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Executive Summary

Cyprus is the eastern-most member of the European Union (EU), situated at the crossroads of three continents – Europe, Africa, and Asia – and thus occupies a strategic place in the Eastern Mediterranean region.

The Republic of Cyprus (ROC) eagerly welcomes foreign direct investment (FDI). The ROC is a member of the eurozone. English is widely spoken. The legal system is based on UK common law. Legal and accounting services for foreign investors are highly developed. Invest Cyprus, an independent, government-funded entity, aggressively promotes investment in the traditional sectors of shipping, tourism, banking, and financial and professional services. Newer sectors for FDI include energy, film production, investment funds, education, research & development, information technology, and regional headquartering. The discovery of significant hydrocarbon deposits in Cyprus’s Exclusive Economic Zone (and in the surrounding Eastern Mediterranean region) has driven major new FDI by multinational companies in recent years.

The ROC has generally handled the pandemic effectively, mitigating its impact on investment to the greatest extent possible. As of March 2022, around 85 percent of the adult population was double-vaccinated, with many people having received a third dose. COVID case loads generally follow trends in continental Europe. COVID cases are again rising, consistent with what we are seeing elsewhere in Europe, the government has a highly effective testing regime in place and has demonstrated competence in managing the local epidemic.

The ROC has also demonstrated commitment to promoting green investments, with significant funding allocated to securing a green transition (see Section 8).

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 52 of 175 http://www.transparency.org/
research/cpi/overview
 
Global Innovation Index 2021 28 of 132 https://www.globalinnovationindex.org/
analysis-indicator
 
U.S. FDI in partner country ($M USD, historical stock positions) 2020 USD 4,900 https://apps.bea.gov/
international/factsheet/
  
World Bank GNI per capita 2020 USD 26,440 https://data.worldbank.org/
indicator/NY.GNP.PCAP.CD
   

The Government of the Republic of Cyprus is the only internationally recognized government on the island, but since 1974 the northern third of Cyprus has been administered by Turkish Cypriots. This area 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. The Republic of Cyprus and the area administered by Turkish Cypriots are addressed separately below.

U.S. citizens can travel to the north / Turkish Cypriot area, however, additional COVID-19 measures may apply when crossing. U.S. companies can invest in the north but should be aware of legal complications and risks due to the lack of international recognition, tensions between the two communities, and isolation of the north from the eurozone. 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.” A political settlement between the communities would be a powerful catalyst for island-wide Cypriot economic growth and prosperity.

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

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, and construction (see Limits on Foreign Control, below). The ROC promotes FDI through a dedicated agency, Invest Cyprus, which is tasked with attracting FDI in the key economic sectors of shipping, education, real estate, tourism and hospitality, energy, investment funds, filming, and innovation and startups. Invest Cyprus is the first point of contact for investors, and provides detailed information on the legal, tax, and business regulatory framework. The ROC and Invest Cyprus also promote an ongoing dialogue with investors through a series of promotion seminars each year. The Cyprus Chamber of Commerce and Industry (CCCI) is a robust organization with country-specific bilateral chambers, including the American Chamber (AmCham Cyprus), that is dedicated to promoting FDI and serving the business interests of foreign companies and trade partners operating in Cyprus.

For more information:

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

Cyprus Embassy Trade Center – New York
13 East 40th Street
New York, NY 10016
Phone: (212) 213-9100Fax: (212) 213-9100
Website: https://www.cyprustradeny.org/ 

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)” provides investment consultancy services, guidance on the legal framework, sector specific advice, and information about investor incentives.

“Turkish Cypriot Investment Development Agency” (“YAGA”)
Tel: +90 392 – 22 82317
Website: https://investnorthcyprus.gov.ct.tr/ 

Limits on Foreign Control and Right to Private Ownership and Establishment

REPUBLIC OF CYPRUS

The ROC does not currently have a mandatory foreign investment screening mechanism that grants approval to FDI other than sector-specific licenses granted by relevant ministries. Invest Cyprus does grant approvals for investment under the film production incentive scheme. Invest Cyprus often refers projects for review to other agencies.

