Cyprus

Bureau of Economic and Business Affairs
Report
July 19, 2018

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Executive SummaryShare    

REPUBLIC OF CYPRUS

The business and investment climate in Cyprus has improved since the financial crisis of 2013. Cyprus is now experiencing a solid economic recovery, driven by the tourism sector and domestic demand. The economy grew 3.9 percent in 2017, up from 3.4 per cent in 2016, and is expected to continue growing over the medium-term, but at a slower rate. In March 2016, the island graduated from a three-year economic adjustment program, boosting investor confidence in the economy. Despite a major restructuring of the banking sector and improved capital positions, the stock of non-performing loans (NPLs) has declined slowly, undermining local banks’ asset quality and restraining their lending ability. In November 2017, NPLs stood at 43.7 percent of all loans, compared to 47.8 percent in December 2014. Poor contract enforcement, inefficiencies in the judicial system, and bottlenecks in the implementation of the foreclosure and insolvency legislation hamper private sector deleveraging and the further reduction of non-performing loans. Reform momentum has weakened since 2016, slowing down progress in areas like reforming the civil service and privatizing state-owned enterprises (SOEs). The European Commission’s 2018 Country Report on Cyprus, released March 7, as part of the European Semester assessment, noted that the island’s “robust economic recovery could help accelerate the correction of excessive macroeconomic imbalances and provide a window of opportunity to implement growth-enhancing reforms.”

Strategically located at the crossroads of Europe, Asia, and Africa, Cyprus offers significant promise and opportunity to U.S. investors. Sectors offering the greatest potential for investment are in energy (including renewables), tourism infrastructure, shipping, services, and technology. Smaller, niche investment opportunities exist in food processing and franchises. Cyprus offers a low-tax business environment, skilled and English-speaking professionals, and excellent infrastructure for doing business in the eastern Mediterranean. U.S. citizens traveling with a U.S. passport may enter Cyprus without a visa for up to 90 days.

Table 1

Measure

Year

Index/Rank

Website Address

TI Corruption Perceptions Index

2017

42 of 180

http://www.transparency.org/
research/cpi/overview

World Bank’s Doing Business Report “Ease of Doing Business”

2018

53 of 190

www.doingbusiness.org/rankings

Global Innovation Index

2017

30 of 127

https://www.globalinnovationindex.org/
analysis-indicator

U.S. FDI in partner country (M USD , stock positions)

2016

USD 1,600

http://www.bea.gov/
international/factsheet/

World Bank GNI per capita

2016

USD 24,320

http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

AREA ADMINISTERED BY TURKISH CYPRIOTS

Since 1974, the southern two-thirds of Cyprus has been under the control of the government of the Republic of Cyprus (ROC), while the remaining area in the north has been administered by Turkish Cypriots (TCs). In 1983, the TC-administered area declared itself the "Turkish Republic of Northern Cyprus" ("TRNC"), but this has not been recognized by any country other than Turkey. While the unresolved conflict has implications for all potential investment on the island, companies considering investments in the TC-administered area should be aware of complications that arise from the lack of international recognition and the absence of a comprehensive political settlement in Cyprus. TC businesses are interested in working with American companies in the fields of agriculture, renewable energy, and franchises. The accession of the ROC to the European Union (EU) in 2004 also had important consequences for the northern part of Cyprus. Although the EU suspended implementation of the acquis communautaire (AC) in the area administered by TCs, EU-funded technical programs are being used to bring TC goods and services into compliance with EU standards and norms.

Turkish aid and investment continue to take place in the area administrated by TCs.

The single greatest catalyst for island-wide Cypriot economic growth and prosperity lies in the efforts of both communities to achieve a political settlement. According to some analysts, prospects for a settlement hold the promise of significantly increasing the island’s GDP.

1. Openness To, and Restrictions Upon, Foreign InvestmentShare    

Policies Towards Foreign Direct Investment

REPUBLIC OF CYPRUS

The ROC has a favorable attitude towards foreign direct investment (FDI), putting to good advantage its strategic geographic location, low corporate and personal tax rates, 63 double taxation avoidance treaties (including with the United States), transportation infrastructure, and an educated, mostly English-speaking labor force. The 2013 financial crisis brought to the surface several underlying structural and institutional obstacles to investment, ranging from delays in obtaining building permits and court judgments, to difficulties in starting a business, and limited access to financing. In the aftermath of the crisis, ROC authorities have addressed some of these challenges in an effort to make Cyprus increasingly attractive to foreign investors. Key sectors that hold potential for investment include tourism-related infrastructure, casinos, ports, banks, real estate, and hydrocarbons/energy-related support services. Foreign investors may establish a business in Cyprus with the same benefits as local investors in most sectors with a few well-defined and transparent limitations for non-EU investors (see limits on Foreign Control, below).

For more information:

One-Stop-Shop & Point of Single Contact
Ministry of Commerce, Industry and Tourism (MECIT)
13-15 Andreas Araouzos
1421 Nicosia, Cyprus
Tel. +357 22 409318 or 321
Fax: +357 22 409432
Email 1: onestopshop@mcit.gov.cy 
Email 2: psccyprus@mcit.gov.cy
Website: www.businessincyprus.gov.cy

AREA ADMINISTERED BY TURKISH CYPRIOTS

TCs welcome FDI and are eager to attract investments, particularly those that will lead to the transfer of advanced technology and technical skills. Priority is also given to investments in export-oriented industries. The “Turkish Cypriot Investment Development Agency” (“YAGA”) is a one-stop shop for all investors.

“Turkish Cypriot Development Agency” (“YAGA”)
Tel: +90 392 - 22 82317
Website: http://www.investinnorthcyprus.org

Limits on Foreign Control and Right to Private Ownership and Establishment

REPUBLIC OF CYPRUS

The following restrictions apply to investing in the ROC:

Non-EU entities (persons and companies) may purchase only two real estate properties for private use (two holiday homes or a holiday home and a shop or office). This restriction does not apply if the investment property is purchased through a domestic company or as a corporation elsewhere in the EU.

Non-EU entities also cannot invest in the production, transfer, and provision of electrical energy. Additionally, the Council of Ministers may refuse granting a license for investment in hydrocarbons prospecting, exploration, and exploitation to a third-country national or company if that third country does not provide similar treatment to Cyprus or other EU member states.

Individual non-EU investors may not own more than five percent of a local television or radio station, and total non-EU ownership of a local TV or radio station is restricted to a maximum of 25 percent.

The right to register as a building contractor in Cyprus is reserved for citizens of EU member states. Non-EU entities are not allowed to own a majority stake in a local construction company. Non-EU physical persons or legal entities may bid on specific construction projects but only after obtaining a special license by the Council of Ministers.

Non-EU entities cannot invest in private tertiary education institutions.

The provision of healthcare services on the island is also subject to certain restrictions, applying equally to all non-residents.

Finally, the Central Bank of Cyprus’ prior approval is necessary before any individual person or entity, whether Cypriot or foreign, can acquire more than 9.99 percent of a bank incorporated in Cyprus.

AREA ADMINISTERED BY TURKISH CYPRIOTS

According to the “Registrar of Companies Office,” foreign ownership of construction companies is restricted to 49 percent. Currently the travel agency sector is closed to foreign investment. Registered foreign investors may buy property for investment purposes. Foreign natural persons also have the option of forming private liability companies, and foreign investors can form mutual partnership with one or more foreign or domestic investors.

Other Investment Policy Reviews

REPUBLIC OF CYPRUS

The ROC has been a member of World Trade Organization (WTO) since July 30, 1995. As of May 1, 2004 it is a member State of the EU. Cyprus has not undergone investment policy reviews by the Organization for Economic Cooperation and Development (OECD) or United Nations Committee on Trade and Development (UNCTAD). The WTO published a Trade Policy Review on the EU28, including Cyprus, in July 2015. The text is available at: https://www.wto.org/english/tratop_e/tpr_e/tp417_e.htm.

AREA ADMINISTERED BY TURKISH CYPRIOTS

TC “officials” have not conducted policy reviews on investment.

Business Facilitation

REPUBLIC OF CYPRUS

Domestic and foreign investors may establish any of the following legal entities or businesses in the ROC:

  • Companies (private or public);
  • General or limited partnerships;
  • Business/trade name;
  • European Company (SE); and
  • Branches of overseas companies.

