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Executive Summary

Cyprus is situated at the crossroads of three continents – Europe, Africa, and Asia – as such it occupies a strategic place in the Eastern Mediterranean region.  Cyprus is a member of the European Union (EU) and the government’s attitude towards foreign direct investment (FDI) is positive. The Cyprus Investment Promotion Agency (CIPA) aggressively promotes investment in its traditional sectors of shipping, tourism, banking, financial and professional services.  Newer sectors continue to provide opportunities for FDI, especially in energy, film production, investment funds, education, research & development, and information technology. CIPA also focuses heavily on the promotion of company headquartering in Cyprus. However, the island’s divided status remains an impediment to attracting comprehensive island-wide FDI investment from the United States.

The discovery of significant amounts of hydrocarbons in Cyprus’ Exclusive Economic Zone (and in the surrounding Eastern Mediterranean region) continues to generate excitement within the government and private sector, and fosters realization that additional FDI is required for Cyprus to fully realize its potential in hydrocarbons development.  U.S. energy companies Noble Energy’s and ExxonMobil’s exploration and eventual commercialization of Cypriot natural gas present an opportunity for additional U.S. FDI in energy services and associated sectors. Cyprus can also serve as an energy services hub for hydrocarbons projects in the Eastern Mediterranean region – a safe and secure base with shipping and air connectivity, and an EU-connected banking and financial sector conducive to regional projects.  Cyprus – with EU financial support – is the project base and hub for the EuroAsia Interconnector undersea electrical cable which will connect Israel, Cyprus, and Greece to the EU grid, and another similar project connecting Africa through Cyprus to the EU. Other energy projects – within Cyprus and connecting the region – involve pipelines and LNG import and export infrastructure. Both CIPA and the Ministry of Energy, Commerce, and Industry (MECI) prioritize, and help facilitate investment in the energy and energy-related services sectors.

Cyprus established the “Cyprus Filming Scheme” in 2018, which provides a range of financial and tax incentives for film producers to choose Cyprus as a filming destination, in addition to its variety of historic, dramatic, and attractive landscapes.  The first permit given under this scheme was for a U.S. film production, set to begin in 2019. Incentives include cash rebates on eligible expenditures, tax credits, tax allowance for Small to Medium Enterprises (SMEs) investing in film production infrastructure and technological equipment, and VAT refunds on qualifying production expenditures.  Film production companies can apply and receive an approved permit within sixty days of submitting an online application. Categories include feature films, television series or films, digital or analogue animation, creative documentaries, transmedia and crossmedia productions, and reality programs, which directly or indirectly promote Cyprus and its culture.  (http://film.investcyprus.org.cy/)

Cyprus’ sovereign debt regained investment grade rating in 2018, following years of economic recovery after the 2013 financial crisis.  Cyprus has taken steps in 2018 to address recognized regulatory shortcomings in combatting illicit finance in its international banking and financial services sector, tightening controls over non-resident shell companies and bank accounts.  Judicial reform is still needed to address inefficiencies and delays in contract enforcement and commercial litigation. Commercial banks are slowly addressing the high rate of non-performing loans (NPLs), which declined from 42 percent of gross loans in 2017 to 32 percent in 2018.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 38 of 180 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2019 57 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 29 of 126 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, stock positions) 2017 $1,700  http://www.bea.gov/international/factsheet/ 
World Bank GNI per capita 2017 $23,720 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

Area Administered by Turkish Cypriots

Since 1974, the southern part of Cyprus has been under the control of the Government of the Republic of Cyprus. The northern part, administered by Turkish Cypriots, proclaimed itself the “Turkish Republic of Northern Cyprus” (“TRNC”) in 1983.  The United States does not recognize the “TRNC” as a government, nor does any country other than Turkey. A substantial number of Turkish troops remain in the northern part of the island.  A buffer zone, or “green line,” patrolled by the UN Peacekeeping Force in Cyprus (UNFICYP), separates the two parts. U.S. citizens can travel to the northern part; U.S. companies can invest and do business in the northern part, but should be aware of legal complications and risks inherently due to the lack international recognition and absence of any political settlement.

