The recent recovery from the 2013 financial crisis fueled a lot of hope that the Cyprus economy would be back on its feet and prosper again has returned. The Cyprus governments smart decision to offer the Cyprus passport for investment has brought Cyprus back to the market. Russians have started to come in substantial numbers establishing offices in Cyprus in order to demonstrate substance and CFC requirements, i.e. that real business is being conducted through Cyprus. In order to comply with the Russian tax code requirements, the option to have an EU passport was very attractive for wealthy individuals from Russia and China which led to increased demand in luxury properties which also helped the rest of the real estate market. Everything was too good to be true. However, a good time didn’t last long.
The series of the unfortunate events have started to batter Cyprus like a tropical storm. The storm hit majorly influential sectors of the Cyprus economy – tourism, professional services, and real estate. Among these events are COVID-19 pandemic which essentially brought the tourism industry of Cyprus to its knees. The recent government report has shown a dramatic decline in the arrival of tourists by 80%. The Russian government decision to increase taxation of dividends paid by Russian companies to Cyprus based holding companies have tarnished the lure of the Cyprus tax system for Russian businessmen which might result in redundancies to Cyprus-based lawyers and accountants. The luxury property market was also hit by the recent negative development with Cyprus passports being granted to wrong individuals. So, then Cyprus government once again has to find the right tools in order to handle the economic and political situation. Obviously, the first choice is the EU safety net. Therefore, the government has made the move to secure nearly €500m in loans from EU funding. Those funds will serve as the cushion to help the Cyprus based business to weather the difficult time.