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 Cypriot company or a corporation elsewhere in the EU. U.S. investment in such companies is welcome.
  • Non-EU entities cannot invest in the production, transfer, and provision of electrical energy. 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 allow similar investment by Cyprus or other EU member states. ROC hydrocarbon exploration is currently led by two U.S. companies.
  • Individual non-EU investors may not own more than five percent of a local television or radio station, and total non-EU ownership of any single 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 from the Council of Ministers.
  • Non-EU entities cannot invest directly in private tertiary education institutions but may do so through ownership of Cypriot or EU companies.
  • The provision of healthcare services on the island is subject to certain restrictions, applying equally to all non-residents.
  • The Central Bank of Cyprus’s 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,” all non-Turkish Cypriot 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

Nothing to report.

Business Facilitation

REPUBLIC OF CYPRUS

The Ministry of Energy, Commerce and Industry (MECI) provides a “One Stop Shop” business facilitation service; contact details below. The One-Stop-Shop offers assistance with the logistics of registering a business in Cyprus to all investors, regardless of origin and size. Additionally, since September 2020, MECI offers a Fast Track Business Activation mechanism to provide efficient business registration services to eligible foreign investors who want to establish a physical presence on the island. This program has already generated interest from abroad, attracting several firms in the technology, IT, and communications sectors.

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

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 2021, there were a total of 203,545 companies registered in the ROC, 12,604 of which had been registered in 2021 (for more statistics on company registrations, please see: https://www.companies.gov.cy/en/ ).

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 many sector-specific procedures. Information on all the above procedures is available online at the link above.

The World Bank’s 2020 Doing Business report ( http://www.doingbusiness.org/rankings)  ranked Cyprus 54th 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 protecting minority investors (21/190) and paying taxes (29/190), and worst in the areas of enforcing contracts (142/190) and dealing with construction permits (125/190). Cyprus has recorded small gains in almost all subcategories since the 2019 report, with a substantial improvement in the area of paying taxes, achieving a small overall climb in its ranking since last year. Using another metric, in the Global Competitiveness Index, issued by the World Economic Forum, Cyprus maintained its ranking of 44th out of 141 countries in the 2019 edition. The two areas where Cyprus performed the worst in this report were its small market size and relatively low innovation capability. Since 2020, the World Bank Group has discontinued the Doing Business project and is now formulating a new approach to assessing the business and investment climate in economies worldwide.

The ROC 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.

Foreign investors can take advantage of the services and expertise of Invest Cyprus, an agency registered under the companies’ law and funded mainly by the state, dedicated to attracting investment.

Invest Cyprus
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/ 

Additionally, the Association of Large Investment Projects, under the Cyprus Chamber of Commerce and Industry, can provide useful information on large ongoing investment projects:

Association of Large Investment Projects

38 Grivas Dhigenis Ave. & 3 Deligiorgis Str.,
P.O.Box 21455
1509 Nicosia
Tel: +357 22 889890
Fax: +357 22 667593
Email: bigprojects@ccci.org.cy 

Lastly, the Cyprus Country Profiler website offers some useful background on the ROC: https://www.cyprusprofile.com/ 

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” website ( https://investnorthcyprus.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 2021, the “Registrar of Companies Office” statistics indicated there were 23,133 registered companies, 429 foreign companies; and 516 offshore companies.

The area administered by Turkish Cypriots defines MSMEs as entities having fewer 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 2019-2020 report ranked Northern Cyprus 107 among 141 economies, dropping eighteen places from its ranking in 2019. KTTO has not published reports since 2020.

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

“Turkish Cypriot Investment Development Agency” (“YAGA”)
Tel: +90 392 – 22 82317
Website: https://investnorthcyprus.gov.ct.tr/ 

Turkish Cypriot Chamber of Commerce (KTTO)
https://www.ktto.net/en/ 
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 such as specific UN Security Council Resolutions. In terms of programs to encourage investment, businesses in Cyprus have access to several EU programs promoting entrepreneurship, such as the European Commission’s Next Generation EU economic recovery package, or the Erasmus program for Young Entrepreneurs, in addition to the European Investment Bank’s guarantee facilities for SMEs for projects under USD 4.8 million (EUR 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 and Taxation Treaties

REPUBLIC OF CYPRUS

The ROC is a party to 27 bilateral investment treaties (BITs) and 78 treaties with investment provisions (TIPs) all listed here: https://investmentpolicy.unctad.org/international-investment-agreements/countries/54/cyprus?type=tips 

As an EU member state, trade agreement talks are delegated to the European Commission.

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 an 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/5127B9EF26EA434EC225847300280E1F?OpenDocument .

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

The ROC is not a member of the OECD, nor the OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS).

