Cyprus offers a business-friendly environment, competitive 12.5 per cent corporate tax rate – the lowest in the EU – and extensive double tax treaties with over 65 countries. Additional incentives, such as a 2.5 per cent tax on profits under the IP Box Regime and no capital gains tax on securities sales, make Cyprus especially advantageous for fintech firms.
In addition, from 1 January 2025, the Startup Visa Scheme was updated, key elements are:
1. Extended Residence Permits – The duration of residence permits has been increased from two to three years, with the possibility of renewing for an additional two years.
2. Reduced Equity Requirements – The equity ownership requirement for startup founders has been lowered to a minimum of 25% of the share capital, making it easier for diverse teams to qualify.
3. Increased Foreign Workforce Capabilities – Startups can now employ up to 50% of their workforce from abroad, up from the previous 30%, facilitating greater international collaboration.
4. Incentives for Significant Investment – Startups investing at least €150,000 in Cyprus can recruit additional foreign personnel beyond the set quota.
5. New Evaluation Criteria – Startups aiming for visa renewal after three years must now demonstrate a 15% revenue increase, secure €150,000 in investments, or achieve specific innovation milestones such as introducing new products or services.
The technology sector, which includes fintech, has seen significant growth in Cyprus, with investments reaching €3.3 billion in 2022 and €4 billion in 2023, contributing 15 per cent to the GDP. Cyprus ranks fourth in the EU for technology sector development, with over 800 tech companies, including numerous fintech firms, establishing a strong presence.
This growth is fuelled by international companies and talent, making the sector a key contributor to the economy, accounting for over 10 per cent of GDP. Strategic proximity to Europe, Africa and Asia provides access to diverse markets, while robust digital infrastructure and a strong regulatory framework support international operation.
Cyprus is strengthening its position as a leading hub for Fintech and digital finance companies with a series of regulatory advancements and tax incentives. These measures include:
1. MiCA Implementation for Crypto-Assets:
Cyprus is aligning with the EU’s Markets in Crypto-Assets (MiCA) regulation, which provides a harmonized legal framework for crypto-assets and related services. CySEC has taken steps to facilitate a smooth transition for crypto-asset service providers (CASPs) operating in Cyprus. This will ensure that Cyprus-based crypto firms benefit from streamlined compliance with EU-wide standards, enhancing investor protection and market stability.
2. IP Box Regime:
Cyprus offers a 2.5% effective tax rate on qualifying IP profits through its Intellectual Property (IP) Box regime. This regime benefits tech and R&D-focused companies that prioritize innovation. The 80% exemption on income from eligible IP assets, coupled with the “Nexus approach” that calculates eligible income based on R&D conducted within Cyprus, encourages substantial local economic activity.
3. CySEC Sandbox:
The Cyprus Securities and Exchange Commission (CySEC) Sandbox provides a safe and controlled environment for Fintech companies to test and develop new products and services before bringing them to market. This reduces barriers to entry for Fintech startups and fosters innovation.
4. EMI Regulations Under the Central Bank of Cyprus:
The Central Bank of Cyprus (CBC) has established clear regulations for Electronic Money Institutions (EMIs). These regulations provide a robust framework for EMI operations, ensuring consumer protection and financial stability.
Cyprus has emerged as a leading hub for Fintech and IP-driven enterprises, thanks to a combination of regulatory advancements and tax incentives. Recent updates surrounding the Markets in Crypto-Assets (MiCA) regulation, the IP Box regime, the Cyprus Securities and Exchange Commission (CySEC) Sandbox, and frameworks for Electronic Money Institutions (EMIs) under the Central Bank of Cyprus (CBC) have further solidified Cyprus’ position as a tech-friendly jurisdiction for financial innovation
As a result of these advantages, the Cyprus Fintech ecosystem is growing rapidly and is attracting attention from both domestic and international investors. Also, with a favorable regulatory environment, tax incentives, skilled workforce, government support, and strategic location, Cyprus is well-positioned to become a leading center for Fintech innovation and economic growth in the years to come.
