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80 Legal Business May 2012

Last year Cyprus’ legal market appeared enviously impervious to the fi nancial crisis. Twelve months later and the Mediterranean fi nancial hub has been hit hard by

heavy exposure to the Greek debt crisis and its successive write downs. In scenes that have been played out repeatedly across Europe – and which are deeply reminiscent of the early stages of the banking collapse in low corporate tax rival Ireland – the island’s sovereign rating has been downgraded to junk status, amid fears that the Cypriot government will be forced to prop up its toxic debt-laden banks, curtailing its access to the international debt markets.

But Cyprus is not rolling over yet. Local lawyers are moving to take advantage of a signifi cant increase in foreign investment work as Cyprus’ government takes measures to cut red tape, including pushing through new legislation to secure its future as a pre-eminent trusts centre. With emerging markets work and energy deals on the rise, including tenders for one of the largest gas fi nds in years underway, fi rms will have to be able to respond and adapt to this market fl ux, but can they?

DOMESTIC DOLDRUMSFor Cyprus’ leading law fi rms, which typically maintain a balance between local and foreign work, the domestic market is currently

Just as the economy in Cyprus was looking strong, the Greek debt crisis dented expansion and growth plans. With the international market increasingly interested in this island nation, how will Cypriot law fi rms cope with the changing demands of clients? CAROLINE HILL

PROBLEM PLAYS

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characterised by a lack of liquidity. Local banks have found themselves in desperate fi nancial straits. Their exposure to Greek debt accounts for roughly 165% of the island’s gross domestic product (GDP). All banking assets, including foreign assets, total 925% of GDP. This has led to banks effectively cutting off new funding to a large chunk of local law fi rms’ clients.

‘The banking sector fall has been felt really badly by everyone, there is no liquidity in the market and banks don’t extend loans to medium or small sized companies,’ comments George Pamboridis, founding partner of Pamboridis.

The lack of liquidity has caused a dip in local instructions for the local players. At Harris Kyriakides, head of corporate Michalis Kyriakides says: ‘The lack of liquidity caused many projects to be put on hold as well as reduced the number of commercial acquisitions on a local level.’

A further local partner added: ‘We need more clients; I told one of my partners the other day to go out and fi nd more clients.’

Existing clients are proving slow or unable to pay their bills and exerting pressure on their legal advisers to lower fees. Christos Mavrellis, company and commercial head at Chrysses Demetriades & Co, notes: ‘What we have experienced is fi rst of all a diffi culty in collecting and a pressure to cut or reduce fees.’

Firms that have typically had relaxed payment terms with trusted clients are having to tighten up those arrangements, and one local partner comments: ‘I have a client who owes me money and I told him when you pay me I’ll work for you, and he’s shouting but it’s too bad.’

‘People are really beginning to feel the squeeze,’ adds Lellos P Demetriades Law Offi ce intellectual property partner Achilleas Demetriades.

The conveyancing market has also been hard hit, with law fi rms reporting that the once steady fl ow of business has now dropped to almost nothing.

Alexandros Tsirides, litigation and company partner at COSTAS TSIRIDES & CO, says: ‘The local market is struggling and conveyancing is dramatically down both in terms of local purchases and foreign purchases.’

A recent phenomenon, however, is the fl ock of Middle Eastern high-net-worth individuals who have started buying properties in Cyprus as it entitles them to a temporary residence. This is attractive should they need to escape the turmoil in their home countries.

‘We have at least two clients who want to come here and start buying up properties, which allows the owner a temporary residence permit in case they need to come here in an emergency,’ says Demetriades.

Meanwhile, the shipping industry that put Cyprus on the map before it developed as

FOREIGN INVESTMENTCompetitive advantage is everything and Cyprus has over the past year intensifi ed its efforts to attract foreign investors and compete with low tax jurisdictions, including Malta and Ireland, by taking steps to reduce red tape and update legislation.

Where 2011 saw funds regulation simplifi ed and the implementation of EU Directive 2009/65/EC relating to undertakings for collective investment in transferable securities (UCITS), the second half of 2012 will see the formerly fragmented regulation of Cyprus funds – divided between the Central Bank of Cyprus and the Cyprus Securities and Exchange Commission (CYSEC) – amalgamated under the aegis of CYSEC.

Offshore fi rm Harneys’ Cyprus managing partner Emily Yiolitis says: ‘The Central Bank of Cyprus and CYSEC have been working really hard on increasing Cyprus’ reputation as a funds domicile. They’ve been aided by the tax legislation – it has one of the best legislations for funds.

‘UCITS are a new fund product for Cyprus, the fi rst of which we’re hoping to see this or next month because the applications are already being processed.’

Future growth is also expected to result from the Alternative Investment Fund Managers Directive. The Directive will require managers of alternative funds to comply with EU rules if they wish to manage and market these funds in the EU. The Directive must be implemented by EU member states by mid-2013, and industry experts argue that Cyprus is likely to attract more fund managers that are keen to operate in a cost-effective, well-regulated EU environment.

‘The Managers Directive will bring managers to Cyprus. We already have a couple of good fund managers set up in Cyprus for tax reasons and I think that is something that is going to grow,’ says Yiolitis.

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a major fi nancial centre is also depressed. At maritime and admiralty fi rm Haviaras & Philippou, senior partner Andreas Haviaras’ outlook isn’t positive: ‘Suffering is a mild word. Some years ago there were 450 to 500 maritime cases before the Supreme Court, now they don’t exceed 30 to 40 a year.’

