Cyprus – Notes From A Small Island

Improved relations with Russia and accession to the European Union are helping to transform Cyprus as a financial hub. LB looks at the impact on the local legal community.

Cyprus is fast approaching a tipping point in its international development. It may be an island of less than one million people, with a total of 2,000 lawyers, but its strengthening trade ties with Russia and the emerging markets, not to mention its accession to the European Union and some shrewd domestic legislative developments, have helped the country grow its profile in the international financial arena.

With its 10% corporate tax rate, double taxation treaties with almost 50 countries and its close resemblance to the English common law system, it is unsurprising that Cyprus is also fast becoming a stepping stone for investors from China, India and the Middle East looking to invest in Europe. Local lawyers are almost evangelical about the country’s prospects, convinced that, with a more concerted marketing effort, there is no reason why Cyprus cannot become a low-tax centre of choice in Europe, overtaking the likes of Luxembourg and Malta.

‘Cyprus hasn’t marketed itself, it has given the impression that it’s experimenting and not here to stay.’
George Pamboridis, Pamboridis

Patrikios Pavlou & Co senior and managing partner Stavros Pavlou says: ‘Cyprus is simply more and more recognised as a legitimate destination from which to do proper tax planning when you’re setting up any venture in Europe or Eastern Europe, and now also in relation to work coming from India and China.’

Cyprus has expanded from its solid and respected shipping business based largely in Limassol. Its accession to the EU in 2004 and its adherence ever since to Europe’s tough ‘know your client’ regulations has transformed the country into a legitimate and stable centre for serious investors, particularly at a time when most funds are distancing themselves from the more opaque offshore locations.

The country has undoubtedly lost some of its traditional shipping business – it went from number three to number six in the world shipping tonnage list shortly after implementing EU regulations. However, most lawyers in the market seem to agree that the payoff has been worth it. ‘This shows how seriously the Cypriot government and people have taken knowing and checking on their clients,’ George Apostolou, managing partner of Apostolou & Co LLC, says of the country’s adherence to EU rules. For every piece of business lost, Cyprus is winning overseas investors and deals. And perhaps most significantly, its position as Russia’s primary trading partner looks secure.

Look east

In October 2010 Russia’s President Dmitry Medvedev visited Cyprus to sign a protocol to the countries’ double taxation agreement. The protocol allows for the extensive exchange of tax information and removes Cyprus from the notorious Russian ‘blacklist’ of jurisdictions that do not demonstrate a sufficient level of co-operation with the Russian tax authorities.

‘Cyprus is more and more recognised as a legitimate destination from which to do proper tax planning.’
Stavros Pavlou, Patrikios Pavlou & Co

Being on that blacklist has not exactly harmed Cyprus’s relationship with Russia. Russia has been a long-term business partner for most top Cyprus law firms, and for most top law firms, at least 50% of their international work has a Russian element. Cyprus is by far the biggest source of foreign investment in Russia, accounting for $53.8bn (£33.1bn) of the $262.6bn of foreign investment since the fall of the Soviet Union, and the biggest destination for Russian money, receiving $16.6bn (£10.2bn) since 1991.

Perhaps unsurprisingly given these statistics, local lawyers are divided on the significance of Cyprus’s removal from the blacklist. ‘Lifting the blacklist further put the minds of people at rest, but people were taking a calculated risk and using Cyprus in any event,’ Pavlou comments.

However, for many, including Stelios Triantafyllides, partner at top-tier firm Antis Triantafyllides & Sons, the move is the most important event of the past 12 months. ‘This is expected to enhance the appeal of Cyprus to people investing in Russia and, in turn, will translate to more work for Cypriot law firms in general,’ he insists.

Certainly the reaffirmation of the double taxation treaty is viewed by many as a critical step in securing Cyprus’ future as the best location for investment into the Russian market. Christos Mavrellis, head of the company and commercial department at top-tier firm Chrysses Demetriades & Co, says: ‘During the last three years there was a lot of gossip about whether [the double taxation treaty] would remain in operation or even be cancelled. The fact that during President Medvedev’s visit a new protocol of the treaty was agreed puts Cyprus in the best place for setting up holding vehicles for Russian companies and has brought Cyprus back to market as an advantageous location for business.’ Firms including N. Pirilides & Associates, where 100% of its international work is Russian, already report an uptick in work, particularly in tax planning, since the treaty was signed.

