Cruising in the Med

As Cyprus establishes its legal market’s standing on the world stage, James Swift asks lawyers on the island where they see themselves following the downturn and Greece’s travails

Cyprus has transformed itself over the past 10 years. The legal market has gone from a small offshore jurisdiction dominated by the shipping industry to a thriving eurozone hub, ­attracting billions in investment from Europe, India, Asia and in particular Russia.

The increased activity in the financial sector has also attracted interest from some larger offshore firms, such as Conyers Dill & Pearman and Harneys, which in the past year tied with local Cypriot firms Antis ­Triantafyllides & Sons and Aristodemou Loizides Yiolitis respectively.

“I think the prime driver [for the tie-up] in terms of markets was Russia,” says ­Harneys development partner Peter Tarn. “We have a British Virgin Islands office, with a lot of work in Russia and we have a good market share there. Most of the finance transactions and a large number of ­corporate transactions had a Cyprus angle, so [a tie-up] seemed to make sense. The other issue is that Cyprus has a wide range of ­double tax treaties, so that made sense to
us too.”

According to Tarn the country also has untapped potential as a funds jurisdiction.

“There’s not much funds expertise in Cyprus at the moment and we obviously have people looking at ways to exploit that,” he says. “It’s all a bit woolly at the moment, but having an EU jurisdiction there makes sense.”

And while the downturn slowed the progress in Cyprus, one local partner still believes “there are not enough good lawyers to do the work” on the island.
Factor in the misfortunes of Greece, which have shaken things up even further, and it makes for interesting times in Cyprus.

So at this crucial juncture for the island, The Lawyer asks some of the country’s top firms for their reflections on how the legal market has fared throughout the downturn and what lies in store.

Stelios Triantafyllides, Antis Triantafyllides & Sons

How has the economic crisis in Greece affected Cyprus and
the Cypriot legal market?

The economic crisis in Greece has, so far, had generally beneficial results for Cyprus’s legal profession in that a fair number of Greek businesses are choosing Cyprus as an attractive alternative base for ­establishing vehicles for their outward investments.

In the absence of M&A deals and company registration, what has been driving your practice and, in your view, the practices of Cypriot law firms as a whole?

It’s not accurate to say that M&A deals and company registration have dried up, and in fact there’s been a substantial increase in 2010 compared with 2009.

In any event, ­during the past two years we’ve been busy with ­reorganisations of businesses and the refinancing of various banking facilities given to Cypriot companies.

Have the double tax treaties been effective in attracting investment from Russia to Cyprus?

The double tax treaty between Cyprus and Russia has been the main driving force for substantial Russian-related business, which mostly comprises the use of Cyprus ­vehicles for inward investments into ­Russia and all ancillary legal work, such as the structuring of deals, financing and
so on.

Is there any more legislation being planned that could help develop Cyprus as a jurisdiction, attract investment to the country or provide work for lawyers?

Cyprus is constantly trying to improve the legislative environment to establish itself as a more attractive financial centre. In this respect there were important amendments to the Cyprus Companies Law in 2009 and further amendments are in the pipeline, which will ­hopefully make the legislative regime even more attractive.

Constantinos Messios, Constantinos D Messios Advocates

How has the legal profession in Cyprus responded to the global economic downturn?

We’ve seen a slowdown in international business, with less money being available for investment in Eastern Europe and ­particularly Russia.
A continuous effort is made to promote legal services in the international field, ­looking further east to China and India, as well as some of the former oil-producing Soviet republics.

How has the economic crisis in Greece affected Cyprus and theCypriot legal market?

Inevitably there’s a fallout, but at the same time these events do create opportunities. For example, there’s interest from investors with longer-term outlooks in investing in Greece, which has led to some work.

Can Cyprus rival Mauritius and attract investment from India like it has with Russia?

Yes it can, but it takes a great deal of time to build up the necessary channels of ­communication and trust that would allow this to take place. It’s something we’re ­certainly working on.