The registration process takes approximately two working days and involves completing an application for approval/change of name, followed by the steps outlined in the following link: http://www.businessincyprus.gov.cy/mcit/psc/psc.nsf/All/A2E29870C32D7F17C2257857002E18C9?OpenDocument.

At the end of 2017, there were 217,588 companies registered in the ROC, 13,677 of which had been registered in 2017 (for more statistics on company registrations, please see: http://www.mcit.gov.cy/mcit/drcor/drcor.nsf/company_statistics_en/company_statistics_en?OpenDocument).

The Ministry of Energy, Commerce, Industry, and Tourism’s (MECIT’s) One-Stop-Shop offers assistance with the logistics of registering a business in Cyprus to all investors, regardless of origin and size.

In addition to registering a business, foreign investors, like domestic business owners, are required to obtain all permits that may be necessary under Cypriot law. At a minimum, they must obtain residence and employment permits, register for social insurance, and register with the tax authorities for both income tax and Valued Added Tax (VAT). In order to use any building or premises for business, including commerce, industry, or any other income-earning activity, one also needs to obtain a municipal license. Additionally, town planning or building permits are required for building new offices, or converting existing buildings. There are also many sector-specific procedures. Information on all of the above procedures is available online at: http://www.businessincyprus.gov.cy/mcit/psc/psc.nsf/eke08_en/eke08_en?OpenDocument.

The World Bank’s 2018 Doing Business report (http://www.doingbusiness.org/rankings) ranked Cyprus 53rd out of 190 countries for ease of doing business. Among the ten sub-categories that make up this index, Cyprus performed best in the areas of resolving insolvency (21/190) and protecting minority investors (43/190), and worst in the areas of enforcing contracts (138/190) and dealing with construction permits (120/190). Despite making small gains in several important areas, such as dealing with construction permits and starting a business, Cyprus backtracked in other areas, including paying taxes and protecting minority investors, causing it to slip in the overall ranking. However, using another metric, the Global Competitiveness Index, issued by the World Economic Forum, Cyprus climbed 19 spots in the 2017-2018 edition, ranking 64th rank out of 137 countries, compared to 83rd out of 138 countries in the previous year. The two most problematic factors for doing business in Cyprus, according to this report were providing access to financing and an inefficient government bureaucracy.

Foreign-owned micro, small and medium-sized enterprises (MSMEs) are free to take advantage of programs in Cyprus designed to help such companies, including the following:

It should be noted that Cyprus follows the EU definition of MSMEs.

Additionally, foreign investors can take advantage of the services and expertise of the Cyprus Investment Promotion Agency (CIPA), an agency registered under the companies’ law and funded mainly by the state, dedicated to attracting investment. CIPA is structured to support larger investors, investing in the country more than approximately EUR 500,000 (USD 550,000), although this is not a fixed minimum requirement.

CIPA
9A Makarios III Ave
Severis Bldg., 4th Flr.
1065 Nicosia
Tel. +357-22-441133
Fax: +357-22-441134
Email: info@investcyprus.org.cy
Website: http://www.investcyprus.org.cy/

AREA ADMINISTERED BY TURKISH CYPRIOTS

Information available on the “Registrar of Companies’” website is available only in Turkish: http://www.rkmmd.gov.ct.tr/. An online registration process for domestic or foreign companies does not exist and registration needs to be completed in person.

The “YAGA” was established by TC authorities with the aim of it becoming a one-stop-shop for both local and foreign investors who are interested in investing in the area administered by TCs. Their website provides explanations and guides in English on how to register a company in the area administrated by TCs.

As of March 2018, the "Registrar of Companies Office" statistics indicated there were 19, 821 registered companies, of which 18,874 were TC majority-owned limited liability companies; 403 foreign companies; and 422 offshore companies.

The area administered by TCs defines MSMEs as entities having less than 250 employees. There are several grant programs financed through Turkish aid and EU aid targeting MSMEs.

The TC Chamber of Commerce (KTTO) publishes an annual Competitiveness Report on the TC economy, based on the World Economic Forum’s methodology. KTTO’s 2017-2018 report ranked northern Cyprus 109 among 137 economies, dropping five places from its ranking in 2016.

For more information and requirements on establishing a company, obtaining licenses, and doing business visit:

“Turkish Cypriot Development Agency” (“YAGA”)
Tel: +90 392 - 22 82317
Website: http://www.yaga.gov.ct.tr/

Turkish Cypriot Chamber of Commerce (KTTO)
http://www.ktto.net/english/index.asp
Tel: +90 392 - 228 37 60 / 228 36 45
Fax: +90 392 - 227 07 82

Outward Investment

REPUBLIC OF CYPRUS

The ROC does not restrict outward investment, other than in compliance with international obligations, like specific UN Security Council Resolutions. In terms of programs to encourage investment, businessmen in Cyprus have access to several EU programs promoting entrepreneurship, such as the European Commission’s Investment Plan for Europe (EC IPE), known as the “Juncker Plan” for projects over EUR 15 million (USD 16.6 million) or the Erasmus program for Young Entrepreneurs, in addition to the European Investment Bank’s guarantee facilities for SMEs for projects under EUR 4 million (USD 4.4 million).

AREA ADMINISTERED BY TURKISH CYPRIOTS

TC “officials” do not incentivize or promote outward investment. The TC authorities do not restrict domestic investors.

2. Bilateral Investment Agreements and Taxation TreatiesShare    

REPUBLIC OF CYPRUS

Cyprus is a party to 27 bilateral investment treaties (BITs) listed here:
http://investmentpolicyhub.unctad.org/IIA/CountryBits/54.

The ROC does not have a BIT with the United States, but it does have a bilateral agreement relating to Investments Guarantees, which came into force in 1963 through the exchange of notes. This agreement is listed as item 16 in the ROC’s list of bilateral treaties between the ROC and the United States:
http://www.olc.gov.cy/olc/olc.nsf/all/D2F8E99BBA5B2FD5C22575D700359092/USD file/UNITED%20STATES.pdf?openelement.

For additional reference on bilateral agreements in effect, please refer to the Department of State’s Treaties in Force: https://www.state.gov/s/l/treaty/tif/index.htm.

The United States and the ROC entered into a Tax Convention in 1985, which remains in force today as per:
https://www.irs.gov/businesses/international-businesses/cyprus-tax-treaty-documents.

Under this treaty, residents or citizens of the United States are taxed at a reduced rate, or are exempt from foreign taxes, on certain items of income they receive from sources within Cyprus. This income tax treaty contains what is known as a saving clause, this prevents a citizen or resident of the United States from using the provisions of a tax treaty in order to avoid taxation of U.S. source income.

An agreement between the United States and the Republic of Cyprus on the Foreign Account Tax Compliance Act (FATCA) entered into full effect January 4, 2017.

Additionally, Cyprus has signed bilateral double tax treaties with 63 countries: http://www.mof.gov.cy/mof/taxdep.nsf/page29_en/page29_en?OpenDocument.

3. Legal RegimeShare    

Transparency of the Regulatory System

REPUBLIC OF CYPRUS

The ROC achieved a score of 3.8 out of 6 in the World Bank’s composite Global Indicators of Regulatory Governance score (based on data collected December 2015 to April 2016) designed to explore good regulatory practices in three core areas: publication of proposed regulations, consultation around their content, and the use of regulatory impact assessments. For more information, please see: http://rulemaking.worldbank.org/data/explorecountries/cyprus.

U.S. companies competing for ROC government tenders have noted concerns about opaque rules and possible bias by technical committees responsible for preparing specifications and reviewing tender submissions. Overall, however, procedures and regulations are transparent and applied in practice by the government without bias towards foreign investors. The ROC actively promotes good governance and transparency as part of its administrative reform action plan: http://www.reform.gov.cy/en/.

In line with the above plan and EU requirements, the ROC launched in 2016 the National Open Data Portal (www.data.gov.cy) to increase transparency in government services. Government agencies are now required to post on this portal publicly-available information, data, records, on the entire spectrum of their activities, for use, including commercial use, by the public. The number of data sets available through this portal has been growing rapidly in recent months.

