Cyprus2005 INVESTMENT CLIMATE STATEMENT -- CYPRUS
Openness to Foreign Investment
Cyprus, a full EU member since May 1, 2004, has a liberal
climate for investments. On October 1, 2004, the GOC lifted
most investment restrictions concerning non-EU residents,
completing earlier reforms (introduced in January 2000)
concerning EU investors. Through this decision, the GOC has
lifted most capital restrictions and limits on foreign
equity participation/ownership, thereby granting national
treatment to foreign investors. Non-EU investors (both
natural and legal persons) may now invest freely in Cyprus
in most sectors, either directly or indirectly (including
all types of portfolio investment in the Cyprus Stock
Exchange). The only exceptions concern primarily the
acquisition of property and, to a lesser extent,
restrictions on investment in the sectors of tertiary
education and mass media (see below).
Under the new policy, there is no mandatory screening of
foreign investment. Foreign investors can register a
company directly at the Registrar of Companies through
qualified accountants or lawyers, a procedure that is
exactly the same for local residents. Similarly, foreign
investors may now acquire shares in an existing Cypriot
company directly, without earlier authorization by the
Central Bank. They are expected, however, to inform the
Registrar of Companies about the change in ownership status.
Foreign investors are still expected to obtain all permits
that may be necessary under Cypriot law to do business in
Cyprus. For example, they may need to obtain a municipal
permit to set up a kiosk or abide by prevailing health
standards to own and operate a catering company, etc.
Furthermore, non-EU residents wishing to take up employment
in Cyprus must obtain work permits issued by the Migration
Department.
The most significant hurdle remaining in place for foreign
investors concerns the acquisition of real property on the
island. Investors who are not resident in an EU member
state are generally restricted to buying only a single piece
of real estate for private use not exceeding three donums,
i.e. normally for a holiday home or office (one donum equals
1,338 square meters). Exceptions can be made for projects
requiring larger plots of land (i.e. beyond that necessary
for a private residence) but are difficult to obtain and are
rarely granted. Cyprus' accession into the EU on May 1,
2004 has resulted in an easing -- but not complete abolition
-- of restrictions on the acquisition of property by EU
residents. Residents of EU member states (natural and legal
persons) are now free to acquire property for commercial use
on the island. However, EU residents who are not also
residents of Cyprus continue to be restricted to buying only
a single piece of property for private use -- just like non-
EU residents. The GOC has obtained a temporary derogation
from the EU acquis communautaire on this issue for five
years, i.e. until May 2009.
A law restricting investment in tertiary education by non-EU
residents or entities is technically still in force.
However, it is expected that the government will soon lift
this restriction, as part of its ongoing overhaul of
tertiary education legislation. Cyprus also abides by an EU
regulation restricting non-EU ownership of local mass media
companies to 5 percent or less. However, any non-EU company
wishing to invest in these sectors in Cyprus can do so
through a company registered elsewhere in the EU.
Conversion and Transfer Policies
In recent years, Cyprus has progressively lifted
restrictions on the transfer of funds in and out of the
country pertaining to foreign investors. Currently, there
are no restrictions on remittances for investment capital,
earnings, loan repayments, lease payments or other business
transactions.
Expropriation and Compensation
Nationalization has never been government policy and it is
not contemplated in the future. Private property is only
expropriated for public purposes in a non-discriminatory
manner and in accordance with established principles of
international law. In cases where expropriation is
necessary, due process is followed and there is transparency
of purpose. Furthermore, investors and lenders to
expropriated entities receive fair compensation in the
currency in which the investment is made. In the event of
any delay in the payment of compensation, the Government is
also liable for the payment of interest based on the
prevailing 6-month LIBOR for the relevant currency.
