ICPAC - Accountancy Cyprus No.125

No. 125 | DECEMBER 2016THE EXPERTS SHARE THEIRVIEWS ON WHAT THE NEXT 12 MONTHS MAY HOLDEXCLUSIVE INTERVIEWS• Olivier Boutelis-Taft • Christoforos Hadjikyprianou • George Hadjineophytou• Harris Georgiades • Loucas Marangos • George Petrakides • Constantinos PetridesNew BeGiNNiNGs ON sOLid FOuNdaTiONsThe Journal of the DISTRICT POST OFFICEInstitute of Certified Public CY-1901 NICOSIA, CYPRUSAccountants of Cyprus POSTAGE PAID LICENCE no.33 SEALED UNDER PERMIT no. 133 ΠΕΡΙΟΔΙΚΟ ΤΑΧΥΔΡΟΜΙΚΟ ΚΛΕΙΣΤΟ ΕΝΤΥΠΟ ΤΕΛΟΣ ΠΛΗΡΩΜΕΝΟ ΑΔΕΙΑ ΑΡ. 133 ΑΔΕΙΑ ΑΡ. 239



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4 ACCOUNTANCY CYPRUS CONTENTS ACCOUNTANCY EUROPE 46 62 PRUDENT MANAGEMENT AND Interview with Olivier Boutellis-Taft, CONTINUED REFORM CEO of the rebranded Federation of 66 Interview with Harrs Georgiades, Minister 70 of Finance. European Accountants. 72 74 CYPRUS IS OPEN FOR BUSINESS RECENT AMENDMENTS TO IFRS4 50 By Michael Sarris ‘INSURANCE CONTRACTS’ PROVIDE WORTH THE EFFORT FLEXIBILITY IN THE ADOPTION OF By Lenia Georgiadou IFRS9 BY INSURERS By Nicos S. Stavrou INVESTING IN A GREENER FUTURE COMING YOUR WAY: 52 By Costas Christofides DATA ANALYTICS By Katharine Bagshaw DON’T STOP! & Phedra Diomidous By Angelos Gregoriades IFRS15 ‘REVENUE FROM 54 76 THE TROUBLE WITH SELLING CONTRACTS WITH 77 PASSPORTS CUSTOMERS’ By Sofronis Clerides By Yiannis Leonidou RECOVERY LAW accounting & audit By Demetra Kalogerou POLITICALLY EXPOSED 56 78 WHEN SMALL IS NOT SO PERSONS (PEPS) – 80 BEAUTIFUL06 THE MISUNDERSTOOD 82 By Jim Leontiades INDIVIDUALS 83 By Kyriacos Savva & Yiannis NEO-LIBERAL POLICIES, Pettemerides 84 ECONOMIC WELFARE AND 86 INEQUALITY professional services By Tasos Anastasiades. 87FROM THE SOVEREOGN WEALTH FUNDSEDITOR-IN-CHIEF AND THEIR BENEFITS By Antypas Asfour08 DIRECT DEMOCRACY 60 By Frixos Kyprianou QUANTITATIVE EASING AND opinion THE COST OF SERVICING THE PUBLIC DEBT FROM THE institute By Marios Mavrides MP PRESIDENT news DEALING WITH THE EURO10 INTEREST RATE DERIVATIVES THINKING AHEAD CARTEL By George Markopouliotis CYPRUS SHIPPING: PROSPECTS FOR FURTHER GROWTH By Thomas Kazakos SHIPPING SECTOR INITIATIVES MUST CONTINUE By Alexandros Sofocleous economy

5ACCOUNTANCY CYPRUS issue 125 december 201688 TAX CHANGES FOR INVESTMENT, 114 FORMING, STORMING,90 BOARD MEMBERS INNOVATION AND 92 115 NORMING, AND OTHER COMPANY SUSTAINED QUALITY PERFORMING OFFICERS CAN MAKE CYPRUS By Demetris Ergatoudes By Konstantinos Michail AN INTERNATIONAL EDUCATION HUB OH NO, NOT THE 5% VAT ‘SOCIAL Interview with Christoforos ANOTHER MEETING! POLICY’...AND THE Hadjikyprianou, CEO, Euro- By Andrie Penta CUBAN CIGAR pean University Cyprus. By Alexis Tsielepis BRANDING ON 96 management STEROIDS 100 taxation By Demetris Stylianides 102 HOLIDAY HOMES 116 WANTED 117 ACTIONS FOR By Antonis Loizou DAMAGES By Maria Vassiliou CYPRUS PROPERTY MARKET PRICES HUMAN CAPITAL STABILIZE AS INVESTMENT IN THE TRANSACTIONS HOTEL INDUSTRY IS INCREASE| IMPERATIVE By George Mouskides By Dr. Sotiroula Liasidou FINANCIAL FAIR PLAY 104 FAVOURABLE By Christos Antoniou CONDITIONS EXPECTED FOR20interview business in cyprus REAL ESTATE 118 ESSENTIAL REFORM INVESTMENT IN 2017 WILL CONTINUE By Panos Danos Interview with Constantinos Petrides, Under-Secretary to the President. real estate 106GEORGE CLOUD SERVICES AND HADJINEOPHYTOU SOLUTIONSKEEP MICROSOFT AHEAD meet the cfo IN CYPRUS Interview with George THE NEW ERA IN 110 Petrakides, Country 120 OCCUPATIONAL Manager, Microsoft PENSIONS Cyprus & Malta. By Christis Michaelides ict TFI MARKETS ENJOYS 112 OUT OF THE BLACK 122 A RECORD YEAR AND INTO THE BLUE Interview with Loucas Maran- Nicos Charalambides, Director of gos, CEO, TFI Markets Ltd. ISOTAX Ltd, is also President of the financial services Limassol Nautical Club. out of office cover 2017: A YEAR OF CHANGE story The outlook for the next 12 months, as seen by key figures from 10 economic sectors, plus the views of the CCCI, OEB and CIPA and DISY Chairman Averof Neophytou

6 ACCOUNTANCY CYPRUS FROM THE EDITOR-IN-CHIEF By Ninos Hadjirousos ISSN 1450-2380A BUSY NEW Editor-in-ChiefYEAR AHEAD Ninos Hadjirousos, FCABy the time you that 2017 has every chance of turning Editor read this, another out even better, provided that reforms Tasos Anastasiades, B.Sc., M.A. (Econ) New Year will continue and there is no slipping back to have begun, one the dangerous habits of the pre-2013 era. The Institute Council which could This time next year, we will know how Demetris Vakis (Chairman) be crucial for correct their predictions were. Marios Skandalis (Vice-Chairman) Cyprus and Maria Pastellopoulou (Secretary) which, whatever As you can see, this issue of the happens politi- magazine is packed with articles written Members cally, is unlikely by you, our readers and members of Andreas Andreou, Nicos Chimarides, Odysseasto be an easy one for the accounting ICPAC, on a broad range of topics, Christodoulou, Pieris Markou, Stavros Pantzaris,profession. Increased regulation and the in addition to a variety of interesting Philippos Raptopoulos, Spyros Spyrou, Demetrisgrowing role of technology are likely to interviews, including those with Financeoccupy a great deal of our time over the Minister Harris Georgiades and the Taxitaris, Antonis Vasiliou, Christos Vasiliou,next 12 months and you will doubtless Under-Secretary to the President, Con- Kyriacos Zangoulosbe reading about these issues and more stantinos Petrides. Addressin forthcoming issues of this magazine. I would like to inform the regular 11 Byron Avenue, 1096 Nicosia, Cyprus For the cover story of this, the third readers of Accountancy Cyprus, that, as Mailing Addressissue of the ‘new-look’ Accountancy in the past, it will henceforth continue toCyprus, published in the framework of be published quarterly in March, June, P.O.Box 24935, 1355, Nicosia, Cyprusthe collaboration between ICPAC and September and December. Tel: +357 22870030, Fax: +357 22766360IMH, we asked experts from a broadrange of sectors and key organisations As mentioned in the previous issue, e-mail: [email protected] look back and evaluate 2016 before the response to the magazine has been www.icpac.org.cysetting their sights on the coming year hugely positive and encouraging. Onceand sharing their predictions for 2017 again, I invite you to comment and con- The publication is prepared byregarding their own areas of activity, tribute to Accountancy Cyprus, which isthe economy and the effect of a possible your magazine as members of ICPAC. Managing Directorsettlement of the Cyprus Problem. The George Michailbroad consensus would seem to be that The next issue will be published at the2016 was better than expected in almost beginning of March. Until then, you General Managerevery area of economic activity and have plenty of relevant and interesting Daphne Roditou Tang reading in your hands! Media Manager I wish each and every reader a happy Antonis Antoniou and prosperous New Year. In-house Editor-in Chief John Vickers Coordination Voula Loizou Art Direction Anna Theodosiou Design Alexia Petrou, George Yiamiadakis Marketing Executive Kevi Chishios Commercial Manager Neofytos Constantinou Contact us for advertising Erika Phylakti [email protected] Tel: +357 22505555, +357 22505550, Fax: +357 22679820 Address 5 Aigaleo St., Strovolos 2057, Nicosia, Cyprus, P.O.Box 21185, 1503, Nicosia, Cyprus Accountancy Cyprus is published quarterly by the Institute of Certified Public Accountants of Cyprus and is sent free to all members if the Institute as well as to a large number of other persons, companies and organisations. The Institute can accept no responsibility for the ac- curacy of contributed statements or articles appearing in this publication and any views or opinions expressed are not necessarily endorsed by the Institute, its Council or by the Editors.



8 ACCOUNTANCY CYPRUS FROM THE PRESIDENT OF ICPAC By Demetris S. VakisWELCOME TO 2017It is often said that every ending also marks a new overseas. They are the ones mainly should be heading and how. beginning. So it is with a contributing to current growth and Since our future as a country new year: we usually take the a major source of future growth. opportunity to reflect on the They are our friends and we should primarily depends on our custom- year just past, ponder about be paying attention to their requests ers from overseas, we should ensure the future, resolve to do and needs, always within the context that we offer the best value. This things, change for the better. of our strategic objectives, laws and means, inter alia that, as profession- Looking back, we have culture. als, service providers and businesses, seen a rather mixed picture we are best-in-class. We should beof (mainly) success, but also of some Secondly, that we, as citizens of ready to compete with the biggerfailure. The economy has finally this country, should realise that financial centres, not merely on tax-started to show positive signs of our future well-being depends on related benefits but on a multitudegrowth, whereas unemployment and our ability to make the country as of advantages. What would happena series of scandals have dampened attractive as possible to people from if, all of a sudden, the tax advantagessentiment and sustained concerns overseas. This means many things – that Cyprus currently enjoys wereover a lack of significant change. professionalism, the environment, to disappear? This may or may notHouseholds and businesses are still safety, hospitality, flexibility, reli- happen but the present trend is notstruggling with an excessive loan ability, consistency, variety, adapt- in our favour in this respect.burden, causing the financial sector ability and much more.to be overly conservative in extend- Therefore, we need to set new,ing new credit. So, what does this mean for our high standards. As individuals, as profession? businesses, as public sector func- If one considers where growth tions and employees and as a society.came from last year, one will prob- We have a number of key We should be ready to compete,ably realise that, by and large, this strengths, which place us in a unique not only on price but on value foris attributed to customers from position. We have thousands of money and overall quality. I feel theoverseas. Tourism also played a accountants working in every walk urgency of defining the attributesmajor part. So did individuals seek- of life. We abide by our universal that quality encompasses, so thating Cypriot citizenship, providing code of ethics. We are trained to we can individually and collectivelyimpetus to industries such as real solve problems and measure success strive to attain them.estate, professional services and the or failure – past, present, poten-financial sector. tially future as well. We invariably Looking ahead, I am optimistic lead businesses, groups and people. that the future can be better than What does all this mean? We maintain high moral standards the present and success lies in our Firstly, that both the Government and continually educate ourselves. hands. We do not know how it willand the public sector at large should Therefore, we have a very signifi- be exactly, but we can prepare forrealise that we need to be better or- cant role to play, from setting the it. And, by preparing for it, we alsoganised to serve our customers from standard for moral values, ethical define it. behaviour and business practices to influencing where the economy May 2017 be a new beginning for our society.