Turkish Cypriot businesses are interested in working with American companies in the fields of agriculture, hospitality, renewable energy, and retail franchising.  Significant Turkish aid and investment flows to the “TRNC.” The single greatest catalyst for island-wide Cypriot economic growth and prosperity lies in the efforts of both communities to achieve a political settlement.

1. Openness To, and Restrictions Upon, Foreign Investment

Republic of Cyprus

The ROC has a favorable attitude towards FDI and welcomes U.S. investors.  There is no discrimination against U.S. investment; however there are some ownership limitations and licensing restrictions set by law on non-EU investment in certain sectors, such as private land ownership, media, construction, etc. (see Limits on Foreign Control, below).  The ROC promotes foreign direct investment (FDI) through a dedicated agency, the Cyprus Investment Promotion Agency (CIPA). CIPA’s Invest Cyprus program is the ROC’s dedicated partner tasked to attract and facilitate FDI in key economic sectors of shipping, education, real estate, tourism and hospitality, energy, investment funds, filming, and innovation and startups. (https://www.investcyprus.org.cy/about/invest-cyprus  ).  InvestCyprus is the first point of contact for investors, and provides detailed information on the legal, tax and business regulatory framework.  The ROC and CIPA also promote an ongoing dialogue with investors through a series of promotion seminars each year and a robust Cyprus Chamber of Commerce and Industry (CCCI) with country-specific bilateral chambers dedicated to promoting FDI.

For more information:

Cyprus Investment Promotion Agency, InvestCyprus
9 Makariou III Avenue
Severis Building, 4th Floor
1965 Nicosia, Cyprus
Telephone: +357 22 441133
Fax: +357 22 441134
Email: info@investcyprus.org.cy
Website: https://www.investcyprus.org.cy  

One-Stop-Shop & Point of Single Contact

Ministry of  Energy, Commerce, and Industry (MECI)
13-15 Andreas Araouzos
1421 Nicosia, Cyprus
Telephone: +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

Turkish Cypriots 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. There are no laws or practices that discriminate against FDI. The “Turkish Cypriot Investment Development Agency (YAGA)” is a one-stop shop for all investors.  “YAGA’s” investment consultants provide consultancy services, guidance on the legal framework, sector specific advice and information about investor incentives.

“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 ROC does not have a mandatory foreign investment screening mechanism that grants approval, other than sector-specific licenses granted by relevant ministries.  CIPA does grant approvals for investment under an incentive scheme, e.g., the film production scheme. CIPA often refers projects for review to other agencies. Separately, the ROC’s residency and citizenship investment program is regulated by law, with interagency approvals after a due diligence process.

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 capped at 49 percent.  Currently, the travel agency sector is closed to foreign investment. Registered foreign investors may buy property for investment purposes but are limited to one parcel or property.  Foreign natural persons also have the option of forming private liability companies, and foreign investors can form mutual partnerships 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, the Republic of Cyprus 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

There have not been any third-party investment policy reviews.

Business Facilitation

Republic of Cyprus

The Ministry of Energy, Commerce and Industry (MECI) provides a “One Stop Shop” business facilitation service.  The One-Stop-Shop offers assistance with the logistics of registering a business in Cyprus to all investors, regardless of origin and size.  MECI’s Department of the Registrar of Companies and Official Receiver (DRCOR) provides the following services: Registration of domestic and overseas companies, partnerships, and business names; bankruptcies and liquidations; and trademarks, patents, and intellectual property matters.

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 2018, there were a total of 216,239 companies registered in the ROC, 14,526 of which had been registered in 2018 (for more statistics on company registrations, please see: http://www.mcit.gov.cy/mcit/drcor/drcor.nsf/company_statistics_en/company_statistics_en?OpenDocument  ).

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 2019 Doing Business report (http://www.doingbusiness.org/rankings  ) ranked Cyprus 57th 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 (26/190) and protecting minority investors (38/190), and worst in the areas of enforcing contracts (138/190) and dealing with construction permits (126/190).  Cyprus has generally backtracked in most areas compared to 2018, including getting credit and paying taxes, 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 out of 137 countries.  The two most problematic factors for doing business in Cyprus, according to that report were providing access to financing and an inefficient government bureaucracy.

