Tax, quality of life and stability keep Cyprus high on investor radar

Cyprus continues to command strong investor confidence, with 83 per cent of international investors surveyed by EY rating the island attractive for foreign direct investment, even as energy costs, access to finance and bureaucracy remain significant concerns. The latest EY Cyprus Attractiveness Survey 2026, presented by Stelios Demetriou, EY Cyprus Head of Strategy and Transactions and M&A Leader for Central, Eastern and Southeastern Europe & Central Asia, puts the country’s FDI stock at around €82 billion in 2025, with investment still concentrated largely in financial services, real estate and ICT. Of those surveyed, 56 per cent described Cyprus as definitely attractive and a further 27 per cent as fairly attractive. Another 13 per cent were neutral, while only 4 per cent considered it unattractive. The survey was conducted among 80 foreign investors from 23 countries and 11 sectors, with senior executives and investment decision-makers taking part. About 92 per cent of respondents already had business operations in Cyprus. That confidence is also translating into investment intentions. Some 67 per cent of respondents plan either to enter the Cypriot market or expand their existing operations, up from 57 per cent in 2024 and just 29 per cent in 2022. Among businesses already operating on the island, 62 per cent plan to expand over the next 12 months, while 29 per cent expect to maintain their current level of activity. Half of those without an existing presence said they were considering entering the Cyprus market. Tax remains the island’s strongest selling point. Ninety per cent of respondents rated Cyprus’ corporate taxation and wider tax regime as attractive, followed by quality of life at 82 per cent and political and social stability at 65 per cent. The skills of the local workforce were cited by 58 per cent, while 49 per cent pointed to the country’s growth prospects. The importance investors continue to attach to taxation is particularly notable following the increase in Cyprus’ corporate income tax rate from 12.5 per cent to 15 per cent at the beginning of 2026 as part of the wider tax reform. The European Commission has said corporate income tax continues to play an unusually large role in Cyprus, representing about 20 per cent of tax revenues, more than twice the EU average. However, the survey also leaves little doubt over where investors believe Cyprus needs to improve. Energy costs were the most frequently cited weakness, at 50 per cent, followed by access to financing and capital at 38 per cent and the bureaucratic and administrative environment at 35 per cent. Transport and logistics infrastructure was mentioned by 33 per cent and the availability of investment opportunities by 31 per cent. Those concerns are not confined to the EY survey. The European Commission has also identified access to finance and the business environment as areas requiring further work, while calling for faster development of renewables, electricity grids and storage to bring down energy costs. Energy has become particularly important this year. The Commission expects Cyprus inflation to rise to 3.6 per cent in 2026, largely because of higher energy prices linked to the Middle East conflict, although it still forecasts economic growth of 2.3 per cent this year and 2.7 per cent in 2027. Geopolitics is also firmly on investors’ radar. Seventy-four per cent identified geopolitical tensions and conflicts as a potential risk to Cyprus’ attractiveness over the next three years, well ahead of low connectivity, adverse reputation and a heavier regulatory burden, each cited by 29 per cent. Tight labour market conditions followed at 27 per cent, with volatile energy prices and supply problems at 26 per cent. Investors are nevertheless looking beyond Cyprus’ established sectors. While 48 per cent said future investment would involve the sale of products and services, 21 per cent identified research and development and 19 per cent business support services, alongside continued interest in regional headquartering. Looking further ahead, 60 per cent expect Cyprus to become more attractive for FDI over the next three years, including 9 per cent who expect a significant improvement. Another 24 per cent expect little change, while 6 per cent foresee a deterioration. Real estate, infrastructure and construction were seen as the sectors most likely to drive longer-term growth, cited by 23 per cent of investors. Tourism and leisure and ICT and telecommunications followed at 14 per cent each, with payments and fintech at 11 per cent. The relatively strong outlook for Cyprus comes against a more difficult European investment picture. EY recorded 5,026 foreign investment projects across Europe in 2025, down 7 per cent from the previous year, although 60 per cent of businesses surveyed across Europe still expect the region’s attractiveness to improve over the next three years.