Dispute Settlement
There have been no cases of investment disputes or
outstanding expropriation/nationalization cases in recent
years. Effective means are available for enforcing property
and contractual rights. Under the Arbitration Law of
Cyprus, an arbitrator is appointed when the parties'
attorneys cannot settle a dispute between the parties to an
agreement. The court may enforce an arbitral award in the
same way as a judgment. In 1979, Cyprus became a signatory
to the New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards and a foreign award
may be enforced in Cyprus by an action in common law.
Cyprus is also a signatory to the Convention on the
Settlement of Disputes Between States and Nationals of Other
States.
Performance Requirements
Cyprus does not have a rigid system of performance
requirements for foreign investment across the board and has
signed the WTO's Trade-Related Investment Measures (TRIMS)
agreement. Applications by non-EU residents for investment
in Cyprus are judged on their own merit.
Investment Incentives
The investment incentives currently available in the
government-controlled area of Cyprus are summarized below:
I. Direct Investment Incentives:
-- Relatively low corporate tax; resident companies are
taxed at the rate of 10.0 percent;
-- Annual depreciation allowances;
-- Carry-forward of losses and group relief provided (i.e.
for different companies belonging to the same group);
-- Exemption from customs and excise charges for operations
in the Larnaca Industrial Free Zone; and
-- Partial exemption of salaries of non-resident employees
for a period of three years from the date of first
employment in the Republic, equal to 20 percent of the
emoluments or CP 5,000, whichever is lower.
II. Investment Incentives Concerning Operations Abroad
-- Income derived from operations abroad is totally exempt
from corporation or income tax.
-- Non-resident employees' salaries are partly exempt from
tax for a period of three years after their first employment
in the Republic, in an amount equal to 20 percent or CP
5,000, whichever is lower.
-- Emoluments of employees rendering services outside Cyprus
to a non-resident person or entity, for periods exceeding 90
days within an assessment year, are exempt from tax.
-- Immovable property outside the Republic is not subject to
any capital gains tax or estate duty.
Additionally, Cyprus has concluded treaties for the
avoidance of double taxation covering 40 states (including
one with the United States, effective January 1, 1986).
These treaties offer significant possibilities for
international tax planning.
III. Investment Incentives for Ship Owning Companies:
The Cyprus Register compares favorably with other open
registers in terms of the registration costs and annual fees
vis--vis the level of services provided. For example, the
Cyprus Department of Merchant Shipping responds quickly to
requests by foreign ship owners for technical support or
assistance in dealing with the authorities in foreign ports
(such as obtaining an exemption certificate for a crew
member who falls sick during a journey). Other important
incentives are:
-- Zero tax on profits from the operation of a Cypriot
registered vessel and on dividends received from a ship
ownership company.
-- Zero capital gains tax on the sale or transfer either of
a Cypriot registered vessel or of the shares of a ship
ownership company.
-- No estate duty.
-- No income tax on wages and benefits of officers and crew.
-- No stamp duty on ship mortgage deeds or other security
documents.
For additional information, please contact Mr. Serghios
Serghiou, Director, Cyprus Department of Merchant Shipping
at:
Kyllinis Street
Mesa Geitonia
CY 4007 Limassol
CYPRUS
Tel: 357-25-848100
Fax: 357-25-848200
E-mail: dms@cytanet.com.cy
Internet Homepage: www.shipping.gov.cy
Protection of Property Rights
Cypriot law imposes significant restrictions on the foreign
ownership of real property. In most cases, non-residents
(whether of EU or non-EU origin) may purchase only a single
piece of real estate for private use (normally a holiday
home). Exceptions can be made for projects requiring larger
plots of land (i.e. beyond that necessary for a private
residence) but are difficult to obtain and are rarely
granted. Cypriot legislation limiting the acquisition of
land in Cyprus by EU residents is not in line with EU
requirements. The EU granted Cyprus a temporary derogation
from the EU acquis communautaire on this issue, lasting for
five years after accession (i.e. until May 2009).