Not only is the shipping industry suffering at the hands of global markets but it is losing out to less expensive competitors such as the Suez Canal. According to Haviaras, one of the major issues for Cyprus has been the ban by Turkey on ships that fl y the Cypriot fl ag entering its ports, leading to many ships changing fl ag to jurisdictions such as Malta or Gibraltar.

‘I don’t think that many ship owners with operations in the Mediterranean would like to exclude Turkish ports from the places they like to visit,’ says Haviaras.

However, a new law that has introduced sales tax incentives of up to 80% off for yacht owners in order to attract more wealthy individuals is expected to be benefi cial to Cyprus shipping lawyers. According to local fi rm Stelios Americanos & Co, the sale of a new yacht over 24 metres long with a value of €5.8m would have been taxed at 17% – a total of €986,000 – but under the new leasing scheme (subject to criteria) payable sales taxes will be just €256,360, a saving of €729,640.

While shipping litigation may be down, fi rms are enjoying the counter-cyclical boost of more mainstream litigation, as investors enter into disputes over payment or terms. Haviaras notes: ‘For the last seven months we have had a lot of incoming litigation from foreign investors who have interests in Cyprus companies and have internal confl icts.’

Elsewhere Michael Chambers & Co, which set up six months ago and is led by former in-house legal consultant Michael Chambers, focuses almost exclusively on international instructions. The fi rm is advising on the internationally high-profi le case of Louise Monaghan, who last year famously rescued her six year-old daughter May Assad Monaghan from Syria after she was abducted from Cyprus by her Syrian ex-husband Mostafa Assad. May was born in Cyprus, where her parents met but later split. Her father abducted May using a cancelled passport and Mrs Monaghan is suing the Cyprus government for poor border crossing controls. Chambers, who is advising Monaghan, says: ‘Louise Monaghan took all the necessary measures to protect her child but because the Cyprus authority hasn’t got the

right checks at border crossings her husband was able to take her child.’

The fi rm is often contacted by foreign clients looking to sue local companies or individuals, something Chambers puts down to its name. ‘Foreigners tend to trust the name more than a local fi rm with a local name,’ he observes. In its short space of existence, the fi rm has grown to four fee-earners and is recruiting, including looking for an English solicitor.

‘We are looking for an English solicitor to employ because of the large amount of foreign clients we’re handling at the moment – they trust English lawyers more than Cypriots and even though they can’t litigate in Cyprus it would be good to have them to meet with the clients,’ says Chambers.

A further fi rm that has grown in the last few months is 80 fee-earner corporate and tax fi rm Kinanis. Head of the accounting and tax practice Charalambos Meivatzis says: ‘We cannot say that we have had to take any drastic measures,

quite the contrary, our practice continues to grow. There has been slight hiring in our fi rm.

‘Opportunities exist in most sectors and practice areas. For example, there has been an increase in corporate litigation as well as in corporate liquidation and dissolution.’

Roughly 80% of the work Kinanis advises on comes from international investors who are spotting opportunities due to the market conditions in Cyprus. Meivatzis adds: ‘Despite the current state of the market, cash-rich investors fi nd this period very attractive for new acquisitions and this has created an increase in this area of service.’

However, at least two fi rms are currently reporting hiring freezes, with one local partner noting: ‘We need to cut costs and there are to be no increases in salaries or bonuses.’

Redundancies are uncommon in this market but rumours are beginning to circulate. ‘Law fi rms are making secretaries and lawyers redundant, it’s very uncommon but it’s a sign of how bad things are,’ says another local partner.

With the squeeze well and truly on, in many markets this might trigger a wave of consolidation as fi rms seek to create effi ciencies of scale. However, in a market where a majority of even the largest fi rms are run by fi rst and second generation name partners this is said to be less likely in Cyprus.

Andreas Neocleous, founding partner of Andreas Neocleous & Co, observes: ‘You [typically] inherit your law fi rm from your family in your name, so it’s diffi cult to merge. When you get some money or your own clients you open your own offi ces.’

Similarly, law fi rms can be expected to remain wedded to the local market, despite the fact that in one leading fi rm a team of lawyers focusing on international litigation annually generates the same or more fee income than three similarly manned teams focusing on the domestic market.

‘I believe in keeping a certain percentage of the business at a local level,’ says Haviaras.

George Pamboridis adds: ‘If you split your business between local and international clientele it’s very diffi cult for depression to hit both markets in parallel and now the local market is in recession we can rely on the international markets.’

However, at COSTAS TSIRIDES & CO, where 65% of instructions come from international markets, the ambition is to seek out more overseas work. Tsirides says: ‘Our aim is to look outwards to foreign investment and the international litigation.’

‘There is no liquidity in the market and banks don’t extend loans to medium or small sized companies.’George Pamboridis, Pamboridis

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One local partner adds: ‘It is always better to have international business than local. It’s more stable and they respect the services industry more than the locals and it is not so diffi cult to explain the value.’

BANK BAILOUTS AND THE INTERNATIONAL MARKETSIn March, ratings agency Moody’s downgraded Cyprus’ sovereign rating to junk and gave the island a negative outlook, leaving the doors open to further downgrades. Moody’s added: ‘Overall, the fragile market confi dence in Cyprus, which has already led to a loss of access to international debt markets, is likely to continue, with a high potential for further

shocks to funding conditions for the sovereign and the domestic banks.’

Alecos Markides, senior partner at second tier dispute resolution and intellectual property fi rm Markides, Markides & Co, says: ‘Once an economy considered a risk-free investment destination within the European Union and eurozone, attracting fl ows of foreign direct investments (FDIs), Cyprus is today struggling to access the fi nancial markets for fi nancing its public defi cit and is seeking cash injections from Russia and China.’

