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FM AMEMBASSY NICOSIA
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RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPCIM/CIMS NTDB WASHDC
INFO RUEHAK/AMEMBASSY ANKARA 4828
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RUEHBK/AMEMBASSY BANGKOK 0556
RUEHBS/USEU BRUSSELS

UNCLAS NICOSIA 000045 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EB/IFD/OIA AND EUR/SE 
 
DEPT PLS PASS USTR 
 
USDOC FOR 4212/ITA/OEURA/MAC/KNAJDI AND 6000/TD/AC/PNUGENT 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ECON ETRD ELAB OPIC KTDB USTR CY
SUBJECT: CYPRUS: 2007 INVESTMENT CLIMATE STATEMENT 
 
REF: 06 STATE 178303 
 
Per reftel request, Post submits below the 2007 Investment 
Climate Statement (ICS) for Cyprus.  Each section covers 
both the government-controlled area in the south and the 
non-recognized "area administered by Turkish Cypriots? in 
the north of the island.  We will also e-mail a copy of 
this text to J. Nathaniel Hatcher and Ann Kambara, as 
requested. 
 
BEGIN TEXT 
 
INVESTMENT CLIMATE STATEMENT ON CYPRUS, 2007 
 
Openness to Foreign Investment 
 
Government-Controlled Area: 
 
Cyprus, a full EU member since May 1, 2004, has a liberal 
climate for investments.  The sectors of niche tourism, 
energy and shipping offer excellent potential, while the 
Government of Cyprus offers generous incentives in the 
field of research and technology. 
 
International companies may invest and establish business 
in Cyprus on equal terms with local investors in most 
sectors.  Foreign investors can register a company directly 
with the Registrar of Companies, and are eligible to obtain 
any license, if needed, from the appropriate authority 
depending on the nature of investment. 
 
On October 1, 2004, the GOC lifted most investment 
restrictions concerning non-EU residents, completing 
earlier reforms (introduced in January 2000) concerning EU 
investors.  Through this decision, the GOC has lifted most 
capital restrictions and limits on foreign equity 
participation/ownership, thereby granting national 
treatment to foreign investors.  Non-EU investors (both 
natural and legal persons) may now invest freely in Cyprus 
in most sectors, either directly or indirectly (including 
all types of portfolio investment in the Cyprus Stock 
Exchange).  The only exceptions concern primarily the 
acquisition of property and, to a lesser extent, ownership 
restrictions on investment in the sectors of tertiary 
education, mass media, banking and construction (see ?Right 
to Private Ownership and Establishment?). 
 
Under the new policy, there is no mandatory screening of 
foreign investment.  Foreign investors can register a 
company directly at the Registrar of Companies through 
qualified accountants or lawyers, a procedure that is 
exactly the same for local residents.  Similarly, foreign 
investors may now acquire shares in an existing Cypriot 
company directly, without earlier authorization by the 
Central Bank.  They are expected, however, to inform the 
Registrar of Companies about any change in ownership 
status.  Foreign investors are still expected to obtain all 
permits that may be necessary under Cypriot law to do 
business in Cyprus.  For example, they may need to obtain a 
municipal permit to set up a kiosk or abide by prevailing 
health standards to own and operate a catering company, 
etc.  Furthermore, non-EU residents wishing to take up 
employment in Cyprus must obtain work permits issued by the 
Migration Department. 
 
The GOC is currently preparing to launch the Cyprus 
Investment Promotion Agency (CIPA) in 2007.  This agency 
will be tasked with promoting investment and disseminating 
information.  It will operate as a private organization 
reporting to the Ministry of Commerce, Industry, and 
Tourism semi-annually.  The CIPA has also been assigned the 
task of evaluating foreign investment proposals and 
granting authorization for expedited processing by other 
GOC departments of deserving investments for projects of 
national interest.  Although not fully staffed yet, this 
agency has already granted one such authorization (its 
first ever) for expedited processing for a proposed Cyprus- 
U.S. joint venture, involving the establishment of a health 
spa/residential estate project in the foothills of the 
Troodos mountains.  In order to be given priority under 
this scheme, an investment application must have a project 
value of over Cyprus Pounds (CP) 1 million (USD 2.2 
million), and demonstrably contribute positively to 
Cyprus?s balance of payments or otherwise benefit the 
Cypriot national interest.  Additional information, 
including a PDF ?Guide for Foreign Investors,? and 
information on the expedited treatment scheme, can be 
obtained from: 
 