At both COSTAS TSIRIDES & CO and Michael Kyprianou & Co, meanwhile, Russian business accounts for around 65% of international work and both firms claim to have seen an increase in volume as a result of the protocol. They also expect further increases in the near future.

‘During the Russian President’s visit, 13 agreements have been signed, aimed at boosting bilateral commerce, investment and tourism, including a key accord abolishing double taxation between the two countries,’ says Lambros Soteriou, a partner at Michael Kyprianou. ‘This has already positively affected our law firm and we are dealing with a more significant number of Russian clients that are actively investing in and are instructing us to represent their legal interests in both business and private matters,’ he adds.

As Russia pulls out of recession, the locals hope that Cyprus will again see the return of large deals and an increase in company incorporations – which were down by around 50% in 2009 according to one estimate. Some large-scale mandates have certainly started to return. Last summer, for instance, leading Cyprus firm Andreas Neocleous & Co advised Madura Holding Ltd, alongside Linklaters’ Moscow office, on the sale of a 53.2% stake in the Uralkali fertiliser company to investment vehicles Kaliha Finance, Aerellia Investments and Becounioco Holdings, beneficially owned by Russian billionaires Suleiman Kerimov, Alexander Nesis and Filaret Galchev respectively. The deal was valued at €4.3bn (£3.7bn).

Meanwhile last September, Haviaras & Philippou brought an injunction freezing billions of dollars of offshore holdings held by Kerimov, amidst allegations that he and the Moscow mayor and his billionaire wife had swindled the applicant out of a stake in a landmark Moscow hotel. The lawsuit, brought on behalf of Russian legislator Ashot Yegiazaryan and his partners, blocked Kerimov’s Denoro Investments Ltd and other holding companies, including billion-dollar stakes in gold mining company Polyus Gold as well as Uralkali, from undertaking certain transactions. The freeze was revoked in February, although the applicant has indicated he may appeal the decision. Denoro was represented by Akin Gump Strauss Hauer & Feld Geneva partner Michael Stepek.

Many Russian deals on the face of it have no Cyprus involvement, but the likelihood that large Russian companies incorporate Cyprus holding companies means local law firms often win roles behind the scenes. Last year, when White & Case advised Russian dairy company Unimilk on its €1.5bn (£1.2bn) merger with the local arm of French foods company Danone, Antis Triantafyllides was on hand to advise Unimilk on Cyprus issues.

Emerging Markets

Russia is not the only BRIC market that has turned its attention on Cyprus. Both China and India are party to double taxation treaties with Cyprus and, while China has historically fostered ties with Hong Kong and India with Mauritius, both countries are now said to be looking for a competitive foothold to access European and the Middle Eastern markets.

‘The legal basis for funds work is only just being created now. We think that funds will be a very important area in the years to come.’
Pavlos Aristodemou, Harneys

As in other parts of the world, such as Africa, Chinese investors are also reported to be showing an interest in Cyprus’s fledgling energy market. In October 2010 the first wind farm, Orites, became operational, with Norton Rose advising the lenders alongside Ioannides Demetriou and Hunton & Williams acting for the borrower on English law alongside Antis Triantafyllides.

However, when it comes to targeting emerging markets work, for many top law firms in Cyprus their small partner numbers, lack of resources and the sheer distance to these markets mean that they are still a world apart. ‘If you ask anyone here if they have even been to China I’m sure they will say no,’ says one local partner. Many firms do report an uptick in emerging market work, including COSTAS TSIRIDES and Michael Kyprianou, where Soteriou says: ‘We have increasingly seen more work coming our way from the Chinese and Indian markets, especially in the field of direct investment and financing.’

However, few can point to many solid instructions and even Pavlou, who is currently advising on a Chinese energy investment deal being structured through Cyprus and involving tens of holding companies, admits that it can be a struggle to actively target new mandates. ‘It’s a question of finding the time to concentrate on that market,’ he says. ‘You have to understand that this is a country where very few firms get the very big deals and those firms are already up to their eyeballs in new deals. It’s not always easy to commit resources.’

At a high level, Cyprus is rising to meet growing Chinese interest, including moves by the Cyprus Investment Promotion Agency – of which Mavrellis is vice-chairman of the board of directors – to set up an office in Beijing. Meanwhile, Andreas Neocleous & Co is capitalising on its position as by far the largest law firm in the region by capturing a good proportion of emerging markets work. The firm is currently advising a large Chinese client on a project in Kazakhstan. ‘Just today I saw four to five big Chinese companies and discussed how they will open a base in Cyprus in order to break into Europe,’ remarks Andreas Neocleous.