The legal requirements and procedures for acquiring and
disposing of property in Cyprus are complex but professional
help by real estate agents and developers can ease the
burden of dealing with the GOC bureaucracy. This procedure
involves Central Bank verification that funds from abroad
are to be used by non-EU residents to purchase real estate.
It also involves final approval by the Council of Ministers,
which is given routinely for holiday homes.
Once a property title is issued, its security is ironclad.
The Government's Department of Lands and Surveys prides
itself in keeping meticulous records and in following
internationally accepted procedures (which have changed
little since British colonial times). Non-residents are
allowed to sell their property and transfer abroad the
amount originally paid, plus interest or profits without
restriction.
The Adoption of the Copyright Law on January 1, 1994 and the
subsequent adoption of the Patents Law on April 2, 1998 were
important milestones in establishing a modern legislative
framework for the protection of intellectual property on the
island. These two laws have helped Cyprus comply with its
obligations under the WTO TRIPs agreement. Cyprus is not
currently listed on the U.S. "Special 301" list of countries
effectively denying adequate IPR protection to U.S. persons.
However, the U.S. Embassy in Nicosia consistently receives
complaints about IPR piracy from representatives of the
business community, which attributes the problem to sporadic
implementation of these laws.
Transparency of the Regulatory System
Existing procedures and regulations affecting business
(including foreign investment regulations, outlined in
section A.1.) are generally transparent and applied in
practice without bias. In some cases, U.S. companies
competing on government tenders have expressed concerns
about lack of transparency and the appearance of bias in
decisions made by the technical committees responsible for
preparing specifications and reviewing tender submissions.
The U.S. Embassy monitors these tenders closely to ensure a
level playing field for U.S. businesses.
Efficient Capital Markets and Portfolio Investment
The decision to abolish the interest rate ceiling as of
January 1, 2001, and to lift gradually exchange controls for
residents has improved the efficiency of the capital market
in Cyprus. Additionally, the local stock exchange, launched
officially in 1996, has the potential to enhance the local
capital market, despite the 1999-2001 boom-and-bust cycle.
The permit issued by the Central Bank to non-EU resident
investors specifies the activities of the firm and imposes
certain conditions with regard to financing arrangements.
One of these conditions is that equity capital issued to non-
EU resident investors must be funded from abroad.
Terms for foreign loans must be approved by the Central
Bank. Interest and other costs must be at market prices.
Royalties and other payments for the use of patents, know-
how, brand names, etc., must be approved in advance, but
then may be readily remitted abroad.
The Cyprus Stock Exchange (CSE) experienced a boom-and-bust
cycle between 1999 and 2001, typical of emerging stock
markets. It soared roughly eightfold in 1999 only to lose
90 percent of its value since then. This cycle saw the
index follow a textbook bell-shaped curve, rising from 90
points at the end of 1998 to over 800 points near the end of
1999, only to plunge back to less than 100 points by the end
of 2001, where it remains today. A study into the causes of
the CSE crash, released by the House of Representatives in
June 2002, implicated a number of actors and systemic flaws
but offered little consolation to the island's thousands of
small investors. Another study by the Central Bank helped
explain the relatively mild impact of the CSE crash on the
Cypriot economy at large. The second study found that most
investors used their own funds to invest in the CSE (as
opposed to borrowed funds), and that they had no pressing
need for the money invested. As a result, most investors
sustained only paper losses, and have not substantially
modified their consumption patterns. However, local
investor confidence was shaken to the core. Even though
most of the underlying weaknesses in the system have been
rectified over the last two years, local investors remain
largely on the sidelines.
Political Violence
There have been no incidents of politically-motivated
serious damage to foreign projects and or installations
since 1974. However, it behooves the foreign investor who
is interested in Cyprus to have at least a basic
understanding of the existing political situation on the
ground.