Ms. Eleftheria Ioannou 
Commercial & Industrial Officer 
Foreign Investors Service Centre (FISC) 
Ministry of Commerce, Industry & Tourism 
6 Andreas Araouzos 
1421 Nicosia, CYPRUS 
Tel: +357-22-867143, +357-22-867100 
Fax: +357-22-375541 
Email: elioannou@mcit.gov.cy 
Website1: www.mcit.gov.cy 
Website2: www.investincyprus.gov.cy 
 
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, while 
the northern part has been administered by a Turkish 
 
Cypriot administration, which proclaimed itself the 
?Turkish Republic of Northern Cyprus? (?TRNC?) and has not 
been recognized by any country except for Turkey.  Turkish 
Cypriot authorities actively encourage foreign investment, 
giving preference to foreign investments facilitating the 
transfer of modern technology, know-how and new management 
technologies, as well as investment in export-oriented 
industries.  There are no particular restrictions for 
specific sectors, except for projects deemed threatening to 
?national security.?   Complications arising, however, from 
the lack of international recognition of the ?TRNC? and the 
continuing non-resolution of the Cyprus problem, especially 
regarding property, should be taken into consideration by 
the foreign investor (see section on Protection of Property 
Rights for additional information.) 
 
Conversion and Transfer Policies 
 
In recent years, Cyprus has progressively lifted 
restrictions on the transfer of funds in and out of the 
country pertaining to foreign investors.  Currently, there 
are no restrictions on remittances for investment capital, 
earnings, loan repayments, lease payments or other business 
transactions. 
 
Expropriation and Compensation 
 
The events of 1974 have resulted in a number of outstanding 
investment disputes involving U.S. persons.  Resolution of 
these disputes prior to a settlement of the Cyprus problem 
seems unlikely. 
 
Government-Controlled Area: 
 
In the government-controlled area, nationalization has 
never been government policy and it is not contemplated in 
the future.  Private property is only expropriated for 
public purposes in a non-discriminatory manner and in 
accordance with established principles of international 
law.  In cases where expropriation is necessary, due 
process is followed and there is transparency of purpose. 
Investors and lenders to expropriated entities receive 
compensation in the currency in which the investment is 
made.  In the event of any delay in the payment of 
compensation, the Government is also liable for the payment 
of interest based on the prevailing 6-month LIBOR for the 
relevant currency. 
 
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 termination 
of division of the island.  The TCPMS is mandated to 
administer properties under its custodianship ?in the 
manner most beneficial for the owner.?  Furthermore, 
ownership of Turkish Cypriot properties cannot change 
(unless for inheritance purposes) except in exceptional 
cases when this is regarded as beneficial for the owner or 
necessary for the public interest.  Compensation for 
Turkish Cypriot property used for the public benefit, as in 
the case of Larnaca airport or for highways, has been 
suspended as long as the division of the island continues. 
 
Area Administered by Turkish Cypriots: 
 
The ?TRNC constitution" guarantees the right of private 
property in the area administered by Turkish Cypriots and 
does not discriminate between citizens and aliens. 
Furthermore, Turkish Cypriot authorities state that 
nationalization has never been part of their policy and 
that they do not contemplate any such action in the future. 
However, Turkish Cypriot authorities do not grant any 
protection for Greek Cypriot properties in the north.  (See 
section on "Protection of Property Rights.") 
 
