Cyprus’s initiative to lure back diaspora talent through tax breaks is drawing scepticism from returnees and raising concerns about inequality and infrastructure capacity, even as economists point to broader benefits beyond financial incentives, according to a BBC World Service Business Daily programme.
The “Minds in Cyprus” programme offers 25% tax reductions and expanded exemptions for Cypriots returning after seven years abroad, but critics warn the policy could create tensions between returning professionals and local workers performing identical roles.
“It’s not fair for any local,” said Pavlos Kleanthous, who returned to Cyprus 12 years ago and now runs IT firm Parsectix with 10 Cypriot employees. “Returning to Cyprus, it’s a purely personal choice. You are not coming back because someone is giving you for a few years some tax break.”
Kleanthous said he deliberately hired only Cypriots. “I wanted to give opportunity to people to stay in Cyprus and thrive and not have to do the journey that I did and move abroad for many years in order to have the career that they want.”
The fairness question comes as Cyprus grapples with a housing crisis that contributed to emigration in the first place. Deputy Minister Irene Piki acknowledged housing remains an issue across EU member states but said the government has modified schemes to allow returnees immediate access to grants for young couples under 41, previously requiring two years of residency.
“We have a scheme for young couples under 41 years old, that they can get a grant if they want to start their own house here in Cyprus. This initiative had a condition that you had to be living for two years in Cyprus before you could get the grant. So this is something that we’re abolishing now,” Piki said.
She declined to specify how the country would accommodate even a modest influx of 3,000 to 5,000 returnees but said, “Although housing is an issue here in Cyprus, we’re trying through a number of schemes.”
The initiative also exposes a divide in Cyprus’s economic landscape. Kleanthous described two distinct business clusters: traditional companies in the capital Nicosia serving local markets, and foreign-owned firms in Limassol where 80-90% of employees are non-Cypriot, predominantly Russian and Ukrainian, operating from Cyprus without serving Cypriot clients.
“It’s not easy to break through the door” of the Limassol cluster, Kleanthous said. He warned that the government needs a broader strategy. “If the government wants this to succeed, one thing is to attract people back, but the other thing they need to build bridges with other countries or bigger markets in order to serve them. Otherwise, it’s just a competition between the companies locally and will be a race to the bottom to just offer cheaper services.”
Kleanthous also questioned the initiative’s current status. “What the government already announced is just a PR for now, because they’re not passed through the parliament yet,” he said.
Piki defended the initiative as addressing talent shortages in growth sectors. “We have been experiencing very strong growth. We have some sectors that are really growing, like the ICT sector, health sector, education sector, green tech sector, which need a lot of talent,” she said.
The deputy minister said the government is targeting not just employees but entrepreneurs. “When we were in London, and also when we went in the states with the President earlier this year, we met a lot of young Cypriots, very talented that they have their own businesses abroad, and they would like to bring them also here, back in the country. So we’re not looking only for employees. The talent can be in all the sectors.”
Reception among the diaspora appears tepid. Nicholas, a 28-year-old paralegal in London’s financial district, called the tax incentive “a positive change” but said career advancement would dictate his decisions.
“My main goal at the moment is to qualify as a solicitor, and then if I have this benefit, this tax incentive, then that’s another benefit,” he said. “It’s my career that dictates my next move.”
Economists argue the conversation should extend beyond immediate tax benefits. Catia Batista, professor of economics at Nova School of Business and Economics in Lisbon, said diaspora communities generate value through multiple channels including financial remittances, foreign direct investment, trade linkages and human capital development.
“When people, highly skilled migrants, leave a country, they actually create incentives for the people that stay back home to invest more in their education,” Batista said, challenging traditional brain drain narratives.
The Commonwealth estimated in July that its 56 member states have a diaspora investment potential exceeding $73 billion, recommending governments embrace wider financial instruments to power startups and venture capital.
Cyprus, with a population under one million and an economy representing 0.2% of EU GDP, has approximately 800,000 citizens living abroad. Piki said major Silicon Valley firms visiting in April asked primarily about available talent before considering business relocation.
“We did the roadshow with the President in the US, who visited New York, Texas and Silicon Valley. We met with a number of big enterprises, big names especially in the tech sector in Silicon Valley. And the first question they were asking was, what type of talent you have in the country?” she said.
On competing with Silicon Valley salaries, Piki said Cyprus is building a different model. “We are trying to build a different ecosystem. I think each country has its own competitive advantages. Being a small country, and geopolitically where we are, we are very close to the Middle East, to very big economies there, very close to Europe being part of the European Union, so we have our own competitive advantages.”
The tax benefits would last seven years, with Piki defending the temporary nature as necessary to offset relocation costs. “The tax incentive is going to be limited only for a few years. Somebody that moves back has to relocate their family. Obviously they have more expenses, so it’s just a trigger for people to come back. It’s not creating an inequality forever,” she said, adding that business chambers have responded favorably.
The proposals require parliamentary approval before implementation.
Based on reporting from BBC World Service Business Daily programme
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