Several agencies and non-governmental organizations (NGOs) share competency on fostering competition and transparency, including the ROC Commission for the Protection of Competition (www.competition.gov.cy), the Competition and Consumer Protection Service, under MECIT (http://www.consumer.gov.cy/mcit/cyco/cyconsumer.nsf/page03_en/page03_en?OpenDocument), the Cyprus Consumers Association (www.cyprusconsumers.org.cy), and the Cyprus Securities and Exchange Commission (www.cysec.gov.cy).

Most laws and regulations are published only in Greek and obtaining official English translations can be difficult. When passing new legislation or regulations, Cypriot authorities follow the EU acquis communautaire. A formal public notice and comment procedure is not required in Cyprus, except for specific types of laws. In general, the ROC will seek stakeholder feedback directly. Draft legislation must be published in the Official Gazette before it is debated in the House to allow stakeholders an opportunity to submit comments. The ROC House of Representatives also typically invites specific stakeholders to offer their feedback when debating bills. Draft regulations, on the other hand, do not have to be published in the Official Gazette prior to being approved.

In an effort to contribute to global tax transparency, the ROC has adopted the Standard of Automatic Exchange of Information developed by the Organization for Economic Co-Operation and Development (OECD) known as Common Reporting Standard (CRS). Since January 1, 2016, the ROC Tax Department requires all financial institutions to confirm their clients’ jurisdiction(s) of Tax Residence and Respective Tax Identification Number, if applicable. Additionally, the ROC has signed the U.S. Foreign Account Tax Compliance Act (FATCA), allowing Cypriot tax authorities to share information with U.S. counterparts.

AREA ADMINISTERED BY TURKISH CYPRIOTS

The level of transparency for “lawmaking” and adoption of “regulations” in the area administered by TCs are lagging behind U.S. or EU standards.

International Regulatory Considerations

REPUBLIC OF CYPRUS

As an EU Member State since May 1, 2004, the Republic of Cyprus must ensure compliance with the acquis communautaire -- the body of common rights and obligations that is binding on all EU members. The acquis is constantly evolving and comprises of Treaties, international agreements, legislation, declarations, resolutions, and other legal instruments. EU legislation, for its part, is subdivided into:

  • Regulations, which are directly applicable to Member States and require no further action to have legal effect;
  • Directives, which are addressed to and are binding on Member States, but the Member State may choose the method by which to implement the directive. Generally, a Member State must enact national legislation to comply with a directive;
  • Decisions, which are binding on those parties to whom they are addressed;
  • Recommendations and opinions, which have no binding force.

When there is conflict between European law and the law of any Member State, European law prevails; the norms of national law have to be set aside, under the principle of EU law primacy or supremacy.

Legal System and Judicial Independence

REPUBLIC OF CYPRUS

Cyprus is a common law jurisdiction and its legal system is based on English Common Law, in both substantive and procedural matters. Cyprus inherited many elements of its legal system from the United Kingdom, including the presumption of innocence, the right to due process, the right to appeal, and the right to a fair public trial. Courts in Cyprus possess the necessary powers to enforce compliance by parties who fail to obey judgments and orders made against them. There is a high level of public confidence in the integrity of the Cypriot legal system, although long delays in courts tend to undermine this trust.

International disputes are resolved through litigation in Cypriot courts or by alternative dispute resolution methods such as mediation or arbitration. Businesses often complain of court gridlock and judgments on cases generally taking years to be issued, and even more for claims involving property foreclosure.

AREA ADMINISTERED BY TURKISH CYPRIOTS

Investors should note the EU’s acquis communautaire is suspended in the area administered by the TCs.

The area administrated by TCs is a common law jurisdiction. Judicial power other than the “Supreme Court” is exercised by the Heavy Penalty “courts,” “District Courts,” and “Family Courts.”

TCs inherited many elements of their legal system from the British rule in the island pre-1960, including the right to appeal, and the right to a fair public trial. There is a high level of public confidence in the judicial system in the area administrated by TCs. The current judicial process is procedurally competent, fair, and reliable.

Foreign investors can make use of all the rights guaranteed to TCs. Alternative dispute resolution mechanisms are not available in the TC-administered area. The resolution of commercial or investment disputes through the "judicial system" can take several years.

The TC administration has several trade and economic cooperation agreements with Turkey. For more information about legislation, visit http://www.yaga.gov.ct.tr.

Laws and Regulations on Foreign Direct Investment

AREA ADMINISTERED BY TURKISH CYPRIOTS

Visit the one-stop-shop, “YAGA” website, for more information about laws, regulations on FDI: http://www.yaga.gov.ct.tr.

Below are links to laws affecting incoming foreign investment: http://www.yaga.gov.ct.tr.

Competition and Anti-Trust Laws

REPUBLIC OF CYPRUS

The oversight agency for competition is the Commission for the Protection of Competition: www.competition.gov.cy

AREA ADMINISTERED BY TURKISH CYPRIOTS

The relevant “agency” for competition is the “Competition Board”. More information can be found here: www.rekabet.gov.ct.tr.

Expropriation and Compensation

REPUBLIC OF CYPRUS

Private property may, in exceptional instances, be expropriated for public purposes, in a non-discriminatory manner, and in accordance with established principles of international law. The expropriation process entitles investors to proper compensation, whether through mutual agreement, arbitration, or the local courts. Foreign investors may claim damages resulting from an act of illegal expropriation by means other than litigation. Investors and lenders to expropriated entities receive compensation in the currency in which the investment was 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 six-month LIBOR for the relevant currency.

The bail-in of depositors (converting deposits to equity) in March 2013 and other related actions sparked lawsuits in Cyprus against the ROC and the banks, most of which are still pending. Additionally, haircut victims have filed a class- action suit against various European bodies at the General Court of the European Union, while similar disputes are still pending before the World Bank’s International Centre for Settlement of Investment Disputes, and the Paris-based International Chamber of Commerce (ICC) International Court of Arbitration. The ROC set up a solidarity fund in 2017, aimed at helping depositors who lost their money in the haircut, although it is still unclear how this will work in practice. In September of 2016, the European Court of Justice (ECJ) ruled that adoption of the Memorandum of Understanding (MOU) was not an unlawful act, and dismissed actions for compensation. Additionally, in its 2017 Annual Report, the European Central Bank noted that it did not expect any losses from four lawsuits filed against it and other EU bodies by depositors, shareholders and bondholders of Cypriot banks.

AREA ADMINISTERED BY TURKISH CYPRIOTS

Private property may be expropriated for public purposes. The expropriation process entitles investors to proper compensation. Foreign investors may claim damages resulting from an act of illegal expropriation by means other than litigation.

In the cases involving private owners, these are notified, the property is then inspected, and if an agreement is reached regarding the amount, then the owner is compensated. In cases where the owner declines the compensation package, the case is turned over to local courts" a final decision.

Dispute Settlement

REPUBLIC OF CYPRUS

ICSID Convention and New York Convention

The ROC is a member state to the Convention on the International Centre for the Settlement of Investment Disputes (ICSID Convention), and a signatory to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

Investor-State Dispute Settlement

There have been no reports of investment disputes in Cyprus involving U.S. persons over the past 10 years, and there is no history of extrajudicial action against foreign investors. Local courts recognize and enforce foreign arbitral awards issued against the government.

International Commercial Arbitration and Foreign Courts

Cyprus offers several different means of Alternative Dispute Resolution (ADR). However, recourse to ADR is not common. Some of the entities offering ADR are the following:

Additionally, the ROC Ministry of Justice and Public Order maintains a publicly-available Register of Mediators for both commercial and civil disputes: http://www.mjpo.gov.cy/mjpo/mjpo.nsf/All/64BC1F595AB40EB6C22579AD00346FE2?OpenDocument&highlight=mediation.

EU citizens and businesses can also use SOLVIT, a free, online service, to resolve problems pertaining to internal EU market issues, like visa and residence rights, pension rights, and VAT refunds, within 10 weeks from the day the problem is reported: http://ec.europa.eu/solvit/what-is-solvit/.

