With the current developments on a soft – article 50 (Treaty of Lisbon) based Brexit and talks taking place on a hard Brexit (following the Commons defeat of Theresa May’s Brexit Withdrawal Agreement by a stunning margin of 230 votes on January 15), the FCA has already proceeded with Temporary Permissions Regime (TPR) as it will apply to banks, FCA authorised firms, and firms providing payment services and/ or issuing e-money, and the related question of contractual continuity.
The various provisions of the said regulations according to the draft proposal suggest a limited period of 3 years (with possible extension being granted upon FCA’s discretionary power) to allow financial services firms to continue offering services to UK clients from their UK seat, post Brexit. Following the said limitation period these firms shall no longer be able to continue offering their services via their UK seat due to UK’s loss of EU passporting.
However, UK based firms whose headquarters are based in other Member States will be eventually bound to either adopt to the new regulatory measures for remaining in the UK or start considering other favorable jurisdictions to reallocate their UK establishments for continuing offering their services to UK clients. A classic example is Germany who has already proceeded to put in place certain rules for allowing UK companies whose headquarters are based in Germany to continue offering services in the country in the post Brexit era due to the upcoming limitation on freedom of establishment for non-EU Member States by requiring UK companies to either merge with EU – German Companies or create German subsidiaries as a medium.
In Cyprus even though there is a traditional bond and strong ties with the UK as the country follows the same Anglo-Saxon legal system, no specific rules are yet enacted to regulate this transitional stage and it remains to be seen how each Member State will choose to treat UK companies that seek to continue offering their services in EU countries. For the purpose of this article we are focusing more however on EU and international companies that are already on the hunt for re-establishing their business to European based favorable jurisdictions. Indeed, Cyprus having one of the most favorable corporate tax regimes across EU (12,5%) and many tax related advantages including a robust regulatory and licensing environment for financial companies backed up by a remodeled and robust banking system can become an ideal candidate on the chessboard. Cyprus is currently hosting the majority of EU – Forex firms’ headquarters and has seen a rapid increase in the incorporation of Alternative Investment Funds due to its flexible and reliable tax and regulatory regime. Last but not least we are observing a growing interest from companies specializing in cryptocurrency exchange platforms who are looking in setting up their business in Cyprus due to a favorable and non – license required regime (under certain rules and parameters).
Last but not least Cyprus has recently updated its Intellectual Property regime (Cyprus IP Box) which allows for companies to take huge tax advantages on royalties (80%) when dealing in commercial transactions (licensing and distribution) for qualifying intellectual property assets such as patents, computer software, utility designs and devices. Whether UK based financial services companies that sell their services to EU countries and vice versa (EU financial services companies that offer their services to UK clients) will choose to adapt to the new rules set out by the FCA in order to continue offering services from their UK seat or choose to reallocate to another jurisdiction certainly remains to be seen. With Britain losing its EU passporting rights and time closing in till Brexit, time becomes of critical importance and companies are already looking at their options for restructuring their corporate formation so as to avoid unpleasant surprises.
Cyprus, having put in place a series of regulatory and legislative measures that fully incorporate and adhere to the equivalent EU Directives and EC Regulations, has optimized its tax and regulatory regime to offer the necessary tax incentives for attracting foreign equity and host non EU individuals via its citizenship by investment and permanent residence permit – immigration programs. Will Cyprus be amongst the top players to catch the attention of UK based financial firms? It certainly looks like it as many UK based shipping companies have already registered their vessels’ flags with the Register of Cyprus Ships in 2018. PAHALAW is closely watching the current developments and will be reporting more for interested parties wishing to examine Cyprus as an alternative jurisdiction in the post-Brexit era.