Cyprus’ Fintech ecosystem is highly inclusive and offers a number of advantages for businesses from across the EU:
● EU Harmonization and Access to Market: Cyprus’ implementation of EU directives like MiCA and PSD2 provides a harmonized regulatory framework, simplifying compliance for Fintech companies operating within the EU.
● Skilled Workforce and Government Support: Cyprus possesses a highly skilled workforce in finance and technology, meeting the talent demands of Fintech companies. The government’s commitment to the ecosystem is evident through initiatives like the Cyprus Innovation Hub, Fintech Research Center, and FinTech Forum.
● A Hub for Cross-Border Investment: Cyprus serves as a major hub for cross-border investment, attracting numerous international banks and financial institutions. This facilitates capital raising and expansion into new markets for Fintech companies.
Also, Cyprus’ strategic location at the intersection of Europe, Asia, and Africa, combined with its favorable regulatory environment, skilled workforce, and government support, makes it an ideal base for Fintech companies seeking to expand into new markets and foster cross-border collaboration. This strategic location gives Cyprus a number of advantages:
Access to a large and diverse market:
● Cyprus’ proximity to Asia and Africa provides access to emerging markets with a high demand for Fintech services.
● Cultural diversity: Cyprus’ diverse population, a harmonious blend of Greek Cypriots, Turkish Cypriots, Armenians, and Maronites, creates a dynamic cultural exchange. This confluence of cultures fosters a vibrant and inclusive environment and the cultural diversity serves as a catalyst for innovation and collaboration, driving the growth and success of the Fintech sector.
● From an EU perspective, the inclusivity value of Cyprus’ Fintech ecosystem is a key consideration. The EU is committed to promoting inclusivity and diversity in all sectors, including the financial sector.
The replicability of Cyprus’ fintech ecosystem in both EU and non-EU countries can be assessed through several key dimensions, highlighting its regulatory advancements, tax incentives, and supportive frameworks. Other countries may adopt similar strategies to enhance their own fintech landscapes.
1. Replication Potential: EU member states seeking competitiveness within the single market and non-member states aiming for globalization can adapt Cyprus’ principles according to their socio-economic contexts.
2. Collaborative Opportunities: Engaging regional stakeholders, including industry associations, to share best practices will promote broader adoption across borders and foster harmonized growth.
3. Innovation and Testing: The CySEC regulatory sandbox exemplifies how controlled environments drive innovation. Other countries could implement similar sandboxes for safe testing of fintech solutions while ensuring compliance.
4. Electronic Money Framework: Clear guidelines from the Central Bank of Cyprus (CBC) regarding Electronic Money Institutions (EMIs) can inspire other nations to create robust e-money regulations that facilitate secure digital payment solutions.
Cyprus serves as an attractive model due to its combination of favorable regulations, innovative tax policies, structured sandboxes for experimentation, and clear guidance on electronic money operations:
Regulatory Frameworks:
● EU Countries: Many are aligned with MiCA but can learn from Cyprus’ phased compliance approach.
● Non-EU Countries: They could tailor aspects of MiCA to local needs while creating sandboxes for foreign investment attraction.
Tax Incentives:
● EU Countries: Consider enhancing IP Box regimes or R&D tax credits linked to local activity.
● Non-EU Countries: Develop competitive tax regimes promoting technology investments using “Nexus approaches” that support local talent development.
Supportive Ecosystems:
● EU Countries: Replicate initiatives like the CySEC Sandbox for knowledge sharing between startups and financial institutions.
● Non-EU Countries: Establish partnerships among government bodies, private sectors, universities, and incubators to nurture emerging fintech companies effectively.
Examples of successful implementations include Estonia’s regulatory sandbox and IP Box regime, and Singapore’s comprehensive support for fintech through similar frameworks. By adopting these initiatives, countries can foster a conducive environment for fintech growth.