Under the Arbitration Law of Cyprus, if the parties are unable to reach a settlement an arbitrator can be appointed. Arbitration rulings are fully enforceable and the court may settle an arbitral award in the same way as a judgment. Mediation is not fully enforceable, unless the settlement agreement explicitly stipulates that the parties can apply to court for enforcement. The ROC honors the enforcement of foreign court judgments and foreign arbitration awards. Domestic legislation on binding international arbitration is modeled after internationally-accepted regulations, such as the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, which the ROC adopted in 1985. Cyprus’ bilateral investment treaties with several countries also include dispute settlement provisions (see Section 3, Bilateral Investment Agreements).

AREA ADMINISTERED BY TURKISH CYPRIOTS

Foreign investors can make use of all the rights guaranteed to TCs. Alternative dispute resolution mechanisms are not available in the TC-administered area. The resolution of commercial or investment disputes through the "judicial system" takes can take several years.

Bankruptcy Regulations

REPUBLIC OF CYPRUS

The ROC parliament approved in 2015 a new package of insolvency laws to overhaul existing bankruptcy procedures and help resolve the island’s very high levels of non-performing loans. Bankruptcy procedures can be initiated by a creditor through compulsory liquidation or by the debtor through voluntary liquidation. The court can impose debt rescheduling, in cases where aggregate liabilities do not exceed EUR 350,000 (USD 385,000) and individuals with minimal assets and income may apply to the court via the Insolvency Service for a debt relief order of up to EUR 25,000 (USD 27,500). Discharge from bankruptcy is automatic after three years, provided all debtor assets are sold and the proceeds distributed to creditors. Fraudulent alienation of assets prior to bankruptcy and non-disclosure of assets draws criminal sanctions under the new legislation. Cypriot authorities are monitoring closely progress in implementing the new insolvency framework in order to ensure it helps rehabilitate the real economy. In March 2018, the government and political parties agreed to set up a committee of experts to forge a new national strategy on how best to deal with the persistent problem of non-performing loans.

The World Bank’s 2017 Doing Business report ranked Cyprus 21st from the top among 190 countries in terms of the ease with which it resolves insolvency. For additional information, please see: http://www.doingbusiness.org/data/exploreeconomies/cyprus#resolving-insolvency.

AREA ADMINISTERED BY TURKISH CYPRIOTS

In 2013, the TCs passed a debt restructuring “law” aimed at providing incentives to restructure debts.

4. Industrial PoliciesShare    

Investment Incentives

REPUBLIC OF CYPRUS

The ROC offers investors one of the lowest corporate tax rates in the EU at 12.5 percent. Other tax advantages include:

  • One of the EU’s lowest top statutory personal income tax rates at 35 percent;
  • An extensive double tax treaties network with 63 countries, enabling lower withholding tax rates on dividend or other income received from the subsidiaries abroad;
  • No withholding tax on dividend income received from subsidiary companies abroad under certain conditions;
  • No withholding tax on dividends received from EU subsidiaries; and
  • Low Tonnage Tax for shipping.

Additionally, Cyprus offers the option of fast-tracking investments (soon to be enhanced through dedicated legislation) and obtaining Cypriot citizenship through investment. Recently, Cyprus harmonized and enhanced all its regulations regarding investment funds, becoming a more attractive jurisdiction for managing and home-basing investment funds.

At the end of 2016, Cyprus amended its citizenship-by-investment program (CIP), reducing the investment eligibility threshold from EUR 5 million to EUR 2 million (USD 5.5 million to USD 2.2 million), to make this program more attractive to high net-worth individuals. Under the new regulations, foreign investors are eligible for citizenship provided they invest at least EUR 2 million (USD 2.2 million) in real estate, financial assets, alternative investment funds or a combination of the above. Additionally, the applicant must purchase a residence in Cyprus worth at least EUR 500,000 (USD 550,000), unless he or she has invested in property. Benefits of the Cypriot CIP include citizenship in an EU member state, which allows visa-free travel to 163 countries, along with the right to live, work, and study in all 28 EU countries. Applicants must be over 18, have a clean criminal record, and cannot be included on the list of persons whose property is frozen within the boundaries of the EU. Investors need not reside in Cyprus or pay taxes unless they spend more than 183 days on the island.

In addition to the citizenship program described above, Cyprus continues to offer a residency program for non-EU investors, provided they purchase new, immovable property in Cyprus with a market value of at least EUR 300,000 (USD 330,000). The applicant must also deposit a minimum of EUR 30,000 (USD 33,000) in a Cypriot bank and retain it there for at least three years. Cypriot residency allows indefinite stay in Cyprus, but requires holders to obtain visas for travel to the rest of the EU, a process inherently easier for EU residents.

Please see the ROC Ministry of Interior website for more information on Cyprus’ citizenship and residency programs for investors: http://www.moi.gov.cy/moi/moi.nsf/All/36DB428D50A58C00C2257C1B00218CAB.

Additionally, CIPA’s website offers this resource under “Naturalization by Investment FAQs”:
http://www.investcyprus.org.cy/en/media-center.

In February 2017, the Council of Ministers approved a scheme aimed at attracting foreign investment to Cyprus through third-country – i.e. non-European Union – innovative start-ups. The plan invited third-country nationals with start-up capital of at least EUR 50,000 (USD 55,000), undergraduate-level education, and fluent either in Greek or English, to set up their headquarters and tax residence in Cyprus, provided their proposed business is certifiably innovative. The plan made 150 visas available to eligible investors, valid for two years, provided the relevant business takes off. Additional info at: http://startupcyprus.org/.

AREA ADMINISTERED BY TURKISH CYPRIOTS

There are incentives in various forms for tourism and industrial-related investments, including:

  • 100 to 200 percent investment allowance on the initial fixed capital investment expenditure for certain regions and sectors;
  • exemption from “corporate tax” and “income tax” until the above-mentioned allowance percentages are met;
  • exemption from “custom duties” when importing machinery and equipment the projects; and
  • exemption from construction license fees.

Foreign Trade Zones/Free Ports/Trade Facilitation

REPUBLIC OF CYPRUS

The lead government agency handling areas subject to a special customs regime is the Department of Customs and Excise. Specific rules for the two main types of such areas, namely Customs Warehouses and Free Zones, are listed below and are fully harmonized with equivalent EU norms:
http://www.mof.gov.cy/mof/customs/customs.nsf/All/6D61C14C3E95345CC22572A6003BCBD5?OpenDocument.

There are two types of Free Zones:

  • Control Type I Free Zone, in which controls are principally based on the existence of a fence; and
  • Control Type II Free Zone, in which controls are principally based on the formalities carried out in accordance with the requirements of the customs warehousing procedure.

Cyprus has two Control Type II Free Zones (FZs) located in the main seaports of Limassol and Larnaca, which are used for transit trade. These areas are treated as being outside normal EU customs territory. Consequently, non-EU goods placed in FZs are not subject to import duties, VAT, or excise tax. FZs are governed under the provisions of relevant EU and ROC legislation. The Department of Customs has jurisdiction over both normal zones and FZs and can impose restrictions or prohibitions on certain activities, depending on the nature of the goods. Additionally, the MECIT has management oversight over the Larnaca FZ.

A Customs Warehouse can be set up anywhere in the ROC, provided the right criteria are met and with the approval of the Department of Customs. For more information, interested parties may contact:

Department of Customs and Excise
Michali Karaoli Str.
1096 Nicosia
Tel. +357-22-601754 or 55
Fax: +357-22-302018
Email: headquarters@customs.mof.gov.cy 
Website: www.mof.gov.cy/ce

When larger projects are involved, potential investors interested in, establishing their own customs warehouse or seeking to engage existing customs warehouses may also contact the One Stop Shop (www.businessincyprus.gov.cy) for guidance on identifying suitable locations.

Additional information on the Limassol and Larnaca FZs can be obtained from:

Cyprus Ports Authority
P.O. Box 22007
1516 Nicosia
23 Kritis Street
1061 Nicosia
Tel. +357-22-817200, X-0
Fax: +357-22-762050
Email: cpa@cpa.gov.cy
Website: https://www.cpa.gov.cy/

AREA ADMINISTERED BY TURKISH CYPRIOTS

Famagusta has a "free port and zone," which is regulated by the Free-Ports and Free Zones “Law.”

Operations and activities permitted there include:

  • Engaging in all kinds of industry, manufacturing, and production;
  • Storage and export of goods imported to the "Free Port and Zone";
  • Assembly and repair of goods imported to the "Free Port and Zone";
  • Building, repair and assembly of ships; and
  • Banking and insurance services.