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10 ACCOUNTANCY CYPRUS THINKING AHEAD By Kyriakos Iordanou, General Manager, ICPAC A NEW YEAR NEEDS A NEWCOMPETITIVENESS STRATEGYIt Is beyond dIspute that the Cyprus eConomy regIstered notable growth In 2016, wIth all theIndICators suggestIng a posItIve momentum for the new year too. obvIously, thIs trend byItself does not provIde any solId guarantees of progress In 2017 so, prIor to plannIng for theyear ahead, It Is ImperatIve to perform a self-assessment to IdentIfy Current weaknesses anddefICIenCIes, explore ways to mItIgate them, whIle CapItalIsIng on the strengths. maIntaInIngan optImIstIC stanCe on the threshold of a new and promIsIng year, one Can only look forward,foCusIng on the opportunItIes that lIe ahead. a suCCessful future, however, requIres a goodI knowledge of the present as well as adequate preparatIon.n my humble opinion, one of stakeholders and be of substance! It does notthe factors that needs to be very evident that we need to make the state more matter if they take a little longer to be imple-carefully reviewed and dealt with productive, efficient, cost-sensitive and mented, as long as they are implementedduring 2017 is the country’s responsive to civic needs. We still have a lot correctly and in a timely manner.overall competitiveness. In the to do to improve the country’s credibility,Global Competitiveness Index for reputation and competitiveness and enhance Two of the most problematic areas (Cor-2016-2017 (GCI) of the World its attractiveness to international investors ruption and Inefficient Government Bu- and businesses. We need to instil transparen- reaucracy) can be expected to significantlyEconomic Forum (WEF), Cyprus cy, accountability and meritocracy. We need improve, disseminating hopeful messages tois ranked 83rd, a fall from the to engage into a new culture of morality and society in general. The journey of structuralprevious year’s 65th place and a of ethics, abolishing complacency, bureau- reforms will improve Cyprus’ competitive-continuing downwards course. Cyprus cracy and other bad habits of the past. Nearly ness. After all, the WEF states that “theis only three places ahead of Greece and a year into the post-MoU era, one might Report provides an insight into the driversfourth from the bottom among all European have expected that we had learned from of the productivity and prosperity” ofcountries. This is obviously something that our mistakes. The year that has just finished every economy and the GCI shows thatwe cannot feel particularly proud of! exhibited a fair performance, paving the way competitiveness is a key driver of growthDeterioration in Cyprus’ competitive- for even better results in 2017. The starting and resilience. Having this in mind, theness was recorded in 11 of the 12 pillars point is much better than previous years, as twelve pillars of the GCI could constitute(only “Infrastructure” maintained the same we are currently striving to achieve growth the twelve strategies for improving thescore), with the most problematic areas be- rather than ensure mere survival, which was overall socio-economic situation in Cyprus.ing those of Access to Financing, Corrup- the case in the very recent past. But there is They could constitute part of a nationaltion and Inefficient Government Bureau- no room for complacency; on the contrary, strategy for the growth and developmentcracy. Therefore, we have a lot to fix. we still need dedication, commitment and of the economy and could spearhead theThe most effective way to bring about serious work. The disappointing GCI much-needed reforms.change is through structural reforms, many ranking is a alarm bell that should remind The very early stage of a New Year is anof which were agreed upon with the Troika us that we have not reached the end of the opportune time to set out a new purposein the economic adjustment programme tunnel yet. Establishing a proper structural for the economy, a new vision, new objec-that was successfully concluded in March reform programme for the government tives, new strategies and embrace a new2016. The reforms and amendments must sector will, undoubtedly, help reduce the mentality. It would be a shame to throwbe real and substantial, not mere window burden that could bring the economy to its away all the hard work and sacrifices of thedressing. knees. Reforms should be carefully designed, past three years, turning last year’s successAlmost one year down the road, it is in consultation with the most relevant into this year’s failure.

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12 ACCOUNTANCY CYPRUS INSTITUTE NEWSNEWS FROM THE BOARDROOM organised by the Cyprus Union of Economists. The event took was hosted by the Central Bank of Cyprus.During the final quarter of 2016, the Council of the Instituteconvened three times in order to discuss and decide upon • 17/11/2016: The General Manager and the Monitoring andvarious matters relating to ICPAC and to its activities and in- Compliance Officer of the Institute, Amalia Hadjimichael, metterests, as well as matters regarding the profession and the with the Audit Committee of the Cooperative Central Bankeconomy in general. The main activities and decisions of the to discuss the new provisions of the new European DirectiveInstitute’s Council included the following: and Regulation for the Audit profession. The meeting focused on the role and responsibilities of Audit Committees under theMEETINGS WITH OFFICIALS new legislation and their interaction with external auditors.During the fourth quarter of of the Chamber. • 28/11/2016: To inaugurate the term of the new Committees2016, the President, Council and Specialised Working Groups of the Institute, the Council,Members and the General • 8/11/2016: A workshop was Management and the Committee Chairs and Vice Chairs heldManager held a number of held by ACCA in Nicosia for a joint meeting to discuss the goals for the new two-year period,meetings with Government, Council Members and the the logistics and procedures to be followed, and to enhance mu-political, business and other management of the Institute. tual cooperation and information.officials including, inter alia, the Peter Large and Sha Ali Khanfollowing: of ACCA presented the subjects • 29/11/2016: A delegation of the Institute led by the General• 19/10/2016: The General and a fruitful discussion fol- Manager met with the Association of Cyprus Banks. The meet-Manager and the Chair of the lowed among all participants. ing was organised by the Financial Services Committee of theTax Committee attended a The General Manager and the Institute in an effort to discuss various common issues requiringmeeting with Troika represen- Monitoring and Compliance coordinated action.tatives to discuss progress in the Officer of the Institute, Amaliaintegration of the Tax Depart- Hadjimichael, had various • 1/12/2016: The General Manager had an informal meetingment. discussions with the two men with Lefteris Christoforou MEP to review matters of mutual during their presence in Cyprus interest relevant to Cyprus that are under discussion in the Eu-• 26/10/2016: The Vice Presi- (8-10/11/2016), focusing on ropean Parliament.dent of the Institute, Marios issues of monitoring and report-Skandalis, and the General ing of the findings of their visit. • 6-7/12/2016: The President and the General Manager of theManager held a meeting with Institute attended the Annual General Assembly of FEE inthe representatives of the Hel- • 10/11/2016: The General Brussels.lenic Association of Certified Manager and the Chairs of theFraud Examiners to explore Tax and VAT Committees • 8/12/2016: The President and the General Manager had afurther ways to enhance the participated in a meeting organ- very useful meeting at the Permanent Representation of Cypruscooperation that was recently ised by the TAXUD directorate to the EU, discussing the most important issues relating to theestablished between the two of the European Commission. country’s economy.bodies. The meeting fell within the scope of a fact-finding mission • 14/12/2016: The President and the General Manager met with• 2/11/2016: To promote co- on tax and customs matters for the past President of ICAEW, Andrew Ratcliffe, on the occa-operation between ICPAC and the Turkish Cypriots. sion of his visit to Cyprus.the Paphos Chamber of Com-merce and Industry, the Gen- • 12/11/2016: The General • 16/12/2016: A delegation from the Institute met with the Min-eral Manager met with Kendeas Manager addressed the “Cyprus istry of Finance for an initial exchange of views on the imple-Zambyrinis, Secretary General in the post MoU era” event, mentation of the Country by Country Reporting obligation. • 19/12/2016: The President and the General Manager had a meeting at the Ministry of Finance to discuss the issue of lack of compliance with the proper filing of audited financial statement to the Tax Department, as well as to expedite the passing of stalled legislation relating to the credit institutions.



14 ACCOUNTANCY CYPRUSINSTITUTE NEWS FROM THE ARCHIVESCOUNCIL DECISIONS Bringing back memories of 30 years ago, Accountancy Cy- prus magazine’s issue for December 1986 featured an article on ICPAC’s 25th anniversary celebrations.• The Council and Manage- • At its meeting in Novemberment of the Institute contin- 2016, the Council reviewedued their work on the pro- the results and the outcome ofposed new legislation for the its strategic planning for therevised Auditors’ Law, includ- period 2015-2016. In addi-ing discussions with the Public tion, the Council decided toAudit Oversight Board and proceed with a re-evaluation ofother relevant stakeholders. its strategic goals and activities,• In October, the Council an exercise which will com-spent considerable time evalu- pleted in early 2017.ating the applications and ap- • During the 4th quarter, thepointing new members to the Council looked at various ways23 Committees and Special- to improve its effectiveness inised Working Groups for the dealing with the growing volumeperiod 2016-2018. of issues involving the Institute.OTHER IMPORTANT MEETINGS AND ACTIVITIES• On 18/10/2016, the President gatherings took place in Larnaca, ICPAC President Costakis Christophides is shown ad-and the General Manager par- Limassol and Paphos. dressing a dinner-dance event on the occasion of theticipated as panellists in an event • Significant time was devoted completion of the first 25 years of the Institute’s history atorganised by the Employers and by ICPAC representatives to the the Hilton Cyprus, whilst founding members received aIndustrialists Federation (OEB) on National Risk Assessment project, commemorative award from the then Minister of Justice,the challenges and prospects of the which is under way in cooperation Demetrios P. Liveras.pension system in Cyprus with other authorities and the con-• The Public Relations Commit- sultation of the World Bank.tee of the Institute organised the • Both the President and the Gen-first ICPAC Regatta in Limassol eral Manager held various meetingson 23/10/2016, to mark the In- during the quarter with other offi-stitute’s 55th anniversary celebra- cials, stakeholders and Members oftions. The event was of a charitable Parliament on issues relating to thenature and the net proceeds were Institute and the profession.donated to the George Psaras/ • Institute officials held variousRound Table Association of Chil- meetings and contacts with repre-dren with Liver Diseases. sentatives of ICEAW and ACCA• On the occasion of the Institute’s who visited Cyprus.55th anniversary celebrations, • ICPAC representatives appearedin cooperation with the regional before the Parliamentary FinanceCooperating Committees in Lar- and Commerce Committees tonaca and Limassol, it organised discuss a number of Laws and Bills.presentations to members on the • The President and the Gen-Institute’s most recent develop- eral Manager attended thements. In addition, ICPAC invited Annual General Meetings ofits members in the respective cit- various professional and busi-ies to cocktail receptions. These ness organisations.



