Investment assistance for business and Ukraine-Cyprus cooperation in the turbulent times
Cyprus is an increasingly promising country for doing business, investment, and life. The island’s success is due to progressive legislation, a regulatory regime, and a strong network of financial and professional service providers. Also, the Cypriot government and institutions are active in maintaining leadership in the industry, providing access to fast-growing markets, and supporting business in Cyprus.
On the 15th of June, 2022, the Southern Ukrainian Office of the European Business Association held an online discussion with the Cyprus Chamber of Commerce and Industry with the participation of the diplomatic corps. This discussion was supported by the Embassy of Ukraine in the Republic of Cyprus, the Exporters and Investors Council under the MFA of Ukraine, and the Cyprus-Ukraine Business Association. The meeting was moderated by Mr. Alexander Lazarev, Chairman of the EBA Odesa Coordination Council, Co-chairman of the EBA Customs Committee. The talks were focused on investment assistance for business and cooperation in turbulent times.
His Excellency Ruslan Nimchynskyi, Ambassador Extraordinary and Plenipotentiary of Ukraine to the Republic of Cyprus, was a special guest at the meeting. Thus, according to His Excellency, Ukraine’s European integration, post-war reconstruction, job creation, and financial support are the main pillars today for Ukraine. ‘’We are calling on the partner countries to advance the return to Ukraine of international companies that operated in the country before russia’s large-scale aggression. We urge companies that have suspended operations to resume them. And those who left the russian market are invited to open regional offices in Kyiv. We are grateful for the hospitality for Ukrainian refugees. Financial support from friends and allies in Cyprus with social and humanitarian issues. We invite our Cypriot partners to join the reconstruction on a regional basis. Take patronage over regions, cities, and towns. We want to build a new state according to European standards and parameters. Ukraine is confident of victory, so we are already developing a plan to restore our country. We want to build a new European Ukraine. With new transparent rules. With the implementation of world best practices. A digital country, convenient for people and businesses. Safe and economically strong. The President of Ukraine has established the National Council for Reconstruction, which has involved experts in 23 sectoral areas. Ukraine sees itself in the future as economically and politically integrated with the European Union. And according to the Prime Minister, the future Recovery Plan will be based on a new Ukrainian economy and a new economic model. Liberalization, deregulation, and digitalization will be the main tools on which the business climate in Ukraine will be built. Before the full-scale war, the Government of Ukraine paid a lot of attention to the partnership between the state and businesses in various fields. Particularly, in infrastructure and energy. This interaction will be significantly strengthened and expanded. The state plans to invest billions in increasing gas production, the development of “green” generation and energy in general, as well as in the development of our military-industrial complex. Deep processing in the agricultural sector and metallurgy will also be a catalyst for a large-scale modernization of the economy. The Government will work with Ukraine’s partners to issue state guarantees to their companies to attract funds for investments in Ukraine. Such guarantees will allow investing in the implementation of significant public-private partnership projects in Ukraine. Ukraine’s membership in the European Union is a factor that inspires Ukrainians. Most of the country’s population supports accession to the EU. Therefore, we need your support in granting Ukraine a candidate status for EU membership’’, — mentioned Mr. Ambassador at the meeting.
Mr. Joseph G. Hadjihannas, President of the Cyprus-Ukraine Business Association made the investment assistance overview. Thus, the Republic of Cyprus proposes the following forms of help to businesses: Tax Benefits (for an example, the corporate tax rate of 12.5%, with tax exemptions on dividends, profit on the sale of shares, and foreign currency gains (non-trading), but tech companies producing IP can get up to 80% tax exemption, effectively lowering the tax rate to 2.5%). Institutional Support (the government’s dedicated partner for attracting and facilitating FDI – acts as a one-stop-shop for investors, as it assists from the pre-investment stage up to post-investment facilitation). The Cyprus Start-up Visa Regime (Non-EU entrepreneurs can enter, reside, and work in Cyprus to establish a start-up with high growth potential). Access to funds for tech companies (Cyprus Business Angels Network, Cyprus Research Promotion Foundation, European Union Horizon Program), etc.
Increasing the investment attractiveness of Ukraine and its business climate is one of the most important strategic goals of the EBA. Thus, the European Business Association conducts a range of surveys to study various areas of the business environment of Ukraine. And the EBA sees its mission in promoting Ukraine as a favourable and safe place to do business through the facilitation of international partnership and cooperation. And with the beginning of the war and the imposition of martial law, the importance of the above-mentioned only has increased. Therefore, Ms. Viktoriia Kulykova, Team Lead of the EBA Advocacy Department talked more about the EBA activity to help both businesses & the state so that they both cooperate & support one another. Thus, the EBA actively provided proposals to the list of crucial imports, as well as to the temporary simplification or cancelation of different permits, and customs procedures, circulated information among the business society regarding the new rules & regulations, etc. Also, since the imposition of martial law, the EBA decided to launch two new Committees: the EBA Ukraine Recovery Committee & the EBA Security Committee. Within the Recovery Committee, we plan to concentrate on the preparation of expert materials on priority areas and ways of reconstructing Ukraine; active participation in the development of the legal framework; development of B2B direction: search for potential partners both in Ukraine and abroad for the establishment of new supply chains, etc. And in this relation, participation in the events like this is very essential for community as it helps to spread information on the new initiative. Also, the EBA advocacy team representatives are taking part in different working groups of the National Council for the Recovery of Ukraine. We also had a meeting with Council’s Chair Mr. Hetmantsev and provided him with our proposals aimed at supporting business in these turbulent times. Within the Security Committee, we plan to deal with different security issues, e.g., cyber security, etc. Moreover, within the EBA Regulatory Affairs Committee as well as other Committees, one of our priorities is harmonizing Ukrainian legislation in accordance with the EU Directives & Regulations. For instance, the Regulatory Affairs Committee works on the implementation of the EU approach to waste management & creation in Ukraine of the extended producer responsibility companies which will account for the collection of different types of waste & its further recycling according to the EU practices. And I am glad to say that last week the VRU Committee on Environmental Policy and Nature Management supported the relevant framework draft law on waste management 2207-1-d and recommended its adoption by the Parliament in the 2nd reading. After this, the active work on elaboration & adoption of the sectoral draft laws for different types of waste, e.g. packaging and electronics will start. Furthermore, the EBA actively assists the Ministry of Economy of Ukraine in facilitating the signing of the ACAA agreement with the EU on mutual recognition of labelling and conformity assessment as well as adoption in Ukraine of different technical regulations & standards elaborated according to the relevant EU directives & standards. ‘’We hope that after providing Ukraine the status of potential EU member all activities aimed at harmonizing our legislation following the EU one will obtain additional impulse. Therefore, we as the biggest business association in Ukraine feel our responsibility to do our best in helping both the business community and the state to survive in this hard, turbulent time. Therefore, we are open to any cooperation proposals, especially with our foreign partners, aimed at supporting business in Ukraine’’, — highlighted Ms. Kulykova in her speech.