AREA ADMINISTERED BY TURKISH CYPRIOTS

The “TRNC” is not an internationally recognized “government” and is not a party to any multilateral trade or investment instruments. The “TRNC” has bilateral investment and taxation agreements 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.

In line with the above plan and EU requirements, the ROC launched the National Open Data Portal ( https://www.data.gov.cy/ ) in 2016 to increase transparency in government services. Government agencies are now required to post publicly available information, data, and records, on the entire spectrum of their activities. The number of data sets available through this portal has been growing rapidly, although much of it is in Greek only.

Several agencies and non-governmental organizations (NGOs) share competency on fostering competition and transparency, including the ROC Commission for the Protection of Competition ( http://www.competition.gov.cy/competition/competition.nsf/index_en/index_en?OpenDocument ), the Competition and Consumer Protection Service, under MECI ( https://meci.gov.cy/en/departments-services/consumer-protection-service ), the Cyprus Consumers Association ( https://www.katanalotis.org.cy/ ), and the Cyprus Securities and Exchange Commission ( https://www.cysec.gov.cy/en-GB/home/ ).

Government and independent oversight agencies such as the Cyprus Securities and Exchange Commission actively promote companies’ environmental, social, and governance (ESG) disclosure to facilitate transparency. In 2017, the European Commission published guidelines to help companies disclose environmental and social information, which it supplemented in 2019 with guidelines on reporting climate-related information. These guidelines are not mandatory, but many progressive local companies are adopting them to secure their sustainability and long-term gains.

Most laws and regulations are published only in Greek and obtaining official English translations can be difficult, but expert analysis in English is generally available from local law and accounting firms when the regulation affects international investment or business activity. When passing new legislation or regulations, Cypriot authorities follow the EU acquis communautaire – the body of common rights and obligations that is binding on all EU members. 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 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. and 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 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; and
  • 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. The ROC is often slow to transpose EU directives into local law, but transposition is generally consistent with EU intent when it happens.

AREA ADMINISTERED BY TURKISH CYPRIOTS

The entire island of Cyprus is considered EU territory, but the acquis communautaire is suspended in the areas administered by Turkish Cypriots and the north is not considered to be within the EU customs area.

Legal System and Judicial Independence

REPUBLIC OF CYPRUS

Cyprus is a common law jurisdiction and its legal system is based on English Common Law for 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 in 2013 have tended to undermine this trust in recent years.

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, particularly 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 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 https://investnorthcyprus.gov.ct.tr/ . Because the “TRNC” is not recognized internationally, “TRNC court” decisions and orders may be difficult to enforce outside of the area administered by Turkish Cypriots or Turkey.

Laws and Regulations on Foreign Direct Investment

REPUBLIC OF CYPRUS

For more information on laws affecting incoming foreign investment see https://www.investcyprus.org.cy/ 

AREA ADMINISTERED BY TURKISH CYPRIOTS

Visit the “YAGA” website, for more information about laws and regulations on FDI: https://investnorthcyprus.gov.ct.tr/ 

Competition and Antitrust Laws

REPUBLIC OF CYPRUS

The oversight agency for competition is the Commission for the Protection of Competition: http://www.competition.gov.cy/competition/competition.nsf/index_en/index_en?OpenDocument 

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 and consistent with EU law, rights, and directives. 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 interest rate for the relevant currency. Like most other jurisdictions, banks in Cyprus are expected to complete the switch from the London Inter-Bank Offered Rate (LIBOR) to the Secured Overnight Financing Rate (SOFR) by June 2023.

Following a financial crisis in 2013, the ROC took extraordinary steps as part of the Memorandum of Understanding (MOU) between the Republic of Cyprus and international lenders (European Commission, European Central Bank, and the IMF – the “troika”). Depositors in two of the largest Cypriot banks were forced to take a cut on almost half of their deposits exceeding insured limits. This action sparked 3,000 lawsuits against the ROC and the banks, but the European Court of Justice ruled that the MOU with the troika was not an unlawful act and dismissed actions for compensation. The ROC has not taken any similar extraordinary actions since.

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.

Because the “TRNC” is not recognized internationally, “TRNC court” decisions and orders may be difficult to enforce outside of the area administered by Turkish Cypriots or Turkey.