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

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
9A Makarios III Ave
Severis Bldg., 4th Flr.
1065 Nicosia
Telephone: +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 Turkish Cypriot authorities with the aim of it becoming a one-stop-shop for both local and foreign investors interested in investing in the “TRNC.”  Its website (http://www.yaga.gov.ct.tr/  ) provides explanations and guides in English on how to register a company in the area administrated by Turkish Cypriots.

As of March 2019, the “Registrar of Companies Office” statistics indicated there were 20,648 registered companies, of which 15,483 were Turkish Cypriot majority-owned limited liability companies; 418 foreign companies; and 456 offshore companies.  In addition, there were 2003 limited partnership companies owned only by Turkish Cypriots.

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

The Turkish Cypriot Chamber of Commerce (KTTO) publishes an annual Competitiveness Report on the Turkish Cypriot 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”)
Telephone: +90 392 – 22 82317
Website: http://www.yaga.gov.ct.tr/  

Turkish Cypriot Chamber of Commerce (KTTO)
Telephone: +90 392 – 228 37 60 / 228 36 45
http://www.ktto.net/english/index.asp  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 € 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 € 4 million (USD 4.4 million).

Area Administered by Turkish Cypriots

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

2. Bilateral Investment Agreements and Taxation Treaties

Republic of Cyprus

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

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 percent20STATES.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/treaties-in-force/.

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  .

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 65 countries: http://mof.gov.cy/en/taxation-investment-policy/double-taxation-agreements/double-taxation-treeties  .

Area Administered by Turkish Cypriots

The “TRNC” has bilateral investment treaties and taxation treaties only with Turkey.  Some of these agreements between Turkey and the “TRNC” include prevention of double taxation on income tax and loss of tax; trade and economic cooperation; investment; and economic and financial cooperation.

3. Legal Regime

Transparency of the Regulatory System

Republic of Cyprus

The ROC achieved a score of 4 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/en/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 MECI (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 procedure of public notice and comment 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 typically invites specific stakeholders to offer their feedback when debating bills. Draft regulations, on the other hand, need not 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.

Public finances and debt obligations are published as part of the annual budget process.

Area Administered by Turkish Cypriots

The level of transparency for “lawmaking” and adoption of “regulations” in the “TRNC” lags behind U.S. or EU standards.  There are no informal regulatory processes managed by nongovernmental organizations or private sector associations. Draft legislation or regulations are made available for public comment for 21 days after the legislation is sent to “parliament.”  Almost all legislation and regulations are published only in Turkish.

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. Public confidence in the integrity of the Cypriot legal system remains strong, although long delays in courts, and the perceived failure of the system collectively to punish those responsible for the island’s financial troubles have tended to undermine this trust in recent years.  The Council of Europe’s GRECO called for judicial reforms to build confidence and trust (see: https://www.coe.int/en/web/greco/-/cyprus-makes-promising-moves-to-fight-corruption-but-many-results-yet-to-materialise-says-anti-corruption-group  ).

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 Turkish Cypriots.

The “TRNC” is a common law jurisdiction.  Judicial power other than the “Supreme Court” is exercised by the “Heavy Penalty Courts,” “District Courts,” and “Family Courts.”  Turkish Cypriots inherited many elements of their legal system from the British colonial rule before 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 Turkish Cypriots. The judicial process is procedurally competent, fair, and reliable.

Foreign investors can make use of all the rights guaranteed to Turkish Cypriots.  Commercial courts and alternative dispute resolution mechanisms are not available in the “TRNC.”  The resolution of commercial or investment disputes through the “judicial system” can take several years.  The Turkish Cypriot administration has trade and industry “law” and contractual “law.” The Turkish Cypriot 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

Republic of Cyprus

Below are links to various publications and laws affecting incoming foreign investment:

Area Administered by Turkish Cypriots

Visit the “YAGA” website, for more information about laws and regulations on FDI: 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 oversight “agency” for competition is the “Competition Board:”  http://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 2013 “Bail-In” of Bank Depositors:  Following the 2013 financial crisis and as part of the Memorandum of Understanding between the Republic of Cyprus and international lenders (European Commission, European Central Bank and the IMF), depositors in two Cypriot banks were forced to exchange some of their deposits into equity shares in the banks.  This “haircut” sparked 3,000 lawsuits against the ROC and the banks. Some of these lawsuits have been rejected by EU courts, while most remain unresolved. Additionally, recipients of this “haircut” 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 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. European Central Bank in its 2017 annual report 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 expropriation cases involving private owners, they are first 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 relegated to local “courts” for 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

Investor-State Dispute Settlement

Foreign investors can make use of all the rights guaranteed to Turkish Cypriots.  Alternative dispute resolution mechanisms are not available in the “TRNC.” The resolution of commercial or investment disputes through the “judicial system” can take several years.

Bankruptcy Regulations

Republic of Cyprus

In 2015 the ROC parliament approved a new package of insolvency laws to overhaul existing bankruptcy procedures and help resolve the island’s very high levels of NPLs.  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 €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 €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 closely monitoring implementation of the new insolvency framework. 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 NPLs.  NPLs decreased considerably in 2018 mainly due to the collapse of the Cyprus Cooperative Bank (CCB), which transferred bad assets from the banking system to a separate public entity. NPLs declined from 42 percent of gross loans at the end of 2017 to 32 percent at the end of November 2018.

The World Bank’s 2019 Doing Business report ranked Cyprus 26th 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 “TRNC” passed a debt restructuring “law” aimed at providing incentives to restructure debts and NPLs separately.  Turkish Cypriots also have a bankruptcy “law” that defines “collecting power;” conditions under which a creditor can file a bankruptcy application; and the debtor’s bankruptcy application, and agreement plans.  In December 2018, NPLs had reached USD 187 million (1.045 billion Turkish Lira).

4. Industrial Policies

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 obtaining Cypriot residency or citizenship through foreign investment.  For more information on the residency and citizenship by investment schemes, see: http://www.moi.gov.cy/moi/moi.nsf/All/0A09FCB93BA3348BC22582C4001F50CF  

Recently, Cyprus harmonized and enhanced all its regulations regarding investment funds, becoming a more attractive jurisdiction for managing and home-basing investment funds.

The Council of Ministers approved a program in 2017 to attract foreign investment to Cyprus through third-country – i.e., non-European Union – innovative start-ups.  The plan invites third-country nationals with start-up capital of at least € 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 is successful. The program was renewed in February 2019 for two more years. Additional info at: https://launchincyprus.com/  .

Area Administered by Turkish Cypriots

There are incentives 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;
  • exemption from construction license fees;
  • Exemption from VAT for both imported and locally purchased machinery and equipment; and
  • Reduction of stamp duty and mortgage procedure 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 MECI 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
Telephone: +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, but declining unemployment is placing a strain on labor availability in certain fields.  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 apply to the local labor authorities to for “work permits.”  Once they apply, the vacancy is announced locally. Priority is given to local “TRNC citizens” with the required expertise or skillset.  If the skillset is not available locally, employers can recruit foreign labor.

In evaluating a foreign investment incentives application, the “State Planning Office” carries out a feasibility study regarding the type of investment.  For more information on employment, visit the labor authorities’ website: http://csgb.gov.ct.tr/en-us/  

5. Protection of Property Rights

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; and
  • 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.

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 Turkish Cypriot property located in the ROC.  The Turkish Cypriot Property Management Service (TCPMS), established in 1991, administers properties of Turkish Cypriot  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 Turkish Cypriot 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 94th among 190 countries in terms of efficiency and quality for registering property.  For more information, please see: http://www.doingbusiness.org/en/data/exploreeconomies/cyprus#DB_rp  .

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 Turkish Cypriots.  Potential investors are strongly advised to obtain independent legal advice prior to purchasing or leasing property there. Purchase or use of property in the area administered by Turkish Cypriots is a contentious issue in Cyprus, as per the following note posted on the Republic of Cyprus Ministry of Foreign Affairs website: http://www.mfa.gov.cy/mfa/properties/occupiedarea_properties.nsf/index_en/index_en?OpenDocument  .