As Chinese investors extend their reach further into Europe, it is anticipated that more Cyprus law firms will capture their business, as local partners are optimistic that they will be persuaded of the competitive benefits of using Cyprus. Michalis Kyriakides, a partner at Harris Kyriakides says: ‘They are trying to use companies in Luxembourg and, when they do, Cyprus will immediately be a candidate; it’s cheaper, has better administration, it’s far more protective for the client and it is in the European Union as well. So I believe it is just a matter of time.’

Similarly, local lawyers anticipate that instructions from India will increase, as Mauritius loses ground to a jurisdiction far more convenient for Europe. Many top-tier firms report an increase in Indian deals, including offshore practice Harneys, which recently advised a large fund on the acquisition of shares in a Mumbai-listed company through a Cyprus structure.

The official statistics on foreign direct investment into India reveal that there is still some way to go before Cyprus becomes a real competitor to Mauritius. The latter accounted for 42% of foreign investment between April 2000 and September 2010 as opposed to just 4% from Cyprus in the same period. However interest is clearly growing, with investment from Cyprus amounting to $7.7bn (£4.8bn) between April 2009 and March 2010, up 28% from $6bn (£3.7bn) on the year before.

The big question remains, if and when these markets do come looking for Cyprus advice, will the local Cyprus firms have the capacity to service them? ‘Once deals start coming out, we will be hard pressed to serve the interests of that market,’ Pavlou says of the Chinese market. ‘It’s hard to satisfy the needs of the CIS market and even people without qualifications are taking a piece of the pie.’

The trend is away from family-run general practices, with a growing number of Cyprus lawyers returning from training in the UK or elsewhere in Europe to set up corporate and commercial boutiques such as Apostolou & Co. In February this year Pamboridis announced the hire of three new lawyers, Christoforos Pericleous, Loucas Andreas Mavrocordatos and Maria Economou, all of whom studied law in the UK. ‘Success and good service brings more business and a lot of young lawyers are coming now with very good qualifications from English institutions and good training with City law firms,’ Andreas Neocleous says. ‘I believe they will attract more work and bigger firms will appear in the legal scenery.’

Funds and Offshore Firms

Aside from the question of resources measures are clearly being taken to ensure that Cyprus is ready for the next stage of its international development. Changes have been made to the local tax regime to make Cyprus more attractive for collective investment, particularly the relocation of and establishment of funds.

‘I don’t think [reunification] is close but when it does happen, it will be a huge impetus to business and development.’
Michalis Kyriakides, Harris Kyriakides

Regulation has already been simplified, including waiving the need to ask for court approval for a reduction in share capital, smoothing the path for mutual funds with a variable share capital. The government is also in the final stages of passing a domestic law implementing EU Directive 2009/65, to co-ordinate the laws and regulations relating to collective investments in transferable securities. Cyprus’s interpretation, local lawyers maintain, incorporates the best and most flexible funds legislation from across the world – and betters it.

With a new era in mutual funds predicted to attract serious investors, firms are already positioning themselves to capture new work, including funds giant Harneys. The firm’s Cyprus managing partner Pavlos Aristodemou comments: ‘We intend to do more funds work but the legal basis for funds work is only just being created now. We think that funds will be a very important area in the years to come.’

According to Aristodemou there is strong potential for Cyprus to compete with the best of the funds jurisdictions, capitalising on its low tax rate, the fact that it follows the common law system and that fees are lower than in continental Europe. ‘I think that Cyprus as a jurisdiction has certain advantages over others and if it manages to put the right legal framework supported by an efficient securities exchange commission it has nothing to fear from Luxembourg, Malta and Ireland and can be a competitor,’ he says.

