Anyone who has browsed a number of
Forex comparison sites may have noticed that there are significant number of
Forex brokers based in Cyprus. Today we are going to explain the reasons behind
why so many Forex brokers choose the small island of Cyprus as a base for
operations.
Low Taxes
Being based in Cyprus has a number of
benefits; one of the most obvious benefits is the low rate of corporation. The
Cyprus boasts the European Union’s lowest rate of corporation tax. The rate of
corporation tax on the island is currently a flat 10%. The only other European
Union country to charge such a low rate of corporation tax is Bulgaria, which
itself has seen a small influx of Foreign exchange brokerages in recent years.
This makes Cyprus a very attractive destination for those who looking to open a
brokerage, as company can reduce its overall tax bill significantly.
European Union Membership and MiFID
MiFID stands for the Markets In
Financial Instruments Directive and is a European law that harmonises
investment regulation throughout the 30 states of the European Economic Area.
Essentially MiFID sets out a minimum regulatory framework which must be adopted
and followed by all the countries in the European Economic Area. MiFID also
maintained the passport principle introduced by previous European Union law,
this principle means that a firm regulated in a MiFID country can offer its
services to citizens and residents of other European Economic Area countries.
Cyprus is a member of European Economic Area and the European Union, meaning
that Cypriot based brokerages can offer their services to citizens of any other
EEA country. While MiFID ensures a minimum standard of financial regulation,
regulation does vary in each jurisdiction. For instance, Cyprus insures retail
customer funds up to the amount of 20,000 Euros, while in Britain funds are
insured up to £70,000 pounds should a regulated investment happen to collapse.
Large Financial Sector and Skilled Workforce
It is not only low taxes and European Union membership
which attracts many retail brokers to Cyprus, the island also boasts a large
financial sector. Low tax rates and a solid business saw Cyprus grow to be one
of Europe’s larger financial hubs, with the financial services sector growing
rapidly after the breakup of the USSR in 1991. This means that brokerages are
able to recruit all the staff they need without too much hassle. A large retail
FX brokerage requires a number of specialist staff including traders, risk
managers and compliance staff. These specific needs leads to brokerages being
drawn towards jurisdictions which have a strong financial services sector.
Internet & Telecoms Infrastructure
In addition to the other factors mentioned above, Cyprus
already has a strong telecommunications infrastructure in place. While Cyprus
doesn’t have Europe’s strongest internet infrastructure, in recent years Cyprus
has vastly improved its telecoms infrastructure. The nation is currently in the
process of making fibre-optic broadband available nationwide and fibre optic
broadband is readily available in a number of urban locations including
Nicosia, Larnaca and Limassol. One can easily imagine how important a strong
telecoms infrastructure would be in running a serious Foreign exchange
brokerage.
Concluding Thoughts
It has been suggested that the recent economic crisis in
Cyprus might dent the islands reputation and lead to a flock of brokerages to
move elsewhere, however this hasn’t been the case. This is mainly due to the
fact that the crisis didn’t see any clients losing any of their deposited
funds. The draw of Cyprus as a destination for Foreign exchange brokerages has
been confirmed in recent months with a number of new brokers applying for
licences. As long as Cyprus continues to offer competitive rates of corporation
tax and remains a member of the European Union, the island is likely to be
favoured by many Forex brokers.
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