For property in the Turkish Cypriot-administered areas, only pre-1974 title deeds are uncontested.  In response to the European Court of Human Rights’ (ECHR) 2005 ruling that Turkey’s “subordinate local authorities” in Cyprus had not provided an adequate local remedy for property disputes, Turkish Cypriot authorities established an Immovable Property Commission (IPC) to handle property claimed by Greek Cypriots.  In a March 2010 ruling, the ECHR recognized the IPC as a domestic remedy. As of March 19, 2019, the IPC had received 6,518 applications, of which 943 have been concluded through friendly settlements, and 32 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 Greek Cypriot property in the Turkish Cypriot-administered areas.  This landmark decision also establishes precedent in cases where foreign investors purchasing disputed properties outside of the ROC-controlled area can be found liable for damages.

There are significant restrictions on the foreign ownership of real estate by non-“TRNC” residents who may purchase only one real estate properties for private use subject to the approval of the “Council of Ministers.”

Intellectual Property Rights

Republic of Cyprus

On the whole, intellectual property rights (IPR) protection in the ROC has improved over time, and Cyprus has not appeared in the United States Trade Representative (USTR) Special 301 Report since 2006, and it is not included in the Notorious Markets List.

Cypriot Law (Law 207(I) (2012)) places the burden of proof on the defendant in cases of IPR infringement.  The Law also allows the police to assess samples of pirated articles in lieu of the whole shipment and allows 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), which strengthens 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
Telephone: +357-22-393361
Email: demetriougf@state.gov

Local attorneys listed with Embassy: https://cy.usembassy.gov/u-s-citizen-services/attorneys/

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 Turkish Cypriots.  Related “laws” in this area are inadequate, antiquated, and there is a lack of enforcement. Infringing goods imported from Turkey and other countries are a concern, such as counterfeit merchandise.

6. Financial Sector

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 € 2.0 billion (USD 2.3 billion) as of March 2019.  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 Turkish Cypriots 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 consolidating and restructuring, following the March 2013 “haircut” of uninsured deposits.  The banking sector returned to profitability in the first half of 2018 but the high stock of NPLs continues to affect bank performance.  NPLs decreased considerably in 2018 mainly due to the collapse of the Cyprus Cooperative Bank (CCB), which transferred bad assets from the banking system to a separate public entity.  NPLs declined from 42 percent of gross loans at the end of 2017 to 32 percent at the end of November 2018. New laws on insolvency, foreclosures, and securitization support the effort to reduce NPLs further.  Meanwhile, an improving economy and stabilizing property market are helping households and companies service their high debt. Public debt rose to 105 percent of GDP in 2018, due to the government’s support in the sale of the CCB, but is expected to decline to 98.4 percent in 2019, with a steadily declining outlook.  Cyprus’ sovereign debt regained investment grade rating in 2018, mitigating refinancing risks.

Following increased provisioning for NPLs, the banks’ capital position declined moderately although it is still adequate — from 14.9 percent on December 31, 2017 to 14.1 percent on September 30, 2018.  Total deposits in the Cypriot banking system stood at € 47.7 billion (USD 54.4 billion) in February 2019 – only slightly above the level at the end of 2013, reflecting growing, but still fragile, depositor confidence.  The total assets of Cyprus’ three largest banks in 2018 were as follows: Bank of Cyprus € 22.1 billion (USD 26.1 billion), Hellenic Bank € 16.0 billion (USD 18.9 billion), and RCB € 9.1 billion (USD 10.6 billion). Cyprus has a central bank — the Central Bank of Cyprus — which forms part of the European Central Bank.  Foreign banks or branches are allowed to establish operations in Cyprus after obtaining relevant permits, and they are subject to Central Bank of Cyprus supervision, just like domestic banks. Following Deutsche Bank’s decision to stop providing correspondent banking relationships to Cypriot banks in September 2017, only Citibank and Bank of New York currently provide such service to ROC banks.