The 1974 events have resulted in a number of claims of U.S. 
persons in the area administered by Turkish Cypriots, even 
though U.S. interests were not specifically targeted.  The 
most well-known case concerns a U.S. copper mining company 
that was forced to terminate its operations in 1974.  The 
company?s property and assets were confiscated in 1975 
without compensation by military and civilian authorities 
representing Turkey and the Turkish Cypriot administration. 
 
 
Dispute Settlement 
 
Government-Controlled Area: 
 
There have been no cases of investment disputes or 
outstanding expropriation/ nationalization cases in recent 
years.  Effective means are available for enforcing 
property and contractual rights.  Under the Arbitration Law 
of Cyprus, an arbitrator is appointed when the parties' 
attorneys cannot settle a dispute between the parties to an 
agreement.  The court may enforce an arbitral award in the 
same way as a judgment.  In 1979, Cyprus became a signatory 
to the New York Convention on the Recognition and 
Enforcement of Foreign Arbitral Awards and a foreign award 
may be enforced in Cyprus by an action in common law. 
Cyprus is also a signatory to the Convention on the 
Settlement of Disputes Between States and Nationals of 
Other States. 
 
 
Performance Requirements and Incentives 
 
Government-Controlled Area: 
 
Cyprus offers many advantages to foreign investors, 
including a strategic geographical location, favorable 
business climate, low corporate and personal tax rates, 
stable macroeconomic environment, modern legal, banking, 
and financial system, excellent telecommunications and 
infrastructure, a highly-educated labor force, and 
widespread knowledge of English. 
 
A low level of taxation is one of Cyprus's major 
advantages.  At 10 percent, Cyprus?s corporate tax rate is 
currently the lowest among the EU?s 27 countries.  Cyprus?s 
other tax advantages include: 
 
-- one of the lowest top statutory personal income tax rate 
at 30%; 
 
-- extensive double tax treaties network with over 40 
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, etc. 
 
A full description of Cyprus's investment incentives can be 
downloaded from: 
 
http://www.investincyprus.gov.cy 
 
Cyprus does not have a rigid system of performance 
requirements for foreign investment across the board and 
has signed the WTO's Trade-Related Investment Measures 
(TRIMS) agreement.  Applications by non-EU residents for 
investment in Cyprus are judged on their own merit. 
 
Area Administered by Turkish Cypriots: 
 
The area administered by Turkish Cypriots offers generous 
incentives for investing on ?state property.? 
Specifically, after an initial screening, investments 
granted an Incentive Certificate may benefit from the 
leasing of ?state-owned? land and buildings at very 
preferential rates. 
 
However, prospective investors should be knowledgeable 
about the risks associated with the purchase, lease or use 
of property.  The ?TRNC Constitution? -- Article 159 (1) 
(b), May 7, 1985 ? defines ?state property? as: ?All 
immovable properties, buildings and installations which 
were found abandoned on 13 February 1975 when the "Turkish 
Federated State of Cyprus" was proclaimed or which were 
considered by law as abandoned or ownerless after the 
above-mentioned date, or which should have been in the 
possession or control of the public even though their 
ownership had not yet been determined ... and ... situated 
within the boundaries of the "TRNC" on 15 November 1983 ? 
notwithstanding the fact that they are not so registered in 
the books of the Land Registry Office.? 
 
The Republic of Cyprus does not accept the above definition 
and does not recognize title changes in the north since 
¶1974.  As stated under the ?Protection of Property Rights? 
section of this report, potential investors should be 
cautious and obtain independent legal advice concerning 
purchasing or leasing property in the north. 
 
The area administered by Turkish Cypriots also offers the 
following investment incentives: 
 
-- Investment Allowance.  The ?TRNC State Planning 
Organization (SPO)? offers an investment allowance in the 
form of Incentive Certificates equivalent to: (a) 200 
percent on the initial fixed capital investment for 
investments in Priority Development Regions, such as the 
regions of Guzelyurt (Morphou) and Karpaz (Karpasia) and 
(b) 100 percent on the initial fixed capital investment in 
other sectors. 
 
