The war in Ukraine is now leading to a significant shrinkage of growth prospects for this year, with Cyprus being affected by three channels: inflation and high energy prices, tourism and the professional services sector. The Ministry of Finance has officially revised the growth forecast to 2.7%, from 4% which was the initial growth. Lower growth, at 2%, predicts the always cautious and conservative in the IMF forecasts. These forecasts, however, are essentially scenarios as the course of the Cypriot (and European economy) will depend on a large unknown “X”, the course of the war in Ukraine and the extent of the sanctions.
This unknown “X” creates a demanding environment especially for the service sector for reasons that everyone can understand. The sanctions have already limited the activities of Russian-owned companies, affecting their employees and the Cypriot companies that provide them with accounting, auditing, legal and administrative services (as well as thousands of their employees).
“Legal and accounting services are likely to be affected, but as uncertainty prevails it is difficult to make estimates,” the Treasury Department said in its 2022-25 stability program, conducting a conservative assessment of the impact of sanctions.
Market players, with knowledge of what is happening, transfer to “P” a “gray image”. Offices close and people get fired. Russian market-oriented audit firms are having difficulty covering payroll.
The sanctions already affect all Cypriot companies with Russian interests that trade mainly with the Russian market. These companies can not do business in Russia with Russian banks and are gradually running out of liquidity.
Of the approximately 30,000 Russians permanently residing in Cyprus, the vast majority are employees of Russian-owned companies and their families. Their biggest problem today is the lack of cash and there are cases where they had to sell cars or even jewelry in order to be maintained. There are also rumors in Limassol about a “black market” for the exchange of rubles for euros. It is worth noting that under the sanctions the new deposits of Russians in the EU can not exceed 100,000 euros.
Companies that have jobs and can survive are those that have transactions – and therefore income – with the West. They have a chance. The rest can not work, says a market source who confirms that Russia is over for the Cypriot services sector. Cypriots no longer want to cooperate with the Russians as they are afraid. There are no signs of ending the war and lifting the sanctions, instead the sanctions are being strengthened.
The fifth package of sanctions includes prohibitions on registration, provision of registered office, business or administrative address, as well as management services, in trusts or in any similar new legal formation. YPOIK has requested clarifications on whether the ban also applies to existing trusts. The wording of the sanction does not refer to new trusts, but clarifies that the prohibitions do not apply when the trustee or beneficiary is a national of a Member State or a natural person holding a temporary or permanent residence permit in a Member State.
Trustees are not waiting to see what is going on and there is already a mass transfer to the Cayman Islands. Trust management is a very lucrative job for the Cypriot service sector.
Sanctions make life difficult for those Russians living and working in Cyprus and have also brought mobility. Some are leaving, while there are also flows of Russians to Cyprus. Returning to Russia is not an option as they also fear the risk of conscription. To date, no reservists are involved in the war.
Since the beginning of the war, there has been a mass exodus of Russians to Dubai, Turkey, Armenia, and those with Jewish roots are turning to Israel, which also grants citizenship to those who can prove their origin.
A number have chosen Cyprus as a refuge. These are people who have a company in Cyprus and come to the country as employees in their businesses. Sanctions do not block the movement of workers. This is also a way to continue to have some kind of activity. The obligation to disclose the true beneficiary companies puts their companies at risk for future risks if they remain in Russia. As fugitives and permanent residents in the EU they can avoid adventures. We have stated above that the prohibitions on trusts do not apply to natural persons with temporary or permanent residence permits in a Member State. many Russian businessmen.