Harneys’ arrival on the island, along with offshore rival Conyers Dill & Pearman, which has entered into a best friends relationship with Antis Triantafyllides, has inevitably sparked questions within the legal community as to whether more offshore firms will follow. Conyers announced its new tie-up towards the end of 2009, including plans to launch a Cypriot practice out of its Moscow office, and in 2010 Antis Triantafyllides associate Iakovos Panagi moved across to offer Cyprus law corporate and commercial advice from the Russian base. Appleby’s Bermuda managing partner Shaun Morris, meanwhile, admits that Cyprus is on the firm’s radar. ‘Cyprus is becoming increasingly prominent as a financial centre and is therefore an attractive proposition for offshore law firms,’ he says. ‘Appleby is an ambitious and opportunistic firm and we will continue to review our strategic growth options, which includes, among other jurisdictions, Cyprus.’

Harneys, meanwhile, has yet to relocate any partners to its new Cypriot base, sparking criticism among some in the market that the merger is just a marketing tool. However, according to Aristodemou, discussions are taking place that are expected to see a small number of partners move across to offer BVI and Cayman advice out of Cyprus.

Onshore Firms

Most leading lawyers in Cyprus are sceptical that the international, onshore firms will look to enter the market. For one thing, from the local perspective, hooking up with a foreign firm would most likely mean a dramatic drop off in referral work.

There is, however, a difference between the prevailing opinion in the market and what is rumoured to be going on behind closed doors. According to several local lawyers, a number of UK firms have shown some interest in merging with Cyprus firms.

One Cyprus firm currently in talks with a top-ten UK law firm is N. Pirilides & Associates. According to chairman Neofytos Pirilides, talks began in December last year and, at the time of writing, were ‘half way there’.

‘There are obstacles to overcome but we are optimistic that the talks will reach a positive conclusion,’ he says.

Top UK firms particularly active in the region include Freshfields Bruckhaus Deringer and Hogan Lovells. DLA Piper, meanwhile, has a non-exclusive association with Pamboridis, under which the Cyprus firm receives the lion’s share of DLA’s Cyprus business and has some access to its know-how.

Despite Cyprus’s limited size, there are obvious benefits for any UK firm interested in setting up a local presence. For one, the country’s ties with Russia and growing business with other emerging markets. Recent changes to domestic legislation, meanwhile, are expected to further facilitate international deals. A new provision now enables Cyprus companies operating abroad to keep a register of shares and members in that country and a mirror register in Cyprus; a requirement for overseas listing. The move facilitated the $600m (£371m) Hong Kong Stock Exchange listing of Strikeforce Mining and Resources in May 2010, becoming the first of its kind in Cyprus. The changes largely came about under pressure from Strikeforce, represented by Patrikios Pavlou & Co, which originally wanted to list in 2008. Pavlou said: ‘We did everything except list and then the crisis hit.’

Cyprus is also being used considerably more in aid of arbitration proceedings abroad. Thanks to the implementation of EU directive 44/2001, even where Cyprus has no jurisdiction, claimants can obtain freezing orders and injunctions as long as an action has started elsewhere and they can show some connection with Cyprus.

Plans are also underway to establish a heavyweight arbitration centre, with former UN Secretary-General Boutros Boutros-Ghali, ex-President of Cyprus George Vassiliou and top mediator Michel Kallipetis QC all signed up to help develop it. For intellectual property lawyers, meanwhile, there are opportunities to use tax-efficient Cyprus holding companies to license out trademarks and patents and receive royalties. Achilleas Demetriades of Lellos P. Demetriades Law Office says: ‘In addition to corporate services, Cyprus can also be a hub for holding companies to license out their intellectual property rights. IP is probably one’s biggest asset but not many people realise it.’

Nonetheless, many partners argue that local fee pressures will put off UK firms, several of which, such as Linklaters and Clifford Chance, have pulled out of unprofitable centres in Eastern Europe. ‘The big firms are looking – they are always doing a cost-benefit analysis between outsourcing and having it as their own headache, but for the moment outsourcing seems to be the preferred solution,’ Pavlou explains.

However, Pirilides points to the long-term presence of all of the ‘big four’ accounting firms on the island as evidence that the market can sustain a reasonable level of fees. Furthermore, one partner at a large firm of accountants in Cyprus agrees that there is a compelling case for the large firms to set up on the island. ‘My understanding is that law firms in Cyprus have been highly profitable,’ he says. ‘I do not believe that this is the reason big firms have not established in Cyprus.’

Instead, outsiders and partners alike point to other deal breakers, in particular the strong familial relationships in even the largest of Cyprus’s law firms and their reluctance to relinquish their independence and profits.

Apostolou says: ‘Most law firms are small to medium-sized and only a few are very large by Cyprus standards, so the bargaining power might not be balanced for the Cyprus firms to get what they would really like to have.’