ICSID Convention and New York Convention

REPUBLIC OF CYPRUS

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

REPUBLIC OF CYPRUS

Investment disputes involving U.S. persons are rare in Cyprus, although one notable case emerged in 2020-21, when a Hollywood film producer encountered problems with the administration of the Cyprus film rebate scheme. The film producer cancelled plans for filming a second movie in Cyprus, while pursuing compensation through the courts. Local courts recognize and enforce foreign arbitral awards issued against the government and there is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

REPUBLIC OF CYPRUS

Cyprus offers several different means of Alternative Dispute Resolution (ADR), although, in practice, recourse to ADR is not common. The ROC Ministry of Justice and Public Order offers a publicly-available Register of Mediators for both commercial and civil disputes at: http://www.mjpo.gov.cy/mjpo/mjpo.nsf/All/093DD5FE0E4342E7C225861400498853?OpenDocument .

Some of the key mediators locally and abroad are the following:

  • The Cyprus Chamber of Commerce and Industry (CCCI): ;
  • The Scientific and Technical Chamber of Cyprus: ;
  • The ROC Financial Ombudsman’s office, offers mediation services between banks and customers since 2015: ;
  • The European Court of Arbitration in Cyprus: ;

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.

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. The ROC’s bilateral investment treaties with several countries also include dispute settlement provisions (see Section 3, Bilateral Investment Agreements).

Investor-State Dispute Settlement

AREA ADMINISTERED BY TURKISH CYPRIOTS

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.

Because the “TRNC” is not recognized internationally, “TRNC court” decisions and orders may be difficult to enforce outside of the area administered by Turkish Cypriots or Turkey.

Bankruptcy Regulations

REPUBLIC OF CYPRUS

New insolvency legislation introduced in 2015 helped overhaul bankruptcy procedures, with a view to resolving the island’s high levels of non-performing loans (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 USD 409,500 (EUR 350,000) and individuals with minimal assets and income may apply to the court via the Insolvency Service for a debt relief order of up to USD 29,250 (EUR 25,000). 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. Despite concerted efforts by Cypriot authorities and the banks NPLs remained stubbornly high at 28.5 percent of total loans at the end of 2019, compared to 30.3 percent a year earlier, although two major banks are in the process of selling significant NPL portfolios to investors.

The World Bank’s 2020 Doing Business report ranked Cyprus 31st from the top among 190 countries in terms of the ease with which it resolves insolvency. For additional information, please see: https://www.doingbusiness.org/en/data/exploreeconomies/cyprus#DB_ri  .

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.

As of the end of the third quarter of 2021, NPLs were 1.5 billion Turkish Lira (USD 10 million).

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, although this rate will likely increase to 15.0 percent in the foreseeable future, in line with global trends. Cyprus’ 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 67 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.

Effective November 1, 2020, the ROC abolished a program offering Cypriot citizenship through foreign investment, due to abuses. The abrupt abolition of the citizenship program has left a considerable number of high-end residential properties (each valued at around USD 2 million or more) up for sale. The ROC continues to offer a Residency by Investment program, requiring a minimum investment of USD 360,000 (EUR 300,000).

In recent years, the ROC has harmonized and enhanced its regulations regarding investment funds, becoming a more attractive jurisdiction for managing and home-basing investment funds. As a result, the number of financial services companies regulated by the Cyprus Securities and Exchange Commission (CySEC) has tripled in the last eight years, from 249 in 2012 to 746 in 2019, with total assets under management reaching USD 10.2 billion (EUR 9.1 billion) in 2019. Brexit, the withdrawal of the United Kingdom from the EU since January 31, 2020, has also prompted several financial services companies based in the UK to relocate to Cyprus over the past year – a trend ROC authorities are trying to encourage.

Since 2017, the ROC also offers a program 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 USD 58,500 (EUR 50,000), 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 is successful. The program was renewed in February 2019 for two more years.

In May 2021, the European Commission approved the ROC’s Recovery and Resilience Plan (RRP), which forms part of the Next Generation EU recovery instrument, envisioning broad-reaching reforms from 2021-26 in exchange for $1.3 billion in EU funding ($1.1 billion in grants and $220 million in loans). Around 41 percent of this funding will go to green transition projects, and another 23 percent to digital transition, with residual funding for many other reforms, including encouraging innovation and advancing the role of women in business. More information on Cyprus’ RRP available at: https://ec.europa.eu/info/business-economy-euro/recovery-coronavirus/recovery-and-resilience-facility/cyprus-recovery-and-resilience-plan_en .