Michalis Kyriakides, Harris Kyriakides

What effect has joining the eurozone had on the Cypriot legal market?

I think that the conversion process was particularly smooth and the adoption of the euro had an overall beneficial effect on our economy. It’s contributed to a prudent economic policy and to financial stability. It’s also created a solid platform for doing business ­within the eurozone.  Conversion rate fluctuations for GBP/EUR were always a major issue for the Cyprus economy and this remains an issue after entering the eurozone.

How has the economic crisis in Greece affected Cyprus and the Cypriot legal market?

There has been an effect, especially in the retail and the banking sector, where Greece plays a major role on the island. Regarding the retail market, for many brands Cyprus is ­classified as part of the regional hub of Greece and ­Cypriot retailers operate as franchisees, sub-agents or under a similar arrangement. The problems that Greek businesses have experienced in the past months have had a substantial impact on the terms of cooperation with their Cypriot wings.

Regarding the banking sector, the level of cooperation is also extensive. The major Greek banks have a presence in Cyprus and the major Cypriot banks have a presence in Greece. But the recent financial results of these institutions seem to indicate that they remain healthy and antagonistic, and the only consequence of the credit crunch was to absorb part of the profits, mainly in 2009.

In the absence of M&A deals and company registration, what has been driving your ­practice and, in your view, the practices of Cypriot law firms as a whole?

This has been a trend in 2008 and most of 2009, but not anymore. For instance, ­according to statistical data, there was a reduction in the registration of companies in the range of 30 per cent in 2008 (compared with 2007) and 15 per cent in 2009 (compared with 2008), but this trend has been overturned in the last months of 2009 and ­certainly within 2010.

The first quarter of 2010 showed an increase of 34.2 per cent compared with the same period in 2009. But, within the period where M&A and new formations were not ­happening so often, there was a particular increase in refinancing deals and ­restructurings, insolvencies and liquidations and other related legal work.  In addition, there was a ­substantial increase in litigation work.

Can Cyprus rival Mauritius and attract investment from India like it has with Russia?

Cyprus certainly has some advantages with regard to Indian investments. For instance, under the tax treaty with India, Cyprus does not exercise its right to tax Cypriot ­companies on capital gains from the disposal of Indian securities. Furthermore, Cyprus provides a much better gateway to do business within the EU. Of course, the particular advantages and disadvantages can be highlighted only in each and every different scenario, but in ­general my view is that Cyprus has the potential to become a standard forum to be involved in these types of investment structures.

Alexandros Economou, Chrysses Demetriades & Co

How has the legal profession in Cyprus responded to the global economic downturn?

The economic landscape didn’t change much in Cyprus during 2008 and into 2009. Only law firms with strong practices in ’foreign’ M&A and banking and finance entered 2009 wondering what lay ahead.

Gradually the global economic downturn caught up and law firms have suffered just like other businesses.

Some predict that the Cypriot economy will get worse before it gets better.

Even though there were no layoffs in the legal sector, law firms are reallocating and retooling lawyers, reducing hiring, freezing salaries and otherwise scaling back or putting things off while they await a better economic climate.

Is there any more legislation being planned that could help develop Cyprus as a jurisdiction, attract investment to the country or provide work for lawyers?

Last July various amendments were made to our Cyprus Companies Law, which simplified several legal issues. And last March the European ­Commission approved under EU state aid rules a proposal by Cyprus to impose a special reduced tax on companies engaged in international maritime ­transport, which replaces the corporate tax. The scheme allows companies to opt for a tax calculated on the net tonnage of the fleet that they operate (tonnage tax) instead of being taxed on the ­actual profits of their maritime transport activities.

Within the next few months services of the Registrar of Companies are expected to become automated, thus curtailing red tape and time-consuming processes.

Can Cyprus rival Mauritius and attract investment from India like it has with Russia?

Cypriot firms are predominantly used as holding companies at the top tier of a structure and/or as intermediaries; the organisational structures of groups would involve companies incorporated in ­offshore jurisdictions such as the British Virgin Islands, Liberia and Mauritius. In this sense both jurisdictions will coexist and can’t be seen as competing with each other.