16 ACCOUNTANCY CYPRUS INSTITUTE NEWS ICPAC REGATTA 2016 As part of the Institute’s 55th anniversary celebrations, ICPAC’s Public Relations Committee organised the ICPAC Regatta sailing event in Limassol, 23 October 2016. The net proceeds of this charity event, amounting to €5,000, were donated to the George Psaras/Round Table Association of Children with Liver Diseases. The event was held under the auspices of the Mayor of Limassol, Andreas Christou. The regatta followed a route from Limassol Marina to the new port and back. All participants in the race were members and friends of ICPAC. The winners were: 1st Overall – IRON FX 2nd Overall – UNICA Sailing Team 3rd Overall – Limassol Nautical Club

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18 ACCOUNTANCY CYPRUSINSTITUTE NEWS NEW MEMBERSICPAC Committees for During the period October-December 2016, the following personsthe period 2016-2018 were accepted as New Members of the Institute:On November 1, 2016 the new committees and specialised 4213 Chrystalla Aletrari ACCAworking groups of the Institute for the period 2016-2018 com- 4214 Olga Timofeeva ACCAmenced their activities. The Council selected the members of 4215 Katerina Ioakimthe 23 Committees and Specialised Working Groups, appoint- 4216 Savvas Olympiou ACAing the respective Chairs and Vice-Chairs as follows: 4217 Gohar Avagyan ACCA 4218 Andreas Antronicou ACCAAccounting Standards Committee Polyvios Polyviou – Vice 4219 Georgia VryonidouYiannis Leonidou – Chairman Chairman 4220 Melis Constantinou ACANicos Stavrou – Vice Chairman 4221 Emilios Petropoulos ACA Larnaca – Famagusta Coordinating 4222 Georgios Petrou ACAAdministrative Services Committee Committee 4223 Constantinos Constantinou ACACostas Christoforou – Chairman Christos Antoniou – Chairman 4224 Marina Hadjichrysanthou ACCAGeorge Georgiou – Vice Antigoni Gennadiou – Vice 4225 Maria Vyra ACCAChairman Chairwoman 4226 Pavlos Tsiaklides ACCA 4227 Christiana Dionysiou ACCA 4228 Melina Menelaou ACCA 4229 Elena Christoforou ACCA ACCA ACCA Re-registration ACA 2532 Maria StephanouAdvisory Services Committee Limassol – Paphos Coordinating Removals FCCAChristoforos Anayiotos – Committee 50 Tefkros Papakyriacou FCCAChairman Neophytos Neophytou – 118 George Paphitis ACCAMichalis Charalambous – Vice Chairman 123 Ioannis KoumerasChairman Constantinos Georgoulas – Vice 174 Ioannis Tziakouris ACA Chairman 242 George P Georgiou ACAAuditing Standards Committee 302 George I Georgiou ACAGeorge Kazamias – Chairman Listed Companies Committee 379 Lakis Demetriou ACCAStelios Spiliotis – Vice Chairman Panayiotis Peleties – Chairman 471 Pavlos Savvides ACA Socrates Paschalis – Vice 502 Emmanouel Tsaggarides ACCAChief Financial Officers Committee Chairman 503 Irene Georgiou ACAGeorge Hadjineophytou – 667 Tasos Ioannou ACCAChairman Public Sector Committee 835 Stella Hambaki ACCAChristos Tavelis – Vice Chairman Marios Hadjidamianou – 943 Ioannis Demetriou ACCA Chairman 1015 Andreas Epiphaniou ACCACompliance Committee Constantinos Galinis – Vice 1234 George Maratheftis ACCANiki Charilaou – Chairwoman Chairman 1284 Antonis Adamou Vassilas AIANasos Paltayian – Vice Chairman 1567 Andreas Panteli ACCA Shipping Committee 1703 Chrystalla Pavlou ACAEconomic Crime and Forensic Sylvia Loizide – Chairwoman 1963 Marina Nicolaou CIMAAccounting Committee Christos Christodoulou – Vice 1876 Kyriakos Seraphim Article 155Yiannis Pettemerides – Chairman Chairman 1963 Marina Nicolaou CIMANicolas Rousos – Vice Chairman 1964 Loizos-Andreas Hadjiloizou ACCA Taxation Committee 2206 Ersi Costea ACCAEducation Committee George Markides – Chairman 2207 Demo Demosthenous ACAAkis Kolokotronis – Chairman Petros Liasides – Vice Chairman 2225 Christakis Christofi Article 155Alexis Avakian – Vice Chairman 2242 Maria Kythreotou FCCA VAT Committee 2268 Alexis Demetriou ACAEnergy Committee Charis Charalamobous – 2306 Christos Koulouteris CPAConstantinos Taliotis – Chairman Chairman 2340 Nicos Komodromos CPAMelina Demetriou – Vice Christos S Christodoulou – Vice 2379 Constantinos Pegasiou ACCAChairwoman Chairman 2409 Myria Paphiti ACCA 2432 Eleni Christodoulou ACCAEvents Committee Specialized Working Group on 2539 Charis Nicolaides ACAYiannis Soteriou – Chairman Ethics & Institutions 2561 Athina Panayiotou ACCAChristos Panteli – Vice Chairman Petros Mavrommatis – Chairman 2586 George Georgiou ACA Christos Demetriou – Vice 2592 Kasiani Avraam ACCAFinancial Services Committee Chairman 2629 George Matsoukaros FCCAConstantinos Kallis – Chairman 2667 Andreas Lytra ACADemetris Shiakallis – Vice Specialized Working Group on 2828 Christiana Petrou ACCAChairman Investment Funds 3114 Nandia Gregoriou AICPA Andreas Yiasemides – Chairman 3184 Demetrios Philippides ACAInsolvency Committee Michalis Vasiliou – Vice 3350 Katerina Spanou ACAMarios Kallias – Chairman Chairman 3380 Eleonora Christofidou ACAMichalis Loizides – Vice 3385 Alexia Themistocleous ACCAChairman Specialized Working Group on 3415 Victoriya Nidzelska ACCA SMPs 3461 Georgia Charalambous ACCAInternational Business and Foreign Andys Karlettides – Chairman 3524 Marios Papapostolou ACAInvestment Committee Demos Nicolaides – Vice 3566 Nicos Demetriades ACA/ACCAChristos Odysseos – Chairman Chairman 3665 Antonios Constantides ACCA 3731 Charis Vasiliou ACA 3829 Emilios Emmanouel FCCA 3851 Loizos Vasiliou ACA 3863 Evristheni Aspri ACCA Deceased ACA 4 Loizos Demetriou FCA 20 George Antoniou – Loizou ACA 386 Petros Christodoulou



20 ACCOUNTANCY CYPRUS inTerviewEssEntialREfoRmWillContinuEThe package of reforms submiTTed To The house ofrepresenTaTives lasT year was rejecTed buT The under-secreTaryTo The presidenT, consTanTinos peTrides, who was given The Taskof drawing up The proposed legislaTion, is noT giving up on whaThe views as an absoluTe necessiTy if cyprus is To ThriveInterview by Tasos Anastasiades which are closely related to the Govern- it, with a twofold effect: Firstly, it will ment’s ambitious reform agenda, of increase the efficiency and the effective-What are the main functions of the which a main priority is the promotion ness of the civil service for the benefit ofUnder-Secretary to the President? of structural changes that will transform both citizens and business and, secondly,The Under-Secretary to the President Cyprus, enhance the competitiveness of it will safeguard fiscal sustainability byused to be referred to as the Minister the economy and correct the inefficien- keeping the public payroll under control,without Portfolio – one with no spe- cies of the past. as pay rises, benefits and recruitmentcific responsibilities, who provided will be kept in line with the performancedirect support to the President in areas What are the key objectives of the of the economy. It is within this overallof special concern to him. This has now restructuring of the civil service? framework that we have worked dili-changed as, for the first time, the Un- There are many reasons for the transfor- gently and methodically and laid out ourder-Secretary is assigned tasks beyond mation of the civil service. Although the reform package concerning the publichis traditional role: in my case, tasks world around us is continuously chang- sector. It is a comprehensive plan thatand responsibilities related to growth ing, we are still stuck with procedures also attempts to address the serious prob-and the reform of the public sector, and a system that were put in place back lem of political patronage and favours. in the 1960s. I believe that it is widely Our proposals could have been a first understood that this system can no blow against this and the clientelistic longer be maintained. We must change system which has built up over time, and

21ACCOUNTANCY CYPRUS

22 ACCOUNTANCY CYPRUSinTerviewcreate a permanent mechanism protect- for the majority of civil servants. Let tion and is a major factor in under-ing public administration from nepo- me answer by reversing the question: mining the country’s competitiveness,tism but the House of Representatives What would be the repercussions of how do you propose to deal with it?did not approve them. having everyone working for the ser- This, too, has already been dealt with vice concerned about their future and, – in 2012, there was a review of theHow do your proposals deal with at the same time, perhaps looking for indexation system – but we neverthe-recruitment and promotion? work in the private sector or trying to less proposed a further safeguard inFor the first time, promotion would establish good relations with private our bill concerning the civil servicebecome open, fairer and the selec- sector corporations as they would con- payroll, through the imposition oftion would be based on merit. Fully sider them as future employers? Under an absolute ceiling on the total wageobjective and weighted criteria are which conditions would renewals take bill increase, in accordance with theintroduced, and while experience place and who would decide? What overall economic reality. Unfortu-is recognized, seniority is abolished happens to the issue of ‘loyalty’ to the nately, this bill was also rejected byas the main selection criterion. We civil service? Wouldn’t this promote the House of Representatives. Thatproposed, based on international best ‘crony capitalism’ and perhaps corrup- said, I should note that, accordingpractices, the introduction of written tion? What happens to the accumulat- to our analysis, indexation was not aexaminations and assessment centres ed know-how of civil servants which is major factor contributing to a dispro-for managerial posts, modern and vital for the service? Why doesn’t any portional increase in the wage bill instructured interviews, and the open- civil service in the world operate fully the past. It was the mass upgrading ofing of public sector managerial posi- with contracts but has a large number scales and unrestricted new recruit-tions to the private sector on an equal of permanent employees? What, at the ment that would have been addressedbasis. We are introducing criteria to end of the day, is the benefit for the by our proposed legislation.put an end to the practices that have civil service? I think that answeringessentially enabled certain individuals these questions leads to conclusions What can you tell us about theserving within the same department that are not so supportive of the con- decision to set up three new Under-to claim a position, and to allow tracts proposition. Secretariats?the best ones to have a better career It is a very important part of the struc-path and take more responsibility. Are changes to the retirement age tural reform of the civil service. WeThis will lead to medium-term ef- and the pension system under con- are the only country in the EU thatficiency gains for the civil service and sideration? does not have a Ministry for Growththe economy as well. Following the This was one of the first issues to be and Competitiveness or for the Econ-rejection of the bills by Parliament, raised under this administration and omy. The functions of the Ministry ofthe five-member Public Service Com- the civil service pension system has Finance are completely different. Wemission will continue to recruit and been fully reformed. Retirement age are the only tourism destination in thepromote people based on the current has risen by three years, the lump- EU without a dedicated Ministry ofnon-transparent criteria. sum upon retirement is calculated Tourism. We are one of the biggest on the basis of the average salary and international powers in shipping butWhat are you planning to do fol- not the final salary, and employees’ political supervision of the sector restslowing the House’s rejection of the contributions have been raised. For with a ministry with different corereform bills? new civil servants, the old system functions. Do you think the erosionWe will not give up! We will continue has been totally abolished and the of the Cypriot economy’s competi-to submit proposals. Reform is a con- old defined benefits system has been tiveness over the years is coincidental?tinuous process and is not an easy task. replaced by a defined contributions It is a result of this institutional andThings need to change and we should system. So there we have a perfectly structural gap, which we propose tonot expect to make an effort just once viable system which needs no further bridge through the creation of theseevery 50 years! The system has already consideration. three Under-Secretariats for these ex-collapsed but it seems that we do not tremely sensitive sectors of the econo-learn easily from our mistakes. In view of the fact that the wage index- my, which will be directly accountable ation system leads to cost-push infla- to the President.What are your views about abolish-ing permanent posts in favour of a We are still stuck with procedures and a systemsystem of contracts that can be auto- that were put in place back in the 1960smatically renewed?That system already exists, though not



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26 ACCOUNTANCY CYPRUS COVER STORY

27ACCOUNTANCY CYPRUSA YEAR OFCHANGE?The end of one year and the start of the next have always been a time for reflection on what has goneand what remains to be seen but, for Cyprus, this New Year is much more significant than most, given itspotential to change the country’s present and future for ever. 2017 is here, carrying the hopes, wishes anddreams of an entire country that an end will finally be brought to the unnatural situation that has existed since1974 (and some would say since 1963). By the time you read this, the talks to resolve the Cyprus Problemmay have led to a final agreement. Past experience has taught us that, equally, we cannot dismiss the possibilityof their collapse.The question about whether 2017 is going to be the year of Cyprus’ reunification is one of five that we put tothe representatives of key sectors of the economy and organisations in order to obtain a wide-ranging picture ofhow they saw 2016 and what they expect for 2017. In addition to the views of Phidias Pilides,President of the Cyprus Chamber of Commerce & Industry (CCCI), Christos Michaelides, Chairman of theCyprus Employers and Industrialists Federation (OEB) and Christodoulos Angastiniotis, Chairman of theCyprus Investment Promotion Agency (CIPA), we also sought those of representatives of the following sectors:Accounting, Administrative Services, Banking, FMCG (retail & wholesale), ICT, Legal, Real Estate, Shipping andTourism.As you will see, the general consensus is that 2016 was better than expected, the exit from the EconomicAedcjuostmneontmPriocgragmrmoewwatsha welcome and positive event that helped the country’s image and reputation, was better than expected but…much still remains to be done in many sectors,where reforms and structural improvements are needed.Fitting perfectly into our cover story is an article by Averof Neophytou, Chairman of the DemocraticRally, in which he examines what was achieved in 2016, what needs to be done in 2017, and comesto an optimistic conclusion.

