citizenship by investment program. It is expected that the investment requirements will be lowered from current levels and that a residence requirement of at least one year will apply, following the agreement reached between Malta and the European Commission, which introduced such a requirement. The currently applicable Council of Minister’s decision of May 24, 2013, which is still in force, enables foreign nationals to gain citizenship if they meet certain criteria. There are six different options:
Option 1 - National Investment and Donation, which involves an investment of €2m through the purchase of shares and/or bonds of the National Investment Company and an additional €500k donated to the Research and Technology Fund.
Option 2 - Direct Investments - a direct investment into the Republic of Cyprus amounting to at least €5m including the purchase of real estate, businesses, shares or other financial assets. Only approved real estate projects qualify as part of the scheme and must be held for a minimum period of three years.
When investing into the real estate there are two more options offered by the local property development companies, which are organising the pool of investors
- A €2.5m + VAT investment in a single residence. A single property to be used as a residence at a minimum value of €2,5m. The residence must be retained by the investors.
- A €3m + VAT - real estate investment out of which a property to be used as a permanent residence of a minimum value of €500K. The residence must be retained by the investors. The remaining €2,5m can be invested in other properties, including residential, commercial and plots which may be resold aﬅer 3 years.
Option 3 - Deposits in Cypriot banks - the applicant must have personal fixed term deposits for three years in Cypriot banks or deposits of privately owned companies or trusts (in which an applicant is the beneficiary owner) in the Republic of Cyprus of at least €5m.
Option 4 - Local Business Activities – This option is more complex. Applicants choosing this option must be shareholders or beneficiary owners of a company, the management of which is in the Republic of Cyprus and the company must have contributed at least €500k per annum, in the past three years to the Government of Cyprus (in corporate tax, VAT, etc.). If the headquarters of the company are located in Cyprus and employs no less than five Cypriot citizens, the annual government fee is reduced to €350k. If the business employs 10 Cypriot citizens or more, the amount goes down to €250k. In both of the above cases, a three year period preceding the application applies.
Option 5 - Combination of the options 2,3 and 4 - a combination of the above requirements
Option 6 - Impaired deposits - Applicants whose deposits with The Bank of Cyprus and the Popular Bank Public Company Ltd have been impaired due to the measures implemented after the 15th March 2013 totalling at least €3m
In all cases except for option 6, the applicant must hold a privately-owned property in the Republic of Cyprus, the market value of which must be at least €500k excluding VAT. The scheme is a real booster to the local real estate market, which is still recovering from the 2008 financial crisis. Many property developers have special schemes in place regrouping applicants into pools of investors in order to lower the overall investment requirements from €5m to €2.5m.
Provided that such an application is dully submitted and accompanied by all the necessary supporting documents and the investor meets the criteria and conditions of the Decision of the Council of Ministers, the time frame for the completion of the process is approximately 3 months.
The programme as it stands at the moment is a more attractive option than its main rival – Malta citizenship by investment programme, which has a high donation tag of €650k attached as well as a 12 months residential requirement. But it looks like the potential applicants need to hurry if they want to become proud EU passport holders as changes are imminent.
For more information on citizenship by investment programmes, Shorex Capital is running regular roundtables in various European cities. The next roundtable will take place in Geneva on 3rd December at the Grand Hotel Kempinski, for further detail please visit: http://www.shorexgeneva.com/citizenship-by-investment-roundtables.html