Moody’s downgraded Cyprus’ sovereign credit rating three times last year, with the latest downgrade following that of Standard & Poor’s in January, also to junk status.

Local lawyers have inevitably felt the impact of these successive downgrades and loss of confi dence in the market. ‘The fact that the banks have come to the point of being downgraded repeatedly has had a negative impact on new business coming in, especially deposits with Cyprus banks,’ comments Mavrellis.

One partner adds: ‘A lot of people I know have taken their money from Cyprus banks and put it in Barclays.’

While new business coming in has been affected, a mass exodus of funds in Cypriot companies has yet to happen. Even client uncertainty has, for the time being at least, stabilised. ‘There was an initial anxiety among

TRUSTSThe Cypriot government has taken measures to increase the attractiveness of the island as a trusts centre, and a long-awaited reform of the International Trusts Law 1992 was passed by Cyprus’ House of Representatives this March, bringing into force the International Trust (Amending) Law 2011. Offshore fi rm Harneys’ Cyprus managing partner Emily Yiolitis says: ‘The existing trusts legislation did need an update. There were certain concepts in the existing legislation like the defi nition of a resident for the purpose of qualifying as a settlor or benefi ciary or trustee for a Cyprus international trust that were outdated and linked to exchange control laws that were abolished years ago so there needed to be an uphauling and modernisation of the trusts law.’

The new law allows non-resident settlors to relocate to Cyprus after establishing a Cyprus international trust, and removes laws restricting the ownership of immovable property in Cyprus. The restriction on the duration of the trust – formerly 100 years – has been removed so that there is no time limit.

One of the most heralded changes is an amendment stating that in the case of any question

relating to the validity or administration of an international trust the governing law will be the laws of Cyprus, without reference to any other jurisdiction.

According to Andreas Neocleous, founding partner of Andreas Neocleous & Co: ‘Cyprus now has the best trust law in the world.’

Meanwhile, Yiolitis, who is secretary of the Society of Trust and Estate Practitioners (STEP) in Cyprus, says: ‘We are expecting that Cyprus will be promoted as a trusts centre.’

Neocleous spearheaded the amendments, with the assistance of the UK’s top experts in the fi eld. These included Professor of International Commercial Law at King’s College, Jonathan Harris, who is also a barrister at Serle Court in London, and a contributor to Underhill and Hayton, Law of Trusts and Trustees and International Trusts Laws, together with Farrer & Co trusts partner Toby Graham, who is a co-editor of Trusts & Trustees, a member of the editorial board of Wills & Trusts Law Reports and a co-editor of Transfer of Trusteeships published by STEP.

The new law, expected to be used extensively for asset

protection and international investment purposes, borrows heavily from the best parts of a number of jurisdictions’ trust laws. According to Neocleous, it is cutting edge and likely to draw an increase in instructions from around the world.

Others are inclined to agree. Haviaras & Philippou senior partner Andreas Haviaras says: ‘With the amendment we have removed any grey areas in the law and now the person who decides to manage his business through a trust knows exactly where he stands. I expect a lot of work to come from this.’

Alexandros Tsirides, litigation and company partner at COSTAS TSIRIDES & CO, adds: ‘It’s a great development. We had a couple of enquiries about setting up a trust and are in the process of setting them up because we delayed so we could amend the documents so that they comply with the new law.’

However, Yiolitis sounds a note of caution, adding: ‘Most of the amendments to the Cyprus trusts legislation are facilitative so it really depends on what abuse is made of them for this to be a negative development. Wide powers are now given to the trust and also wide power for

the settlor to reserve powers and also revoke the trust.

‘If the settlor decides to reserve too many powers and he abuses the facilitative provisions of the new amendment, so as to jeopardise the use of Cyprus inter trusts for succession purposes, it’s very likely the trust could become a see-through or even invalid ab initio structure. So I really think there is going to have to be very careful consideration of how the drafting of the new Cyprus international trusts will be done and of how many of these facilitative provisions a settlor should choose to avail themselves of in order to retain the tax, succession and asset protection advantages of the new legislation.’

Yiolitis is also convinced that lawyers will have to proceed carefully when it comes to the governing law clause, commenting: ‘There is a governing law clause which restricts matters relating to succession and inheritance to the Cyprus courts, but if we take a pragmatic approach there are so many complicated aspects and parties to a trust that you can’t really confi de in the legal system of one jurisdiction where you set up the trust. It will depend where the

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taking on a heavily involved, behind-the-scenes role in negotiations to appoint a new governor and address corporate governance issues before injecting a further lifeline of capital. Odella Resources is owned by Russia’s Dmitry Rybolovlev, who last year sat at number 79 on Forbes’ list of the world’s billionaires. Rybolovlev is a key client of the fi rm.

As Cyprus’ banks struggle to meet EU recapitalisation targets, local lawyers are speculating what could happen next, with one local partner commenting: ‘They [the banks] are ripe for takeover.’ However a further partner says: ‘Who would take over a bank that is practically bankrupt? It’s not only the losses, it’s the €12bn to €15bn worth of loans in Greece.’

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benefi ciaries are resident, where they are going to be receiving their distributions and where the settlor is domiciled, so there are various aspects in play.’

She adds: ‘Isn’t it always the case that if you fi nd a legislation that is very friendly for investment purposes there are always lurking dangers that if you don’t use these enabling provisions wisely you can have a counterproductive effect at the end of the day where your structure may not be valid.’