28 ACCOUNTANCY CYPRUS COVER STORYLOOKING TO a basic activity indicator in the constructionTHE FUTURE sector, recorded an annual increase of 28%WITH OPTIMISM compared to 2015.AND HOPE At the same time, the tourism sectorBY AVEROF NEOPHYTOU had registered a record three million visi- tors by the end of October 2016, with totalChairman, Democratic Rally (DISY) revenues for the first 10 months of the year already surpassing those of previous years.2016 was certainly a pivotal The sound and responsible policies that year for humanity on many were followed have placed the country on The lowest lending rates ever achieved levels. The fear of terrorism an impressive growth path. were recorded in 2016 while total deposits intensified and the refugee cri- in the banking system increased by 2.5% sis climaxed, monopolizing at- Cyprus has been through eight consecu- on an annual basis. Deleveraging of thetention across Europe to a great extent. The tive quarters of positive economic growth economy continued, with total loans re-result of the British referendum exacerbated and even better days are expected ahead. cording a percentage decrease of 12% overthe feeling of uncertainty, while the result In fact, economic forecasts point to overall the course of the last year. Trust in theof the Italian referendum put pressures on growth of 3% for 2016, which is expected system has returned and, in combinationthe Italian banks and the third largest econ- to continue in 2017. Indeed, in the third with low interest rates, the total number ofomy in Europe. Moreover, the unexpected quarter of 2016, Cyprus had the third fast- vehicle registrations also increased notablyresult of the American presidential election est growing economy in Europe. in comparison to 2015.brought further uncertainty. The improvement in the economic Cyprus now finances its needs by bor- In our region, geopolitical tensions in climate is also evident from the number of rowing from the international marketsthe Eastern Mediterranean and the Middle new company registrations, which reached at historically low interest rates and isEast continue, the situation in Syria has their highest level since January 2013, re- restructuring and reducing its public debt,spiralled out of control, while energy pros- flecting enhanced confidence in the coun- which is deemed viable under all forecastpects of the region have become even more try as an investment destination. scenarios. The reinforcement of investorattractive. The discovery of a massive gas trust in the Cyprus economy, the attrac-field in the Zohr prospect in Egypt’s Exclu- The steady recovery is also evident on tion of investments and the attainment andsive Economic Zone turned the attention a microeconomic level and in everyday life maintenance of investor ratings, remain keyof global energy giants to Cyprus’ third in the labour market as the unemployment to the effort to ensure permanent access tolicensing round. rate fell to 13.1% in the first half of the year the international money markets. from 16.1% in 2015, while in October In this environment, Cyprus continues 2016 it decreased further to 12%. The first post-adjustment budget, re-to present remarkable prospects. 2016 cently approved by the House of Represen-was certainly pivotal for Cyprus with the We witnessed significant improvements tatives, comes to reinforce the economy’scomprehensive conclusion of the economic in consumer spending in 2016, while the positive trajectory, building on the solidadjustment programme. Consolidation of turnover index of professional, scientific ground we have achieved.public finances continued, the banks were and technical activities rose by 12.8%fully recapitalized and the recession ended. compared to the previous year. New title However, even though the goal of con- deeds deposited at the land registry office taining public finances has been achieved, increased by 32%, while local cement sales, dangers are still lurking and we must remain focused on balanced budgets, so that what was accomplished so far is not wasted. Prudent economic administration is already bearing fruit. Households and businesses have begun to enjoy the benefits. Both the special employees’ and employ- ers’ contribution and the property tax have been abolished for 2017. Diligently continuing on the path of reforms is a catalyst for further upgrades of our economy by the rating agencies, as this increases the confidence of investors and should not be steered away by political

29ACCOUNTANCY CYPRUS OUTLOOK FORconsiderations and populism. THE FMCG The recent rejection of the Govern- RETAIL SECTORment’s bills for the reform of the publicservice and the withholding of funds for GEORGE THEODOTOUthe development of Larnaca port and theTroodos region constitute a backward step Director and Marketing Manager, Alphamega Hypermarketsand will keep the country in the past, per-petuating outdated practices. How did the Fast Moving Consumer Nowadays, consumers plan their shop- Goods (FMCG) retail sector perform ping more than ever before and they pay The biggest challenge we face today is in 2016? close attention to offers in an attemptto reform the state with modern structures Retail trade was particularly encourag- to avoid unnecessary expense, optingand build a modern Cyprus of entrepre- ing in 2016, especially judging by the for the highest possible quality for theneurship and development. Our strategic statistics issued by the Cyprus Statistical amount they pay. Moreover, offers, giftspursuit is to continue macroeconomic, Service; the Turnover Volume Index and other incentives that we promote arefiscal and financial stability and reinforce of Retail Trade witnessed an increase now commonplace, which raises the barthe competitiveness of the economy on of 2.4% in September 2016, compared for us, taking consumer demands intothe pillars of sustainable development and to September 2015. The extension of greater consideration than ever before.social inclusion and to remain steadily on opening hours – including Wednesdayscourse towards achieving a better Cyprus, and Sundays – was beneficial to the Are you confident that 2017 will be aaway from costly populism. employment sector, creating thousands year of growth for the economy? of jobs at little cost to the state, while We are optimistic that 2017 will be a Cyprus has successfully completed the ad- having a positive effect on the economy. year in which economic growth will con-justment programme, regaining its national Extended opening hours have helped tinue. The climate is favourable and wesovereignty and reclaiming its lost authority, consumers and satisfied workers, while believe the economy will grow steadily.credibility and strength, which reinforce our contributing to the revitalization of Nevertheless, major challenges remainposition at the negotiating table for achieving commercial centres and increased con- for there to be a full recovery from thea solution to the Cyprus Problem. sumption on Sundays. economic crisis and the achievement of sustainable year-on-year growth. We believe in a better, stronger Cyprus. What do you see as the main chal-And for us, a stronger Cyprus means a lenges facing the sector in 2017? Do you believe that 2017 will be theunited Cyprus, through a sustainable and The economic crisis has clearly affected year in which Cyprus is reunited?functional solution to the Cyprus problem the way we shop, consumer behaviour We certainly can’t make predictions.that will unleash the country’s full poten- and, consequently, the retail sector as a We do, however, hope that 2017 willtial, in conditions of security and prosperity whole. It must also be noted that com- bring about a solution that will satisfyfor all its lawful citizens. A united Cyprus petition within our sector has increased, both sides. I personally believe thatwill realize its potential as a catalyst for especially over the past few months. there are prospects for a solution andregional cooperation and a pillar of stability Healthy competition is fair and motivates that this, in turn, will have a positiveand help strengthen the links between the us to be constantly vigilant, always leav- effect on business. A workable solutionEuropean Union, the Southeast Mediter- ing room for improvement, as we face will benefit the economy and the busi-ranean and the Middle East. the strictest judge of all: the consumer. ness world as a whole. Many choose to view the future withreservations and skepticism. Without un-derestimating the dangers, we choose toview it with optimism and hope.CYPRUS NOW FINANCESITS NEEDS BY BORROWINGFROM THE INTERNATIONALMARKETS AT HISTORICALLYLOW INTEREST RATES

30 ACCOUNTANCY CYPRUS THE LEGAL SECTOR COVER STORYTHE ICTSECTORPHILIP VAN DALSEN ANDREAS NEOCLEOUS CEO, MTN Cyprus Ltd Founder and Chairman, Andreas NeocleousHow did the ICT sector perform in able, but the biggest challenge will be the How did the legal sector perform in2016? need for further integration of services 2016?The ΙCT sector is especially prone to and products, at competitive prices. In My impression is that the legal sector as afluctuations due to advancements in 2017, MTN is planning to enter the whole had a relatively good year in 2016,technology. In 2016, we went through broadcasting sector further rewarding its with a steady demand for legal services.a further expansion of 4G networks and subscribers with a comprehensive quad- However, within this overall picture therea consolidation of services and products, play experience. The investment that is a huge amount of variation betweenaiming to serve both private and busi- MTN has made in its infrastructure and different firms and between differentness clients with a single package that network will allow it to introduce a pay- practice areas. One of the most impor-would include all the required services. TV service, a fast growing sector of the tant changes we have seen over the pastMTN took on a leadership role in the global economy. The goal is to provide few years is increased competition. PriorCypriot market, with its new services MTN subscribers with a quad-play ser- to the 2008 global financial crisis, thereand products, keeping the same high vice that will combine mobile telephony, was a seller’s market for legal services instandards that the Cypriots have grown fixed telephony, Internet and TV. Cyprus, with demand outstripping sup-to expect from us. ply, and lawyers and law firms were able Are you confident that 2017 will be a to survive, and indeed thrive, despite hav-Was 2016 better or worse than ex- year of growth for the economy? ing inflated costs and inadequate clientpected? Following the country’s exit from the service. Those days are gone. With global2016 has been a year of significant bailout programme, I expect the Cypriot economic recovery still far from assuredgrowth for MTN. We exceeded expecta- economy to continue recovering in there is increasing emphasis on value fortions by reaching 400,000 subscribers 2017. All the signs are positive as the money, and lawyers are not immune.this year, as we expanded our services economic climate continues its recovery Clients are becoming increasingly selec-and introduced new products and offers. and steady growth. tive and selection processes are becomingMTN was the first organization to intro- increasingly sophisticated and rigorous,duce a 3G+ network as well as the more Do you believe that 2017 will be the aimed at getting the best possible serviceadvanced 4G network in Cyprus and year in which Cyprus is reunited? and value for money.the customers rewarded our efforts to The Cyprus dispute is a 40 year-oldoffer incredibly high connection speeds international problem that grows more Was 2016 better or worse than ex-at exceptionally low prices. complicated as time goes by. The cur- pected? rent process seems to have gained a Increased competitiveness is somethingWhat do you see as the main chal- momentum that could bring about a that we have been expecting, and thatlenges facing the sector in 2017? solution and reunite the island, after a we have based our strategy on, for severalThe ICT sector is generally unpredict- division that has lasted too long. years. It happened in the accounting pro-

