• 6 reasons why the professional services sector in Cyprus is headed for consolidation

    By Citius Trust Limited


    A number of changes in the market are indicating that a consolidation of the professional services sector (which includes Law Firms, Accountants and Fiduciary Companies) in Cyprus is imminent. In an ever changing world and at an increasing speed this may be inevitable, yet it also means that early action is key to successful transition.

    Arguably, both the changes that could initiate the consolidation and the consolidation itself will eventually prove positive for the country as a whole, as well as the clients and professionals in the sector. However, until the new equilibrium is achieved (post consolidation), everyone should look into their business model and take the necessary steps to ensure business continuity and profit margin protection.

    Below is the list of the six catalysts we consider as the most significant ones:

    1. Central Bank's aversion towards shell companies
    2. Following the circulars from the Central Bank of Cyprus, Cyprus banks are expected to restrict their services to companies that have an economic reason of existence, have sufficient substance to demonstrate that both effective management and control are performed from Cyprus and produce audited financial statements. This results in:

      • the limitation of the use of offshore companies (at least with Cyprus bank accounts), and
      • pressure on Cyprus companies used in cross-border schemes to strengthen their presence.
    3. Russian clients
      • Tension at the diplomatic level between the USA and Russia resulted in numerous Russians (and the companies they control) to be sanctioned. Over the last two years the list with sanctioned individuals/entities is increasing in length and, given the current discussions, it seems that the list is more likely to lengthen rather than get shorter.
      • A secondary effect of the USA and Russia tension is the difficulty non-sanctioned Russian clients face with their US Dollar payments. The scrutiny such payments go through and the frequency of their rejection results in operational difficulties.
      • Deoffshorization, although not strictly implemented and monitored by the Russian authorities, reduces the benefit of having cross-border structures.
    4. Scheme for Naturalization of Investors in Cyprus by exception
    5. The scheme has been under the spotlight for some time now and its future is becoming uncertain. Even if it will continue to be available, its popularity might be affected by the:

    6. Regulatory developments
      • Automatic Exchange of Information and BEPS initiatives by the OECD have massively changed the tax planning landscape.
      • Compliance burden for all participants in the market (service providers, banks, investments firms, etc) is increasing with such rate that market participants are finding themselves spending more time on becoming and remaining compliant than engaging in revenue producing activities.
      • Offshore jurisdictions asking for presence and demonstration of effective management and control locally.
    7. Banks
    8. Aside from their business model risks (NPLs, profitability, high expense base, competition from fintech companies, negative interest rates), banks in Cyprus will face a significant business reduction due to the above issues, not necessarily a bad thing in the long term.

      Service providers find the account opening experience to be painful:

      • Banks are reducing the number of business introducers and they are expected to meet their clients in person, in line with the Anti-Money Laundering law,
      • They need to demonstrate that their clients have presence locally, as per point one above,
      • The increased compliance burden faced by the banks translates into much lengthier KYC procedures and heavy document collection, which results in further delays.
      • Banks are continuously asked to look into and report on their existing portfolio which results in less interest/focus in new clients acquisition.
      • The banks’ general risk aversion and/or the clients’ impatience often result in aborting the bank account opening process.
    9. Market participants
      • The number of market participants is large, following years of growth in the sector. As the volume of clients decreases many companies will find it difficult to maintain their profitability.
      • Fiduciary companies, in particular, will struggle to survive unless they quickly readjust their business model.
      • Firms with small headcounts are expected to suffer most. It is not possible to deal with the current levels of compliance requirements and run the business at the same time.
      • Small companies will start looking into joining other players so that they achieve sustainable profit margins.

    Consolidation is not necessarily evil. In fact, adapting timely to the new reality can only result in a sustainable business model in a professional, very transparent and compliant environment.

    What are you doing to ensure business continuity?

    Related Topics:
    Back to Articles Back to Citius Trust Limited
  • The information provided in this article is for general information purposes only. The information is not intended to be comprehensive or to include advice on which you may rely. You should always consult a suitably qualified professional on any specific matter.

Citius Trust Limited

Citius Trust is an independent boutique services firm, which provides bespoke solutions to clients. Our aim is to deliver top quality end-to-end solutions for our clients, optimize costs, streamline operations and processes and drive value. Our directors take the lead role in managing our relationships with our clients, they are always available and provide ad hoc advice. We offer world-class intellectual capital through a transparent, tailored and client friendly approach.

View profile

Follow Us

Greek citizen setting up in Cyprus - The checklist! We get a lot of queries from our Greek clients and associates on how Greek citizens can become Cyprus tax residents and what the process of obtaining a tax residency certificate is. As such, we have prepared the below checklist to assist everyone interested in this.

Read more
Specialist writers View All
Copyright © 2012 - 2019 Offtax Ltd. All rights reserved. Compare Countries News & Articles About Join Us Directory Contact Us