Cyprus has been divided since the Turkish military
intervention of 1974, following a coup d'etat directed from
Greece. Since 1974, the southern part of the island has
been under the control of the internationally-recognized
Government of the Republic of Cyprus. North Cyprus is ruled
by a Turkish Cypriot administration. In 1983, that
administration proclaimed itself the "Turkish Republic of
Northern Cyprus" ("TRNC"). The "TRNC" is not recognized by
the United States or by any other country except Turkey.
The two parts are separated by a buffer zone patrolled by
United Nations forces. A substantial number of Turkish
troops remain on the island.
There has been no serious inter-communal violence since
1974, other than an isolated incident in 1996 resulting in
the deaths of two Greek-Cypriot civilians during a
demonstration in the buffer zone. The partial lifting of
travel restrictions between the two parts of the island in
April 2003 has allowed movement of persons - almost six
million crossings to date -- between the two parts of the
island. In August 2004, new EU rules allowed goods produced
in the north to be sold in the south provided they met EU
rule of origin requirements. Goods are not permitted to
flow south to north except under special circumstances and
trade between the two communities remains limited.
A plan for the reunification of the island, drafted under
the auspices of the UN, was submitted to the two communities
for approval in separate but simultaneous referenda on April
24, 2004. The plan was approved by the majority of Turkish
Cypriots but rejected by the majority of Greek Cypriots.
On May 1, 2004, the Republic of Cyprus joined the European
Union as a full member. The EU acquis communautaire has
been temporarily suspended in the northern part of the
island due to the unresolved political situation
Corruption
In the government-controlled area of Cyprus, corruption,
both in the public and private sectors, constitutes a
criminal offense. The main laws dealing with this problem
are listed below:
-- Criminal Code, Chapter 154: contains provisions related
to corruption in the public sector, and specifically to
extortion, abuse of office and receiving property to show
favor.
-- The Prevention of Corruption Law, Chapter 161: deals with
acts of corruption by public and private employees both in
the public and private sectors.
-- The Customs and Excise Law, No. 82 of 1967: contains
provisions related to public corruption, both active and
passive.
-- Law Number 65 of 1965: provides for the prosecution of
persons holding public office who "acquire property by abuse
of power." A weakness of this law is that it does not
address the procedure for investigating the assets of such
persons. This inefficiency is being addressed by a bill,
currently pending before the House, obliging government
officials and politicians to disclose personal financial
details every year as long as they hold office and for three
years thereafter.
-- A new law on public tenders was recently enacted, which
contained detailed rules strengthening the openness and
transparency of public procurement and minimizing the
opportunities for corruption.
Furthermore, under Cyprus' Constitution, the Auditor General
controls all disbursements and receipts and has the right to
inspect all accounts on behalf of the Republic. In his
Annual Report, the Auditor General identifies specific
instances of mismanagement or deviation from proper
procedures in the civil service. Since 1991, Cyprus has
also introduced the institution of the "Ombudsman," who
oversees the acts or omissions of the administration.
Cyprus cooperates closely with EU and other international
authorities on fighting corruption and providing mutual
assistance in criminal investigations. Cyprus has signed
the European Convention on Mutual Assistance on Criminal
matters and is in the process of ratifying it. Cyprus also
uses the foreign Tribunal Evidence Law, Chapter 12, to
execute requests from other countries for obtaining evidence
in Cyprus in criminal matters. Additionally, Cyprus is an
active participant in the Council of Europe's
Multidisciplinary Group on Corruption. As such, it has
already signed and ratified (on January 27, 1999 and January
17, 2001 respectively) the Criminal Law Convention on
Corruption and has joined the "Group of States Against
Corruption-GRECO." Furthermore, it diligently attends
GRECO meetings.
Additionally, Cyprus' democratic regime, transparent
procedures and open, lively press act as a further deterrent
against corruption in the civil service. The Embassy is not
aware of any U.S. firms identifying corruption as an
obstacle to foreign direct investment in Cyprus; however, in
some cases, U.S. companies competing on government tenders
have expressed concerns about lack of transparency and the
appearance of bias in decisions made by the technical
committees responsible for preparing specifications and
reviewing tender submissions.