Information about incentives provided to businesses established there can be accessed at:
http://www.portisbi.com/.

Performance and Data Localization Requirements

REPUBLIC OF CYPRUS

There are no requirements for local sourcing, ownership, or employment. Hiring Cypriot and EU staff is quite easy, particularly with current high rates of unemployment. However, securing work permits for non-EU staff can be difficult, particularly in sectors where there is abundant local labor readily available. In order to overcome this problem, a foreign investor must explain to the satisfaction of ROC authorities why the non-EU staff in question is essential to the business. As with other such matters, CIPA can offer invaluable assistance to investors overcoming hiring problems (see Section 2 on Business Facilitation, and Section 12 on Labor Policies and Practices.)

AREA ADMINISTERED BY TURKISH CYPRIOTS

In order to recruit foreign labor, companies or investors can apply to the local labor authorities to for work permits, without much difficulty. Once they apply, the vacancy is announced locally. Priority is given to local citizens, who may have that expertise or skillset. In advance of application for investors requesting incentives, the “State Planning Office” carries out a feasibility study regarding the type of investment.

5. Protection of Property RightsShare    

Real Property

REPUBLIC OF CYPRUS

EU nationals and companies domiciled in any EU country are not subject to any restrictions when buying property in the ROC. By contrast, Cypriot law imposes significant restrictions on the foreign ownership of real estate by non-EU residents. Non-EU persons and entities may purchase a maximum of two real estate properties for private use (defined as a holiday home built on land of up to 4,014 square meters; plus a second home or office of up to 250 square meters, or shop of up to 100 square meters). Exceptions can be made for projects requiring larger plots of land but are difficult to obtain and rarely granted. This restriction applies to non-EU citizens or non-EU companies. A legal entity is deemed to be controlled by non-EU citizens if it meets any of the conditions listed below:

  • 50 percent or more of its board members are non-EU citizens;
  • 50 percent or more of its share capital belongs to non-EU citizens;
  • Control (50 percent or more) belongs to non-EU citizens;
  • Either the company's Memorandum or Articles of Association provides authority to a non-EU citizen securing the company’s activities are conducted based on his/her will during the real estate acquisition period. In the case that the authority is provided to two or more persons, a legal entity is considered to be controlled by non-EU citizens if 50 percent or more of the people granted such authority are non-EU citizens.

For additional information and application forms for the acquisition of property by non-EU residents, please refer to the Ministry of Interior website: http://www.moi.gov.cy/moi/moi.nsf/index_en/index_en?OpenDocument.

Legal requirements and procedures for acquiring and disposing of property in Cyprus are complex, but professional help from real estate agents and developers can ease the burden of complying with government requirements. The ROC Department of Lands and Surveys keeps excellent records and follows internationally-accepted procedures. Non-residents are allowed to sell their property and transfer abroad the amount originally paid, plus interest or profits, without restriction.

Purchasing property in the area administered by TCs is a contentious issue in Cyprus, as per the following note posted on the Ministry of Foreign Affairs website: http://www.mfa.gov.cy/mfa/properties/occupiedarea_properties.nsf/index_en/index_en?OpenDocument.

The UK government website also offers useful information on buying property in Cyprus: https://www.gov.uk/guidance/how-to-property-in-cyprus.

Additionally, there are restrictions on investing in TC property located in the ROC. The Turkish Cypriot Property Management Service (TCPMS), established in 1991, administers properties of TCs who are not ordinarily residents of the government-controlled area. This service acts as the temporary custodian for such properties until a comprehensive political settlement is reached. The TCPMS is mandated to administer properties under its custodianship "in the manner most beneficial for the owner." Ownership of TC properties cannot change (except for inheritance purposes) except in exceptional cases when this is deemed beneficial for the owner or necessary for the public interest.

The World Bank’s 2018 Doing Business report ranked Cyprus 92nd among 190 countries in terms of efficiency and quality for registering property. For more information, please see: http://www.doingbusiness.org/data/exploreeconomies/cyprus#registering-property.

AREA ADMINISTERED BY TURKISH CYPRIOTS

Special Note: Investors are advised to consider the risks associated with investing in immovable property in the area administered by TCs. Potential investors are strongly advised to obtain independent legal advice prior to purchasing or leasing property there.

For property in the TC-administered areas, only pre-1974 title deeds are uncontested. In response to the European Court of Human Rights’ (ECHR) 2005 ruling in the Arestis Xenides case that Turkey's "subordinate local authorities" in Cyprus had not provided an adequate local remedy for property disputes, TC authorities established an Immovable Property Commission (IPC) to handle property claimed by GCs. In a March 2010 ruling, the ECHR recognized the IPC as a domestic remedy. As of March 28, 2018, the IPC had received 6,415 applications, of which 888 have been concluded through friendly settlements, and 27 through formal hearings. The ROC does not consider the IPC to be a legitimate body. For more information on IPC please visit http://www.tamk.gov.ct.tr/.

On January 19, 2010, the UK Court of Appeal enforced an earlier court decision taken in the ROC in support of a Greek Cypriot person's trespassing claim (the Orams case - http://curia.europa.eu/juris/liste.jsf?language=en&num=C-420/07 and http://www.bailii.org/ew/cases/EWCA/Civ/2010/9.html), effectively voiding the transfers of GC property in the TC-administered areas. This landmark decision also establishes precedent in cases where foreign investors purchasing disputed properties outside of the government-controlled area can be found liable for damages.

Intellectual Property Rights

REPUBLIC OF CYPRUS

On the whole, IPR protection in the ROC has improved over time. Cyprus has not appeared in the Special 301 report in recent years, and was last mentioned in 2006 due to a citation by the International Intellectual Property Alliance (IIPA).

In 2012, the ROC improved its IPR legislation further by passing Law 207(I) (2012), placing the burden of proof on the defendant in cases of intellectual property right infringement. This law also allows the police to assess samples of pirated articles in lieu of the whole shipment and introduces the alternative for out-of-court settlement in some cases. Other important IPR laws include Law 103 (2007) on unfair commercial practices and Law 133(I) (2006) strengthening earlier legislation targeting copyright infringement. The Department of Customs and the Police confiscate thousands of counterfeit items every year, including pirated articles of clothing, luggage, accessories, and optical media.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at: http://www.wipo.int/directory/en/.

Resources for Rights Holders

Embassy point of contact:

George F. Demetriou
Economic Specialist
U.S. Embassy, Nicosia
Tel: +357-22-393361
Email: demetriougf@state.gov

Local attorneys listed with Embassy: http://cyprus.usembassy.gov/lawyers.html.

AmCham Cyprus: http://www.amchamcyprus.com.cy.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.

AREA ADMINISTERED BY TURKISH CYPRIOTS

Intellectual property rights are not adequately protected in the area administered by TCs. The "laws" in this area are inadequate, antiquated, and lack enforcement. Infringing goods imported from Turkey are a significant concern. The 2015 Out-of-Cycle Review of Notorious Markets by the United States Representative (at: https://ustr.gov/sites/default/files/USTR-2015-Out-of-Cycle-Review-Notorious-Markets-Final.pdf) notes that online “cyberlocker” site 4shared.com is reportedly based in the British Virgin Islands and hosted in Cyprus (although it is not clear whether this is in the ROC or the area administered by TCs). For information, please contact the same sources listed above.

6. Financial SectorShare    

Capital Markets and Portfolio Investment

REPUBLIC OF CYPRUS

The ROC Stock Exchange (CSE), launched in 1996, is one of the EU’s smallest stock exchanges, with a capitalization of just under EUR 2.1 billion (USD 2.6 billion) as of March 2018. The CSE and the Athens Stock Exchange (ASE) have operated from a joint trading platform since 2006, allowing capital to move more freely from one exchange to the other, even though both exchanges retain their autonomy and independence. The joint platform has increased capital available to Cypriot firms and improved the CSE’s liquidity, although its small size remains a constraint. The private sector has access to a variety of credit instruments, which has been enhanced through the operation of private venture capital firms. Credit is allocated on market terms to foreign and local investors alike. Foreign investors may acquire up to 100 percent of the share capital of Cypriot companies listed on the CSE with the notable exception of companies in the banking sector.