-- Exemption from Custom Duties and Funds.  Importation of 
machinery and equipment for an investment project are 
exempt from every kind of custom duty, in accordance with 
the Incentive Certificate.  Regulations on importation of 
raw materials and semi-finished goods are specified by the 
?Prime Ministry? and subject to the approval of the 
?Council of Ministers.? 
 
-- Zero VAT Rate.  Both imported and locally purchased 
machinery and equipment is subject to a zero VAT rate, in 
accordance with the Incentive Certificate. 
 
-- Fund Credits.  Long term and low rate investment credits 
are available from the Investment and Export Incentive 
Fund. 
 
-- Exemption from Construction License Fee and Reduced 
Mortgage Fees.  Investments granted an Investment 
Certificate are exempt from all kinds of construction 
license fees and taxes and also benefit from reduced stamp 
duty and mortgage fees. 
 
-- Other Tax Allowances.  (a) A 50 percent allowance if 
given on the Initial Investment Allowance.  This rate can 
increase up to 100 percent for priority sectors and 
regions, with a ?Council of Ministers? decision.  (b) 
Annual wear and tear allowances for machinery and equipment 
(10 percent); motor vehicles (15-25 percent); industrial 
buildings and hotels (4 percent); shops and residences (3 
percent), furniture and fixtures (10 percent).  (c) Other 
tax allowances include a VAT exemption for exports of all 
goods and services and a 20 percent exemption from 
corporate tax for exports of goods and services. 
 
 
Right to Private Ownership and Establishment 
 
Government-Controlled Area: 
 
Aside from property acquisition issues, outlined in the 
next section, several other restrictions infringe on the 
right to private ownership and establishment in Cyprus, 
from the foreign investor viewpoint.  For example, existing 
Cypriot legislation distinguishes between investment in 
colleges and universities.  Investment in universities, 
defined as institutions with no fewer than 1,000 students 
enrolled in a sufficiently diverse range of classes and 
curricula, is encouraged.  Foreign (including non-EU) 
investors can set up or acquire a university in Cyprus by 
simply registering a company on the island and following a 
set of non-discriminative criteria.  By contrast, non-EU 
investment in colleges is discouraged.  Non-EU investors 
can set up or acquire a local college by registering a 
company in Cyprus or elsewhere in the EU provided that the 
company has EU-origin shareholders and directors.  In other 
words, non-EU investors are not allowed to have any 
participation, whether as directors or shareholders, in the 
administration of local colleges. 
 
Current Cypriot legislation also restricts non-EU ownership 
of local mass media companies to 5 percent or less for 
individual investors and 25 percent or less for all foreign 
investors in each individual media company. 
 
Furthermore, under the Registration and Control of 
Contractors Laws of 2001 and 2004, the right to register as 
a constructor 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. 
 
Finally, there is a restriction, applying equally to 
Cypriot as well as foreign investors, regarding investment 
in the banking sector.  The Central Bank?s prior approval 
is necessary before any individual person or entity, 
whether Cypriot or foreign, can acquire over 9.99 percent 
of a bank incorporated in Cyprus (whether listed on the 
Cyprus Stock Exchange or not). 
 
 
Protection of Property Rights 
 
Government-Controlled Area: 
 
Cypriot law imposes significant restrictions on the foreign 
ownership of real property.  Persons not ordinarily 
resident in Cyprus (whether of EU or non-EU origin) may 
purchase only a single piece of real estate for private use 
(normally a holiday home).  Exceptions can be made for 
projects requiring larger plots of land (i.e. beyond that 
necessary for a private residence) but are difficult to 
obtain and rarely granted.  Cypriot legislation limiting 
the acquisition of land in Cyprus by EU residents is not in 
line with EU requirements.  The EU granted Cyprus a 
temporary derogation from the EU acquis communautaire on 
this issue, lasting for five years after accession (i.e. 
until May 2009). 
 