Bilateral Investment and Double Tax Agreements
The GOC has 15 bilateral agreements for the encouragement
and reciprocal protection of investments with the following
countries: Armenia, Belgium, Bulgaria, Belarus, China,
Egypt, Greece, Hungary, India, Israel, Lebanon, Poland,
Romania, and the Seychelles. (An investment agreement with
Russia is currently in the process of being formally
nullified because the Russian Duma never ratified it.)
Another 40 bilateral investment agreements are currently
under negotiation. Cyprus does not have a bilateral
investment protection agreement with the United States;
however, the Cypriot Ministry of Foreign Affairs and the
U.S. State Department have exchanged letters on the
reciprocal protection of investments.
Cyprus has entered into bilateral doubleQax treaties with a
total of 40 countries. The main purpose of these treaties
is the avoidance of double taxation of income earned in any
of these countries. Under these agreements, a credit is
usually provided for tax levied by the country in which the
taxpayer resides for taxes levied in the other treaty
country. The effect of these arrangements is normally that
the taxpayer pays no more than the higher of the two rates.
Cyprus has such agreements with Armenia, Austria,
Azerbaijan, Belarus, Belgium, Bulgaria, Canada, China, the
Czech Republic, Denmark, Egypt, France, Germany, Greece,
Hungary, India, Ireland, Italy, Kuwait, Kyrgystan, Malta,
Mauritius, Moldova, Norway, Poland, Romania, Russia,
Singapore, Slovakia, Slovenia, South Africa, Sweden, Syria,
Tajikistan, Thailand, Ukraine, United Kingdom, United
States, and Yugoslavia. Treaties with Algeria, Estonia, and
Kazakhstan are at various stages of negotiations.
OPIC and Other Investment Insurance Programs
The U.S. Overseas Private Investment Corporation (OPIC) is
not active in Cyprus, but OPIC finance and insurance
programs are open and may be useful when bidding on BOT
contracts. The Government of Cyprus has started a campaign
to attract U.S. corporate investors. Cyprus is a member of
the Multilateral Investment Guarantee Agency (MIGA).
Labor
The local labor force in the government-controlled area of
Cyprus is estimated at 325,000 persons. Of these, 7.9
percent worked in agriculture, 11.5 percent in manufacturing
and utilities, 9.3 percent in construction, and 71.2 percent
in services (including 28.3 percent in trade and tourism).
Since 1977, the rate of unemployment in Cyprus has not
exceeded 4.0 percent of the economically active population,
significantly lower than the more than 10.0 percent EU
average rate of unemployment. Unemployment stood at 3.4
percent in 2004, about the same as the year before. Under
these conditions of full employment, employers often resort
to hiring a substantial number of foreign workers.
Cyprus has a high per capita rate of college graduates,
including many U.S. graduates, and offers an abundant supply
of white-collar workers. English is widely spoken, a side
effect of Cyprus' experience as a British colony (until
1960).
In response to labor shortages in recent years, more women
have joined the labor force (women are now about 44.0
percent of the labor force, compared with 33.4 percent in
1980) and a growing number of Cypriots are repatriating from
abroad. There are also 39,000 legally registered foreign
workers in Cyprus, including about 10,000 live-in domestic
servants. The number of illegal workers in Cyprus is
estimated at around 30,000. Existing legislation requires
that foreign workers receive at least the minimum wage.
The legislated minimum wage for sales assistants, clerks,
paramedical, and child care staff is currently CP 320 (USD
672) per month, rising to CP 340 (USD 714) after 6 months'
employment. Neither amount is sufficient to provide a
decent standard of living for a worker and family. All
other occupations, including unskilled workers, are covered
under collective bargaining agreements between trade unions
and employers within the same economic sector, and the wages
set in these agreements are significantly higher than the
legislated minimum wage.