AREA ADMINISTERED BY TURKISH CYPRIOTS

There is no stock exchange in the area administrated by TCs and no foreign portfolio investment. Foreign investors are able to get credit from the local market, provided they have established domestic legal presence, majority-owned (at least 51 percent) by domestic companies or persons.

Money and Banking System

REPUBLIC OF CYPRUS

The ROC banking sector is still in a process of healing and restructuring, following the March 2013 haircut of uninsured deposits. Total deposits in the Cypriot banking system grew from EUR 47.0 billion (USD 60.6 billion) at the end of 2013 to EUR 49.4 billion (USD 54.3 billion) at the end of 2017, with the EUR 2.4 billion (USD 2.6 billion) increase reflecting growing, but still fragile, depositor confidence. New legislation on foreclosures and insolvency is helping banks gradually address this problem, but progress is slow. Cypriot banks continue to face significant asset quality challenges with NPLs falling at a slow pace. At the end of November 2017, NPLs stood at EUR 21.1 billion or 43.7 percent of all loans, compared to EUR 27.3 billion or 47.8 percent in December 2014. The government and political parties agreed March 15 to set up a committee of experts to formulate a new national strategy on how to expedite resolution of the high NPLs problem. Meanwhile, an improving economy and stabilizing property market are helping households and companies service their high debt.

The state-owned Cooperative Central Bank (CCB) is facing its own set of problems, with a portfolio full of primary residences, which the current foreclosures and insolvency laws make it difficult to move overcome. The CCB, recapitalized with EUR 1.7 billion in taxpayer money in 2014 and 2015, is currently struggling with some EUR 6.4 billion in NPLs, accounting for more than half of its loan portfolio. The CCB invited interest from investors in March 2018 to either acquire a controlling stake, or buy up part of its assets and liabilities. Both local financial entities and global financial and strategic investors have expressed an interest in this process and the CCB expects to receive binding offers by the end of May 2018. The process generated uncertainty concerning the future of the CCB triggering deposit outflows, prompting the state to deposit EUR 2.5 billion at the CCB on April 3 to bolster it.

In order to open a new bank account, a foreigner must establish residency status and provide information on employment status.

AREA ADMINISTERED BY TURKISH CYPRIOTS

The “Central Bank” oversees and regulates local, foreign, and private banks. In addition to the “Central Bank” and the “Development Bank”, there are 22 banks in the area administrated by Turkish Cypriots, of which 14 are TC-owned banks, and eight are international branch banks. Banks are required to follow “know-your-customer” (KYC) and AML “laws,” which are regulated by the “Ministry of Economy,” and supervised by the “Central Bank.” Due to non-recognition issues, TC banks encounter practical difficulties as a result of not qualifying for an international SWIFT number (SWIFT code is a standard format of Bank Identifier Codes (BIC)). Therefore, TC and foreigners making international transfers depend on Turkish banks for assistance as local banks access international markets via Turkey. The total number of deposits, which includes bank, “public,” individual and other was approximately USD 5.1 billion as of September 2017. More information is available at the “Central Bank” website: http://www.kktcmerkezbankasi.org/.

Foreign Exchange and Remittances

Foreign Exchange Policies

REPUBLIC OF CYPRUS

As a member of the Eurozone, the ROC uses the euro as its currency. The Eurozone has no restrictions on the transfer or conversion of its currency, and the exchange rate is freely determined in the foreign exchange market. There is no difficulty in obtaining foreign exchange. Since the 2008 financial crisis, the European Commission, has pursued several initiatives aimed at creating a safer and sounder financial sector, known as the Banking Union. These initiatives, which include stronger prudential requirements for banks, improved depositor protection and rules for managing failing banks, form a single rulebook for all financial actors in the 28 Member States of the EU. The single rulebook is the foundation of the Banking Union. For more info, please refer to: http://ec.europa.eu/finance/general-policy/banking-union/index_en.htm.

AREA ADMINISTERED BY TURKISH CYPRIOTS

The northern part of Cyprus has a separate financial system. As a result, the financial crisis in the ROC government-controlled area has had little impact on capital transfer policies in the area administered by TCs. The financial system in the area administered by TCs is linked closely with that of Turkey. The Turkish Lira (TL) is the main currency in use, although the Euro, U.S. dollar, and British Pound are commonly accepted. The vast majority of business borrowing is derived from domestic and Turkish sources.

Any kind of devaluation of the TL in Turkey against foreign exchange rates (or the opposite), has an effect on the economy of the area administered by TCs. Wages across sectors are generally paid in TL, but almost all real estate, electronic white goods, vehicles, and other products are sold in foreign currencies. Banks in the TC administered areas provide low interest rate loans to customers who seek foreign exchange loans in Euros or British Pounds, but interest rates are higher in TL. Foreign investors are authorized to repatriate all proceeds from their investments and business.

Banks are free to keep foreign currency, act as intermediary in import and export transactions, accept foreign currency savings, engage in purchase and sale of foreign currency, and give foreign currency loans.

Remittance Policies

REPUBLIC OF CYPRUS

There are no restrictions or delays on investment remittances or the inflow or outflow of profits.

Cyprus is a member of the Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a FATF-style regional body. Its most recent mutual evaluation report of the Cypriot banking sector, conducted in March 2013, can be found at: https://www.coe.int/en/web/moneyval/jurisdictions/cyprus.

Sovereign Wealth Funds

REPUBLIC OF CYPRUS

The ROC is currently in the process of establishing a sovereign wealth fund, dubbed the National Investment Fund (NIF). The NIF will administer future revenues from future offshore hydrocarbons revenue. Draft legislation for the NIF is pending before parliament, undergoing final vetting by the House Finance Committee as of March 2018. The draft incorporates feedback from various entities, including political parties, the Auditor General, and the Fiscal Council, and it is based on the Norwegian model and internationally-accepted best practices. The NIF will be based on the Fiscal Responsibility and Budget Systems Law (Law 20(I) of 2014), reforming Public Financial Management in line with international best practices, and introducing greater fiscal discipline.

AREA ADMINISTERED BY TURKISH CYPRIOTS

There is no established sovereign wealth fund.

7. State-Owned EnterprisesShare    

REPUBLIC OF CYPRUS

The ROC maintains exclusive or majority-owned stakes in more than 40 SOEs, and is making slow progress towards privatizing some of them (see sections on Privatization and OECD Guidelines on Corporate Governance of SOEs). These SOEs operate in a competitive environment (domestically and internationally) and are increasingly responsive to market conditions. The state-owned EAC monopoly on electricity generation and distribution ended in 2014, although competition still remains difficult given the small market size. As an EU member state, Cyprus is a party to the WTO Government Procurement Agreement (GPA).

OECD Guidelines on Corporate Governance are not mandatory for ROC SOEs, although some of the larger SOEs have started adopting elements of corporate governance best practices in their operating procedures. Each of the SOEs is subject to dedicated legislation. Most are governed by a board of directors, typically appointed by the government at the start of its term, and for the duration of its term in office. SOE board chairs are typically technocrats, affiliated with the ruling party. Representatives of labor unions and minority shareholders contribute to decision making. Although they enjoy a fair amount of independence, they report to the relevant minister. SOEs are required by law to publish annual reports and submit their books to the Auditor General.

AREA ADMINISTERED BY TURKISH CYPRIOTS

In the area administrated by TCs, there are several "state-owned enterprises" and "semi-state-owned enterprises," which common utilities and essential services.

In the TC-administered area, the below-listed institutions are known as "public economic enterprises" (POEs), "semi-public enterprises" and “public institutions," which aim to provide common utilities and essential services.

Some of these organizations include:

  • Turkish Cypriot Electricity Board (KIBTEK);
  • RTK - State Television and Radio Broadcasting Corporation;
  • Cyprus Turkish News Agency;
  • Turkish Cypriot Milk Industry;
  • Cypruvex Ltd. - Citrus Facility;
  • EMU - Eastern Mediterranean Foundation Board;
  • Agricultural Products Corporation;
  • Turkish Cypriot Tobacco Products Corporation;
  • Turkish Cypriot Alcoholic Products LTD;
  • Coastal Safety and Salvage Services LTD;
  • TC Development Bank.