Opening a personal bank account in Cyprus is straightforward, and the documents needed to do so are:  (a) a copy of a valid passport or identity card (some banks will require notarized copies of identification documents); a utility bill stating the residence address of the applicant (the bill cannot be older than 6 months); and an application form issued by the bank.  Opening a corporate bank account, which is mandatory when registering a company in Cyprus, requires the following documents, such as: (a) Articles of Association, the Certificate of Incorporation and the Share Certificate of the company; (b) a certificate of good standing for foreign companies if they have been opened for over 2 years; (c) Certificates of Directors and Secretary, the Certificate of the Registered Office; (d) proof of the registered office issued by the Group Principal Trading Offices; and (e) an application form released by the bank (each bank has its own model of application).  A current list of authorized credit institutions in Cyprus is available on the Central bank of Cyprus website: https://www.centralbank.cy/en/licensing-supervision/banks/register-of-credit-institutions-operating-in-cyprus  .

Cyprus has taken steps in 2018 to address recognized regulatory shortcomings in combatting illicit finance in its international banking and financial services sector, tightening controls over non-resident shell companies and bank accounts.

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 19 banks in the area administrated by Turkish Cypriots, of which 14 are Turkish Cypriot-owned banks, and five are branch banks from Turkey.  Banks are required to follow “know-your-customer” (KYC) and AML “laws,” which are regulated by the “Ministry of Economy and Energy,” and supervised by the “Central Bank.” Due to non-recognition issues, Turkish Cypriot 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, Turkish Cypriots and foreigners making international transfers depend on Turkish banks for assistance. The total number of deposits, was approximately USD 4.8 billion as of January 2019. The “Central Bank” claimed 96.7 percent liquidity, assessing this as sufficient to withstand a crisis. NPLs reached USD 187 million (1.045 billion Turkish lira) as of December 2018.

More information is available at the “Central Bank” website: http://www.kktcmerkezbankasi.org/  .

Foreign Exchange and Remittances

Foreign Exchange

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 “TRNC” has a separate financial system from the ROC.  The financial system in the area administered by Turkish Cypriots 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.

A devaluation of the TL against foreign exchange rates (or the opposite) has a strong effect on the economy of the area administered by Turkish Cypriots.  Wages across sectors are generally paid in TL, but almost all real estate, rents, electronic goods, vehicles, and other expensive products are valued in foreign currency.  Banks in the Turkish Cypriot administered areas provide lower interest rates for Euro or British pound loans than for TL loans. 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.  Remittance firms, also known as Money Transfer Businesses or MTBs, are regulated by the Central Bank of Cyprus.

Cyprus’ first national risk assessment (NRA) of money laundering and terrorist financing, released publicly November 30, 2018, is available at: http://mof.gov.cy/en/press-office/announcements/national-risk-assessment-of-money-laundering-and-terrorist-financing-risks-cyprus  .  The NRA assessed the money laundering threat for MTBs as medium, noting the following:  “The misuse of MTB services for terrorism financing is globally considered as the biggest threat although there are no available local typologies.  No official statistics on investigations, prosecutions or convictions were available for MTBs. Statistics revealed that the value of outward transfers is significantly higher than the inward transfers in MTB sector.  This falls in line with predictions as Cyprus relies on legal immigration to fill labor positions, mainly unskilled, and is home for workers from third countries who despite having access to banking services (obligation for the issuance of working visa) still prefer to use MTBs for the remittance of financial aid to their families due to the significantly lower costs of transmission and the convenience emanating from the infrastructures available in their country of origin.”

The NRA also noted that the Central Bank of Cyprus maintains a public register, including:  (a) licensed payment institutions, (b) the names and addresses of their agents and their branches’ addresses, and (c) payment institutions authorized in other EU Member States with the right of freedom to provide services in the ROC.  As of June 30, 2016, six payment institutions with 330 agents were operating within the sector as money remitters and three agents were passported with physical presence with 62 subagents. As of the same date, there were also around 250 passported institutions, with no physical presence.  The bulk of money transfer business is carried out by two international household names. No indigenous scheme is operating in Cyprus.

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  .  MONEYVAL’s next assessment of Cyprus will commence in May 2019.