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 areas, namely Customs Warehouses and Free Zones, are listed below and are fully harmonized with equivalent EU norms: https://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 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 meet with the approval of the Department of Customs. For more information, interested parties may contact:

Department of Customs and ExciseMichali Karaoli Str.1096 NicosiaTel. +357 22 601754 or 55Fax: +357 22 302018Email: headquarters@customs.mof.gov.cy  Website: https://www.mof.gov.cy/mof/customs/customs.nsf/index_en/index_en?OpenDocument 

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 ( https://www.businessincyprus.gov.cy/ ) for guidance on identifying suitable locations.

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

Cyprus Ports AuthorityP.O. Box 220071516 Nicosia23 Kritis Street1061 NicosiaTel. +357 22 817200, X-0Fax: +357 22 762050Email: 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.

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, though a tight labor market prior to the COVID-19 pandemic strained labor supply 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, Invest Cyprus can assist investors in 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 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 direct foreign ownership of real estate by non-EU individuals. 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. Foreign investment in Cypriot or EU companies is welcome, but 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; or
  • 50 percent or more of its share capital belongs to non-EU citizens; or
  • Control (50 percent or more) belongs to non-EU citizens; or
  • 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.

Legal requirements and procedures for acquiring and disposing of property in Cyprus are complex, but professional help from real estate agents and developers to ease the burden is readily available. 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.

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 Cypriots 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 2020 Doing Business report ranked Cyprus 71st among 190 countries in terms of efficiency and quality for 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 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, but the ROC does not consider the IPC to be a legitimate body. As of March 9, 2022, the IPC had received 7,085 applications, of which 1, 311 have been concluded through friendly settlements, and 34 through formal hearings.

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 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. A 2008 “law” requires non- “TRNC” residents to apply to the “Council of Ministers” for permission to purchase real estate, and non-residents are limited to a single small property. Foreigners can, however, own or control more real estate through a “TRNC” registered company.

Intellectual Property Rights

REPUBLIC OF CYPRUS

ROC intellectual property rights (IPR) law is harmonized with EU directives and the ROC is party to major international IPR instruments. The country promotes itself as a low-tax, high protection (i.e., EU standards) destination for IPR.

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 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 articles of clothing, luggage, accessories, and pirated optical media.

Primary responsibility for enforcing ROC IPR legislation rests with the Cyprus Police and the Department of Customs. The Competition and Consumer Protection Service of the Ministry of Energy, Commerce, and Industry (MECI) also plays a supportive role, while the Registrar of Companies and Official Receiver handles administration of patents and copyrights.

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

6. Financial Sector

Capital Markets and Portfolio Investment

REPUBLIC OF CYPRUS

The Cyprus Stock Exchange (CSE), launched in 1996, is one of the EU’s smallest stock exchanges, with a capitalization of USD 3.7 billion (EUR 3.4 billion) as of March 2022. 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

At the end of November 2021, the value of total deposits in ROC banks was USD 56.3 billion (EUR 51.2 billion), and the value of total loans was USD 32.6 billion (EUR 29.6 billion). Currently, there are seven local banks in Cyprus offering a full range of retail and corporate banking services – the largest two of which are the Bank of Cyprus and Hellenic Bank – plus another two dozen or so subsidiaries or branches of foreign banks offering more specialized services. The full 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 .

The banking sector has made significant progress since the 2013 financial crisis resulted in a “haircut” of uninsured deposits, followed by numerous bankruptcies and consolidation. The island’s two largest banks – Bank of Cyprus and Hellenic – are now adequately capitalized and have returned to profitability. However, the profitability of the banking sector as a whole is challenged by low interest margins, a high level of liquidity, and a still-elevated volume of NPLs. NPLs in Cyprus are the second-highest in the EU at 15.1 percent of total loans at the end of November 2021, compared to 19.1 percent a year earlier, albeit considerably lower than in 2014, when they reached 47.8 percent. Banks continue striving to reduce NPLs further, either by selling off portfolios of NPLs or using recently amended insolvency and foreclosure frameworks. The economic impacts of the COVID-19 pandemic and political pressure to protect citizens under the current extraordinary circumstances makes reducing NPLs difficult. Aggregate banking sector data is available here: https://www.centralbank.cy/en/licensing-supervision/banks/aggregate-cyprus-banking-sector-data .

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. They are subject to Central Bank of Cyprus supervision, just like domestic banks. JPMorgan, Citibank, Bank of New York Mellon, and HSBC currently provide U.S. dollar correspondent banking services to ROC banks.