Privatization Program

REPUBLIC OF CYPRUS

Since January 2017, commercial operations at Limassol port have been transferred to the private sector, in a public-private partnership model already implemented at Larnaca port. Other than this, the ROC has made limited progress towards privatizations, despite earlier commitments to international creditors to raise EUR 1.4 billion (USD 1.5 billion) from privatizations by 2018. In December 2015, under the threat of strikes, the government reversed earlier plans to privatize the Electricity Authority of Cyprus (EAC), although it is still pushing ahead with unbundling the EAC’s generation and transmission operations into separate legal entities. In July 2017, opposition parties passed legislation abolishing the Privatizations Unit, an independent body established March 2014. Despite this setback, the Anastasiades administration, which won a second term in March 2018, remains committed to pursuing privatizations in piecemeal fashion. The port of Larnaca remains on track for privatization by 2019, while the state lottery is also expected to be sold. The government intends to pursue finding long-term investors to lease state-owned properties in the Troodos area, and forge a strategic plan on how to handle the Cyprus Stock Exchange. Meanwhile, in March 2018, the House Finance Committee was still reviewing a bill providing the transfer of Cyprus Telecommunications Authority (CyTA) commercial activities to a private legal entity, with the government retaining majority ownership.

AREA ADMINISTERED BY TURKISH CYPRIOTS

The airport at Ercan and K-Pet Petroleum Corporation have been converted into public-private partnerships. The concept of privatization continues to be controversial in the TC community.

In March 2015, TC authorities signed a public-private partnership agreement with Turkey regarding the management and operation of the water obtained from an underwater pipeline funded by Turkey. Within the area administrated by TCs, there has also been discussion about privatizing the electricity authority “KIBTEK”, TC telecommunications operations, and the ports.

8. Responsible Business ConductShare    

REPUBLIC OF CYPRUS

In recent years, responsible business conduct (RBC) awareness among both producers and consumers is growing in Cyprus. Leading foreign and domestic enterprises tend to follow generally-accepted RBC principles, and firms pursuing these practices tend to be viewed more favorably by the public. The Cyprus Stock Exchange is among the entities imposing a responsible code of conduct among listed companies: http://www.cse.com.cy/en-GB/profile/code-of-conduct/. Most professional associations also promote ethical business conduct among their members, including the Cyprus Bar Association, and the Institute of Certified Public Accountants of Cyprus.

The ROC does not specifically adhere to OECD Guidelines for Multinational Enterprises, however, multinationals are expected to follow generally-accepted RBC principles. ROC authorities have made some initial soundings considering the possibility of eventually joining the Extractive Industries Transparency Initiative (EITI – www.eiti.org).

AREA ADMINISTERED BY TURKISH CYPRIOTS

RBC awareness has grown among both producers, consumers and business in the area administrated by Turkish Cypriots. Firms pursing these practices tend to be viewed favorably by the public.

9. CorruptionShare    

REPUBLIC OF CYPRUS

Transparency International, the global anti-corruption watchdog, promoted Cyprus to rank 42 in its 2017 Corruption Perception Index from 45 the year before. For reference, please see: https://www.transparency.org/country/CYP. Disagreements between the Berlin-based headquarters of Transparency International and its Cypriot division in 2017 led to the disaccreditation of the latter in 2017 and the launch a successor organization on the island called the Cyprus Integrity Forum (contact details follow).

Corruption, both in the public and private sectors, constitutes a criminal offense. Under Cyprus' Constitution, the Auditor General controls all government disbursements and receipts and has the right to inspect all accounts on behalf of the Republic. Private sector concerns focus on the inertia in the system, as reflected in the Auditor General’s annual reports, listing hundreds of alleged incidents of corruption and mismanagement in public administration that usually remain unpunished or unrectified. A 2016 survey found 65 percent of local CEOs listed bribery and corruption as the top threat to their companies’ ability to conduct business.

Cyprus cooperates closely with EU and other international authorities to fight corruption and provide mutual assistance in criminal investigations. Cyprus ratified the European Convention on Mutual Assistance in Criminal Matters. 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. Cyprus signed and ratified the Criminal Law Convention on Corruption and has joined the Group of States against Corruption in the Council of Europe.

Cyprus is a member of the UN Anticorruption Convention (http://www.unodc.org/unodc/en/treaties/CAC/signatories.html) but it is not a member of the OECD Convention on Combatting Bribery (http://www.oecd.org/daf/anti-bribery/countryreportsontheimplementationoftheoecdanti-briberyconvention.htm).

Resources to Report Corruption

Government agencies responsible for combating corruption:

Financial Crime Unit
Cyprus Police Headquarters
Athalassa
1478 Nicosia
Tel. +357-22-808080
E-mail: fcu@police.gov.cy
Website: www.police.gov.cy

Unit for Combating Money Laundering (MOKAS)
7 Pericleous Str.
2020 Strovolos
Tel. +357-22-446004
E-mail: mokas@mokas.law.gov.cy
Website: http://www.law.gov.cy/law/mokas/mokas.nsf/index_en/index_en?OpenDocument

Auditor General of the Republic
6 Deligiorgi Str.
1406 Nicosia
Tel. +357-22-401300
E-mail: omichaelides@audit.gov.cy
Website: www.audit.gov.cy

Anti-corruption NGO:

Cyprus Integrity Forum (CIF)
27 Michalacopoulou Street
City Business Centre
Office FF08
1075 Nicosia
T. +357 22 025772
F. +357 22 025773
E-mail: info@cyprusintegrityforum.org 
Website: http://cyprusintegrityforum.org/

AREA ADMINISTERED BY TURKISH CYPRIOTS

Corruption, both in the public and private sectors, constitutes a criminal offense. The "Audit Office" controls all disbursements and receipts and has the right to inspect all accounts. In its annual report, this office identifies specific instances of mismanagement or deviation from proper procedures and anecdotal evidence suggests corruption and patronage continue to be a factor in the economy.

10. Political and Security EnvironmentShare    

REPUBLIC OF CYPRUS

There have been no incidents of politically-motivated damage to foreign projects and or installations since 1974. U.S. companies have not been the target of violence. There were numerous relatively peaceful protests against the ROC government following the financial crisis of March 2013 and in response to the forced conversion of deposits into equity. Since then, protests against additional austerity measures have been fairly calm. Several of these demonstrations resulted in minor scuffles with police but most passed without incident.

AREA ADMINISTERED BY TURKISH CYPRIOTS

There have been no incidents of politically-motivated damage to foreign projects and or installations since 1974. U.S. companies have not been the target of violence.

11. Labor Policies and PracticesShare    

REPUBLIC OF CYPRUS

The rate of unemployment in the ROC has declined steadily, dropping from 16.1 percent in 2014 to 11.1 percent in 2017, but remains above the EU28 average of 7.6 percent in 2017. According to Eurostat, Cyprus has a tertiary education attainment level of 36.3 percent of the total population – well above the EU28 average of 26.7 percent, and one of the highest in the EU. Many of these graduates are from UK and U.S. colleges and universities, resulting in an abundant supply of English-speaking staff. Cyprus’ total labor force was estimated at 363,060 persons in 2016, broken down as follows: services, 79.3 percent; industry and construction, 17.1 percent; and agriculture, 3.6 percent. More women are joining the labor force and their percentage participation has risen from 33.4 percent in 1980 to 48.1 percent today. For information about hiring local employees, contact the Ministry of Labor and Social Insurance: www.mlsi.gov.cy/dlr.

Cypriot labor law differentiates between layoffs and firing on redundancy grounds. In order to be eligible for redundancy pay, an employee must have worked in the same position for more than two years, and must be laid off either due to: (a) budget constraints leading the employer to abolish the position, or (b) inability on the part of the employee to keep up with technological advances. Employees made redundant by their employer are entitled to a redundancy payment depending on their length of service. Redundancy payments are equivalent to between two and four weeks of pay per year of service depending on length of service for up to 25 years, with a maximum of 75 weeks of pay or EUR 55,000 (USD 60,500) per employee, whichever is greater. Redundancy payments are made out of a government fund, supported with employer and employee contributions. In addition to redundancy pay, a handful of employers, including banks and SOEs, offer severance pay to their employees, although this is not common in the private sector.