The inaugural STEP two-day conference will take place this May, during which Neocleous is fully expectant that the new trusts law will be introduced to the rest of the world, putting Cyprus fi rmly on the map.

Not all parties were in favour of the amendments. Neocleous says: ‘We had a lot of opposition from people who said that we did it for a special client.’

His fi rm is acting for Russian billionaire, Dmitry Rybolovlev in his divorce from his wife. There has been speculation in the media that he needed the trusts law to be amended to put money out of the reach of his wife. However Neocleous says: ‘We did it for the benefi t and attractiveness of Cyprus.’

clients whether their investments were safe or not but now I feel they are relaxed and we don’t see any side effects,’ says Haviaras.

While the banking crisis has had a negative knock-on effect on local instructions, there are two exceptions. Chrysses Demetriades is currently bidding alongside a London fi rm to win an instruction advising on a confi dential rights and bonds issue. Elsewhere, Andreas Neocleous & Co is acting for the trustees of Odella Resources, the biggest shareholder in the Bank of Cyprus, including

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There is an underlying confi dence within the legal community that Cyprus is not destined to experience turbulence on a par with Greece or Portugal.

‘The fact is that Cyprus is a rather small, fl exible economy,’ comments Kyriakides. ‘The sound banking sector, the well-established tourism industry and the quality and reputation of the service sector in Cyprus have maintained an acceptable level of economic activity on the island.’

Most of Cyprus’ lawyers are confi dent that the country is not on the precipice of a banking collapse. Mavrellis says: ‘I believe the most crucial issue for Cyprus now is whether the banking sector will be able to come up with a solution to the capitalisation adequacy issue.

‘We hope the banks will manage without the state interfering but whatever happens lawyers will have work.’

COOKING ON GASAside from the fact that the island will take over the EU presidency in the second half of 2012 – and no-one can envisage the EU president being bankrupt – there is one very good reason why Cyprus’ legal market exudes a high degree of optimism and underlying confi dence in the short-term future.

Last December, Texas-headquartered oil and gas exploration company Noble Energy announced the discovery of between fi ve and

eight trillion cubic feet of gas to the south of the island, enough to satisfy the energy needs of Cyprus for 180 years and transform the island into an energy supplier.

While there was only limited interest in the fi rst round of tendering for licences to explore the area for oil and gas, the success of Noble Energy saw a second round of bidding, opened by the government in February, far more hotly contested. EU regulation dictates that once the government has offi cially opened the tendering process parties have three months to submit interests and, in order to stay in the running, must purchase published information at a cost of €1m. Eighty-one companies have expressed an interest in buying the information. George Pamboridis says: ‘This demonstrates that all those who have come forward are serious partners and not people trying to fi sh for information.’

Pamboridis, which counts Cyprus-based EDT Offshore among its oil and gas clients, has teamed up with DLA Piper’s energy practice in both London and the US on energy ventures in the region. The fi rms have agreed to collaborate unless prevented by confl icts. The benefi ts for Pamboridis are clear, that it has access to one of the largest fi rms in the world, including DLA’s clients, people, know how and provision of secondments. For DLA, it is being given exposure and introductions to Pamboridis’ extensive energy contacts in the region.

‘We hope the banks will manage without the state interfering but whatever happens lawyers will have work.’Christos Mavrellis, Chrysses Demetriades & Co

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George Pamboridis works closely with DLA London energy and infrastructure partner Charles Morrison and DLA is funding the secondment of one of Pamboridis’ 20 lawyers to its London team, as part of an on-going agreement. George Pamboridis says: ‘We have teamed up with DLA subject to confl icts on a case by case basis.’

The relationship is highly unusual. While other fi rms have good relationships with one fi rm, they don’t have exclusive agreements.

Firms including Chrysses Demetriades, Andreas Neocleous & Co and Harris Kyriakides have a role advising energy companies involved in the second tendering process for the oil fi eld, while Pamboridis looks set to advise two bidders. The fi rm is representing a Chinese consortium with an interest in upstream exploration and midstream processing of oil and gas, as well as an Indian consortium which is hoping to submit a bid for one or more plots in the Cyprus Exclusive Economic Zone via a joint venture with a Cypriot company.

‘It [the tender process] will be a political decision. There is a criteria but at the end of the day the government of Cyprus will spread the risk,’ says Neocleous.

Certainly, the hot contention by Turkey that plots 1, 3, 4 and 5 in the Exclusive Economic Zone fall within its territorial waters promises to make the process considerably more complex and is expected to deter larger oil and gas companies, particularly those who have continuing business in Turkey. One local partner comments: ‘The government is likely to award the plot to a company that has military backing.’

The development of the new gasfi eld is expected to throw up numerous mandates as Cyprus sets up from scratch the infrastructure needed to see it become a major gas supplier. Here too Pamboridis has an early role advising a consortium on the development of a €10bn liquefaction plant for gas to be exported. The fi rm is also acting for a separate local consortium on a bid for the pipeline to join the natural gas well to the onshore plants. Harris Kyriakides has also been approached on infrastructure deals.

The discovery of gas, the prospect of discovering more, and what George Pamboridis describes as ‘very good indications’ that oil will also be discovered has drawn the attention of the international community. In addition to visits from politicians from Russia, China, France, the US and the UK, Cyprus also enjoyed a historic fi rst visit from German Chancellor Angela Merkel last year.

The discovery looks set to change the geopolitical climate of Cyprus, although it may not be the immediate panacea to the banking crisis that some expect. Neocleous says: ‘In the next eight to ten years Cyprus will be an energy centre.’