Opening a personal or corporate bank account in Cyprus is straightforward, requiring routine documents. But because of a history of money-laundering concerns, banks now carefully scrutinize these documents and can conduct extensive due diligence checks on sources of wealth and income. A local bank account is not necessary for personal household expenses. Opening a corporate bank account is mandatory when registering a company in Cyprus.

Since 2018, Cyprus has taken steps 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. Cyprus’ first National Risk Assessment (NRA) of money laundering and terrorist financing, released in November 2018, is available at: http://mof.gov.cy/en/press-office/announcements/national-risk-assessment-of-money-laundering-and-terrorist-financing-risks-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, released December 2021, can be found at: https://www.coe.int/en/web/moneyval/jurisdictions/cyprus .

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 21 banks in the area administrated by Turkish Cypriots, of which 16 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,” but AML practices do not meet international standards. Due to non-recognition issues, Turkish Cypriot banks do not qualify for a SWIFT number to facilitate international transactions. All international transfers depend on routing through Turkish banks.

In the third quarter of 2021, total deposits, which have the largest share in the sector’s total liabilities, reached 48,8 billion TL (USD 3.3 billion).

As of the end of the third quarter of 2021 , NPLs reached 1.5 Billion Turkish Lira (USD 10 million).

Foreign Exchange and Remittances

Foreign Exchange

REPUBLIC OF CYPRUS

The ROC is a member of the Eurozone. 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 global 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 member states of the EU.

AREA ADMINISTERED BY TURKISH CYPRIOTS

The “TRNC” has a separate financial system from the ROC, linked closely with that of Turkey. The Turkish Lira is the main currency, 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 Turkish Lira 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 Turkish Lira, 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 Turkish Lira 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. All international correspondent banking services must route through Turkish banks.

Remittance Policies

REPUBLIC OF CYPRUS

There are no restrictions or delays on investment remittances or the inflow or outflow of profits. Remittances may be moved through the regular banking system or through licensed Payment Institutions (PIs) or Electronic Money Institutions (EMIs), also regulated by the Central Bank of Cyprus.

The Central Bank of Cyprus maintains two public registers, listing both PIs and EMIs, whether authorized by the Central Bank of Cyprus or authorized in other EU Member States with the right of freedom to provide services in the ROC.

The two relevant CBC registers are:

Register of Licensed Payment Institutions: https://www.centralbank.cy/en/licensing-supervision/payment-institutions/licensing-and-supervision-of-payment-institutions 

Register of Electronic Money Institutions: https://www.centralbank.cy/en/licensing-supervision/electronic-money-institutions/licensing-and-supervision-of-electronic-money-institutions 

Sovereign Wealth Funds

REPUBLIC OF CYPRUS

The Parliament passed legislation in March 2019 providing for the establishment of a National Investment Fund (NIF) to manage future offshore hydrocarbons and other natural resources revenue. Section 29 of the NIF Law specifies that the Corporation to be set up shall invest the Fund in a diversified manner with a view to maximizing risk-adjusted financial returns and in a manner consistent with the portfolio management by a prudent institutional investor. The Fund is precluded from investing in securities issued by a Cypriot issuer (including the state) or in real estate located in Cyprus. This provision safeguards against the possibility of speculative development catering to the Fund and political interference favoring domestic investments for purposes other than the best interests of the Fund and the Cypriot people as a whole. Additionally, Section 30 of the law provides that the fund cannot invest, directly or indirectly, to acquire more than five percent of any one company or legal entity. The fund is not yet operational. Regulations for the NIF are being drafted and will require legislative approval, and it will be several years before there are any revenues generated from the ROC’s hydrocarbon assets.

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 (EAC);
  • Cyprus Telecommunications Authority (CyTA);
  • Cyprus Sports Organization;
  • Cyprus Ports Authority;
  • Cyprus Broadcasting Corporation (CyBC);
  • 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 remains difficult given the small market size and delays in implementing new market rules. 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 USD 1.6 billion (EUR 1.4 billion) from privatizations by 2018. In 2017, opposition parties passed legislation abolishing the Privatizations Unit, an independent body established March 2014. 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). However, in recent years, the EAC has been forced to unbundle its operations in line with Cyprus Energy Regulatory Authority (CERA) recommendations and EU regulations. The EAC has created independent units for its core regulated activities, namely Transmission, Distribution, Generation, and Supply. Private firms have been offering renewable energy generation since 2003 and electricity supply since January 1, 2021.

