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11 June 2020
While the COVID-19 pandemic has caused global economic turmoil, Cyprus is also facing challenges owing to the global interconnectedness of its economy. The Financial Mirror reported that the International Monetary Fund's April 2020 World Economic Outlook estimated that Cyprus's gross domestic product would fall by 6.5% in 2020, followed by a sharp rebound in 2021. The tourism industry will be particularly affected due to booking cancellations, revenue reductions, increased costs and liquidity pressures. Cyprus-based hoteliers are projecting a 50% reduction in revenues year on year, together with operating losses.
Cyprus is now simultaneously facing a health crisis and impending recession. According to Worldometers, the total number of infections on the island was 972 as of 10 June 2020, with 18 recorded deaths. Policy makers are facing two interrelated crises due to the shutdown of economic activities:
Cyprus has long been a key destination for global investment. The Cyprus Investment Programme is one of the 10 best in the world for global citizenship, encouraging high-net-worth individuals to invest their money in the Cyprus economy in return for European citizenship. The government is working closely with the Cyprus Investment Promotion Agency to support the revival of the economy and has taken measures to protect the value of individual investments during this economic crisis.
The government has expedited the processing of pending applications for the Cyprus Investment Programme in order to attract foreign investment in Cyprus, which would increase liquidity in the economy. Stricter rules have been implemented to make the programme more credible and avoid high-risk citizenships. The number of naturalisations granted per year has been capped at 700.
To qualify for the Cyprus Investment Programme, applicants must invest:
Cyprus is being touted for its recovery strategy and the country's real estate industry remains one of the most lucrative investment opportunities for foreign investors.
With high testing rates and the lowest fatality rates in Europe, Cyprus has promptly and effectively dealt with the COVID-19 crisis. According to an online survey by Invest Cyprus, the island's investment promotion agency, 92% of foreign investors have expressed satisfaction with the country's efforts to tackle the infection, with 88% agreeing that lawyers, accountants and bankers have done a good job of ensuring business continuity.
The highly volatile conditions in the global market are spurring high-net-worth individuals to protect their wealth through European real estate purchases. Applications for the Cypriot real estate-linked investment migration programme increased by 250% in Q1 2020 compared with Q1 2019.
A quick recovery period, combined with less competition, means that sellers will be more open to offering discounts and agreeable payment terms. Further, with the government's plan to fast track credible applications for the Cyprus Investment Programme, foreign investors can now strategically choose the right property and have their applications for a permanent residency permit and Cypriot citizenship processed within six months.
According to the Cyprus Valuers Board, the Cypriot property market is expected to rebound sharply in 2021. The government lifted lockdown restrictions on 4 May 2020, which will lead to the resumption of construction, real estate and public sector operations.
The government has introduced additional measures to ease the burden of the slowdown in investment and reduction in household income.
Suspension of instalment payments
In April 2020 an order was passed to suspend payments of loan instalments (including interest) to financial institutions (ie, banks, loan management companies, the Cyprus Land Development Corporation and insurers) by businesses, natural persons and the self-employed for nine months (ie, until 31 December 2020).
The order applies to parties which had experienced no payment delays exceeding 30 days from the date on their credit facility agreement as of 29 February 2020. Under no circumstances will the non-payment of instalments during this period be considered a breach of a credit facility agreement between a beneficiary and a financial institution.
Financial institutions cannot reject an expression of interest in instalment suspension unless the beneficiary does not meet the above criterion of no delays exceeding 30 days.
Further, social insurance-related fund instalments for March-April 2020 were suspended and extended for two months.
Extension of tax return deadlines
The tax return deadline was extended from 31 March 2020 until 31 May 2020 for both corporates and individuals.
Guarantee scheme for banks
As part of its guarantee scheme, the government will provide a guarantee of up to €2 billion to licensed credit institutions so that they can subsidise part of the interest on the performing loans of individual investors. The government will bear 70% of any losses arising from new secured or unsecured loans, while credit institutions will bear the remaining 30%.
The government acted swiftly to contain the spread of COVID-19 and mitigate the economic fallout. Its fiscal stimulus packages (totalling €1.32 billion) and guarantee scheme for financial institutions (totalling €2 billion), combined with the European Central Bank's Pandemic Emergency Purchase Programme, will hopefully lead to Cyprus's gradual recovery, provided that the global infection rate remains under control and a vaccine emerges shortly.
For further information on this topic please contact Angelos G Paphitis at A G Paphitis & Co by telephone (+357 25 73 10 00) or by email (email@example.com). The A G Paphitis & Co website can be accessed at www.agplaw.com.
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