31ACCOUNTANCY CYPRUS OUTLOOK FOR& Co LLC gation on the one hand and criminal tax THE FMCG evasion on the other. The challenge for WHOLESALE fession abroad in the 1980s and spread to us in the legal sector is to serve our cli- SECTOR the legal profession some years afterwards. ents’ interests with integrity and profes- Inexorably, it has now made its way to sionalism against this backdrop. ZENON Cyprus. Well before the global financial MARKIDES crisis, we realised that this would happen Are you confident that 2017 will be a and that the only way to secure the future year of growth for the economy? General Manager, prosperity of our firm lies in providing Demand in some sectors of our business is Christodoulides Bros Ltd the best possible service at a competitive influenced by the health of the local econ- price, and adding value to our clients’ omy but, for others, such as cross-border How did the Fast Moving Consumer businesses. We focus on recruiting and M&A and finance, the critical factor is the Goods (FMCG) wholesale sector per- retaining the best people and deploying health of the global economy. So far as the form in 2016? them cost-effectively for our clients. We local economy is concerned, I am hopeful, It was expected to close positively, with an are seeing the fruits of this policy: our firm and reasonably confident, that the prog- average increase of up to 2%, depending has continued to grow, despite a number ress that has been made since 2013 will be on the specific category. of distractions, and this year we were the maintained. We still have a great deal to only Cyprus firm selected for inclusion in do to complete the job and it is important Was 2016 better or worse than expected? the inaugural “Euro Elite” list of the 100 to resist the siren songs tempting us to The sector performed at the expected levels most significant law firms in Europe com- return to the old ways. For both the do- so it was neither better nor worse. piled by Legal Business magazine, the lead- mestic economy and the global economy, ing monthly publication for senior lawyers the uncertainties and volatility facing us What do you see as the main challenges in the UK and the USA. are greater than ever, and the key to suc- facing the sector in 2017? cess is agility and the ability to adapt to There are four: cash flow, receivables, dis- What do you see as the main chal- new circumstances with minimum delay. counters and parallel trade. lenges facing the sector in 2017? Clients’ demands for quality, cost- Do you believe that 2017 will be the Are you confident that 2017 will be a effectiveness and value added are likely year in which Cyprus is reunited? year of growth for the economy? to grow and to be compounded by Despite recent setbacks in the negotia- Yes, I am confident for a number of increased regulation and scrutiny of the tions, I have strong hopes that 2017 will reasons. The country’s GDP growth is sector. As economic growth remains see the achievement of the long-awaited forecast to be 3%, while retail trade growth elusive in the major economies, they solution which will bring us peace and is expected to be approximately 2%. The will seek to boost their tax revenues by reconciliation, and lay solid foundations reduction in unemployment will continue redoubling their attempts to blur the for prosperity and progress in Cyprus. A and is predicted to fall below 12% and the distinction between legitimate tax miti- large majority of the people of Cyprus consumer confidence index has shown a – Greek- and Turkish-Cypriots alike – positive trend, which I expect to continue. have come to see that if a solution can be And, of course, there is the matter of a po- found, Cyprus will become one of the litical solution to the Cyprus problem. great global business hubs – perhaps even the greatest. It can be the Middle Eastern Do you believe that 2017 will be the equivalent of Switzerland or Singapore, year in which Cyprus is reunited? attract considerable foreign investment Yes, and all the signs are that this will be and become a seat and platform to possible. It is my wish. myriad multinational companies doing business in the Eastern Mediterranean, the Gulf or North Africa. Based on the progress that has been made to date and the positive climate surrounding the negotiations, I am confident that, if a solution can be found, it will come in the very near future.

32 ACCOUNTANCY CYPRUS COVER STORYTHE BANKING tomer demand, impacting further theirSECTOR ability to attract investments. Although negative interest rates are designed toGEORGE GEORGIOU encourage banks to lend to business and consumers, thereby fuelling eco- Chairman, Association of Cyprus Banks nomic activity, if the banks continue to absorb the costs, it could cut deeplyHow did the banking sector perform Even though the banking sector in into their profits at a time when or-in 2016? Cyprus had been severely affected by ganic profitability is a key element forAfter the official launch of the new the Eurogroup’s decisions in 2013 and capital generation. The implementa-Single Supervisory Mechanism and the the broader European economic and tion of IFRS 9 and the requirement forsuccessful completion of the EU-wide sovereign crisis, it performed better than financial institutions to have adequateand ongoing comprehensive assess- expected. This is reflected by the satis- loss absorbing capacity (satisfying thement exercise, confidence began to be factory capital adequacy levels, liquidity standards for Minimum Requirementsrestored. The Banks have been restruc- ratios and position and the resumption for Own Funds and Eligible Liabilities)tured and recapitalized and are focusing of lending to satisfy the real commercial is expected to increase the minimumon operations with a prudent risk-based needs of society. Banks still have to capital requirements and lead to signifi-approach to lending and investing. They deal with the legacy effects of the crisis cant changes in policies, processes, IThave been going through a process of on their balance sheets and reconsider systems, data and models and will cre-restructuring and deleveraging, shed- certain behaviours. They have to inten- ate additional credit risk challenges.ding non-core business lines, cutting sify their efforts to effectively managedown impaired assets and increasing their large stock of Non Performing Are you confident that 2017 will be aprovisions. The banking sector worked Exposures and, in an era of low growth, year of growth for the economy?effectively through its large stock of Non master transformation. Some indicators, such as reduced unem-Performing Exposures, which further ployment, increased tourist arrivals, newweighs on earnings prospects. At the What do you see as the main chal- real estate projects, the decrease in Nonsame time they adapted to the new lenges facing the sector in 2017? Performing Exposures as well as the sta-regulatory framework and implemented Apart from reducing the excessive level bility that Cyprus achieved during 2016,the required changes to their capital, of the Non Performing Exposures, lead us to expect that 2017 will also befunding and operating model. Their which remains the number one prior- a year of growth and further restorationrestructuring effectively addresses the re- ity, banks have to face and overcome of confidence in the local economy byduction in operating costs. Additionally, a number of challenges, in order to re- consumers, companies and foreign in-banks managed to comply with the new main competitive and address demand- vestors. At the same time, however, therecorporate governance framework which ing customer needs. They are faced remain many challenges in the economypromotes the value of strong boards and with profound structural and sweeping as well as in the banking sector. Thisboard committees, with the objective of technological changes that will lead calls for caution by decision-makers indefining and promoting risk culture, risk towards a less bank-denominated all sectors. Cyprus is on track but weappetite and the bank’s risk capacity. financing mix. If they underinvest, always need to bear in mind all the chal- banks will not be able to keep up with lenges and potential risks, so as to be inWas 2016 better or worse than expected? technological change and evolving cus- a position to avoid a repetition of past negative incidents. Do you believe that 2017 will be the year in which Cyprus is reunited? We believe that every Cypriot wishes to reach a settlement, by which all citizens can live in peace and have productive lives, enjoying the fruits of such a settle- ment. Our support and our wishes are with all those involved in the process for reaching a fair and viable solution.

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34 ACCOUNTANCY CYPRUS COVER STORYTHE TOURISM billion. January to August were theSECTOR best eight months ever recorded as regards tourist arrivals. My strongCHRYSO TSOKKOU belief is that 2016 will be written in gold in the annals of Cypriot tourism! Director, Tsokkos Hotels The efforts of the private sector, the CTO, the Government and variousHow did the tourism sector per- the tourist season. As Tsokkos Hotels, associations, combined with the effectform in 2016? we are trying intensively to establish of the unfortunate incidents in theIt was a record year and 2017 looks Cyprus as a year-round destination and countries around Cyprus, have provedvery promising, too. The UK market we are pleased that we have concluded to be crucial to this success. In 2016,came back stronger and this is a great a two-year agreement with an Austrian our effort was to ensure that visitorsadvantage. It has traditionally been Tour Operator and 14,000 Austrians enjoyed Cyprus and our aim now is isour number one market and we must will enjoy Cyprus in March and April. to transform them into repeat guests.maintain and increase it. Brexit is still With the support of the Governmenta question mark but sales for 2017 are and the Cyprus Tourism Organisa- What do you see as the main chal-very encouraging. All UK Tour Oper- tion, hoteliers are focusing their efforts lenges facing the sector in 2017?ators have seen increased sales for Cy- on maintaining and growing existing 2017 looks very promising and theprus. The Russian market maintained markets, while attracting tourists from early indications support cautiousits strong market share, too, and it is other markets which are either minimal optimism, since tourism still appearsnow our second largest market. We or non-existent at present. Our aim is resilient within a fragile external en-expect sales for summer 2017 to be at to further improve Cyprus’s tourism vironment. However, challenges re-the same level as 2016. Germany was product, to enhance and communicate main (a) to repeat the performance ofstill low in 2016 but looks promising a unified branding for Cyprus, allow- 2016 and do even better, (b) to createfor next season as many German tour ing it to remain a competitive destina- conditions for sustainable growth inoperators have seen an increase in tion, to maintain a sustainable increase the sector and (c) to maintain thesales for Cyprus and have committed year by year in the volume of tourist momentum in tourist arrivals and in-to more flights, which is an encour- arrivals and their spending power, and come over the coming years.aging step. The same applies to the to establish Cyprus as a year-round The year also revealed our limitationsSwiss, Austrian and Dutch markets. destination. in many matters such as infrastruc-Scandinavia has struggled over the last ture, public transport, airport capacitycouple of years but, for summer 2017, Was 2016 better or worse than ex- and facilities and, most importantly,we are excited that there is real inter- pected? a lack of well-trained and professionalest in Cyprus from the Scandinavians, Better of course! Much better! I be- employees. It is, therefore, extremelywho are seriously considering our lieve that 2016 will be the first year important to tackle these issues incountry as a destination to grow in. in which more than three million order to be able to move to the nextI believe that 2017 will be at least as tourists visited the island, while rev- level and to establish facilities andsuccessful, if not better than 2016 and, enue from tourism is also expected to services to cater for more visitors. Itof course, the whole economy will ben- increase by more than 13.7% com- is vital to upgrade the tourism infra-efit. Our focus should be on extending pared to last year, surpassing €2.3 structure in general and gear it to- wards high valued-added services. The Government has to help the private sector to invest by offering incentives, such as those that competing destina- tions like Greece offer their hoteliers. Seasonality is the major challenge fac- ing the tourism industry. Cyprus has all the ingredients to become a successful year-round destination and a more bal- anced distribution of arrivals through- out the year is required, as the high

35ACCOUNTANCY CYPRUS OUTLOOK FORconcentration of arrivals during the THE SHIPPINGpeak season creates certain problems SECTORfor the current infrastructure. Tack-ling seasonality is not an easy task but THEMIS PAPADOPOULOSfocusing on and investing in this willbe the ‘golden key’ to unlock the econ- President, Cyprus Shipping Chamberomy. The development of the tourismindustry is everyone’s responsibility and How did the shipping sector per- a year of growth for the economy?a collective effort is required. form in 2016? The Cyprus economy seems to be 2016 has been one of the toughest recovering well following the 2013Are you confident that 2017 will be years for shipping with almost all banking crisis and looks likely toa year of growth for the economy? sectors under pressure. While the end 2016 with healthy growth. IWhy? fleet growth has slowed down and expect that 2017 will likely fol-Yes, I strongly believe that 2017 will is at historically manageable levels, low a similar pattern, with the realbe a year of growth. The Statistical oversupply still persists and while dif- economy continuing to pick upService released some very interesting ferent sectors have performed accord- pace. While the geopolitical situa-figures in November. The economy ing to their specific circumstances, tion in our neighbouring countriesgrew by 2.9% year on year in the third earnings have been under pressure for presents both opportunities andquarter of 2016, marking growth for most ship types. challenges, I think the most seriousthe seventh consecutive quarter. The cause for concern for the economyincrease is mainly attributed to Hotels Was 2016 better or worse than ex- is the continuing high percentage ofand Restaurants, Professional, Scien- pected? non-performing loans on the banks’tific and Technical Activities, Retail It was always expected to be a balance sheets. Overall, however, Iand Wholesale Trade, Manufacturing, difficult year and while bulkers, expect it to be a positive year for theConstruction and Transport. It is very containers and offshore ships per- economy.significant that Hotels and Restaurants formed more or less at the low levelare the number one sector. These fig- that was expected, tankers were a Do you believe that 2017 will beures, together with our estimates for disappointment after a strong start the year in which Cyprus is re-further growth of the tourist industry, to the year. united?support our strong belief that 2017 This is one for the politicians towill be a year of new hope. What do you see as the main chal- answer but, if I may speak on behalf lenges facing the sector in 2017? of the Cyprus Shipping Chamber,Do you believe that 2017 will be 2017 will likely be another difficult it is very much our hope and aspira-the year in which Cyprus is re- year in the shipping markets and the tion that a political solution thatunited? general consensus is that we need to reunites the island is found. TradeI hope so. Of course, this is a very see both good demand growth and promotes cooperation and under-sensitive matter and our political lead- healthy scrapping activity before we standing and we strongly believeers must ensure that the solution is see a positive impact on freight rates. that a solution would be beneficialfair and sustainable. If this happens, both for shipping and for the econ-the country will be stronger, wealthier Are you confident that 2017 will be omy at large.and more prosperous.THE DEVELOPMENT OFTHE TOURISM INDUSTRY ISEVERYONE’S RESPONSIBILITYAND A COLLECTIVEEFFORT IS REQUIRED