As Cyprus and Israel further strengthen their relations following the discovery of hydrocarbon deposits in their respective exclusive economic zones, it is looking promising that Cyprus will become the new energy gateway for Europe. During a visit by Israeli President Shimon Peres last autumn, the two countries signed four bilateral agreements on renewable energy and energy effi ciency, industrial research and development, telecommunications and archaeology.

ELECTRICITY AND RENEWABLE ENERGYIt is impossible to look at Cyprus’ renewable energy market without fi rst revisiting the events of last summer, when 98 containers of explosives stored on the Evangelos Florakis naval base in Mari, Larnaca, exploded, killing 13 people and severely damaging the island’s largest power station. The station was responsible for supplying 60% of Cyprus’ electricity and, as a result of the explosion, much of the island was without power and blackouts were ordered to conserve power.

Local lawyers are unanimously scathing in their criticism that the island’s worst peacetime military incident was caused because the government allowed these explosives to be stored near to a main power station. However, in their assessment of the knock-on effect on business, and in particular the renewable energy market, they are more divided.

George Pamboridis says: ‘You would be in the middle of a closing and Cyprus would

‘Some years ago there were 450 to 500 maritime cases before the Supreme Court, now they don’t exceed 30 to 40 a year.’ Andreas Haviaras, Haviaras & Philippou

PROMOTING THE ISLANDThe Cyprus Investment Promotion Agency (CIPA) is taking steps to effectively fast track large investments into the island. The CIPA has asked President Demetris Christofi as to turn the agency into a one-stop-shop for foreign investment, to cut crippling red tape and make it easier for foreigners to invest in the island.

Christos Mavrellis, company and commercial head at Chrysses Demetriades & Co, is CIPA’s vice-chairman. He comments: ‘The aim of the organisation is to make it much easier to invest in Cyprus. We have taken it up with the President himself and have asked that he introduce a one-stop-shop for foreign investment, especially of a certain size.’

It is being argued that where large investors will construct offi ces and employ personnel these should be fast tracked for the good of the country.

Local partners report a general increase in foreign investment. The latest offi cial fi gures are not yet available and 2010 saw a signifi cant drop to $4.7bn from $5.7bn in 2009. However Alecos Markides, senior partner at Markides, Markides & Co, says: ‘A number of legislative measures, taken to increase the island’s attractiveness to foreign investors, once again place law professionals and relative service providers in the wheel towards growth.’

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drop off the radar, with no BlackBerry or e-mail [access]. You can’t work like that and we had to have a generator shipped over from England.’

Undoubtedly the immediate disruption to business was enormous, as the country was subjected to continual blackouts. Attention is now being directed towards rebuilding the power station. Demetriades says: ‘Prices of electricity went up and instead of the government focusing on tendering for renewable energy they are rebuilding the old power station.’

However, for Haviaras & Philippou the number of renewable energy deals has increased incrementally, including currently advising on the development of a wind project in Cyprus and advising an undisclosed Cyprus company on a solar and wind energy project in Bulgaria.

According to Haviaras, the Mari explosion has provided a boost for renewable energy deals, as the licensing process has been made easier. ‘After [Mari] the licensing became easier so as to allow entrepreneurs to bring new energy to the country,’ says Haviaras.

Negotiations are taking place over further renewable energy projects within Cyprus and Haviaras said: ‘I expect in 2012 there will be quite a lot of announcements.’

The Mari incident has also spun out further instructions as the government attempts to compensate for the shortfall of electricity in the short term. Pamboridis is representing Florida-based company APR Energy on its bid to supply the government with additional power this coming summer. The government is being advised by its internal legal department. The company is on the government’s shortlist of tenders and is involved in the fi nal stages of negotiation. George Pamboridis says: ‘On 1 July Cyprus takes over the presidency of the EU and the last thing you want during the summit of the foreign ministers is a power failure. I don’t think it would go down very well, especially if it is 45 degrees outside.’

EMERGING MARKETSWhile the energy sector is a particular focus for emerging markets companies – George Pamboridis for one is advising both an Indian and a Chinese consortium on energy bids – elsewhere fi rms are reporting a signifi cant uptick in interest and instructions.

Tsirides is advising on a number of deals originating from the Middle East in the health and IT sectors, including setting up a health

service in the Middle East through Cyprus holding companies. A double taxation treaty with the UAE, which was ratifi ed in September last year and will come into effect this June, will make it easier for Cyprus-based companies to do business in the Middle East, according to Tsirides.

An EU and competition fi rm, meanwhile, has advised on two tax structures for Indian companies looking to use Cyprus as a tax base between England and India.

According to Emily Yiolitis, managing partner of Harneys’ Cyprus offi ce, Aristodemou Loizides Yiolitis, the emerging markets are increasingly attracted to Cyprus. The fi rm has almost no domestic work, and outside of its core Russian client base, it is looking to expand into new jurisdictions to the South, East and West.

‘We are looking to grow in jurisdictions like the US, South Africa (where Cyprus again has a very good double taxation treaty) and I’m just back from China. It’s an exciting time

for Cyprus and there are lots of opportunities worldwide for more use of Cyprus as a back offi ce for international transactions and investments into Europe,’ says Yiolitis.

In 2011 the fi rm set up two funds for Indian clients in Cyprus and has seen an increase in interest from Polish investors. ‘We are seeing Polish interest in funds and have done one IPO of a Cyprus company on the Warsaw Stock Exchange and are now looking to list a Polish company on the London Stock Exchange. There is a hub using Cyprus generally as a gateway for doing things in other jurisdictions as a special purpose vehicle,’ says Yiolitis.