The legal requirements and procedures for acquiring and 
disposing of property in Cyprus are complex but 
professional help by real estate agents and developers can 
ease the burden of dealing with the GOC bureaucracy.  This 
procedure involves Central Bank verification that funds 
from abroad are to be used by non-EU residents to purchase 
real estate.  It also involves final approval by the 
Council of Ministers, which is given routinely for holiday 
homes. 
 
The Government?s Department of Lands and Surveys prides 
itself in keeping meticulous records and in following 
internationally accepted procedures (which have changed 
little since British colonial times).  Non-residents are 
allowed to sell their property and transfer abroad the 
amount originally paid, plus interest or profits without 
restriction. 
 
The Adoption of the Copyright Law on January 1, 1994 and 
the subsequent adoption of the Patents Law on April 2, 1998 
were important milestones in establishing a modern 
legislative framework for the protection of intellectual 
property on the island.  These two laws have helped Cyprus 
comply with its obligations under the WTO TRIPS agreement. 
Cyprus is not currently listed on the U.S. "Special 301" 
list of countries effectively denying adequate IPR 
protection to U.S. persons.  However, the U.S. Embassy in 
Nicosia consistently receives complaints about IPR piracy 
from representatives of the business community, which 
attributes the problem to sporadic implementation of these 
laws. 
 
The Turkish Cypriot Property Management Service, 
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 termination 
of the abnormal political situation.  The TCPMS is mandated 
to administer properties under its custodianship ?in the 
manner most beneficial for the owner.?  Most importantly, 
ownership of TC properties cannot change (unless for 
inheritance purposes) except in exceptional cases when this 
is beneficial for the owner or necessary for the public 
interest. 
 
Area Administered by Turkish Cypriots: 
 
Property remains one of the key outstanding issues that 
constitute the Cyprus problem. 
 
The absence of a political settlement and the lack of 
international recognition for the ?TRNC? pose an inherent 
risk for the foreign investor interested in buying or 
leasing property in north Cyprus.  Potential investors 
should be cautious and obtain independent legal advice 
concerning purchasing or leasing property in the north. 
Unless the property in question was in Turkish Cypriot 
hands prior to 1974, it will be very unlikely that the 
title to the land will be free and unchallengeable. 
Property issues will be at the heart of any settlement of 
the Cyprus problem and will involve the return of property 
and/or compensation to those displaced in 1974.  The 
Republic of Cyprus does not recognize title changes in the 
north since 1974.  Estimates of the percentage of land in 
the north that belonged to Greek Cypriots pre-1974 run as 
high as 85 percent.  Determining the history of land in the 
north can be difficult.  Foreign buyers of land may also 
face legal challenges from those displaced in 1974 either 
in Republic of Cyprus courts or courts in their country of 
residence. 
 
Expectations for a comprehensive settlement associated with 
the Annan Plan, and a recent ?TRNC? law liberalizing 
property transfer procedures for foreign investors have 
provided the impetus for an unprecedented boom in the 
property market of north Cyprus over the past two years. 
Applications by foreign nationals for the purchase of 
property in the north corresponded to a total area of 2.1 
million square meters in 2004, compared with only 309,000 
square meters in 2001.  The value of property sales in 2004 
was unofficially estimated at up to USD 2 billion. 
 
Intellectual property rights are not adequately protected 
in the area administered by Turkish Cypriots.  Laws are 
inadequate and antiquated and enforcement is sporadic. 
 
 
Transparency of Regulatory System 
 
Government-Controlled Area: 
 
In the government-controlled area, existing procedures and 
regulations affecting business (including foreign 
investment regulations, outlined in section A.1.) are 
generally transparent and applied in practice without bias. 
In some cases, U.S. companies competing on government 
tenders have expressed concerns about lack of transparency 
and the appearance of bias in decisions made by the 
technical committees responsible for preparing 
specifications and reviewing tender submissions.  The U.S. 
Embassy monitors these tenders closely to ensure a level 
playing field for U.S. businesses. 
 