Fiduciary Services

A further potential complication for any international firm interested in setting up a presence in the region via a merger is said by some to be the significant proportion of fiduciary services and company administration still done by the majority of Cyprus firms.

Certainly when it came to Harneys’ merger, Aristodemou claims that one of the reasons that the merger with his firm went through (from a purely procedural point of view) was the fact that it used an entirely independent entity to administer companies.

Other partners have been swift to play this down, claiming that a transfer of ownership and liability would be relatively straightforward. However, they also point to the fact that most established law firms already run their services through an affiliate arm, partly because these largely commoditised businesses are perceived to have a higher reputational risk than mainstream corporate and commercial law. Apostolou says: ‘I think everybody in Cyprus has separated out the business because of the risks involved.’

Aside from the risks, there is a visible trend among younger, corporate and commercial boutique firms to distance themselves from the fiduciary services that put Cyprus on the map in the 1970s led by long-established top-tier firms.

Pamboridis spun off its fiduciary business in a 50/50 joint venture with one of the major services companies in Cyprus. George Pamboridis explains: ‘People confuse a fiduciary business with a legal business and I didn’t want to do that.’

The temptation for any law firm is obvious; it remains a highly lucrative business. Pamboridis comments: ‘The trouble is, it’s easy money and you see the figures in your bank account going up but that’s not what I wanted our firm to be.’

However, a further question mark hangs over how much longer fiduciary services will continue to be easy money if the dedicated professional services companies setting up on the island make significant inroads into the market. Providers are offering corporate set ups and tax planning under one roof and, as has been seen when it comes to largely commoditised services across all jurisdictions, they are offering the service at cut price. While some lawyers argue that their model is flawed and unsustainable, professional services companies are undoubtedly multiplying on the island and are already stripping a proportion of company administration work away from local law firms.

While this may be perceived as a threat or at least a challenge by some, for those distancing themselves from commoditised work, the increased competition is a positive development. Aristodemou says: ‘It will bring up the standard of legal services work and Cyprus does not have a good reputation when it comes to legal services.’

Changes to the Current Tax Regime

The spectre of a threat to Cyprus’s fiduciary business and legal services alike arose in February this year after the New York Times reported that, according to a leaked German working paper, the country wants to establish German-specified Europe-wide standards on a variety of issues, including corporate taxes.

Cyprus has been engaging in EU talks to harmonise tax computation and ministers close to the talks played down the likelihood of any hidden agenda, but acknowledged that any move to harmonise tax rates across the Union would undoubtedly have a negative impact on Cyprus’s ability to attract foreign business.

According to local paper the Cyprus Mail, the government said at the beginning of March that it would not accept any EU changes to its corporate tax rate, and minister of commerce, industry and tourism Antonis Paschalides was quoted as saying: ‘We support the positive business climate in Cyprus and we try to improve it. A helpful factor is the low tax rate and both Cyprus and other countries will not accept changes that will undermine this.’

In the Cyprus Weekly, meanwhile, finance minister Charilaos Stavrakis was quoted going one step further in saying that Cyprus would veto any moves to unify corporate tax rates. ‘The service sector and low tax is an issue of survival for Cyprus and its economy,’ he said.

At the opposite end of the spectrum, Cyprus’s international tax standing received a significant boost last year when the EU approved a new regime under which maritime transport companies can opt to be taxed based on the net tonnage of their fleet rather than the profits of their activities. The Cyprus maritime industry is the tenth largest worldwide and the new regime, which sees Cyprus become the only country with an EU-approved tonnage tax regime for shipping activities that confers total exemption from income tax, looks set to seal or improve upon that position.

Costas Stamatiou at Andreas Neocleous & Co remarks: ‘The new regime will further increase Cyprus’s attractiveness as a maritime centre, providing incentives for the employment of EU crew members and the registration of vessels in Cyprus, and enhancing the competitiveness of shipowners, charterers and ship managers.’

Elsewhere, Cyprus has continued to notch up its double taxation agreements, including most recently with Qatar, United Arab Emirates, Germany, Armenia, Czech Republic, Slovenia, Denmark and Kuwait, where a major benefit of the new treaty is the elimination of withholding tax on dividends and interest. The 1984 Cyprus-Kuwait treaty provided for a tax of 10%. Negotiations are also underway to update the double taxation treaty between Cyprus and Ukraine.