Worsening labor conditions over the past five years have encouraged some employers to resort increasingly to hiring temporary workers or employ staff on personal contract to avoid hiring unionized labor, often offering less than the going rate under collective agreements. Some employers hire employees for a year in order to benefit from a wage subsidy of up to EUR 1,100 (USD 1,210) per month by the Human Resources Development Authority and then dismiss them as soon as the subsidy expires.

International companies are not required by law to hire union labor. Investors should be aware Cyprus tends to have strong unions in several sectors. As of March 2017, the percentage of the labor force belonging to unions was unofficially estimated at approximately 50 percent, compared to the EU average of approximately 33 percent. The unions remain vocal opponents to privatizations and general austerity measures.

As an EU country, Cyprus also has robust labor standards, safeguarding the freedom of association and the right to organize and bargain collectively. The Department of Labor Inspection and other bodies effectively guard against forced labor, child labor, employment discrimination, and secure acceptable working conditions with respect to minimum wage, occupational safety and health, and hours of work. There are several social safety net programs, including unemployment insurance.

For additional information on Cypriot labor legislation, please refer to the International Labor Organization (ILO) website: http://www.ilo.org/dyn/normlex/en/f?p=1000:11003:0::NO.

Cyprus imposes a minimum wage for certain professions as follows (as of March 2016):

  • Clerks/secretaries, sales assistants, paramedical, live-in maids/domestic helpers, school assistants/child-caregivers: EUR 870 (USD 957) per month, rising to EUR 924 (USD 1,016) after six months' employment.
  • Security guards: EUR 4.90 (USD 5.39) per hour, rising to EUR 5.20 (USD 5.72) after six months' employment.
  • Cleaning personnel: EUR 4.55 (USD 5.00) per hour, rising to EUR 4.84 (USD 5.32) after six months' employment. Non-EU, live-in domestic servants have a separate minimum wage, set at EUR 460 (USD 506) per month, plus their room and board.

For all other professions, there is no minimum wage and wages are set by the employer and employee. Collective bargaining agreements between trade unions and employers cover most sectors of the economy. Wages set in these agreements are typically significantly higher than the legislated minimum wage.

Under the EU single market, EU citizens benefit from the right to free movement of workers. Employers are required to seek work visas for third-country nationals from the Civil Registry and Migration Department. The ROC caps the number of third-country nationals a company may employ. Some companies have noted seeking visas for their third-country national staff can be lengthy and cumbersome. Third-country nationals may visit the following sites for visa information on Cyprus: http://www.mfa.gov.cy/mfa/mfa2016.nsf/All/0E03E0EE9B9833EAC2258022003F023B?OpenDocument and http://cyprusvisa.eu/.

U.S. passport-holders do not need a visa for Cyprus for short visits of up to 90 days: https://travel.state.gov/content/passports/en/country/cyprus.html. U.S. travelers to Cyprus should consult the website of the ROC Embassy in Washington DC: http://www.cyprusembassy.net/home/index.php?module=page&pid=42.

AREA ADMINISTERED BY TURKISH CYPRIOTS

According to the latest TC Competitiveness Report, published by KTTO, the greatest obstacle to doing business are inefficient public bureaucracy, insufficiently trained workforce, followed by policy instability.

Reliable labor statistics are often difficult to obtain. The "State Planning Office" ("SPO") estimated the total employed in 2017 was estimated at 121, 889. The labor force in the area administered by TCs has a high per capita rate of college graduates, including many from U.S. and European universities and offers an abundant supply of white-collar workers. Estimated unemployment was estimated at approximately 5.6 percent, as of December 2017. As of the most recent statistics available in 2016, women accounted for roughly 30 percent of the labor force. Around 10 percent of private sector workers and more than 65 percent of "semi-public" and "public sector" workers belong to labor unions. Workers are allowed to form and become members of unions. As of March 2018, the minimum wage was TL 2, 365 gross per month (USD 600).

Foreign persons are required to obtain work permits through their employer. Foreign entities may import their key personnel from abroad and are also permitted to hire trainees and part-time workers. A full-time work week is 40 hours for “public sector” employees.

Public sector working hours are 08:00am – 12:30, 12:30 – 13:00 lunch break, 13:00-16:15 (Thursdays until 17:30).

Private sector working hours are 08:00 – 17:00 (with an hour lunch break). Private sector employees can work up to 8 hours a day. After 8 hours, employees can continue to work up to 4 hours of overtime a day, as long as they receive their over-time. Employees cannot work on Sundays unless there is an emergency, or an approval by labor authorities.

Workers exercised the right to bargain collectively. Public and semipublic employees benefited from collective bargaining agreements. The “law” provides for collective bargaining. According to union representatives, authorities did not effectively enforce “labor laws” and lagged behind inspection.

According to authorities, the majority of foreign workers were from Turkey and worked in the service (hotel, restaurant, catering) and construction sectors.

12. OPIC and Other Investment Insurance ProgramsShare    

REPUBLIC OF CYPRUS

The 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 build, operate, and transfer (BOT) contracts in the government-controlled areas: https://www.opic.gov/doing-business-us/OPIC-policies/where-we-operate.

Likewise, U.S. exporters should avail themselves of Export-Import Bank financing whenever possible. Please see: http://www.exim.gov/.

The ROC is a member of the Multilateral Investment Guarantee Agency (MIGA) and of the multilateral Convention on the Settlement of Investment Disputes between States. A full list of ROC multilateral agreements currently in effect is available from the ROC Office of the Law Commissioner website: http://www.olc.gov.cy/olc/olc.nsf/dmlpartii_en/dmlpartii_en?OpenDocument.

AREA ADMINISTERED BY TURKISH CYPRIOTS

13. Foreign Direct Investment and Foreign Portfolio Investment StatisticsShare    

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

 

Host Country Statistical Source*

USG or International Statistical Source

USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other

Economic Data

Year

Amount

Year

Amount

 

Host Country Gross Domestic Product (GDP) (M USD )

2016

USD 20,116

2016

USD 20,047

www.worldbank.org/en/country

 

Foreign Direct Investment

Host Country Statistical Source*

USG or International Statistical Source

USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other

U.S. FDI in partner country (M USD , stock positions)

2016

USD 3,865

2016

USD 1,625

BEA data available at
http://bea.gov/international/direct_
investment_multinational_
companies_comprehensive_data.htm

Host country’s FDI in the United States (M USD , stock positions)

2016

USD 172

2016

USD 2,218

BEA data available at
http://bea.gov/international/direct_
investment_multinational_
companies_comprehensive_data.htm

Total inbound stock of FDI as % host GDP

2016

19.3%

2016

8.1%

N/A

* Host Country Source: Central Bank of Cyprus.
 

Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data, 2016

From Top Five Sources/To Top Five Destinations (US Dollars, Millions)

Inward Direct Investment

Outward Direct Investment

Total Inward

200,154

100%

Total Outward

196,648

100%

Russian Federation

32,817

16.4%

Bahamas, The

46,202

23.5%

Netherlands

13,324

6.7%

Russian Federation

30,464

15.5%

Germany

9,600

4.8%

British Virgin Islands

18,150

9.2%

United Kingdom

5,790

2.9%

Netherlands

8,674

4.4%

British Virgin Islands

4,853

2.4%

Luxembourg

6,294

3.2%

"0" reflects amounts rounded to +/- USD 500,000.


Table 4: Sources of Portfolio Investment

Portfolio Investment Assets, 2016

Top Five Partners (Millions, US Dollars)

Total

Equity Securities

Total Debt Securities

All Countries

15,622

100%

All Countries

6,286

100%

All Countries

9,336

100%

Russian Fed.

3,667

23%

Russian Fed.

3,147

50%

Ireland

1,255

13%

Luxembourg

1,813

12%

Greece

979

16%

Luxembourg

1,232

13%

Ireland

1,801

11%

Luxembourg

581

9%

France

665

7%

France

691

4%

Ireland

546

9%

Netherlands

548

6%

Netherlands

567

4%

Austria

251

4%

Russian Fed.

520

6%

14. Contact for More InformationShare    

George F. Demetriou
Economic Specialist
U.S. Embassy
Metochiou & Ploutarchou Streets
2407 Engomi
Nicosia, Cyprus
Tel: +357-22-393361
DemetriouGF@state.gov