‘For China it’s growing – I wouldn’t say it occupies more than 2-3% but it is growing and we have an offi ce in Hong Kong as a stepping stone into China,’ she adds.

Even where there is no double taxation treaty in place, Cyprus is proving popular. Yiolitis says that because of the tax neutrality of Cyprus, even where it doesn’t have a double taxation treaty, it makes an effective gateway into and out of Europe.

The business community is still digesting the government’s announcement in March this year that a Chinese company, Far Eastern Phoenix, has expressed an interest in acquiring the old Larnaca airport to convert it into a major exhibition centre for Chinese businesses, at the same time multinational conglomerate Triple Five has expressed an interest in a series of major investments in the island.

Hermes Airports, the consortium in charge of operating and managing Larnaca International Airport, and Far Eastern Phoenix have signed an agreement providing a multimillion euro investment into the construction of exhibition showrooms and a logistical services centre at the old Larnaca airport building. Far Eastern Phoenix plans to develop a large commercial showroom for Chinese products and a logistics centre. The project will include exhibition areas and a conference centre. It is contemplated that the investment will accommodate around 3,000 companies. Expectations among the business community are that the project will set Cyprus fi rmly as a gateway for Chinese products to Europe, the Middle East and Africa, as businesses interested in Chinese products and business avoid the inconvenience of having to travel to China.

‘The investment is expected to rejuvenate the surrounding region and provide dozens of new workplaces for Cypriots and foreigners. The old Larnaca Airport premises will be

‘You typically inherit your law fi rm from your family in your name, so it’s diffi cult to merge.’Andreas Neocleous, Andreas Neocleous & Co

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leased for a concession period of not less than 19 years, although an extension of the lease may be possible upon approval by the Cyprus government,’ says Demetriades.

Local lawyers are inevitably alive to the opportunities. Tsirides says: ‘China is an area where Cyprus seems to be managing to attract potential investors. I plan to go out to China in May to introduce Cyprus and explain the advantages.’

Triple Five, meanwhile, is said to be looking at investing in the banking, energy and tourism sectors. The group’s activities include the global development, management and ownership of ventures in fi elds including shopping centres, tourism projects, municipal planning and development, and oil and gas projects. According to its own literature the group also owns and operates over 1,000 producing wells.

The business community is sitting up and taking note, one partner at a local fi rm comments: ‘We would defi nitely hope to have a role.’

But not all are optimistic that the investment will come through. Tsirides enters a cautionary note: ‘There was a lot of talk with Qatar two years ago and nothing happened.’

RUSSIAN POLITICSWhen it comes to business with Russia, other countries may be chasing Russian business but Cyprus’ position as its primary international partner appears assured.

The Protocol to the 1998 Double Tax Agreement between Cyprus and Russia was fi nally ratifi ed by Cyprus in September 2011 and the remaining steps are expected to be completed by the end of this year, meaning that the protocol will come into effect on 1 January 2013.

The ratifi cation is being interpreted as a further step on the road to Cyprus being removed by Russian authorities from their ‘blacklist’ of offshore jurisdictions, allowing

dividends received by Russian companies from subsidiaries in Cyprus to qualify for the Russian dividend participation on exemption. This means a 0% tax applying on dividends received in Russia, expected to further enhance the attractiveness of Cyprus as a holding jurisdiction for Russian investors.

Mavrellis comments: ‘It has created a certainty as to whether it is going to happen and removes any fears that there could be a cancellation of the treaty.’

The latest statistics from the Central Bank of Russia reveal that Cyprus has remained the single largest benefi ciary of Russian investment in the world, irrespective of the ratifi cation of the treaty between the two countries. However, the level of investment has been increasing. In 2008 FDI was at an all-time low of $8.8bn, increasing to $9.7bn in 2009, $18bn in 2010 and last year reaching $18.2bn. To put that in perspective, FDI from Russia into the UK was $3.9bn in 2008, decreasing to $2bn in 2009 and $1.2bn in 2010, before seeing a marginal increase to $1.3bn last year. To the US, meanwhile, Russian FDI was $7.3bn in 2008 but fell dramatically over the same period and last year was just $1.1bn.

It is unsurprising that the vast majority of Cyprus law fi rms count at least 20% of their instructions from Russian sources, and for many it is considerably more than that. Tsirides says: ‘Russian work is still a big part of our business, not only in the corporate sector but a lot of international litigation is accounted for by Russian clients.’

According to Yiolitis, the confi dential nature of many Russian business people means that they prefer doing business in Cyprus than on their home soil. ‘We did some market research on setting up in Moscow but we found out that most of our Russian clients prefer to deal with offshore fi rms. From a point of view of practicality they prefer to deal with one based in Cyprus than in Moscow,’ she says.

The double taxation treaty will introduce an important change in tax treatment of the sale of shares in a company of one country, where that company has more than 50% of its immovable property in the other country. In that case the country where the property is situated will also have taxing rights on the gain. It is not known what impact this change will have on business with Russia. It conforms with the Organisation for Economic Co-operation and Development (OECD) model on taxation and Cyprus should at least be on a level playing fi eld if Russia makes good on its undertaking to amend all other treaties with countries regarded as investors in Russia so as to adopt the same OECD model.

OFFSHORE INTERESTSMeanwhile, Harneys is looking to expand in Cyprus. Currently totalling 15 fee-earners, including four partners – which Yiolitis points out is a sizeable offering in Cyprus terms – the fi rm increased its numbers in February with the transfer of Harneys senior BVI-qualifi ed regulatory lawyer Aki Corsoni-Husain.