Conyers’ Iakavos Panagi comments: ‘This is anticipated to expand economic and trade relations with these countries.’

Expanding horizons

While the market discusses the prospects of more foreign entrants, some local firms are shifting their focus to overseas markets. Pamboridis is one of the few firms to have established a satellite office outside of Cyprus, announcing in February that it will shortly open in Mayfair. The London office will foster closer ties with existing clients and referral firms as well as try to penetrate the City’s sizeable Russian, Ukranian and Greek high-net-worth communities.

The move has raised some eyebrows at home. Even Andreas Neocleous, who is midway through negotiations to expand in Brussels and open Paris and Beijing offices, has said he will not open in London for fear of putting himself in competition with his valued referral law firms.

However, according to George Pamboridis, a representative office is no threat to London firms. He points to the examples of Maples and Calder and other offshore firms who have set up a presence in the City to make it easier to service London clients.

Cyprus also needs to do a better job of raising its profile overseas. ‘Cyprus hasn’t marketed itself as well, it has given the impression that it’s experimenting and not here to stay, but there are lots of reasons to structure through Cyprus,’ Pamboridis insists. ‘We are in the EU, our legal system is based more on the English system and we have a double taxation treaty with the UK.’

‘A lot of young lawyers are coming now with very good qualifications from English institutions and good training.’
Andreas Neocleous, Andreas Neocleous & Co

Neocleous, meanwhile, is in discussions with a small firm in Paris, with a view to opening up a representative office. In Beijing the firm has submitted an application to open in the city, while in Brussels the firm has just bought the building of the only Greek firm in the country, GS Kostakopoulos & Associates, and is expected to enter into discussions with the firm over their combined future in Belgium.

In light of the turmoil in the Middle East and North Africa, a number of plans, including the arbitration centre, may be delayed. Michalis Kyriakides comments: ‘Perhaps it’s not the best time to plan ahead with much certainty because of the volatility in the market and what is happening around us in the Middle East; it’s difficult to take some decisions.’

‘The impact [of natural gas discovery] on the profession will be significant. A chain of transactions will need to be entered into.’
Andreas Haviaras, Haviaras & Philippou

The effects of the uprisings are being felt in a multitude of ways, not least in the tourism industry, where Cyprus hotels opened three months earlier than usual to cater for holidaymakers destined for Egypt. ‘Back in December everyone was complaining about tourism and the problems they would face. It’s unbelievable how a crisis in one part of the world affects another,’ Kyriakides remarks.

The local economy will also receive a considerable boost if a sizeable quantity of natural gas that Noble Energy believes it has found off the south-eastern coast of Cyprus can be developed commercially. The company hopes to begin drilling late this year or early in 2012. If it is viable, the knock-on effect for business and the community in Cyprus would be considerable. Cyprus is already attractive to foreign investors for renewable energy projects, including the establishment of wind farms and solar power plants on the island, with firms including Antis Triantafyllides involved in potential projects. However, the discovery of gas would propel Cyprus into an entirely different league. ‘The impact on the profession will be significant,’ predicts Andreas Haviaras, senior partner at Haviaras & Philippou. ‘A chain of transactions will need to be entered into and a whole set up is to be organised within Cyprus.’

Pamboridis, for one, is already working with a joint venture that is keen to be involved in the commercial opportunities if the suspected gas find is borne out. According to Pamboridis himself, investors are interested in Cyprus not only for its own gas field but the role that it is expected to play in transporting gas only recently discovered off Israel’s northern coast. The Israeli natural gas Leviathan field, confirmed by Noble Energy last December, is being touted as one of the largest offshore gas finds of the past decade.

Pamboridis says: ‘[The joint venture] really believe that Cyprus has a huge role to play both because of its own natural gas fields in its exclusive economic zone but also because it can provide the only route for the transport of the Israeli natural gas from Leviathan to Greece and then the rest of Europe.’

It is worth noting by analogy that for Israel, the confirmed gas field is predicted to turn the country into an energy exporter, with the country’s infrastructure minister last year quoted by the international media as saying it is the most important energy news since the founding of the state. So, too, for Cyprus, where a second licensing round for exploration rights is expected to take place in the latter half of this year. As Mavrellis comments: ‘The international analysts are positive that Cyprus will in the foreseeable future become an exporter of energy products.’

