Register to download the report. Already a member?

Download PDF

Click Here for $250 / 6 months

Click Here for $450 / year


Cyprus – Angelos Gregoriades, Senior Partner and Head of Tax & Corporate Services & Iacovos Ghalanos, Board Member

20.11.2014 / Energyboardroom

Two figures from the senior leadership of KPMG Cyprus discuss the country’s position as a professional service hub, and the challenges of diversifying Cyprus‘s economic base.


Cyprus is globally renowned for its professional services sector. How has this international status been achieved?

Cyprus’ stake in the professional services’ sectors goes back many years, dating to the time where a special tax regime was introduced (in 1978) that specifically benefited the international offshore industry. With our accession to the European Union, this tax regime is no longer in place; our obligation to abide by the laws of the European Union rendered that regime no longer applicable. However, in the period between its introduction in 1978 and the time the regime was abolished in 2004, the tax regime enabled Cyprus to assume its role as part of the international finance apparatus. This was a crucial phase notable for the development of highly educated lawyers and chartered accountants across the island. In short, the blossoming of Cyprus as an offshore financial center jurisdiction generated not only substantial short-term income, but also considerable expertise in specialist fields such as accountancy much of which remains to this day. Together with this, we possessed the double tax treaties – especially those that were very favorably negotiated with Eastern Bloc countries such as Poland, the Ukraine and Russia in the 1980s – which has allowed us to expand the scope of our professional services offering into new geographies. That legacy will prove highly useful when applied to the nascent oil and gas industry as well as to some of the other new industries that are now beginning to materialize.

The introduction of EU directives into our local system then enabled Cyprus to refocus the type and nature of services that we provide. One of the up-and-coming areas now is the promotion of the island as a financial services jurisdiction along the lines of Luxembourg or Ireland. Directives have already been introduced whereby, in order to work within the EU banking sector, you must establish a base within a member state and thus we are working on attracting fund managers to Cyprus – especially those from the Middle East and Russia or those with an investment portfolio orientated towards Africa. Coupled with all of this, hopefully the oil and gas sector will pick up soon, and go some way to diversifying the economy while at the same time making full use of the island’s capabilities in business optimization services.

The Cypriot economy has just gone through a pretty severe banking crisis and remains disproportionately weighted towards a triumvirate of sectors: shipping, tourism and professional services. To what extent can the rapidly emerging hydrocarbons industry play a lead role in guiding the country back to economic prosperity? 

To a great extent, I would expect a rapidly emerging hydrocarbons industry, properly managed, to help significantly in rebalancing the economy. At the same time, it will also stabilize the banking sector, which is currently going through an overhaul. We still have some time to go though until we can see the benefits from the hydrocarbons industry in Cyprus. Considering that we are actually a very small and flexible economy, once we get our immediate problems to do with debt servicing resolved, we should be able to correctly manage the banking sector going forward.

If we compare the financing of private sector activity in the US with Europe, we can notice stark differences. In America, 80 percent of the financing comes from private investments whereas in Europe it is a mere 30 percent with a far greater reliance on the banking sector. This goes some way to explaining the current lack of liquidity in the Eurozone. Cyprus mirrors this situation at the national level. Because private funding will come through private equity funds, this is an area which the government is rightly trying to bring into the jurisdiction. This will hopefully help us to catch up again quickly. 

What contributions can the professional services sector make with regards to Cypriot oil and gas in professionalizing the infant industry and bringing it into line with international standards?

The oil and gas companies that are already operating in the region are all multinationals well used to international norms of operation. We have a network of professional advisors and a center of excellence from where we can draw resources to assist these companies according to their needs and requirements. It’s a new sector for Cyprus and we haven’t yet had the prior experiences in order to develop the industry on the professional side; nonetheless, through leveraging our global network, centers of excellence and worldwide pool of expertise, we can bring in the necessary resources and assist them in many ways. For example, we can help them on their project development strategies; or with regards to audit and tax provisions locally. We are also on hand to assist the government in setting up an appropriate regulatory framework going forward, which is precisely what these companies need in order to fully develop and utilize their hydrocarbon assets.

There are quite a number of educated Cypriots working abroad who are now coming back to Cyprus, which will also help boost what has the potential to be an excellent and prosperous industry. One of the objectives of the government should therefore be to foster and accelerate this trend. We need to introduce some tax benefits and other incentives in order to attract them home as quickly as possible

What are the challenges of attracting these bright minds back to Cyprus?