‘We cannot say that we have had to take any drastic measures, quite the contrary, our practice continues to grow.’Charalambos Meivatzis, Kinanis

COMPARATIVE LEVELS OF INTERNATIONAL TAX AND INVESTMENT TREATIES

Cyprus 27 43 60 129Ireland 1 71 63 135Luxembourg – 70 63 133Malta 22 60 60 142

Source: UNCTAD World Investment Report 2011

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“an outstanding reputation in the market” “efficient, quick and ready to understand the real issues”

Chambers Global Guide “positive, practical and business-like advice”

“great strength in depth”Legal 500

From its formation in 1965 Andreas Neocleous & Co has grown to be the largest firm in Cyprus. We are generally recognised as the leading firm in the South East Mediterranean region and are one of only a handful of firms worldwide to achieve a Legal 500 top-tier ranking in every practice area.

With a team of more than one hundred and thirty professionals in Cyprus and mainland Europe our mission is to provide international clients with service of the highest international standards. We value diversity and our staff speak most major European languages. All are fluent in English. Our successful track record has made us the adviser of choice for international businesses involved in cross border transactions and multi-jurisdictional disputes in the area. We recognise that each of our clients is unique, with particular business concerns, and we exercise a personal commitment to all our clients to understand their objectives rapidly and effectively and to provide clear, practical business-oriented advice and responsive service. We realise that time is one of the most precious commodities in today’s fast-moving business environment, and we therefore focus on achieving effective results for our clients in a meaningful time frame. For more than forty years Andreas Neocleous & Co has been at the forefront of Cyprus’s development as an international business centre. We pioneered the development of business links between Russia and Cyprus and now advise on cross-border projects worldwide. Our unrivalled experience and our ability to handle large, complex transactions in tight timescales have made Andreas Neocleous & Co the advisers of choice for such transactions.

Andreas Neocleous & Co LLC Neocleous House,

P O Box 50613, Limassol, CY-3608, Cyprus Telephone: +357 25 110000

Fax: +357 25 110001 Email: [email protected]

Internet: www.neocleous.com

PRACTICE AREAS COMPANY AND COMMERCIALMergers and acquisitions Banking and finance Company restructuring Insolvency TAXATIONInternational tax planning General tax planning Trusts DISPUTE RESOLUTIONCommercial litigation International arbitration Employment litigation Family law ADMIRALTY AND SHIPPINGShip registration and finance Shipping operations and management Insurance Charter disputes Collision disputes EU AND COMPETITION

INTELLECTUAL PROPERTY

CONSTRUCTION AND REAL ESTATE

PRIVATE CLIENT SERVICES

OFFICES CYPRUSLimassol Nicosia Paphos INTERNATIONALMoscow Brussels Budapest Prague Kiev Sevastopol


CYPRUS


The offi ce, which provides banking, fi nance, corporate, commercial and tax law, is looking to hire two to three further fee-earners this year and is moving into larger premises to accommodate its expanding size.

‘We had a big increase in work last year and we don’t have any more space,’ says Yiolitis.

The transfer by Corsoni-Husain to Cyprus may go some way to answering critics who say there is little cross-atlantic interaction between Harneys’ BVI, Cayman and Anguilla offi ces and Cyprus. Yiolitis says the offi ce does get a lot of work from the other Harneys offi ces and vice versa: ‘We fi nd it very successful.’ The move will enable the fi rm to provide advice on BVI funds in Cyprus, overcoming the challenges of the time difference between the two – the BVIs start the day seven hours later than Limassol.

Harneys’ Cyprus offi ce also receives its instructions largely from the UK’s Magic Circle fi rms, particularly Allen & Overy. This has changed little, Yiolitis says, since Aristodemou Loizides Yiolitis’s tie-up with Harneys. Yiolitis is convinced that none of the large UK fi rms would be interested in setting up shop on the island: ‘I think Cyprus acts as a back offi ce and I’m not sure there would be enough work for a London fi rm to set up in Cyprus and do what they traditionally do in London or Moscow or any other big fi nancial centre, particularly in view of the fact that Cyprus costs are generally much lower so to have a relocation [of a top UK or US fi rm] would not make sense at this time.’

However, the establishment of a local presence by rival offshore fi rms is another matter altogether. Rumours abound of offshore fi rms in talks to set up ‘best friends’ relationships or enter into mergers with Cypriot fi rms.

‘There have been rumours about various offshore fi rms approaching local fi rms for mergers or “best friends” agreements and I’m sure some are in place and maybe we just haven’t heard about them yet,’ Yiolitis says. ‘But I do expect developments in this area because Cyprus is really used a lot for offshore structures and it does make sense for the offshore fi rms to move here.’

At Conyers Dill & Pearman, which has a ‘best friends’ relationship with top tier Cyprus fi rm Antis Triantafyllides & Sons, chairman John Collis says: ‘Cyprus is a very important jurisdiction, and our clients encounter it regularly. However, our main focus on Cyprus is in transactions which involve a Russia or BVI component, so primarily for Russian and BVI work.’

ARBITRATION CENTRENeocleous hopes that a further draw to the international community will be the arbitration centre in Limassol he has put his name and collateral behind. It will be registered and have its secretariat and accommodation formalised before the end of the year.