Area Administered by Turkish Cypriots: 
 
The area administered by Turkish Cypriots has made strides 
in recent years in terms of adopting a more transparent 
regulatory system.  However, the level of transparency 
still lags behind European or U.S. standards.  A common 
complaint among businessmen in north Cyprus is that the 
court system is overloaded, resulting in long delays. 
 
 
Efficient Capital Markets and Portfolio Investment 
 
Government-Controlled Area: 
 
Cyprus has modern and efficient legal, banking and 
financial systems, ensuring optimum allocation of financial 
resources to product and factor markets.  EU accession on 
May 1, 2004 was instrumental in establishing an efficient 
capital market in Cyprus, through the abolition of such 
restrictions as the interest rate ceiling in 2001, and 
exchange controls for residents. 
 
Credit to foreign and local investors alike is allocated on 
market terms.  The private sector has access to a variety 
of credit instruments, which has been enhanced through the 
successful operation of private venture capital firms.  The 
banking sector is sound and well-supervised. 
 
The Cyprus Stock Exchange (CSE), launched officially in 
1996, has recovered completely from the boom-and-bust cycle 
of 1999-2001, recording impressive gains over the last 
couple of years and offering currently excellent potential 
for portfolio investment.  After recording gains of 52 
percent in 2005, the CSE index rose by an additional 128 
percent in 2006, making it the EU?s top-performing stock 
exchange in that year.  The CSE is currently the EU?s 
third-smallest stock exchange, ahead of Malta and Slovakia, 
with a capitalization of around USD 22.0 billion as of 
January 1 2007. 
 
Furthermore, the launch of a joint trading platform between 
the CSE and the Athens Stock Exchange (ASE) on October 30, 
2006 signified the beginning of a new era in the turbulent 
10-year history of the CSE.  The joint platform promises to 
increase the capital available to Cypriot firms and improve 
the CSE?s liquidity.  The platform now allows capital to 
move freely from one exchange to the other, even though 
both exchanges retain their autonomy and independence. 
 
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. 
The Central Bank?s prior approval is necessary before any 
individual person or entity, whether Cypriot or foreign, 
can acquire over 9.99 percent of a bank incorporated in 
Cyprus (whether listed on the CSE or not). 
 
Cyprus remains firmly on track to adopt the Euro on January 
1, 2008.  In June 2007, the EU is expected to make the 
final decision to formally invite Cyprus to join the 
Eurozone, provided Cyprus continues to meet the Maastricht 
criteria.  For a small country like Cyprus, joining the 
Eurozone is expected to offer significant economic 
benefits, including a higher degree of price stability, 
lower interest rates, reduction of currency conversion 
costs and exchange rate risk, and increased competition 
through greater price transparency. 
 
Provided Cyprus gets the go ahead to adopt the Euro in 
2008, Cyprus plans to allow both the Euro and the Cyprus 
Pound to circulate on the island for a period of one month 
after January 1, 2008.  Commercial banks will exchange 
Cyprus pound banknotes and coins free of charge until June 
30, 2008.  The Central Bank will exchange national coins 
free of charge until the end of 2009 and national banknotes 
until the end of 2017.  Dual pricing in Cypriot pounds and 
Euros will be mandatory from September 1, 2006 until July 
31, 2008.  Central Bank Officials expect that the final 
rate at which the Cypriot pound will be converted to the 
Euro will be set in May 2007.  The following website offers 
additional information on the mechanics of Cyprus's 
adoption of the Euro: 
 
http://www.euro.cy 
 
Area Administered by Turkish Cypriots: 
 
The financial system in the area administered by Turkish 
Cypriots is linked closely with that of Turkey.  The New 
Turkish Lira (YTL) is the main currency in use although the 
Euro, U.S. dollar, British Sterling, and Cypriot Pounds are 
frequently used.  The vast majority of borrowing comes from 
domestic sources and Turkey.  There is no stock exchange in 
the area administered by Turkish Cypriots. 
 