Going back to the workforce, some of the Cypriot universities have started to introduce a number of programs specifically aimed at providing skilled labor to the hydrocarbons sector. Bright minds left because there was a lack of high-level employment for them, so the greater job availability that we are expecting this industry to bring will obviously help. Salary is also an important issue, though if they were to be employed by the international oil companies, their salaries would definitely be comparable. On top of that, let’s not forget that according to a recent study, Cyprus is also considered the fifth best place to live in this part of the world. 

There are currently no specific tax laws relating to hydrocarbon E&P. Is this testament to a lack of legal and regulatory frameworks or a part of a deliberate policy to draw in outside investment and the participation of elite oil and gas majors? 

The actual production sharing contracts that have been signed with various operators include a number of taxation benefits in addition to the overall tax regulation. There are ongoing discussions as to the optimum treatment for tax purposes of these commercial findings. It’s not a framework that has been completely finalized and set in stone.

Instead of overhauling its tax regime, Cyprus opted for a profit-sharing contract context. If we follow this trend, there may be no need to have a specific oil and gas tax system as such. Regarding high-wealth individuals working in this sector however, there could be new provisions introduced. The tax treaties that we negotiate now will have a special provision for oil and gas explorations to ensure that it is clear as to who has the tax rights going forward.

How would KPMG counsel the Cypriot state to go about sustainably developing the newfound hydrocarbon wealth? What would represent an optimum set-up that would benefit operators, service providers, and the national economy alike?

The most important factor would be having a robust regulatory framework and investment regime in order to attract the IOCs to Cyprus in the first place. This needs to be coupled with the Government’s own strategic incentives, which would be the promotion of employment, the generation of growth and the establishment of Cyprus as an energy hub. This needs to be done not just for Cyprus, but for the region in general as well. This is because, having a regime like that in place would actually attract additional work from the region, and not just from the findings within Cyprus’ EEZ. The infrastructure is in place, with the possibility of further developments, to service both the local communities as well as the international markets in Europe and Asia, depending on political and economic factors.

Safety standards and protection against environmental hazards is something that needs to be formulated and watched very closely throughout the operations of the oil and gas industry. It’s about building a sustainable cluster growth, not just managing the discovery and production of hydrocarbons. Fortunately, we have the benefit of having learned from other countries that have achieved this. We can see what works and what doesn’t work and we know exactly what we need to do to demonstrate to these international companies that we are the sort of robust and safe destination where they can set up business.

How ready is Cyprus to assume the ultimate role of being the hub for the region’s oil and gas operations?

This is the strategy of the Government, depending on the capacity and volume of hydrocarbon findings. Currently, our proven discoveries and bilateral agreements with neighbouring States are not enough to constitute Cyprus as a hub, or for the development of further infrastructure. Hopefully, there will be further discoveries and agreements, which will make infrastructure projects viable that will serve not just Cyprus, but ultimately the entire region as well.

There have been discussions with Egypt in terms of sharing an LNG plant, but if you look at the geographical and political surroundings, the only country that is acceptable as a hub is Cyprus. We have a political situation in Cyprus as well, but compared to the problems of the other countries in the region, it is inconsequential.

What service offering are you expecting to deliver to the oil and gas industry here?

We provide a range of services to do with financial advice and compliance with regulatory obligations. Our advisory department is divided into a number of different services that we can offer: financial advisory services in terms of mergers and acquisitions, internal audit services, financial risk management services, IT advisory services, recruitment services, and legal and training services offered through the KPMG academy.

We have continuous support from our International office/ centers of excellence as well as through our international portal for oil and gas, which provides insights into what the requirements are and how each oil and gas company deals with their day-to-day operations. Through our people and knowledge we feel that we can assist the IOCs in Cyprus in their daily requirements.

And what are you doing to prepare yourselves here on the ground to be ready to serve this new industry? 

In terms of readiness, we’ve developed an oil and gas group in Cyprus that has specialists from each of the three core areas: audit, tax, and advisory. In order to assist clients in their needs, this group has attended a number of trainings and has gained a lot of experience in this sector. Over the last six years, we’ve also assisted the Government during the licensing process as well as during the supervision of PSCs, which provided a very good opportunity to gain experience in the financial aspects as well as technical aspects. We have a complete range of services provided, taking into account all the market players, the Government, the IOCs and their subcontractors.

What are your strategic priorities and ambitions looking forward with regards to KPMG’s interaction with the oil and gas industry? 

One of our priorities is to become sector leader. We are monitoring international developments worldwide and we have developed a network of professionals that can canvass around. We want to be there for whatever comes out in terms of tenders at the Government level or at the client level, provided there is no conflict of interest. The one aspect that sets us apart from other companies is our expertise and international reach. Our key strength is in helping to deliver that expertise locally to Cyprus and professionalizing the market going forward.


To read more articles and interviews from Cyprus, and to download the latest free report on the country, click here.



Most Read