36 ACCOUNTANCY CYPRUS COVER STORYTHE ACCOUNTING their staff to focus on their core busi-SECTOR nesses. At the same time, the tax au- thorities in foreign jurisdictions haveMARIOS KLITOU become much more sophisticated and aggressive in combating tax evasion by CEO, Baker Tilly in South East Europe challenging the substance of compa- nies of international groups registeredHow did the accounting sector per- Although 2016 was a challenging year in other jurisdictions. Therefore,form in 2016? for Cyprus’ economy, I believe that substance is essential and will requireThe services sector, the backbone of the accounting sector performed bet- companies to have a real presence inthe Cyprus economy, was the fastest ter than anticipated. The profession Cyprus and to ensure that all theirgrowing sector during 2016. As part has evolved considerably and adapted corporate filings and reporting func-of it, the accounting sector is also accordingly in order to be able to an- tions are performed here.back on track to growing stronger. ticipate the increased regulations andMany companies have already begun compliance rules imposed internation- Are you confident that 2017 will beonce again to show their interest in ally, and to follow high-quality inter- a year of growth for the economy?using our country as a base for their national standards and practices, as- In 2016 we saw the island’s economyinternational activities, resulting in a sisting our local and foreign clients to to return to growth. To date, Cyprusconsiderable increase in demand for function effectively within the world’s has successfully completed all the eval-the accounting profession. Even the capital markets. uations of the economic adjustmentrole of the accountants has changed programme, which greatly enhancedin today’s business environment. What do you see as the main chal- the confidence of local and foreignAccountants are now taking part lenges facing the sector in 2017? investors in the island’s economy, andin the decision-making process of a The economic environment, the fi- indicated an exit from the recession.company, managing the risks and nancial markets and the needs of the For 2017, the prospects for the econ-protecting its assets, while being re- investors are constantly changing. If omy are expected to improve further.sponsible for the satisfaction of the we want Cyprus to be considered as a The revival of the tourism industry,stakeholders’ interests, not only of the reputable and reliable business centre, the dynamic recovery of the real es-government and clients, but also of we have to methodically and thor- tate sector, the stability of the servicesthe banks, suppliers and various as- oughly monitor the global changes sector and the restored confidence ofsociates. Additionally, given the new pursued by the regulators and stan- investors, combined with improvedregulatory and compliance framework dard setters for imposing changes to expectations regarding the investmentin the financial world internationally, local legislation and for adopting our opportunities in the energy and theaccountants have become regulators practices in order to meet our clients’ tourism sectors, are creating a positiveas well, ensuring that their clients’ needs. The Cyprus accounting sec- outlook for the economy. Throughfinancial records follow the appropri- tor has great potential. Multinational the restructuring of the banking sys-ate standards and legislations. companies are now moving towards tem and the gradual improvement of outsourcing their accounting func- the problem of non-performing loans,Was 2016 better or worse than tions, as they have realized that this growth is expected to be accelerated.expected? allows them to strategically redeploy Do you believe that 2017 will be the year in which Cyprus is reunited? Yes, I do believe and wish that 2017 will be the year in which Cyprus is reunited. If we can agree on a viable, mutually acceptable solution of the Cyprus problem, substantial oppor- tunities will be opened up, that will enable Cyprus to become one of the most important business and tourist centres in Europe.

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38 ACCOUNTANCY CYPRUSCOVER STORY OUTLOOK FORTHE REAL which have played a pivotal role in theESTATE revival of the industry. The Associa-SECTOR tion has also drawn up proposals to streamline, accelerate and simplify thePANTELIS LEPTOS protracted and complex procedures now in place for the licensing and Chairman, Cyprus Land & Building Developers Association control of building development in Cyprus. We also hope that 2017 willHow did the real estate sector per- the ongoing events in Syria, the sector be the year in which the banks areform in 2016? demonstrated resilience and growth. more able to finance housing loans.Spectacularly. Cyprus’ real estate mar- The sector’s experience, outwardness,ket demonstrated significant improve- openness and expertise, combined Are you confident that 2017 will bement in a recovering economy, with with the opportunities created by geo- a year of growth for the economy?property sales registering a significant political issues in the surrounding na- Yes, very much so. The country’s exitincrease. The number of building per- tions, give ground for optimism that from the Economic Adjustment Pro-mits issued was also up whilst sector the industry will see further significant gramme last March, together with theunemployment decreased. Addition- growth in 2017. stabilization of the financial systemally, house prices are now stabilizing and the continuous positive ratingsand residential construction activity is What do you see as the main chal- that the economy receives from inter-increasing. The Department of Lands lenges facing the sector in 2017? national credit rating agencies, con-and Surveys reported a 46% increase It is imperative that we modernise firm the positive outlook for our econ-in property sales during November structures and practices, combat omy and reflect the constant strength-compared with the corresponding bureaucracy and become an attrac- ening of international confidence inmonth in 2015. November’s increase tive investment destination that is it. Real estate, tourism and servicesfollowed a 37% increase in October, entrepreneurship-friendly. We have to have long been driving forces of thea 50% increase in September, and a understand that, if we do not continue economy and they are growing, whilst50% increase in August. In total, dur- to attach to the reform process the im- economic activities in the gas sectoring the first 11 months of 2016, prop- portance it deserves, we will endanger are expected to increase, creating newerty sales rose by 34% to reach 5,929 all the work achieved so far and place opportunities for the economy. It is,compared with 4,439 during the first at risk all the sacrifices made. The therefore, very important to proceed11 months of 2015, with sales up in present complex systems for obtaining decisively with all those reforms andall districts. It is estimated that the planning permission and for building policies that promote investment,sector contributed over €3 billion of need to change. Our time-consuming healthy entrepreneurship and the em-fresh money to the economy. procedures in issuing building per- ployment that the country needs. mits and title deeds act as an obstacleWas 2016 better or worse than ex- to investment and, in many cases, Do you believe that 2017 will be thepected? automatically “freeze” business plans year in which Cyprus is reunited?We expected a good year and it was and initiatives. The Cyprus Land and Hopefully, it will. With a just anda good year. Despite the fact that we Building Developers Association has viable agreement, the benefits to thehad to deal with crises such as Brexit, submitted proposals to extend the economy – and the real estate sector inthe attempted coup in Turkey and incentives given by the government, particular – will be huge, since it will remove any political risk and create new investment opportunities. This will spur additional growth and allow us to promote a reunited Cyprus as a truly competitive investment destina- tion. Additionally, a united Cyprus would be a haven of stability in the wider region and could thus become a modern regional investment and busi- ness centre.



40 ACCOUNTANCY CYPRUS BUSINESS & ENTERPRISE COVER STORYTHE ADMINISTRATIVESERVICES (FIDUCIARY)SECTORCHRISTOS MICHAEL CHRISTOS MICHAELIDES President, Cyprus Fiduciary Association Chairman, Cyprus Employers & IndustrialistsHow did the fiduciary sector perform the jurisdiction. How did the economy perform in 2016?in 2016? After Cyprus was placed under the supportOverall, the Administrative Services Are you confident that 2017 will be a mechanism by our creditors in 2013, theIndustry performed quite well in 2016 year of growth for the economy? business world of Cyprus went throughbut, at the same time, uncertainty The Cyprus economy showed some good a series of unprecedented austerity mea-about the future of Cyprus as an inter- signs of recovery in 2016 but the overall sures. This economic shock caused majornational financial centre and the future process is expected to be long, as signifi- problems to the liquidity and turnover ofof the Offshore industry on a global cant and necessary reforms have not been local enterprises and affected the credibilityscale has increased. implemented, either during or after the of the banking sector and the reputation banking crisis in 2013. Many of the les- of our economy as a whole. However, forWas 2016 better or worse than ex- sons that should have been learned from three consecutive years, Cyprus managedpected? those events have not really impacted our to fulfil its obligations and complete all theIn my opinion it was better than expect- behaviour, culture or habits. Some sec- Troika’s evaluations with flying colours.ed, taking into account the uncertainty tors of the economy have improved due 2016 was a landmark year for the econo-associated with international develop- to circumstantial developments around my since it marked our exit from the eco-ments in our industry and the main us but the foundations of our economic nomic adjustment programme. The mu-markets in which we operate. system need to be re-engineered if we tual understanding that was displayed by would like to have a sustainably strong the people of Cyprus, the social partnersWhat do you see as the main chal- economy for the long term. and other stakeholders helped towards thelenges facing the sector in 2017? faithful implementation of all the requiredIn the new world of enhanced trans- Do you believe that 2017 will be the measures and legal amendments on timeparency, with BEPS, FATCA, CRS, year in which Cyprus is reunited? and without too many obstacles. Today,the 4th EU AML Directive and other I hope so but I’m not very hopeful, tak- all the major economic indices show signifi-developments, a beneficial tax regime ing into account the intentions of the cant improvement and this is proof that wewith low tax rates is no longer enough Turkish-Cypriot administration, which are on track to recovery. For this develop-to secure a competitive advantage for is guided by Turkey and its dictator of a ment, we can praise the Government anda financial centre. A future strategy President, Recep Tayip Erdogan. A re- the Minister of Finance, Harris Georgiades,can only be based on other, more solid united Cyprus can create new prospects in particular for his persuasive handling ofcompetitive attributes, which include for all its citizens under the auspices of the crisis, his persistence in following thethe quality of professional staff, services the European Union but not under the imposed roadmap and his determination toat a reasonable cost, the stability, so- authoritative rights that Turkey is claim- successfully complete the programme.phistication, quality and effectiveness of ing with the excuse of securing the safetyregulation and the overall reputation of of the Turkish Cypriots. Was 2016 better or worse than expected?

41ACCOUNTANCY CYPRUS OUTLOOK FORFederation the market. Without financing, the real investments such as the integrated casino economy will continue suffering resort, Ayia Napa Marina and other pri- In 2014, the EU Commissioner for vate developments. The tourism industry Economic and Financial Affairs, Taxa- What do you see as the main challenges has been revived with record numbers of tion and Customs, Pierre Moscovici, facing the economy in 2017? visitors in 2016. The improved tourist announced the Commission’s economic The economy of Cyprus managed to product, which includes themed attrac- forecast for the Cyprus economy for the improve greatly after strict measures were tions (e.g. for religious, health & wellness, following two years. According to those imposed by the Troika and, as mentioned and sports tourism, etc.) and the extended predictions, the growth rate was expected earlier, we have managed to recover to a tourist season offered in recent years, have to reach 1.6% of GDP, the unemploy- great extent. The main challenge for the played a key role in re-establishing tourism ment rate should drop to around 14.8% economy now is to carry on with the good as our main services industry. I strongly and the public debt to 111.6% by the performance without the close supervi- believe that we have both the potential end of 2016. Two years later, we see sion of our creditors. The Presidency and and the capacity to enhance the tourism that we are actually performing much the Ministry of Finance had announced a industry even further. The property market better in those and other predictions, series of reforms in the public sector, in- is also gradually recovering. We believe that reaching a growth rate of 2.8%, 12.5% cluding reducing the government payroll, the permanent residency and citizenship unemployment and 107.1% gross public the interchangeability of civil servants, the schemes offered to foreign investors provide debt. The stabilised economy has helped privatisation of semi-government organisa- attractive incentives to persuade them to improve the trust of investors in our tions, such as Cyta, the EAC, the Ports become stakeholders in large-scale projects. banking sector and several long-awaited Authority, etc., the implementation of the projects are finally coming to life. The National Health Scheme and more. Some Do you believe that 2017 will be the tourism industry has been revived and of these reforms are already on track while year in which Cyprus is reunited? the property market is also on the rise other are still struggling to overcome the For the first time since the referendum for after a long period of recession. obstacles and difficulties that have arisen. the Annan Plan in 2004, we are observing a very intense series of negotiations for the Businesses remain the major contribu- We were saddened recently to see the solution of the Cyprus Problem. The main tor to our economy and, subsequently, the House of Representatives vote against reason for this is, of course, the existence of human resources of the private sector are the latest bills regarding the reform of the two determined and open-minded leaders those who suffered the most during the public sector. At such critical moments in both communities. It is very difficult to crisis. The improvement in both the eco- for our economy, we expect the political predict the final outcome of this negotia- nomic and social environment of Cyprus leadership of the country to act responsibly tion process because there are many seri- is a positive sign but there is still work to by taking bold decisions. Moreover, for ous issues that still remain to be addressed. be done in order to reach the levels we as long as the economy is struggling to However, the business community of Cy- were at before the crisis. achieve stability and private businesses are prus is preparing for such a solution and still suffering, we expect the trade unions many entrepreneurs see this opportunity The main restriction on business to display moderation and understanding as the way out of the economic crisis for growth remains the lack of liquidity in in their claims. Through the recent crisis, our country. The OEB is in close contact we have learned that a strong and robust with the Turkish-Cypriot Businessmen’s economy takes a lot of effort and time to Association (ISAD) and their views about build but it only takes a few reckless steps our common future on the island are very to make it collapse. We must learn from promising. During 2016, we communi- our past mistakes in order not to repeat cated with our members in order to col- them and calculate the consequences of lect their views and comments regarding each step we take in the future. “the day after” a solution and any issues that may arise. All their comments were Are you confident that 2017 will be a consolidated into a detailed memo which year of growth for the economy? was sent to the Greek Cypriot negotiator, Yes, I am optimistic that 2017 will be a Andreas Mavroyiannis, for appropriate year of improvement and growth for our use. It is important that, on the first day of economy. The boost that was needed in a possible solution, no-one finds himself in terms of cash flow and job openings will a disadvantageous position. likely become available through large