Currently, about 71.0 percent of the labor force is
unionized (compared to 80.0 percent in 1980), which gives
the unions a strong say in collective agreements. Head-on
confrontations between management and unions do occur,
although long-term work stoppages are rare. A recent study
by Harvard University covering 60 countries found that union
power in Cyprus was perceived to be "the strongest in the
world," while labor relations were perceived to be
"relatively peaceful." International business companies are
not required to hire union labor. The continued existence
and method of calculating the current economy-wide, twice
per year, Cost of Living Allowance (COLA) for employees is a
contentious issue between unions and employers.
Nonetheless, this practice is not expected to change in the
near-term.
Productivity, measured as the ratio of real value added to
gainful employment, rose by 1.7 percent in 2003, compared
with an increase of 0.8 percent the year before. At the
same time, real wages increased by 1.5 percent in 2003. The
relatively faster growth of productivity over wages in 2003
had a positive, albeit marginal, effect on the country's
competitive position.
Foreign Trade Zones/Free Ports
Transit trade through the island remains an important source
of business for Cyprus. This business is transacted through
the Larnaca Free Zone (FZ) or through bonded warehouses
where goods are kept for transshipment. The authorities
responsible for the Larnaca FZ are the Ministry of Commerce,
Industry, and Tourism and the Department of Customs, while
the authority responsible for bonded warehouses is only the
Department of Customs. Additionally, there are nine
government industrial estates around Cyprus. The plots are
leased for 33 years, renewable for up to 99 years. EU
residents face no restrictions whatsoever in utilizing these
facilities, while non-EU investors must obtain the Central
Bank's permission.
Foreign Direct Investment Statistics
It was not until 1986 that the GOC established an official
policy on foreign direct investment, encouraging significant
investments to take place. Additionally, the GOC's decision
in January 2000 to lift incoming direct investment
restrictions for EU residents has helped accelerate the flow
of incoming direct investment from the EU in recent years.
Since 2002, the Central Bank has started using a new
definition concerning the term "resident" for Balance of
Payments and investment purposes, in line with IMF and EU
guidelines. Under this definition, a resident is a person
who lives in Cyprus for more than a year or a company with a
physical presence (i.e. an established office) in Cyprus for
more than a year. The new definition includes companies
with foreign shareholding with a physical presence in Cyprus
for more than a year, previously considered "non-resident."
Investments made through such companies are now included in
Central Bank statistics, in contrast to previous years. As
a result, the official investment statistics given below
appear inflated compared to earlier years.
A detailed breakdown of direct investment by country of
origin and names of specific foreign investors is
unavailable -- the GOC considers this information
confidential. However, some general information on the type
and origin of foreign investment follows.
The inflow of approved foreign direct investment remained at
USD 1.00 billion in 2003, compared with USD 1.06 billion in
2002, and USD 956 million in 2001. The sectoral allocation
of this investment in 2003 was as follows: manufacturing 0.8
percent; construction 0.8 percent; trading 14.6 percent;
hotels and restaurants 0.2 percent; transport and
communications 11.1 percent; financial intermediation 24.7
percent; real estate and business 41.0 percent, other
services 6.7 percent. In terms of geographical origin, the
majority of new investments in 2003 (58.1 percent of total
value) originated from the EU; 31.1 percent originated from
other European countries; 4.6 percent from the United States
of America; and the remaining 6.2 percent from various other
countries.
The gradual liberalization of foreign direct investment
regulations has made Cyprus progressively a more attractive
destination for US investors in recent years.
Traditionally, U.S. direct investment in Cyprus consisted of
relatively minor projects, mostly by Greek-Cypriot
expatriates. New investment projects with U.S. involvement
in 2003 included a well-known US coffee retailing franchise,
an equestrian center, a hair products manufacturing unit, a
firm trading in health and natural foodstuffs, and a
financial services company. It should also be noted that
the abolition of restrictions on investment originating from
the EU allows U.S. investors to benefit as well, provided
they work through subsidiaries in the EU.
