Destination Cyprus for British Businesses after Brexit

In a paper published September 2016 written by Jill Rutter and Hannah White and published by the Institute of Government [1] those writers say that, “While Whitehall is building the machinery to respond to Brexit, politicians don’t yet know what to do with it – or if they do, they aren’t saying.”

Well it seems now they are saying, as the British Prime Minister at the Conservative Party Conference spoke of a “Great Repeal Bill” to repeal the 1972 European Communities Act which, as the writer understands, will also make all “EU law” into British law allowing their repeal at the British Government’s pleasure. The Article 50 Notice will then be served in March of 2017.

One needs to add this to what a number of commentators have pointed out that in the whole UK exit process there is no obligation on the EU, or Britain for that matter, to agree a trade agreement or any other similar treaty which would allow a continuation or even a morphing of the current free movement of goods, people and services enjoyed currently within Europe by all its members, to continue between newly splendidly isolated Britain and the European Union. An unlikely scenario, but, unless new agreements are entered into, this may mean that Britain returns to the default arrangements prescribed by the WTO.

The end game which is about to start will be a period of uncertainty and unpredictability and can be expected to last for some time.  Jill Rutter and Hannah White in their article estimate that the exit process may take up to ten years. The current UK government seems to think this will only take till 2019. One can further be sure is that the UK’s soon to be erstwhile partners will not make this much easier.

It is not this paper’s intention to analyse Article 50 of the Treaty of Lisbon. However, an examination of this Article, raises a number of queries as to both the internal British process but also how this will be dealt with by both the Member States of the EU, the Commission and the European Parliament, Will the British parliament need to legislate for the Notification to be served? Will the “Great Repeal Bill” be enough? How will the EU institutions and the other powers that be within the EU react to all this? What happens if a majority approving the proposed withdrawal process is not secured in the European Institutions? What happens if the time frames and schedules dictated are not met and no extension is agreed?

It may be stating the obvious but this creates an uncertainty as to what any business currently based and trading from the UK and into Europe is probably facing already and, if not, can very soon expect to face once the Article 50 Notice to withdraw from the EU is served. [2]  Bloomberg on 26 September 2016 warned that based on a KPMG survey, because of Brexit “most UK CEOs would consider moving their headquarters or operations outside Britain.”

Despite Brussel’s obsession with harmonisation and regulation, the EU has managed to keep itself intact despite the massive financial crisis of its Southern Members as well as the current refugee crisis.

The level of criticism for the EU’s handlings of these catastrophies is justified to a great extent but one should concede that with the possible exemption of Greece, it has succeeded in keeping the countries in trouble afloat one way or another and able to survive to fight another day.

The foreign policy of its members and their extraordinary lack of a common and cohesive policy on the refugee crisis is in part to blame for this tragedy but the EU and most of its members have made substantial efforts to do what they can for the refugees even if this effort has shown to the world the lack of unity amongst EU members.

For the foreseeable future the European Union is there and even if it is only to be considered as a trading block, UK businesses whose success is dependent on a steady and foreseeable regulatory, employment, and tax environment should be looking at the viability of setting up shop in the EU and Cyprus in particular. This is especially important to any business which has substantial income derived from trading in the EU. One might expect the industries that may benefit to be financial services, energy, ship management, production and post production services in the music and film industry, software development or even high value tertiary manufacturing, assembly or processing.

The virtual dominance of the UK in Europe in the Finance Services and Banking Sector will admittedly be hard to break. However, one cannot reasonably expect the continuation of passporting for UK banking and investment firms and the ease of provision of cross border financial services and promotion of these to be a given. Europe is likely to be uncooperative probably as a result of pressure from those EU member states who see themselves as competitors or potential competitors vying to offer themselves as alternative hosts to those bankers currently occupying the City of London and the fund and investment managers populating the wine bars of Mayfair.  Cyprus is certainly a destination worth a look.

Important developments and the discovery of natural gas and possibly oil in the Eastern Mediterranean basin and its imminent commercialisation creates opportunities which are not likely to be easy to take advantage of from a distance. Cyprus is becoming a hub of business activity because of this for the region with serious foreign direct investment in that industry and in infrastructure steadily coming in.

The Shipping Industry and the ancillary services needed to support it are to be found in a number of places around the EU and the predominance of Cyprus in this field for any number of reasons is there for all to see. The experience is definitely here and there are plenty of incentives which would justify a move to Cyprus.

There are plenty of countries in Europe who have seen the potential of the film and television industry. Newer countries are still sitting on the fence but any serious production or set up will potentially receive the support of government as well possibly access EU finding from various sources should it chose to establish operations here in Cyprus.

We are finally waking up finally to the truth that modern states need a manufacturing and technology sector. Quite frankly techno geeks and computer boffins are needed to drive economies forward and thankfully their numbers and competencies in the EU and in Cyprus particularly are growing. We have also set up a number of start ups who are producing innovations in tech, bio-tech and production which are looking hopeful. They can also provide the skill base for people who may need to consider hiring locally.

All these UK businesses should be looking at Cyprus. We have survived yet another disaster, this time the financial meltdown of our economy. We are no longer being baby sat through the Memorandum we signed off on in 2013. The unemployment rate is steadily falling, there is modest growth, the main bank seems to be recovering, there may even be a budget surplus before debt repayment and the rating agencies are, slowly but surely, upgrading us.

We have a common law system being an old British colony and part of the Commonwealth. There are around 270 000 Cypriots living in the UK and additionally 12 000 Cypriot students enrolled in British universities. We have 60 000 – 70 000 Britons living in Cyprus. Our total population is around 850,000. There are around a million British tourists who come to Cyprus every year; these are more than half of the overall number of tourist arrivals in Cyprus; this year the rate went up by around 14%.[3]

Strong trade ties exist between the UK and Cyprus (we sell halloumi and potatoes the UK sells us cars and electrical goods) and there is also a growing stream of FDI into Cyprus from the UK.

Applicable tax rates for individuals are a maximum of 35% and for corporates 12.5%. Although the two countries should take a serious look at their extra EU – bilateral trade, employment and provision of services arrangements as well as the double tax treaty which also needs to be updated, it is easy to build on the existing relationships. There is little which any operation will meet in Cyprus that will faze a British business man.

Language is not a problem and our immigration policies especially for professionals and executives are very liberal.

There are plenty of office and other commercial premises which can be utilized for most types of businesses. There are plenty of educated, (a huge number of them have studied in the UK) skilled people who can work in any business.

Cyprus is a safe place to live, good housing is plentiful, international schools readily available and health care is affordable and of a high standard. And of course, do not forget the weather…….

 

Constantinos Messios

CD Messios LLC – Advocates

3rd October 2016

[1] Download Report Here

[2] Bloomberg article Link

[3] High Commission of the Republic of Cyprus in London

–  In Business News, 2016 – http://www.inbusinessnews.com/

–  Statistical Service for the Republic of Cyprus, 2016 – http://www.mof.gov.cy/

–  Department of International Trade, 2016 –https://www.gov.uk/government/publications/exporting-to-cyprus/exporting-to-cyprus

–  Ministry of Energy, Commerce, Industry and Tourism: TRADE SERVICE, TRADE POLICY, BILATERAL AND PUBLIC RELATIONS SECTION, 2013 – Download Here