42 ACCOUNTANCY CYPRUS COVER STORYFOREIGN of Representatives on the Government’sINVESTMENT reform programme. We strongly believe that it is up to each one of us to makeCHRISTODOULOS ANGASTINIOTIS the best of Cyprus’ competitive advan- tages and to work collectively to achieve Chairman, Cyprus Investment Promotion Agency economic growth. Therefore, the adop- tion of structural reforms to lift obstaclesWhat was foreign investment to Cy- attention of foreign investors and has that create difficulties in the country’sprus like in 2016? welcomed new projects. investment and business environment isForeign Direct Investment inflow central to the collective effort to achieverose by 9.1% in 2016 compared to Was 2016 better or worse than ex- economic growth and should proceedthe previous year, which was the sec- pected? with no further delay.ond largest increase at EU level after The unprecedented interest shown inIreland. Indeed, the year was marked Cyprus’ potential by the international What do you see as the main chal-by a revived investment interest in investment community testifies to the lenges to attracting foreign investmenta plethora of traditional and emerg- fact that our country has succeeded in in 2017?ing economic sectors, such as energy, finding the strength and determination The main challenge to attracting foreigntourism, shipping, financial services to rebuild its economy and strengthen investment in general is to provide inves-and real estate, which attracted more its position and international appeal tors with transparency, safety, stabilitythan €2 billion as a result of the citi- as a key investment destination in the and speedy service. These are the at-zenship scheme for foreign investors. Mediterranean and internationally. tributes that investors look for when This is due to the decisive and timely considering whether to include a country The Funds Industry is developing measures taken by the Government in in their investment ventures. Cyprus hasrapidly as funds under management in collaboration with the private sector demonstrated its ability to move forward,Cyprus have more than doubled in the and the Cyprus Investment Promotion having emerged swiftly from the recentlast three years. In addition, the hydro- Agency. These measures contribute to financial crisis and taken on board thecarbons sector has attracted investments the continuous improvement of the reg- lessons learnt from it. The foundationsfrom leading oil and gas companies, as ulatory and business environment and for success are already there: our island’swell as global auxiliary service providers. are prerequisites in the drive to upgrade ideal geographical location at the cross-Commercial real estate has also attracted our economy’s competitive advantages roads of three continents, the attractiveforeign investors and the hospitality and attract further foreign investments and transparent tax regime, fully compli-industry has witnessed numerous invest- that will contribute to our ultimate goal: ant with EU, OECD and internationalments in existing hotels throughout the to achieve sustainable and long-term laws and regulations, quality human tal-island. Furthermore, large-scale develop- economic growth. We urge every stake- ent, and high-quality professional servic-ment projects related to the hospitality holder involved in this effort to view this es. However, it is crucial that we remainsector including marinas, golf courses, as a never-ending process which consti- focused on completing the reform pro-health & wellness resorts, luxury tour- tutes the number-one investment for our cess that has been initiated. Therefore,ism resorts, as well as an integrated children’s future. On this note, allow me the country’s main challenge for nextcasino resort are being financed with to express CIPA’s disappointment with year is to proceed with the implementa-foreign capital. Renewable energy is also the recent halt imposed by the House tion of a bold restructuring programmea vibrant sector which has attracted the that will allow it to simplify, digitalize and speed up licensing processes, within a stable and transparent framework. This will not only allow it to attract further foreign investment but also to cope with the continuous transformation and in- tense competition of the current world economic environment. Are you confident that 2017 will be a year of increased investment

43ACCOUNTANCY CYPRUS OUTLOOK FORin Cyprus? COMMERCEProvided that we remain focused on & INDUSTRYour mission to leave behind all theanachronistic characteristics that recently PHIDIAS PILIDESbrought our country to the edge, weare confident that 2017 will be another President, Cyprus Chamber of Commerce & Industrypositive year for incoming investments.According to official data, GDP growth How did the economy perform in 2016? while this strong showing was the result ofthis year was higher than projected and On the basis of the available data, the the lowering of prices leading to improvedpossibly one of the highest in Europe, economy is on a very promising trajectory competitiveness, it was also due to externalwhilst the economists predict that of recovery with good positive growth, factors such as the political situation in thethe GDP growth rate in 2017 will be employment generation and fiscal stability. Middle East, which created serious politi-equally positive. This, in conjunction It is expected to register a very satisfactory cal problems in competing destinationswith the great potential of our country’s rate of growth of about 3%. This rate puts like Egypt and Turkey, leading interestedtraditional and emerging sectors, gives us Cyprus amongst the top performers in the tourists to select Cyprus instead. Tourism’sreason to anticipate an increase in invest- EU and certainly much above the average strong growth had a beneficial effect onments next year. However, no matter for the euro area, which is expected to be many other sectors, for instance on whole-how encouraging our recent progress below 2.0%. The continuing conservative sale and retail trade, real estate, transport,may be, we are fully aware that, for as fiscal policy of the Government has been etc. A good upward trend was recorded inlong as Cyprus remains an economy in very welcome and has helped upgrade the construction, which at last recovered fromtransition, our mission is not yet fully ratings of the international rating agencies, the seven-year slump between the thirdaccomplished. The implementation of a while also helping the economy recover the quarter of 2008 and the second quarter ofcomprehensive structural reform agenda good investment climate so essential for 2015. Recovery began in the second halfwill help us set the foundations for a future growth. of 2015 but growth was stronger in 2016.friendlier and more competitive business Construction was also boosted by the smallenvironment and should be pursued One of the most important reasons for recovery of foreign demand for secondwithout further ado. This will allow us this creditable performance in 2016 was holiday homes. The substantial fall in realto promote Cyprus as a truly competi- tourism. The number of tourists registered estate prices and the active policy of thetive investment destination and will, in an exceptional rate of growth of more than Government to encourage foreign directturn, help the economy grow in a sus- 20% for the first ten months of the year, investment in the sector gave a lift to bothtainable and viable way by boosting cash with arrivals expected to top 3.3 million construction and real estate. There was, inflow, creating jobs and generally creating for the whole of 2016, about 600,000 addition, noticeable growth by professionalan economic momentum. more visitors than any previous year. This services and manufacturing. Growth led was accompanied by a slower increase in to big increases in gainful employmentDo you believe that 2017 will be the foreign exchange earnings, anticipated to and, consequently, to a welcome fall inyear in which Cyprus is reunited? be 12%. Revenues, however, will also reach unemployment. The average rate of un-A just solution to the Cyprus problem record levels of more than €2.3 billion. employment for 2016 is anticipated to bein 2017 can, under the right conditions, The strong tourist performance was based 13%, compared to 15.6% in 2015. Thecreate circumstances of stability in our on the substantial recovery of the British economy continues to enjoy a stable mac-country and in the wider region. It can market and a renewed upward trend by roeconomic framework. The Governmentfurther create the momentum for ad- Russian tourists. It must be conceded that,ditional growth for the Cyprus economyby generating new investment opportu-nities in all economic sectors. In orderfor this to happen, it is necessary to set atransparent and explicit market frame-work that will allow healthy competi-tion to emerge as well as to ensure thefull implementation of EU values andprinciples and the acquis communautairethroughout the reunited island.

44 ACCOUNTANCY CYPRUSCOVER STORY OUTLOOK FORhas been able for a second year to have a of unemployment –12% – a level which, optimism but the foundations have beenprimary surplus limiting the deficit to less in the past, was intolerable. It seems that laid and the results of domestic policiesthan 1% of GDP. Nevertheless, the overall we need to maintain growth that results are promising. The uncertainties are ev-level of public debt continues to be high at in employment creation, particularly for erywhere – the Brexit referendum result109% of GDP. With the help of low im- the young. We expect the Government to places much strain on Cyprus, there areported inflation, the very substantial fall in remain active in the labour market, offering uncertain political conditions prevailinginternational oil prices and the subsequent training and retraining to young persons. in the EU, Greece continues to strugglesteep reduction in electricity tariffs, retail The third challenge for 2017 would be and has not yet achieved sustainedprices continued on a deflationary path for how the tourist sector copes, given the low growth – but exports are expected toa fourth year running. The rate of deflation competitiveness of the sector. The record remain competitive given the substantialin 2016 is expected to be -0.7%, meaning 2016 will represent a great challenge to fall in prices. If tourism is able to repeatthat the cumulative decline of retail prices maintain next year. We feel that it is im- the number of tourists achieved in 2016,was 5% between 2012 and 2016. This is portant that the sector maintains at least while also attracting higher-spendinghelping low income families cope at a very the numbers reached in 2016, provided visitors, the foundation for a good rate ofdifficult time as wage rates have declined that there is also an improvement in the growth again in 2017 can be seen. Theby over 6% since 2012. A most important level of average expenditure per tourist. prospects are bright but we need to be ex-development has been the growth in in- Given the breather that 2016 afforded, it is tremely cautious and remain alert becausevestments which registered a large jump in now up to the entrepreneurs to undertake of the uncertainties that could suddenly2015 and there was renewed growth in the all those investments necessary to enhance change the positive picture.first three quarters of 2016 in energy, air competitiveness by refreshing the relativelytransport and shipping. ageing hotel infrastructure and by investing Do you believe that 2017 will be the more in the new infrastructural projects year in which Cyprus is reunited?Was 2016 better or worse than expected? (golf courses, casinos, marinas) that will The latest developments regarding theThe performance of the Cypriot economy enrich our product, offering alternative Cyprus Problem are promising and wewas well above expectations and a very options to visitors. hope that the two leaders will reach anwelcome surprise for all of us. It is worth understanding that could be the finalrecalling that the Ministry of Finance, in its The fourth challenge is for the govern- factor to clinch the desirable politicalOctober 2015 prediction for 2016, did not ment to resume its policy of reforming deal. We have consistently supported theexpect growth of more than 1.5%. Even as and restructuring the public sector and efforts of both political leaders, know-late as the second quarter of 2016, the EU to gradually reduce public debt. It seems ing that if they achieve a breakthrough,spring forecasts were expecting the growth that the momentum has been abandoned the country will benefit enormouslyrate for Cyprus to be only 1.7%. Hence, and few of the Troika’s reform recom- and help put the economy on a futurewe, the representatives of the business mendations have been implemented. We sustained rate of unprecedented growthcommunity, feel content with the fact that strongly believe that there is an urgent need and prosperity. Note that as the activethe economic performance of the country to rethink privatization, private/public business community of Cyprus we havereached higher levels than expected in 2016. sector partnerships and government salary been in close touch with the respec-We are also impressed by the good perfor- structures and to ensure that there is justice tive Turkish Cypriot Chamber andmance of the real estate sector, which has vis-à-vis private sector employees, who suf- formed special committees in which weresponded well to both the fall in prices and fered the most during the crisis. The fifth exchange views and discuss how best tothe government incentives, and building on challenge is the launch of a programme contribute to the efforts of the politi-the outstanding performance of tourism. for research and innovation that will bring cians. Both chambers have, on many together the forward-looking enterprise occasions, issued joint declarations sup-What do you see as the main challenges community with the large academic sector porting the efforts of our leaders. Wefacing the economy in 2017? that now numbers eight universities and believe that the meetings in SwitzerlandWe all know that the major challenge fac- represents the knowledge-intensive activi- in January 2017 will be crucial for a finaling the country is the very high level of ties of the country. agreement, given the expressed desirenon-performing loans in the banking sec- of all sides for a final breakthrough. Wetor. This is an urgent problem which needs Are you confident that 2017 will be a hope that the outcome will be positiveto be dealt with and there seems to have year of growth for the economy? and that the people of the two commu-been an unwelcome delay. The second As I have analysed, there are many chal- nities would also be ready to endorse themajor challenge is to deal with the high rate lenges facing the country and these create agreement. uncertainties which dampen the level of