Many lawyers are optimistic that the size of the Cyprus legal market will expand dramatically over the next few years, partly on the back of the discovery of gas. According to Soteriou, the growth figure could be as high as 30-40% in the next 18 months to three years: ‘We are hopeful that energy and natural resources work [will increase] due to initial findings of oil and gas at the shores of the republic.’

Possible suggested developments include new areas of legal practice opening up and new companies being established or relocating to Cyprus. Mavrellis says: ‘Generally the country will find itself in a new era. Let us wait and see.’

The development may be complicated by claims from Turkey, which has occupied northern Cyprus since its invasion in 1974, that the agreement to drill is invalid. A failure to unite the island, despite lengthy and prolonged discussions, has not only complicated Cyprus’s international dealings but also prevents it from tapping into neighbouring Turkey’s vibrant market.

‘Cyprus can be a hub for holding companies to license out their intellectual property rights.’
Achilleas Demetriades, Lellos P. Demetriades

Within the island itself the divide continues to cause major issues and the latest Economist Intelligence Unit review of the Turkish Cypriot zone highlights political unrest resulting from austerity measures imposed by Ankara in January. The review also highlights a February 2011 report by two prominent Turkish Cypriot economists, which shows that out of 139 countries under consideration, the Turkish-controlled part of Cyprus has slipped from a rating of 99 to 117 in the past year. Out of 12 possible benchmarks for progress, it had only seen development in three. The report blamed state bureaucracy, educational deficiencies, lack of investment and unstable policymaking on the part of the government for the decreasing competitiveness of the Turkish Republic of Northern Cyprus.

Despite government promises on both sides to expedite talks to resolve outstanding issues, some local lawyers believe that the issue will not be properly addressed until greater economic and political stability has been achieved. Kyriakides says: ‘Greece has its own problems and Cyprus is low on the agenda and the EU also has its own problems.’

But while Turkey is seen by some as having little will to resolve the situation, Cyprus is widely acknowledged as the biggest stumbling block to its EU accession, and if it is serious about joining the EU it will have to address the issue.

Lawyers are optimistic that the island will be reunited, a move they see as the final missing piece of the puzzle to Cyprus’s international ascent. Kyriakides claims: ‘I don’t think a solution is close but when it does happen – and I think it will happen – it will be a huge impetus to business and development on the island.’

Andreas Neocleous adds: ‘The island has to be united, we have no differences with the Turkish Cypriots at all. We have good relations with firms in the north and good relations with firms in Istanbul and Ankara. If Cyprus is united and our problems are solved, the very first day after I will open an office in Ankara and one in Istanbul and I believe that if Cyprus’s problem comes to an end then Cyprus has a brilliant future.’ LB

caroline.hill@legalease.co.uk

Island leaders

Firm	Fee-earners	Partners in Cyprus	International/Russian work (%)	Domestic work as % of international	Offices
Andreas Neocleous	115	18	80/20	50	Brussels; Budapest; Kiev; & Co Limassol; Moscow; Nicosia; Paphos; Prague; Sevastapol
Chrysses Demetriades & Co	50	17	60/40	50	Athens; Limassol; Nicosia
Michael Kyprianou & Co	47	7	Undisclosed	65	Athens; Limassol; Nicosia; Paphos
Patrikios Pavlou & Co	32	8	70-75/25-30	50	Athens; Limassol; Nicosia
Antis Triantafyllides & Sons	27	3	70/30	80	Nicosia
Pamboridis	25	4	65/35	25	Athens; Limassol; London
Chryssafinis & Polyviou	24	2	40/60	60	Nicosia
Papadopoulos Lycourgos & Co	15	2	40/60	20	Nicosia
Harris Kyriakides	13	2	Undisclosed	Undisclosed	Larnaca
Harneys	12	4	90/10	55	British Virgin Islands; Cayman Islands; Hong Kong; Limassol; London; Montevideo
Markides, Markides & Co	12	8	30/70	10	Nicosia
Costas Tsirides & Co	8	2	60/40	65	Limassol
Haviaras & Philippou	7	4	60/40	50+	Nicosia
N. Pirilides & Associates	7	3	30/70	100	Limassol
Apostolou & Co	6	1	80/20	25-30	Nicosia
Lellos P. Demetriades Law Office	3	6	50/50	5	Nicosia

Source: Legal Business