Membership is wanted, but without the rules

Date: 11/06/1998

John Carr
WHEN Cypriot officials wax eloquent about the benefits to be derived from impending EU membership, they leave unsaid their hope that the island's offshore businesses will be left free of irksome Union rules to continue generating much-needed revenue for the island.

These inject close to 200 million ecu (15&percent; of the island's national income) into its economy each year, with ship management, run mainly by German interests, ranking number two in economic importance after tourism.

The Cypriot government so far has been busy reassuring the managers clustered around the southern port of Limassol that their style will not be cramped. In other words, they will not have to pay more tax.

Transport Commissioner Neil Kinnock is looking askance at such optimism. He delivered a veiled warning to the offshore sector in Rotterdam in October 1996 which sent shivers through the Cyprus-based ship management community.

“We hope the government can keep the window open,” said Adonis Violaris of Interorient Navigation. “They have pledged their support for us, but they will have to sit down and think it out.”

The offshore businesses' main worry is that the present corporate tax rate of 4.5&percent; on profits could rise on EU accession, with the addition of VAT. Some say they could even relocate to other tax havens such as Dublin or Madeira.

The then Cypriot Foreign Minister Alekos Michaelides told jittery managers last year that his government's twin targets of harmonising national business law with EU rules while maintaining a flourishing offshore services industry were “not conflicting”.

When 80&percent; of the offshore companies' total spending is pumped into the economy, there is plenty of incentive for keeping it that way.