The credentials of the individuals heading the arbitration centre are impeccable: its

‘We are looking to grow in jurisdictions like the US, South Africa and I’m just back from China.’Emily Yiolitis, Harneys

INTERNATIONAL FOCUS OF CYPRUS LAW FIRMSFirm No. of No. of fee- Full service? Ratio of international/ % of international % of international work partners earners (exc. domestic work work that is Russian from emerging markets partners) Andreas Neocleous & Co 18 117 Yes 80/20 35 25 Chrysses Demetriades 20 45 Yes 60/40 40 20& Co COSTAS TSIRIDES & CO 3 5 Yes 65/35 60 20 Harneys Aristodemou 4 11 No 90/10 35 50Loizides Yiolitis Harris Kyriakides 2 10 Yes 50/50 50 30 Kinanis 2 80 Yes 80/20 70 45 Lellos P Demetriades 6 4 Yes 50/50 1-2 MinimalLaw Offi ce Michael Chambers & Co 1 4 Yes 90/10 20 30 Michael Kyprianou & Co 7 15 Yes 50/50 25 5 Markides, Markides & Co 8 4 Yes 50/50 5 0 Mouaimis & Mouaimis 3 3 Yes 90/10 60 5Advocates Pamboridis 4 16 Yes 70/30 20 25

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chairman is former UN Secretary-General and Egyptian diplomat Boutros Boutros-Ghali; its vice chairman is the ex-Cypriot president Georgios Vasos Vassiliou; Neocleous himself is the secretary.

The centre will be divided into an arbitration and mediation department, each with its own panel and council, and leading mediator, Quadrant Chambers barrister Michel Kallipetis QC, is already a confi rmed council member. As its third limb, the centre is in the process of identifying an educational institute that it will be affi liated with for the further education and training of arbitrators and mediators.

According to Neocleous, the centre, which has adopted the United Nations Commission on International Trade Law rules, will undertake international arbitrations and mediations, including interstate border disputes.

Neocleous is convinced there is a gap in the arbitration centre map that only Cyprus can fi ll, commenting: ‘In between London and Singapore, there is nothing else. We have to cover this gap. Why us? Because we are the only Anglo Saxon system and an international business centre. And because I think we can do it and we have the determination.’

INCREASED REGULATIONThe government is being urged to introduce facilitative legislation and the legal profession is welcoming of new initiatives and entrants, but when it comes to fi duciary services the profession is currently demanding that the government crack down on unregulated service providers which risk bringing the island into disrepute.

The fi duciary services industry is currently unregulated in Cyprus, with the exception of law fi rms, which are regulated by the Bar Council. Neocleous says: ‘We have to protect only people regulated by the authorities.’

The domestic downturn has exacerbated the situation and the number of cases of malpractice is on the rise.

Mavrellis says: ‘We have observed penetration in the market by some non-organised people who have nothing to do with the profession and we would like to have them regulated so we know they will not bring a bad reputation to Cyprus.’

The Trustee Regulation Bill is currently on its eighth reading, with little progress being made as it meets resistance from fi duciaries, accountants and even the Cyprus Bar Association. Lawyers and the Association alike

argue that they are already regulated to advise, however Neocleous says: ‘We are regulated for legal work. This is not legal work. It’s an important part of the business but it’s not law.’

A further sticking point is which entity will act as the regulatory body and the supervising force behind the Bill.

OUTWARD EXPANSIONAs Cyprus’ leading law fi rms increasingly engage with the outside world there are still very few to have made the transition into foreign markets. Of the top tier banking and fi nance and corporate fi rms, a number have a presence in Athens but no further afi eld. However, the minority that have made the move are expanding.

Andreas Neocleous & Co has offi ces in Russia, Ukraine, Prague, Budapest and Brussels and is closely eyeing the emerging markets, including currently considering setting up an offi ce in Qatar. In the Ukraine, Neocleous has ambitions to become a leading law fi rm and

the local offi ce is deliberately carving out a name as a local fi rm with only a representative Cyprus offi ce to avoid being labelled as just doing offshore work.

There is also a signifi cant difference between the fi rm’s strategy for Western and Eastern Europe, where Andreas Neocleous & Co last year bought boutique Greek fi rm GS Kostakopoulos & Associates in Brussels. The new operation will serve the purpose of keeping an eye on the political capital of Europe, staffed initially by only three to four people and eventually only around one lawyer. Neocleous says the fi rm has no intention of practising local law in the region, or indeed in Western Europe, where clients are generally so well served.

At Pamboridis, meanwhile, the fi rm last year announced its intention to launch in London and at the beginning of March this year the Mayfair offi ce offi cially opened with one fee-earner. The offi ce has been set up to accommodate Pamboridis’ existing London contacts, particularly DLA Piper, but also to target high-net-worth Russian and Ukrainian investors and introduce the London market to the more complex services offered by its fi duciary arm Prudens Group. The ambition is to expand the offi ce to around three or four fee-earners.

George Pamboridis says: ‘More sophisticated high-net-worth individuals want to use Cyprus and they are not just going to need a shell to buy a house.’

As Cyprus continues to fi ght for global recognition, local lawyers know they have to do much to improve their laws and crack down on bureaucracy if they want to compete with fi nancial centres at the highest level. So too will much of Cyprus’ immediate success depend on the success of its banks to recapitalise and successfully implement austerity measures to bring fi nances back under control.

The island’s presidential campaign began in March and elections will take place in February 2013. Between fi ghting for a term in offi ce, staving off a banking crisis and acting as president of the EU, one wonders how much time the government will have to push ahead with other initiatives.

However the wheels have already been set in motion on a number of groundbreaking developments, and backed by the ambition and determination of this small island, 2012 promises to be a year full of opportunity. LB

[email protected]

‘We are looking for an English solicitor because of the large amount of foreign clients we’re handling at the moment.’Michael Chambers, Michael Chambers & Co

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