Despite slow progress in electricity and telecommunications, the current administration continues pursuing privatizations in other areas. In August 2020, the government assigned the Larnaca marina and port privatization project to a Cyprus-Israeli consortium, based on a 40-year lease agreement. The project, starting in April 2022, will be completed in four phases by 2037. It provides for port infrastructure, a marina, land redevelopment, a road network, green areas, parks and pedestrian areas as well as residential units and catering and recreation establishments. At a cost of about EUR1.2 billion, this project will be the biggest investment in Cyprus so far.

The government also continues efforts to sell the state lottery, 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.

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 Cypriots, there has also been discussion about privatizing the electricity authority “KIBTEK”, Turkish Cypriot telecommunications operations, and the seaports.

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. 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. For example, the Cyprus Integrity Forum promotes transparency and accountability in business through its Business Integrity Forum certification program – see: https://cyprusintegrityforum.org/business-integrity-forum/ .

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 – https://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 pursuing these practices tend to be viewed favorably by the public.

Additional Resources

Department of State

Department of the Treasury

Department of Labor

Climate Issues

REPUBLIC OF CYPRUS

Promoting green investments is high on the ROC government’s agenda as it looks to make gains toward a green transition. The ROC Recovery and Resilience Plan under the EU’s Next Generation EU recovery instrument envisions a total of 58 reforms in exchange for $1.3 billion in EU funding ($1.1 billion in grants and $220 million in loans). Fully 41 percent of the plan’s allocation for reforms and investments support climate objectives, ranging from green taxation, energy efficiency and renewable energy, and promoting more sustainable transport modes.

9. Corruption

REPUBLIC OF CYPRUS

Corruption continues to undermine growth and investment in the ROC, despite the existence of a strong-anti corruption framework. Ninety-five percent of Cypriots think the problem of corruption is widespread, compared to an average of 71 percent in the EU, according to a Eurobarometer survey on corruption conducted by the European Commission in December 2019. In the same survey, 60 percent of Cypriots said they were personally affected by corruption in their daily life, compared to an average of just 26 across the EU. Perhaps even more alarmingly, 69 percent of Cypriots said they thought the level corruption had increased in the past three years, against 42 percent in the EU, who thought the same for their countries. Cypriots put political parties at the top of their list of groups they thought perpetrated corruption (at 63 percent), followed by the healthcare system (59 percent), the police/customs (53 percent), and officials awarding public tenders (52 percent). 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, and fear of the Auditor General’s scrutiny is widespread. Government officials sometimes manage procurement efforts with greater concern for the Auditor General than for getting the best outcome for the taxpayer. 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.

Transparency International, the global anti-corruption watchdog, ranked Cyprus 52nd out of 180 countries in its 2021 Corruption Perception Index – from 42nd the year before. Disagreements between the Berlin-based headquarters of Transparency International and its Cypriot division in 2017 led to the dis-accreditation of the latter in 2017 and the launch of a successor organization on the island called the Cyprus Integrity Forum (contact details follow).

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.ganintegrity.com/portal/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 second compliance report on Cyprus, released November 17, 2020, is available at: https://www.coe.int/en/web/greco/evaluations/cyprus .

Cyprus is also a member of the UN Anticorruption Convention but it is not a member of the OECD Convention on Combating Bribery.

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: https://www.police.gov.cy/police/police.nsf/index_gr/index_gr?opendocument

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: http://www.audit.gov.cy/audit/audit.nsf/home/home?opendocument

Anti-corruption NGO: 

Cyprus Integrity Forum (CIF)
38 Grivas Dhigenis Avenue & 3 Deligiorgis Street
PO Box 21455
1509 Nicosia
T. +357 22 025772
F. +357 22 025773
E-mail: info@cyprusintegrityforum.org 
Website: https://cyprusintegrityforum.org/

AREA ADMINISTERED BY TURKISH CYPRIOTS

Corruption in the area administered by Turkish Cypriots continues to be a major problem, mainly in the public sector, allegedly involving politicians, political parties, and bureaucrats.

Given its small size and disputed status, international anti-corruption organizations do not evaluate conditions in the north.

According to a 2020 Corruption Perception Report carried out by Turkish Cypriot researchers at the Friedrich Ebert Stiftung (FES), a non-profit foundation funded by the German Government, 88 percent of businesspeople responding to the survey believe bribery and corruption occurs in Northern Cyprus, while 58 percent believe corruption is a “very serious problem.” Respondents said bribery is most common in “allocation and lease of public land and buildings” (55 percent), “incentives” (46 per cent), and “public contracts and licenses” (45 per cent).