46 ACCOUNTANCY CYPRUS ACCOUNTING & AUDIT REMODELLING ‘TRUST, INTEGRITY, TRANSPARENCY’ FOR THE NEXT 30 YEARS To mark The 30Th anniversary of The federaTion of european accounTanTs (fee) – and iTs rebranding as accounTancy europe – ceo olivier bouTellis-TafT, explains how iTs waTchwords of ‘TrusT, inTegriTy, Transparency’ are more in demand – and more in The spoTlighT – Than ever.An anniversary, especially a significant accountants spoke to the experts, and more Google: a flat hierarchy, expandedmilestone like 30 years representing then the politicians, so the accountants expertise, breaking down silos, reachingEuropean accountants, auditors and spoke to the politicians. But initially, more people. Perhaps in the past weadvisors, is a time to look forward, as it was a bit of a club for accountants would have eight-hour meetings, fourwell as back. Can you start by telling talking to accountants. Now we are times a year, where 200 people talked tous why FEE was formed, and what you more outward-facing. We are still experts each other. Now we can have a digitalthink it has achieved since 1986? in our field, the politicians still come workshop where ideas are exchanged. AI’ve been here 10 years, but I suspect to us for advice but we, as accountants, document can be co-created online in,this was the case for the 20 years before. auditors and advisors, are listening to say, two hours.It was set up for accountants to talk and engaging with stakeholders, withto accountants. Then the regulators politicians, with NGOs, with society Why is now a good moment for acame into the equation, and so the at large. And, indeed, society is talking ‘reboot’?accountants spoke to the regulators, and to us. If the old business model was a We are ultimately providers of trust.then other experts in the field, so the bit like the United Nations, now it’s And, as nobody can be unaware,

47ACCOUNTANCY CYPRUS

48 ACCOUNTANCY CYPRUSthe accountancy profession has been NGOs are the voice of society – now And the Eurocrisis has not gone away,through a period of intense public more than ever we have to listen to even if it is not in the headlines?scrutiny. As the saying goes, ‘Never society, and engage. We have worked No. There is a big debate on bank assets,waste a crisis’. This is an enormous over the years to build relationships a debate on the role of accountancyopportunity to reinvent ourselves. As a with organisations like Oxfam and standards, a debate on sovereign debt, aprofession, we exist to serve the public Transparency International. With debate on public sector accounting, and ainterest for society as a whole. As the Transparency International, for debate on public finance. When it comesnew, refreshed, branding makes clear, example, we are working on anti- to different standards in European publicpeople are at the heart of what we do, money laundering, on procedures sector accounting, we can provide a lot of‘because people count’. This is about for checking out new clients, on EU input, expertise, and knowledge.more than just a logo – although we are legal obligations and on anti-moneychanging our logo (and our name and laundering regulation, also providing Another obvious question is howour motto, too). input from practice to the European FEE (and now Accountancy Europe) Parliament. They like (and need) manages to represent its members’Going forward, what are the biggest accountants with ‘mud on their members, when they range from hugechallenges facing the profession? multinational corporations to singleAutomation. People and machines. Listening partner practices. How do you bridgePeople and artificial intelligence. I to civil society that divide between big and small?believe people are actually going to and addressing We try our best, although it is notcount even more, because they are concerns with easy but diversity is our strength. Wegoing to become more strategic. The policy makers represent both the public and thecomputers can do the processing, but it is integral to private, and from multinational bigis the people who do the interpreting. our approach firms to husband-and-wife teams andMachines can’t provide values and they single practitioner firms. The smallercan’t provide trust. We have the ability boots’, so to speak, i.e., who work firms are also extremely important, asto process and interpret data. We are in practice every day. Our members they serve SMEs that make up 99%exercising judgement, not just textbook send us experts from across Europe of European companies. We try toaccountancy. It’s an opportunity as to contribute in the areas where we integrate the perspective of these SMEwell as a threat, of course. We tell our can make a difference. The on-the- accountants into everything we do. Inmembers, ‘Make technology work for ground experience of these almost addition, we have specific initiativesyou’, rather than just wait and see. We one million accountants is what we aimed at SMEs, for example on accesshelp provide ideas. bring to the table. to finance, and a series of papers to inform SME accountants on how toPerhaps unfairly, in the past Where does Accountancy Europe stand best support their clients.accountants’ biggest worry was on country-by-country reporting,that their image was ‘boring’. Now, another hot topic much in the news at Finally, on gender and racial equality -more worrying, it seems a question the moment? do you think the profession still has a– in the light of LuxLeaks and the We have always been in favour of long way to go?Panama Papers – of whether they are transparency. It has to be transparent It’s not too bad, but of course it varies‘trustworthy’. Is that fair? where a company is active, and where from country to country. If you look atTrust is the most fundamental thing it pays tax. Tax is a matter for society our members across Europe, overall weprofessional accountants can add to as a whole and thus a matter for public reflect society. Accountants have alwayssociety. Not looking the other way but debate. Listening to civil society and been people who make numbers work fordealing with issues that can damage addressing concerns with policy makers other people. There is a wide diversity ofthis trust is part of being a values- is integral to our approach. backgrounds in accountancy, far broaderdriven profession. Sometimes this diversity than you might expect, andmeans clarifying our role, such as on there will only be more specialisationtax policy. As professional bodies, our in future, from engineering to humanmembers ensure the high quality work of rights specialists and of course moreaccountants and their ethical behaviour. tech backgrounds; more ‘nerds’! We are attracting younger people into theYou mentioned working with NGOs, profession, and that’s important. Wewho often in the past have been very need to keep attracting the best and thecritical of the profession? brightest from the next generation.

49ACCOUNTANCY CYPRUSACCOUNTING & AUDITA NEW BEGINNING ON SOLID FOUNDATIONSThat’s the thinking behind the Federation of European Accountants (FEE), which still struggle identifying what the real marked its 30th anniversary on 7 December 2016. It’s a time for looking back at problem is and cannot (yet) give fully what FEE, now Accountancy Europe, has achieved – but, more importantly, a thought-through tailored advice. More staging post for setting out the future, with a new name, a new look, a new web- importantly: machines don’t care about site, but most of all, a new philosophy: ‘Because people count’. “It’s about more ethics and cannot sustain morale values,than just a change of the logo - although that is changing, too!” laughs CEO Olivier Boutellis- trust or exercise judgement”.Taft. “I think there was a time,” he says, looking back, “where we were accountants, talking “Blockchain and smart contract mayto other accountants. Now, we speak with everyone. A source of advice for politicians, a sort help increasing certainty and reliability,of think-tank with our events and publications, an advocate for our members, the voice of the but cannot create trust. Trust remainsaccountancy profession, and – most importantly – working in the public interest for the ben- the foundation of trade and any kind ofefit of society as a whole. “We have been increasingly engaging with other stakeholders, such relationship; professional accountants areas NGOs, and find society has also started talking to us.” the providers of trust.” And trust is an ever scarcer commodityAt this celebration with more than 500 and efficiency), and loudhailer (giving a in the modern marketplace – not least instakeholders in December 2016, the new prominent ‘voice’ to the organisation in the world of accountancy and auditing,look was formally unveiled. It consists of a Europe and beyond). But perhaps most whose image of stability and solidity hasnew name, ‘Accountancy Europe’, and a importantly, it is the simple outline of been scratched in heavy public scrutiny innew logo – a simplified letter ‘A’, crowned the human figure, returning us to the recent years. It’s a different world from thatwith a point. That ‘A’ obviously refers to overarching theme of the relaunch, of of 1986, when FEE was founded. Then,the accountants, auditors and advisors it representing people. ‘Because people the European Union contained just 10represents. It goes a long way to fulfilling count’, as professional accountants make countries and FEE’s member organisationsOlivier Boutellis-Taft’s stated aim for numbers work for people – as clients, covered 21 countries. Now, Accountancythe rebranding: “Simpler, broader, more stakeholders, and members of society. Europe’s membership boasts just shyoutward-looking.” Accountancy Europe is “We are facing an era of great challenges, of 1 million professionals, united in 50transparent, direct and ‘to the point’. but also great opportunities. Machines professional organisations from 37 countriesThe neat symbolism of the logo does not and automation can do a lot of the work including all 28 EU member states. Withstop there. The ‘A’, can – depending we used to do. Naturally, that makes the current economic and political state ofon the observer – signify an umbrella a lot of people nervous. But people are Europe, the next 30 years for Accountancy(indicating the role of Accountancy going to count even more – computers Europe look exciting, if challenging, atEurope in uniting its members), an can do processing, but people will times. Building on solid foundations,arrow and target (suggesting accuracy have to do the interpreting. Machines Accountancy Europe will keep bringing people together to inform the public policy debate in Europe and beyond.

50 ACCOUNTANCY CYPRUS ACCOUNTING & AUDITRECENT AMENDMENTS TO IFRS4‘INSURANCECONTRACTS’PROVIDE FLEXIBILITY IN THEADOPTION OF IFRS9 BY INSURERSOn 12 September 2016, the International Accounting Standards be performed. Only if both tests Board (IASB) published an amendment to IFRS 4, ‘Insurance are passed are an insurer’s activities contracts’. This aimed at addressing the concerns of insurance considered to be predominantly companies in relation to the different effective dates of IFRS connected with insurance. 9 ‘Financial instruments’ and the forthcoming new insur- First, an insurer assesses whether the ance contracts standard. The amendment to IFRS 4 provides carrying amount of its liabilities arising two different solutions for insurance companies: a temporary from contracts within IFRS 4’s scope is exemption from IFRS 9 for entities that meet specific require- significant, compared to the total carrying ments (applied at the reporting entity level); and the ‘overlay amount of all of its liabilities.approach’. Both of the aforesaid approaches are optional. IFRS 4 (including the amend- Secondly, the insurer compares thements that have now been issued) will be superseded by the forthcoming new insurance con- total carrying amount of its liabilitiestracts standard. Accordingly, both the temporary exemption and the ‘overlay approach’ are connected with insurance with the totalexpected to cease to be applicable when the new insurance standard becomes effective. carrying amount of all of its liabilities. In addition to liabilities arising directly By Nicos S Stavrou, TEMPORARY EXEMPTION from contracts within IFRS 4’s scope,Director, Assurance & FROM APPLYING IFRS 9 liabilities connected with insuranceAdvisory, PwC Cyprus include non-derivative investment For annual periods beginning before contract liabilities measured at fair 1 January 2021, the amendment to value through profit or loss applying IFRS 4 allows insurers to continue to IAS 39, and liabilities that arise because apply IAS 39, ‘Financial Instruments: the insurer issues, or fulfils obligations Recognition and measurement’, arising from, those insurance and non- instead of adopting IFRS 9, if their derivative investment contracts. activities are ‘predominantly connected The second test is passed if (a) the with insurance’. The exemption can resulting percentage is either greater only be applied at the level of the than 90% or (b) it is less than or equal reporting entity. To assess whether to 90% but greater than 80% and the activities are ‘predominantly connected insurer is not engaged in a significant with insurance’, two tests have to activity unconnected with insurance. The assessment is made, based on the carrying amounts as at the annual reporting date that immediately precedes 1 April