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Next They know how to survive professional services HOME • INSIDER • CYPRUS • They know how to survive professional services
& nbsp & nbspΠάμπος Χαραλάμπους & nbsp; & nbsp;
The resilience with which it has managed to overcome several obstacles and challenges in recent years, is called to show once again the professional services sector of Cyprus, due to the Russian invasion of Ukraine and the imposition of financial sanctions
Cyprus, as a country with close trade, financial and tourism relations with Russia, is significantly influenced by the developments that emerged from the invasion of Ukraine, with the professional services sector being one of the sectors of the Cypriot economy that will have direct effects, as they confirm. to Forbes, the Minister of Finance, Konstantinos Petridis, the President of the Cyprus Association of Chartered Accountants (SELK), Pieris Markou and the President of the Pancyprian Bar Association, Christos Clerides. However, the sector has shown in the past that it has the potential to survive such difficult situations.
Impact
According to Konstantinos Petridis, direct and indirect effects on the Cypriot economy are expected, with the services sector, including tourism and professional services, being one of the sectors expected to be affected. In terms of professional services, ie the provision of consulting, legal, accounting and other services, their turnover and profitability are expected to be affected to some extent, as a share of their clientele comes from Russia and Ukraine. Problems, as explained by YPOIK, have been created, among other things, by the freezing of accounts, which does not allow & nbsp; to businesses and individuals to trade. However, Mr. Petridis also referred to the intention of Ukrainian companies to move their headquarters to Cyprus. This can benefit the professional services sector, through the recruitment of on-site staff or an agreement for the provision of consulting or other services by Cypriots to companies.
For his part, Pieris Markou spoke about the overthrow of many data of the world economic system, with Cyprus being significantly affected by developments, due to the close & nbsp; relations it maintains with Russia. “The professional services sector, in particular, is one of the sectors of the Cypriot economy that will have a direct impact from these upheavals. But it is too early to predict to what extent the industry will be affected, as this will depend on the duration of the war and developments in all sectors. It will take time to see how restrictions and sanctions from Russia will work in various areas. “Already, the signs of the first effects have started to appear in tourism and the import of cereals in Cyprus”, said the president of the Association of Certified Public Accountants of Cyprus (SELK).
SELK is studying the challenges that are created in order to mitigate the effects, however, as Mr. Markou told us, the task is not easy, because the effects are not only related to the war in Ukraine, but also to the upheavals in the international arena. economy. “We consider that it is a difficult situation for the Cypriot economy, which unfortunately coincided with the problems of the pandemic and the large increase in inflation. “As SELK, we demand the preparation of a structured and targeted emergency action plan, not only for our sector, but also in the fields of tourism and trade in general”, is the position expressed by Mr. Markou.
Regarding the effects on the legal profession, Christos Clerides told us that sanctions and measures against Russia will affect it in various ways. Law firms that have a Russian or Ukrainian clientele may suffer some reduction in their work, as some kind of work can not be done (freezing of their clients' accounts or transactions and documents). “Beyond that, however, there will be many questions about the interpretation of European regulations and directives in relation to the measures that are de facto applicable in Cyprus since it is part of European law, which in fact has increased validity even against the Constitution itself. “, Mr. Clerides explained to us. As an example, he asked some questions such as whether the measures are applied retroactively and to commitments, whether they cover bank guarantees and whether they cover all accounts of Russian customers or only the list of persons included in the measures.
“In order to help our members, we had direct contact with representatives of the Cyprus Banking Association, the Ministry of Foreign Affairs and the Ministry of Finance, and the formation of a team in which representatives of the Pancyprian Bar Association and other professional organizations, such as to help our members in the interpretation and implementation of the regulations “, added Mr. Clerides on the subject.
However, in addition to the offices owned by Russian and Ukrainian clients, “our members will be more widely affected as the measures are expected to affect the economy in general and its key sectors such as the tourism industry, the construction industry and other sectors. the financial crisis should also have an impact on the turnover of law firms in a general context “, added the president of the Pancyprian Bar Association.
Durability & nbsp;
The accounting services sector is one of the most dynamic and growing sectors of the Cypriot economy. Its contribution to GDP is great, while it manages with great success the vital sector of investments. The strong resilience of the sector, according to Mr. Markou, is largely due to the flexibility shown by companies in the sector over time, as well as in recent years and the integration of technology tools that have developed the profession and the provision of services to customers. .