We don’t expect India to invest substantially in Cyprus in the foreseeable future; we expect the interest to remain at the level of financial services in the manner outlined above. Of course, it will all depend on the manner of India’s expansion into Europe.


Christina Ioannidou, Ioannides Demetriou

How has the economic crisis in Greece affected Cyprus and the Cypriot legal market?

The economic crisis in Greece hasn’t adversely affected the Cypriot economy. Cyprus is an international business ­centre with investors from all over the world, among which are Greek investors. The economic crisis in Greece has led to an increase in the use of Cypriot companies as investment holding vehicles. Also, one could argue that Cyprus’s proximity and other connections to Greece may serve as a stable platform for investments into Greece that may be financially attractive for international investors.

Can Cyprus rival Mauritius and attract investment from India like it has with Russia?

I believe that Cyprus can rival Mauritius for investments into India, especially in outbound investments coming from Europe or the US. Cyprus being an EU member state offers economic and ­financial stability and also possesses a more stable regulatory and legislative framework than Mauritius. The use of a particular jurisdiction for structuring is, however, often influenced by cultural assimilations (for example, Hindi is widely spoken in Mauritius) or may become habitual (for example, investors of a ­particular origin may choose a particular jurisdiction because they’re used to it and because they are confident that ’it works’.

Mauritius is inhabited by people of Indian origin and many financial ­services companies belong to Indians, hence the tie with the subcontinent is quite strong. Nevertheless, Cyprus is in a position to rival Mauritius, but in order to do so the government and the professional world need to promote its advantages to the international community and safeguard the favourable double tax treaty between Cyprus and India.

Elias Neocleous, Andreas Neocleous & Co

How has the legal profession in Cyprus responded to the global economic downturn?

We haven’t seen any major changes. In times like this we should expect to see mergers, but that hasn’t been the case. On the ­contrary, there’s been some fragmentation in other firms, with ­people leaving to set up their own practices, presumably because they think they can do better on their own. In Cyprus you can set up with very few overheads so people like to try it, even though it doesn’t always make business sense.

The big four accounting firms, which dominated the market for some tax work and which had started doing legal work, have ­suffered because of the crisis and have been laying off people. This is the first time this has happened for many years in Cyprus and we see it as an opportunity to win more high-end work.

What effect has joining the eurozone had on the Cypriot legal market?

Being part of the eurozone and having one of the world’s most accepted currencies has undoubtedly helped Cyprus as an international financial centre. The Cypriot pound was one of the world’s smallest currencies and would have been a prime target for speculation, so moving to the euro had a very beneficial ­stabilising effect on the Cypriot economy, although that wasn’t in anyone’s mind at the time the ­decision to join the eurozone was taken. The economic turmoil in Greece has caused significant inflows of money and investment into Cyprus [from investors] looking for a safe haven. Having a common currency has facilitated this. To date the effects have been positive, but the situation is fluid.

How has the economic crisis in Greece affected Cyprus and the Cypriot legal market?

Cyprus is undoubtedly affected by what’s going on in Greece. There’s been an outflow of capital from Greece estimated at R8bn [£6.6bn]. Most of it went to Luxembourg, but around R1.5bn is estimated to have come to Cyprus. In addition, a lot of Greek ­businesses and entrepreneurs are considering moving here since the countries have a great deal in common in cultural terms. This trend is in its infancy, but it may prove to be a significant new business opportunity for Cyprus.

Can Cyprus rival Mauritius and attract investment from India like it has with Russia?

The Cyprus-India treaty has benefits in some areas that are absent from the Mauritius-India treaty, and Cyprus can play a valuable part in international structures for investment into India. Cyprus also has an attractive double tax treaty and other bilateral treaties with China, and we’re seeing increasing activity with China. Until recently Cyprus had tended to maintain a very low ­profile, and efforts are now underway to publicise its benefits more widely.