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 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.

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 minor damage to buildings.

11. Labor Policies and Practices

REPUBLIC OF CYPRUS

As an EU country, Cyprus 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. There is likely some undeclared income in the ROC, as in most developed countries, but there are no indications the informal economy plays a decisive role here. Illegal migrants are sometimes used as cheap labor but this does not appear to be a systemic problem, and authorities do not hesitate to fine employers of illegal laborers.

Prior to the COVID-19 pandemic, the rate of unemployment in the ROC had been declining steadily, dropping from 16.1 percent in 2014 to 8.1 percent in Q3 2020 – at par with the Eurozone area. According to Eurostat, Cyprus has a tertiary education attainment level of 36.3 percent of the total population – well above the EU 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’s total labor force was estimated at 402,000 persons in 2020, broken down as follows: services, 77.8 percent; industry and construction, 19.5 percent; and agriculture, 2.7 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. 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.

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 USD 64,350 (EUR 55,000) per employee, whichever is greater. Redundancy payments come 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.

Some employers hire temporary workers or employ staff on personal contract to avoid hiring unionized labor, often offering less than the going rate under collective agreements. Similarly, some employers hire employees for a year in order to benefit from a wage subsidy of up to USD 1,290 (EUR 1,100) 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, but investors should be aware Cyprus tends to have strong unions in several sectors. As of March 2021, 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.

ROC public sector working hours are 07:30 – 15:00, Monday to Friday.

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: USD 1,044 (EUR 870) per month, rising to USD 1,108 (EUR 924) after six months’ employment.
  • Security guards: USD 5.88 (EUR 4.90) per hour, rising to USD 6.24 (EUR 5.20) after six months’ employment.
  • Cleaning personnel: USD 5.46 (EUR 4.55) per hour, rising to USD 5.81 (EUR 4.84) after six months’ employment. Non-EU, live-in domestic servants have a separate minimum wage, set at USD 552 (EUR 460) 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. In June 2021, the Ministry of Labour initiated consultations with unions and employers to introduce a national minimum wage, but these discussions have so far been inconclusive.

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.

AREA ADMINISTERED BY TURKISH CYPRIOTS

According to the 2019-2020 Turkish Cypriot Competitiveness Report published by the Turkish Cypriot Chamber of Commerce, the greatest obstacle to doing business was an insufficiently trained workforce.

Reliable labor statistics are often difficult to obtain. The “State Planning Office” (“SPO”) estimated the total number of people employed in 2021 was 125,739. 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 7.8 percent as of December 2021. Women accounted for approximately 34.9 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 2021, the minimum wage was USD 410 (6,090 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.

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 work in the service (hotel, restaurant, catering) and construction sectors.

12. U.S. International Development Finance Corporation (DFC), and Other Investment Insurance or Development Finance Programs

REPUBLIC OF CYPRUS

The U.S. International Development Finance Corporation (DFC) is not active in Cyprus, but DFC finance and insurance programs are open and may be useful when bidding on build, operate, and transfer (BOT) contracts in the government-controlled areas.

Likewise, U.S. exporters should avail themselves of Export-Import Bank financing whenever possible. Please see: https://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/home_en/home_en?openform .

AREA ADMINISTERED BY TURKISH CYPRIOTS

See: https://investnorthcyprus.gov.ct.tr/ /

13. Foreign Direct 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) 2021 $25,687 2020 $21,548 www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2020 $4,860 2020 $4,900 BEA data available at https://apps.bea.gov/international/factsheet/
Host country’s FDI in the United States ($M USD, stock positions) 2020 $189 2020 $189 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data
Total inbound stock of FDI ($B USD and % host GDP) 2020 $480.9 2020 2006% UNCTAD data available at

https://unctad.org/topic/investment/world-investment-report

* Source for Host Country Data: Eurostat/IMF

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $477.1 100% Total Outward $490.0 100%
Russian Federation $118.5 24.8% Russian Federation $161.0 32.8%
Luxembourg $74.0 15.5% British Virgin Islands $42.4 8.6%
Switzerland $60.5 12.7% Jersey $23.2 4.7%
Jersey $29.7 6.2% Luxembourg $20.4 4.1%
Netherlands $23.6 4.9% Netherlands $19.1 3.9%
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment
Data not available.

14. Contact for More Information

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

2022 Investment Climate Statements: Cyprus
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