Investment Climate Statement On Cyprus
Part Two: North Cyprus ("Turkish Republic Of North Cyprus")
Openness to Foreign Investment
Authorities in north Cyprus actively encourage foreign
investment, giving preference to foreign investments
facilitating the transfer of modern technology, know-how and
new management technologies, as well as investment in export-
oriented industries. The sector of tourism seems to offer
the most potential. There are no particular restrictions
for specific sectors, except perhaps for projects
threatening national security.
However, it must be stressed that the lack of international
recognition for the "TRNC" and the continuing non-resolution
of the Cyprus problem are factors which should be taken into
consideration by the foreign investor (see section on
Protection of Property Rights for additional information.)
Conversion and Transfer Policies
The Embassy is not aware of any restrictions on remittances
for investment capital, earnings, loan repayments, lease
payments or other business transactions. However, there is
little empirical evidence to support this, given the small
size of non-Turkish foreign investment in north Cyprus.
Expropriation and Compensation
The events of 1974 have resulted in a number of outstanding
investment disputes involving U.S. persons. Resolution of
these disputes prior to a settlement of the Cyprus problem
seems unlikely.
The "TRNC" constitution guarantees the right of private
property, while it does not discriminate between citizens
and aliens. Furthermore, authorities in north Cyprus state
that nationalization has never been part of their policy and
that they do not contemplate any such action in the future.
However, in recent years there have been cases of
expropriation of pre-1974 Greek Cypriot properties in the
north. Turkish Cypriot authorities consider these
properties "state-owned." None of these cases have targeted
U.S. property or interests.
Investment Incentives
North Cyprus offers the following investment incentives:
-- Investment Allowance. The "TRNC State Planning
Organization (SPO)" offers an investment allowance in the
form of Incentive Certificates equivalent to: (a) 200
percent on the initial fixed capital investment for
investments in Priority Development Regions, (e.g. the
regions of Guzelyurt (Morphou) and Karpaz (Karpasia) have
been classified as Priority Development Regions, and (b) 100
percent on the initial fixed capital investment in other
sectors.
-- Exemption from Custom Duties and Funds. Importation of
machinery and equipment for an investment project are exempt
from every kind of custom duty, in accordance with the
Incentive Certificate. Regulations on importation of raw
materials and semi-finished goods are specified by the
"Prime Ministry" and subject to the approval of the "Council
of Ministers."
-- Zero VAT Rate. Both imported and locally-purchased
machinery and equipment is subject to a zero VAT rate, in
accordance with the Incentive Certificate.
-- State-Owned Land and Building Lease. Investments granted
an Incentive Certificate may benefit from the leasing of
state-owned land and buildings at very preferential rates.
-- Fund Credits. Long term and low rate investment credits
are available from the Investment and Export Incentive Fund.
-- Exemption from Construction License Fee and Reduced
Mortgage Fees. Investments granted an Investment
Certificate are exempt from all kinds of construction
license fees and taxes and also benefit from reduced stamp
duty and mortgage fees.
-- Other Tax Allowances. (a) A 50 percent allowance if
given on the Initial Investment Allowance. This rate can
increase up to 100 percent for priority sectors and regions,
with a "Council of Ministers" decision. (b) Annual wear and
tear allowances for machinery and equipment (10 percent);
motor vehicles (15-25 percent); industrial buildings and
hotels (4 percent); shops and residences (3 percent),
furniture and fixtures (10 percent). (c) Other tax
allowances include a VAT exemption for exports of all goods
and services and a 20 percent exemption from corporate tax
for exports of goods and services.
Procedure for Foreign Investors
Foreigners must select one of the following three options in
order to invest in north Cyprus:
(a) Establish a new company in the north. In this case,
there is a requirement for minimum capital of USD 30,000.