“This fact, combined with the many other comparative advantages of the sector (such as high quality services, trained staff, international relations), helped the sector to keep growing despite the challenges it has faced to date. “We hope the same will happen now with the crisis in Ukraine,” he added. & nbsp;
Asked about the consequences of the termination of the Cyprus Investment Program (KEP), Brexit and the pandemic, Mr. Markou said that despite the problems and upheavals, the economy and especially the services sector showed strong resistance. “Judging by the impact that has occurred today, we can say that the situation is manageable, and it also creates opportunities for growth, such as expanding the range of services to more innovative solutions and attracting cooperation with other jurisdictions. “Fortunately, catalytic effects were avoided that would cause serious shocks to the economy.” However, as he said, especially the abolition of KEP and the pandemic have affected the attraction of foreign investments, as a result of which there are effects on real estate and other sectors of the economy.
Pandemic
The pandemic, I think, has dealt much more serious blows than Brexit and the end of the KEP, said Mr. Clerides, regarding the effects on the legal profession. As he explained, the decrees due to the pandemic resulted in, for long periods, the courts operating only for urgent cases, ie there was a reduction in the income of law firms. In addition, the pandemic and the financial hardship have caused a sharp decline in the number of new cases being registered in the courts. Regarding the KEP and according to Mr. Clerides, “only a very small number of law firms had serious income from this program and a much smaller number, which did not & nbsp; more than 15 to 20 law firms, had very large revenues from the program. The termination of the program affected these offices directly, but indirectly, since there is a general decrease in revenues and investments in other sectors of the economy such as construction and tourism, this inevitably affected the medium-sized and small law firms. The challenge for the legal profession is to find new areas of law, with Mr. Clerides noting that, the problems faced especially by small offices and young lawyers will inevitably increase.
Tax reform
One of the major open funds affecting professional services in Cyprus is the promoted tax reform, as the government intends to proceed with a budget-neutral tax reform, which will include an increase in the corporate tax rate to 15%. In February, YPOIK started a dialogue with all stakeholders in the economy, to submit suggestions on the measures that can be adopted, in order to offset the increase in corporate tax. As the Minister of Finance told Forbes, the planning of the ministry, which in fact started in 2019, concerns the completion of the consultation within 2022, with the aim of submitting the proposals for the planning of the tax reform before the Council of Ministers for approval and consequently in House of Representatives to vote on legislation to enter into force in early 2023.
“The proposed tax reform aims to modernize the existing tax framework to meet the new data, and to serve the citizens/taxpayers while maintaining and enhancing their competitiveness while taking into account the European initiatives and “Recovery and Durability”, pointed out Mr. Petridis, who also noted the importance of the digital and green transition sectors. In this context, we aim not only for the tax framework not to lose its advantages, but instead to further strengthen them, he said.
Holistic approach
Unfortunately, it seems that the intention is for some changes in tax rates and the abolition of some taxes, and not for an in-depth and well-thought-out tax reform, was the position made by the president of SELK, Pieris Markou, expressing the position that a dialogue between all stakeholders, for a holistic approach, which will serve both Cypriot taxpayers and foreign investors.
“The tax system of Cyprus was introduced in 2002 for the purpose of harmonization with the European acquis. To date, we continue to operate within the framework of the existing tax system, which, although improved and enriched from time to time, has several weaknesses that make it insufficient for Cyprus to successfully manage the new challenges it is expected to face as an international business and investment destination “, said Mr. Markou, expressing, at the same time, the view of SELK that the tax framework should be made more modern, more functional and more friendly to taxpayers. “Eliminate unnecessary taxes, fold laws, expand the use of technology, reduce bureaucracy and re-approach the issue of tax evasion,” he said./b>
“We consider that any increase in the rate alone is not appropriate without first doing the appropriate thorough study, for whom they will be charged. The government tells us that at the same time the defense contribution will be reduced so as not to affect households. Yes, but this is how foreign customers are affected. Therefore, it is not a simple matter “, said Mr. Clerides. According to the Pancyprian Bar Association, the tax reform is necessary to be in line with international developments, with what other competing countries are doing, but also with the model that Cyprus wants to promote as an economic center for the coming years. Another parameter that must be taken into account according to Mr. Clerides is the headquartering, promoted by the government. “Therefore, the government should proceed with an impact assessment to see the impact of the imposition of the global tax rate at 15% in Cyprus. That is, how many companies (parent or parent) exist in Cyprus, which are affected by the imposition of the global tax rate and whether Cyprus can be attractive in case of change or non-change of the tax rate “.
He expressed , in fact, the position that the increase in corporate tax is in the opposite direction to the trends followed by all other countries. “For the last 35 years, every country has been gradually reducing the corporate tax every year due to the competition that exists between the countries to attract & nbsp; investment. This corporate tax cut will continue. To cite as an example Austria and France who announced that the corporate income tax rate will be reduced from 2024 “, concluded Mr. Clerides.
* From the April issue of the magazine Forbes
