The Cyprus Investment Program (CIP) has been revised several times since the date of its launch back in 2011. While going through several amendments, the program has gradually become more efficient and consequently more attractive to investors. This year, it has gone through a significant revamp.
These recent changes made the scheme more challenging due to the various restrictions. The logic behind such restrictions, according to the finance minister, is to make the program “more targeted and trustworthy’.’ Specifically, to target and encourage the creation of an eco-system of business innovation while preventing any overgrowth of the real estate sector through such investments. Hence, the program nowadays can be considered more regulated.
MISSION TO IMPROVE THE PROGRAM
Over the years, not only has the program been renamed (originally called “Scheme for Naturalization of Investors in Cyprus by exception”), but it also went through considerable revisions. These revisions introduced the submission of applications on an individual basis (instead of the previous collective investment scheme), reduced the minimum investment amount and changed the investment categories as well as the procedure. An important alteration was the inclusion of the main applicant’s parents, provided that they have their own residence in Cyprus.
Regardless of these revisions, the program’s main features have remained unchanged, providing for a straight-forward program with set criteria. This meant that its popularity continued to steadily increase over time. Unavoidably, the popularity raised concerns over the program’s compliance checks and due diligence process; especially in comparison with similar programs in other countries.
Consequently, the Council of Ministers that aimed to improve the Cyprus Investment Program, introduced additional changes that came into effect this year. The overall purpose of the changes was to enhance the credibility and the efficiency of the program and to secure the country’s reputation with an ultimate goal of benefitting the economy. Indeed, the new guidelines meant that the program is now more regulated while the investment is safeguarded through legal provisions. Additionally, the program acquired a socially responsible character, since the new changes provide for support for research and development as well as for contribution to housing incentives for sensitive groups, which have been affected by the increase in housing prices caused by the program’s popularity.
KEY CHANGES TO CYPRUS PROGRAM
In May, a donation of 150,000 euros was introduced, which is split between the Research and Innovation Foundation and the Cyprus Land Development Corporation. In spite of the beneficial aspect of the donation to the society at large, this criterion has increased the overall cost of the investment, especially taking into account the relevant duties and taxes (e.g. VAT on new properties.)
In July, the Council of Ministers decided to impose the requirement for the donation, following the approval of a successful citizenship application, instead of requiring the donation at the early stages before the submission of the application. This was a positive development for interested investors since their funds will not be donated if and when a citizenship application is rejected.
Also, the minimum period of maintaining the investment has been increased from three to five years. While this extends the overall return on interest, maintaining the investment for two more years has been neutrally received by interested investors. In addition to this, a bureaucratical procedure was introduced: a valid Schengen visa must be presented at the time of submission of the investor’s application. The same requirement applies to any of their family members who are over 18 years old.
The criterion of investing in governmental bonds is no longer an option, while the financial criterion of bank deposits has not been available since September 2016. Instead, the investment in securities on the secondary market of the Cyprus Stock Exchange (CSE) is now available, up to 200,000 euros, in cases where the applicant chooses to have a combination of the offered financial criteria.
As the majority of investors were choosing to invest in real estate, the Council of Ministers imposed important criteria in order to safeguard investment in immovable properties. Submitted applications must include a secured Planning Permit for the construction of immovable properties (in accordance with the Town and Country Planning Law), while a Bank Waiver Letter must be provided in case the properties have mortgages. If the property’s construction is completed, a Completion Certificate must be provided, and if the property is under construction, a specific account must be used or a Performance Bank Guarantee must be secured.
Since Aug. 23, high risk individuals are excluded from the program. Specifically, those who hold or held a political position during the last five years, those subject to criminal investigation or criminal proceedings, those affiliated with legal entities restricted or sanctioned by the European Union or sanctioned by non-E.U. countries or by the United Nations’ Security Council.
Notably, as of Feb. 26, citizens who have applied to obtain the citizenship of another European Union member-state and have been rejected, will no longer be eligible to apply for the CIP.
An even more vigorous due diligence procedure will be implemented soon, as three compliance companies are expected to be appointed by the government to carry on the diligence and background checks on the applicants.
During August, a 10% decline was recorded in property sales compared to August 2018 in all market segments with the exception of sales to EU citizens, which rose by 3%, according to official figures of the Department of Lands and Surveys. This decline can be linked to the new restrictions that came into effect in May earlier this year.
Despite this, the interest on the CIP is still very much alive and vibrant.
Investors are seeking to diversify their investment and implement structural and substantive ventures in the country, exploring various other investment options related with the island’s traditional profitable industries, tourism and shipping, as well as the emerging sectors of start-ups, energy, filming, funds and education.
Undoubtedly, the current criteria and restrictions provide for a more regulated program, open to high net worth individuals having a serious interest to invest, for a longer period of time, and who can also present an approved diligence background.
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