Enhancing the resilience and competitive standing of Cyprus

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

This positive performance demonstrates the Government’s commitment to the implementation of effective economic policies, which encompass prudent fiscal management, strong support for local businesses, incentives designed to foster growth and the creation of a competitive economy that appeals to investors. As a testament to these efforts, Cyprus is gaining increasing recognition on the international stage and receiving multiple upgrades from international Credit Rating Agencies. Notably, Cyprus has regained its ‘A’ investment grade from 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 includes the promotion of digital transformation and the green transition, alongside a strong commitment to modernising 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.

A major factor contributing to this economic success has been the considerable influx of Foreign Direct Investment (FDI), which is largely driven by the pro-investment environment and the overall investment package that Cyprus offers. Invest Cyprus – the Government’s organisation dedicated to positioning Cyprus as an attractive destination for investment and business – and the Business Facilitation Unit have greatly assisted in attracting foreign investment. What is particularly noteworthy is the distribution of investment across various industries in Cyprus, which underscores the country’s successful economic diversification.

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 (ICT), 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 to attract foreign investment is the Headquartering Scheme, whereby Cyprus offers 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 bringing their key foreign management and staff to the island and establishing or relocating their main or regional headquarters to Cyprus.

Another critical factor in our economic transformation has been the strengthening of the 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.

More generally, financial services offered in Cyprus are much more diversified than they were a decade ago. While, in the past, banking services dominated the financial sector, diversification across financial services has grown considerably. Investment firms, fund management companies, as well as those operating in the fintech space, have grown in number and gross value added in recent years. This trend is also reflected in employment developments across the financial sector. Overall, Cyprus offers a compelling combination of tax benefits, a strategic location and an attractive lifestyle, making it ideal for investment.

• By Makis Keravnos, Minister of Finance

This article was first published in the special publication Doing Business in Cyprus. To view it, click here . To read the entire publication, click here.