There is no requirement for "Ministerial Council" approval
although the applicant must obtain all the necessary permits
and documents from the police, "Ministry of Interior", etc;
or
(b) Establish a branch of an existing company abroad.
There is no requirement for minimum capital in this case but
there is a requirement for approval by the "Ministerial
Council"; or
(c) Buy an existing Turkish Cypriot company. In order to
do this, the foreign investor must have a Turkish Cypriot
partner.
Additional information can be obtained directly from the
"Ministry of Economy" at tel. (90-392) 228-5204, fax: (90-
392) 228-5204; and the "State Planning Organization" at tel.
90-392) 228-3141, fax: (90-392) 228-5988.
Protection of Property Rights
Property remains one of the key outstanding issues that
constitute the Cyprus problem. The UN settlement plan,
which offered the most feasible basis for an overall
political settlement to date but was rejected by the Greek
Cypriots, proposed quite complex arrangements regarding
property. These arrangements can be reviewed at the
following website: www.annanplan.org
The absence of a political settlement and the lack of
international recognition for the "TRNC" pose an inherent
risk for the foreign investor interested in buying property
in north Cyprus. Potential investors should be cautious and
check out all the facts concerning purchasing or leasing
property in the north. Unless the property in question was
in Turkish Cypriot hands prior to 1974, it will be very
unlikely that the title to the land will be free and
unchallengeable. Property issues will be at the heart of
any settlement of the Cyprus problem and will involve the
return of property and/or compensation to pre-1974 owners.
Changes in title since 1974 in the north are not recognized
by the Republic of Cyprus. Estimates of the percentage of
land in the north that belonged to Greek Cypriots pre-1974
run as high as 85 percent. Determining the history of land
in the north can be difficult. Foreign buyers of land may
also face legal challenges from pre-1974 owners either in
Republic of Cyprus courts or courts in their country of
residence.
Intellectual property rights are not adequately protected.
Patent and copyright legislation is currently being drafted.
Property Boom
Expectations for a comprehensive settlement associated with
the Annan Plan, and a recent "TRNC" law liberalizing
property transfer procedures for foreign investors have
provided the impetus for an unprecedented boom in the
property market of north Cyprus over the past two years.
Applications by foreign nationals for the purchase of
property in the north corresponded to a total area of 2.1
million square meters in 2004, compared with only 309,000
square meters in 2001. The value of property sales in 2004
was unofficially estimated at up to USD 2 billion.
Efficient Capital Markets and Portfolio Investment
The economy in north Cyprus is largely integrated with that
of Turkey. For example, the official currency used is the
new Turkish Lira, while up to 40 percent of the "TRNC"
budget is directly subsidized from Turkey. As a result, the
financial system in north Cyprus is linked closely with that
of Turkey - a fact which became painfully clear during the
Turkish banking crisis of 1999-2001. The vast majority of
borrowing comes from domestic sources and Turkey. North
Cyprus does not have its own stock exchange.
Foreign Direct Investment Statistics
No detailed statistics on investment are available.
However, it is clear that most foreign direct investment in
north Cyprus since 1974 has come from Turkey - both from the
government and the private sectors. The sector which has
attracted most investment has been tourism. Currently,
there are plans for three large hotels in coastal areas in
the north and one large marina.
Transparency of Regulatory System and Dispute Settlement
North Cyprus has made strides in recent years in terms of
adopting a more transparent regulatory system. However, the
level of transparency still lags behind European or U.S.
standards.
A common complaint among businessmen in north Cyprus is that
the court system there is overloaded, resulting in long
delays.
Labor
The labor force in north Cyprus is estimated at 95,025. The
breakdown of employment by sector is as follows: 15.1
percent in agriculture, 9.5 percent in manufacturing and
utilities, 17.5 percent in construction, 57.9 in services
(including 11.4 percent in trade and tourism).
The minimum wage was set at TL 500 million (USD 332) in
2003. The rate of unemployment is quoted at less than 2.0
percent
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