Interview with Founder & CEO of Exness, Petr Valov.
On June 5th this summer, the G7 made the decision to support a global corporate minimum tax rate of 15%; a deal that was described as ‘historic’ and one aimed to make tech giants pay fair taxes.
What is your view of this decision? Is it positive or negative for Cyprus?
I think it was a decision that was expected and one that Cyprus cannot avoid, as doing so would result in immense political pressure from the EU. In effect, yes, Cyprus will lose an important tool for attracting multinational companies; a tool that has been one of its strongest to date. On the other hand however, this decision could very well be beneficial for Cyprus, given that the state will have to reconsider its approach towards attracting multinational companies and adopt a more holistic attitude, in the context of a new strategy for the economy of Cyprus.
To be precise, taxation is merely one of the many factors that foreign companies consider when deciding to move their headquarters. In our sector, for instance, the availability of skilled human resources and the policies applied in each country to attract and retain talent play a very important role.
Cyprus has indeed taken steps in the right direction on the matter, but it still lags behind other central European countries. For example, the Netherlands and Germany have very attractive programmes for attracting skilled human resources for our sector. Indeed, according to official EU figures, 83.1% of all European Blue Cards issued by all EU Member States have been issued by Germany.
It can be said therefore that Cyprus has very good future prospects, provided that it immediately begins to implement the reforms that will render the country more competitive.
How do you see the reaction of the international giants?
There is still a long way to go before the practical implementation of the decision as there will be many discussions before a final agreement is reached. Some companies, such as Google and Facebook, have already taken a positive stance on the basic principles of the G7 agreement. However, companies with lower profit margins may react negatively to this development as it is expected to affect them more.
Of course, countries that offer an attractive tax framework will also react. I should note that in addition to the fixed corporate tax rate, each country’s tax systems include other indirect taxes that may increase what we call the effective tax rate. So, I can say that there are several routes that these countries could potentially utilise to maintain their attractiveness.
How can Cyprus attract companies in the technology sector? What are the challenges and opportunities that may come up?
One of the Government's objectives is to transform Cyprus into a regional technology hub. This objective is achievable if and when the strategy for attracting foreign companies moves away from a narrow tax collection focus and towards attracting skilled human resources.
This will not only enable Cyprus to attract more companies, it will also provide solutions to the serious structural shortages of skilled human resources, that hinder the smooth operation and development of the companies that already operate in Cyprus and/or that are considering moving their headquarters here.
Currently, there are over 700 jobs available in the sector, which remain vacant due to the shortage of qualified staff. It is worth noting that the lack of skilled human resources not only limits the growth of businesses and the ability to attract new ones, but also leads to a loss of revenue for the state, which is estimated at 2.4% of GDP. So these shortages are currently the cause of a yearly GDP shortfall of approximately 450 million.
The creation of a pool of skilled human resources will create a virtuous circle of chain reactions in the real economy. Existing and new companies will be able to meet their needs by recruiting new staff, thus helping to boost private consumption.
Boosting private consumption will boost growth and lead to an increase in household incomes and GDP growth, which in turn will lead to the creation of new quality jobs and the attraction of new companies.
How can the Government fill this gap?
Given the shortage of skilled human resources, the government must immediately improve its policy of attracting the most talented people from abroad. This can be done by providing incentives, improving resettlement procedures and creating prospects for a stable future in Cyprus.
These people will bring with them know-how, experience, new ideas and perceptions, which will lead to innovations and new business opportunities, while their integration into the labour market will have a positive influence on the personal development of the local human resources, enhancing their skills, productivity and efficiency as well.
As I mentioned earlier, the arrival of skilled human resources in Cyprus will create a virtuous circle of chain reactions in the economy of the country. A case in point is one of the findings of a relevant EY survey on the economic impact of 48 large companies in the sector.
In fact, this survey states that these companies have contributed to the creation of 13,000 jobs, of which 10,000 are in other sectors. That is, each new job in the Information and Communication Technology sector leads to the creation of 3 more jobs in other sectors, which are filled by the local workforce.
Of course, the strategy must also address the development of local human resources and in particular the country’s younger generations. We have to be pragmatic though; this will take time as it requires an education system upgrade that will enable the next generations to support the sector’s business operations. Businesses in the sector can make a significant contribution to this effort in cooperation with local universities and the Ministry of Education, Culture, Sports and Youth.