Mr. Vitalii Smerdov, Partner of Tax Practice Crowe Mikhailenko told about key tax exemptions in Ukraine under martial law. There is a possibility to choose Turnover tax (so-called single tax) instead of corporate profit tax and VAT at a 2% rate (the max turnover for this tax regime has no limits at all. For example, the company’s turnover could exceed UAH 1 billion and it still can pay single tax at 2% rate). No VAT on the import of goods or services applies. The taxpayers (companies, individuals) that can pay taxes should do so. It should fulfill its tax obligations for the periods beginning from the 24th of February in the following terms: no later than 15 July (for the VAT invoice registration), no later than 20 July (for the declaration), no later than 31 July (for the tax payment). The taxpayers (companies, individuals) that cannot pay taxes could benefit from the tax deferrals. However, they shall fulfill tax obligations no later than 6 months after the end of the war. Also, the recent amendments to the Tax Code of Ukraine (draft law №2260) envisage the VAT refund. However, we doubt that a VAT refund will be provided. Even before the war, there were delays with it. The Ministry of Finance of Ukraine will adopt the criteria for distinguishing the taxpayers who can fulfill tax obligations and those who cannot. And special attention was paid to the avoidance of double taxation, which is quite a problem to solve. ‘’According to the Double Tax Treaty between Cyprus and Ukraine, Ukrainian citizens who move to Cyprus shall maintain their status as tax residents of Ukraine within at least 183 days. Moreover, in our opinion, they should be able to maintain the status even if 183 days exceed, which is the expiration of the permanent home test’’, – stressed Mr. Smerdov during his speech.
Mrs. Alina Kulikovska, Business Development Manager Sovereign Trust (Cyprus) Limited told about doing business in Cyprus for Ukrainian companies, relocation of staff, and support program for Ukrainian refugees. According to Mrs. Kulikovska, Cyprus’ competitive advantages are significantly enhanced by an effective legal system and an attractive tax regime, which offers a wide range of incentives and advantages for both companies and individuals. As a former British colony, Cyprus has a legal system based on English Common Law principles that are widely recognized as the one providing transparency and reliability in business practices. Cyprus business legislation is also similar to that of the UK and, as a full EU member state, companies in Cyprus enjoy full access to European markets and EU trade agreements. The key benefit for a Cypriot company is the 12.5% corporate tax rate, which is one of the lowest in the EU. Cyprus is also fully compliant with EU and international standards and provides access to an extensive network of more than 60 double tax treaties worldwide, including South Africa, Luxembourg, Mauritius, Ukraine, the UK, and the US. There is NO tax on dividends, interest, and rental income of non-domiciled individuals and no inheritance taxes. In addition, Cyprus offers a dividend participation exemption, levies no tax on profits from disposal of securities, no withholding taxes, no tax on capital gains under certain conditions, and no inheritance taxes. It also provides a Notional Interest Deduction (NID) on investment in Cypriot companies and an attractive intellectual property (IP) regime. Cyprus expands ‘’Digital Nomad Visa’’ for remote foreign workers. The Digital Nomad Visa Scheme is available to third-country nationals who work remotely using ICT and can prove that they have sufficient fixed monthly income from abroad to support living in Cyprus (min €3,500/pm).
Mr. Roman Koren, Lawyer Baker McKenzie talked in more detail about the progress of the industry compared to last year and briefly touched upon the state’s current trends, and the functioning of Diia.City and the prospects for the development of this tax regime, given the potential negotiations for EU accession and further approximation of legislation. ‘’The IT industry remains to be of the most export-oriented and one of the crucial portions of the Ukrainian GDP and the overall export. The Ukrainian IT industry despite the full-scale invasion showed the 2 billion US dollars in total export of IT services to foreign clients, which is 28 percent higher than the first quarter of the previous year. Given the feedback of our clients and the interviews of the Ukrainian IT companies, we remain optimistic in thought that even though the war has hampered the progress of the Ukrainian IT industry in export volume, it still has the same volume of export and output of IT-services. This factor helps to maintain the optimism of Ukraine and the majority of our foreign clients. Our IT companies continue to work and our clients who have a hub in Ukraine continue to be optimistic, — told Mr. Koren.
We are grateful to the event partners for this initiative and its realization! It was an honour and a pleasure to collaborate with the Republic of Cyprus on issues of investment assistance for business. Hopefully, we can explore more possible areas of joint interest for our countries and make a big step to strengthen bilateral cooperation!