Sovereign Wealth Funds

Republic of Cyprus

The Parliament passed legislation March 1, 2019 providing for the establishment of a National Investment Fund (NIF) to manage future offshore hydrocarbons and other natural resources revenue.  The fund is not established as regulations for the NIF are being drafted and will require legislative approval before the fund can operate. See: http://mof.gov.cy/en/useful-links/1-useful-links  .

Area Administered by Turkish Cypriots

There is no established sovereign wealth fund.

7. State-Owned Enterprises

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).  There is no comprehensive list of all SOEs available but the most significant are the following: Electricity Authority of Cyprus, Cyprus Telecommunications Authority, Cyprus Sports Organization, Cyprus Ports Authority, Cyprus Broadcasting Corporation, Cyprus Theatrical Organization, and Cyprus Agricultural Payments Organization.  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 Turkish Cypriots, there are several “state-owned enterprises” and “semi-state-owned enterprises,” usually common utilities and essential services.

In the Turkish Cypriot 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);
  • BRTK – 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; and
  • Turkish Cypriot Development Bank.

Privatization Program

Republic of Cyprus

The ROC has made limited progress towards privatizations, despite earlier commitments to international creditors in 2013 to raise € 1.4 billion (USD 1.5 billion) from privatizations by 2018.  In July 2017, opposition parties passed legislation abolishing the Privatizations Unit, an independent body established March 2014. Despite this setback, the current administration, remains committed to pursuing privatizations in piecemeal fashion.  The port of Larnaca remains on track for privatization in 2019, while the state lottery is also expected to be sold. The government continues efforts to find 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.  A bill providing the transfer of Cyprus Telecommunications Authority (CyTA) commercial activities to a private legal entity, with the government retaining majority ownership has been pending since March 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

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 Turkish Cypriot community.

In March 2015, Turkish Cypriot 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 Turkish Cypriot s, there has also been discussion about privatizing the electricity authority “KIBTEK”, Turkish Cypriot telecommunications operations, and the sea ports.

8. Responsible Business Conduct

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. Corruption

Republic of Cyprus

Transparency International, the global anti-corruption watchdog, ranked Cyprus 38 out of 180 countries in its 2018 Corruption Perception Index.  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 of 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 the 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. GAN Integrity, a business anti-corruption portal with offices in the United States and Denmark, released a report on corruption in Cyprus April 2018 noting the following:  “Although Cyprus is generally free from corruption, high-profile corruption cases in recent years have highlighted the presence of corruption risks in the Cypriot banking sector, public procurement and land administration sector. Businesses may encounter demands for irregular payments, but the government has established a strong legal framework to combat corruption and generally implements it effectively.  Bribery, facilitation payments and giving or receiving gifts are criminal offenses under Cypriot law. The government has a strong anti-corruption framework and has developed effective e-governance systems (the Point of Single Contact and the e-Government Gateway project) to assist businesses.” The report can be accessed at: https://www.business-anti-corruption.com/country-profiles/cyprus/  

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 (GRECO).  GRECO’s most recent report on Cyprus is available at: https://www.coe.int/en/web/greco/-/cyprus-makes-promising-moves-to-fight-corruption-but-many-results-yet-to-materialise-says-anti-corruption-group  .

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
Telephone: +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
Telephone: +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
Telephone: +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
Telephone: +357 22 025772, +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.  For more information, visit http://sayistay.gov.ct.tr  .

10. Political and Security Environment

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. Protests and demonstrations, usually targeting the “government,” are commonplace.  They are generally peaceful and well-regulated; however, some demonstrations result in scuffles with police or damage to public of private buildings.

11. Labor Policies and Practices

Republic of Cyprus

The rate of unemployment in the ROC has been declining steadily, dropping from 16.1 percent in 2014 to 8.4 percent in 2018 and is expected to drop below the EU28 average in 2019.  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 400,878 persons in 2018, broken down as follows:  services, 81.2 percent; industry and construction, 16.5 percent; and agriculture, 2.3 percent. More women are joining the labor force and their percentage participation has risen from 33.4 percent in 1980 to 47.6 percent today.  For information about hiring local employees, contact the Ministry of Labor and Social Insurance: www.mlsi.gov.cy/dlr  .  Applications for work permits for non-EU workers must be submitted to the Civil Registry and Migration Department by the intended employer, and should be accompanied by a work contract stamped by the Ministry of Labor and Social Insurance.  This ministry must certify that there are no available or adequately qualified Cypriots to carry out the work in question. For more info, please see: https://www.cyprusvisa.eu/cyprus-work-permit.html  .

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 laid off 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 € 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.

Eroding labor conditions over the past six years have enabled many employers to hire 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 € 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 2018, 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 (unchanged since March 2016):

  • Clerks/secretaries, sales assistants, paramedical, live-in maids/domestic helpers, school assistants/child-caregivers: € 870 (USD 957) per month, rising to € 924 (USD 1,016) after six months’ employment.
  • Security guards: € 4.90 (USD 5.39) per hour, rising to € 5.20 (USD 5.72) after six months’ employment.
  • Cleaning personnel: € 4.55 (USD 5.00) per hour, rising to € 4.84 (USD 5.32) after six months’ employment.  Non-EU, live-in domestic servants have a separate minimum wage, set at € 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 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 2017-2018 Turkish Cypriot Competitiveness Report published by the Turkish Cypriot Chamber of Commerce the greatest obstacles to doing business was inefficient public bureaucracy, insufficiently trained workforce, and policy instability.

Reliable labor statistics are often difficult to obtain.  The “State Planning Office” (“SPO”) estimated the total employed in 2017 was 128,000.  The labor force in the area administered by Turkish Cypriots has a high per capita level of university graduates, including many from U.S. and European universities, and offers an abundant supply of white-collar workers.  The unemployment rate was 5.6 percent as of December 2017. Women accounted for approximately 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 February 2019, the minimum wage was USD 500 (3,150 Turkish lira) per month.

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 08:00 – 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.  Overtime during weekdays is paid at 110 percent of the base rate. On weekends and holidays, overtime is paid at 150 percent of the base rate.  Employees cannot work on Sundays unless there is an emergency, or an approval by labor authorities.

Workers are able to exercise their right to bargain collectively, mainly in the public sector.  “Public sector” and “semi-public sector” employees benefit from collective bargaining agreements.  The “law” provides for collective bargaining.

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

12. OPIC and Other Investment Insurance Programs

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: See http://www.investinnorthcyprus.org/  .

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

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) 2017 $21,724 2017 $22,054 www.worldbank.org/en/country   
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2017 -$183 2017 $1,650 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2017 $170 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  
Total inbound stock of FDI as % host GDP N/A N/A 2017 1,061.2% UNCTAD data available at 
https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx    

* Source for Host Country Data: Central Bank of Cyprus


Table 3: Sources and Destination of FDI

Direct Investment From/in Counterpart Economy Data, end-2017
From Top Five Sources/To Top Five Destinations (U.S. Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $232,315 100% Total Outward $221,966 100%
Luxembourg $63,037 27% Russian Fed. $38,854 17%
Russian Fed. $40,320 17% Netherlands $11,514 5%
Netherlands $16,503 7% United Kingdom $9,389 4%
Germany $12,107 5% Luxembourg $8,679 4%
British Virgin Islands $5,585 2% Norway $1,519 1%
“0” reflects amounts rounded to +/- USD 500,000.


Table 4: Sources of Portfolio Investment

Portfolio Investment Assets, June 2018
Top Five Partners (Millions, U.S. Dollars)
Total Equity Securities Total Debt Securities
All Countries $21,187 100% All Countries $8,565 100% All Countries $12,622 100%
Russian Fed. $5,010 24% Russian Fed. $4,236 49% Luxembourg $1,123 9%
Ireland $2,298 11% Ireland $1,458 17% Ireland $840 7%
Luxembourg $2,262 11% Luxembourg $1,139 13% Russian Fed. $773 6%
United States $950 4% United States $440 5% Netherlands $653 5%
Netherlands $714 3% Ukraine $139 2% Germany $466 4%

14. Contact for More Information

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

2019 Investment Climate Statements: Cyprus
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