 
Political Violence 
 
There have been no incidents of politically motivated 
serious damage to foreign projects and or installations 
since 1974.  However, it behooves the foreign investor who 
is interested in Cyprus to have at least a basic 
understanding of the existing political situation on the 
ground. 
 
Cyprus has been divided since the Turkish military 
intervention of 1974, following a coup d'etat directed from 
Greece.  Since 1974, the southern part of the island has 
been under the control of the internationally recognized 
Government of the Republic of Cyprus.  The northern part of 
the island is administered by a Turkish Cypriot 
administration.  In 1983, that administration proclaimed 
itself the "Turkish Republic of Northern Cyprus" ("TRNC"). 
The "TRNC" is not recognized by the United States or by any 
other country except Turkey.  The two parts are separated 
by a buffer zone patrolled by United Nations forces.  A 
substantial number of Turkish troops remain on the island. 
 
There has been no serious inter-communal violence since 
1974, other than an isolated incident in 1996 resulting in 
the deaths of two Greek-Cypriot civilians during a 
demonstration in the buffer zone.  The partial lifting of 
travel restrictions between the two parts of the island in 
April 2003 has allowed movement of persons ? over ten 
million crossings to date -- between the two parts of the 
island.  In August 2004, new EU rules allowed goods 
produced in the north to be sold in the south provided they 
were produced or "substantially transformed" in the north. 
In May 2005, the Turkish Cypriot "authorities" adopted a 
new regulation "mirroring" the EU rules and allowing 
certain goods produced in the south to be sold in the 
north.   Nevertheless, trade between the two communities 
remains limited.  Neither sides permits finished goods 
produced outside of Cyprus to cross the Green Line. 
 
A plan for the reunification of the island, drafted under 
the auspices of the UN, was submitted to the two 
communities for approval in separate but simultaneous 
referenda on April 24, 2004.  The plan was approved by the 
majority of Turkish Cypriots but rejected by the majority 
of Greek Cypriots. 
 
On May 1, 2004, the Republic of Cyprus joined the European 
Union as a full member.  The EU acquis communautaire has 
been temporarily suspended in the northern part of the 
island due to the unresolved political situation 
 
 
Corruption 
 
Government-Controlled Area: 
 
In the government-controlled area of Cyprus, corruption, 
both in the public and private sectors, constitutes a 
criminal offense.  Furthermore, under Cyprus's 
Constitution, the Auditor General controls all 
disbursements and receipts and has the right to inspect all 
accounts on behalf of the Republic.  In his Annual Report, 
the Auditor General identifies specific instances of 
mismanagement or deviation from proper procedures in the 
civil service.  Since 1991, Cyprus has also introduced the 
institution of the "Ombudsman," who oversees the acts or 
omissions of the administration. 
 
Cyprus cooperates closely with EU and other international 
authorities on fighting corruption and providing mutual 
assistance in criminal investigations.  Cyprus has signed 
the European Convention on Mutual Assistance on Criminal 
matters and is in the process of ratifying it.  Cyprus also 
uses the foreign Tribunal Evidence Law, Chapter 12, to 
execute requests from other countries for obtaining 
evidence in Cyprus in criminal matters.  Additionally, 
Cyprus is an active participant in the Council of Europe's 
Multidisciplinary Group on Corruption.  As such, it has 
already signed and ratified (on January 27, 1999 and 
January 17, 2001 respectively) the Criminal Law Convention 
on Corruption and has joined the "Group of States Against 
Corruption-GRECO."   Furthermore, it diligently attends 
GRECO meetings. 
 
Additionally, Cyprus's democratic regime, relatively 
transparent procedures and open, lively press act as a 
further deterrent against corruption in the civil service. 
The Embassy is not aware of any U.S. firms identifying 
corruption as a significant obstacle to foreign direct 
investment in Cyprus; however, in some cases, U.S. 
companies competing on government tenders have expressed 
concerns about lack of transparency and the appearance of 
bias in decisions made by the technical committees 
responsible for preparing specifications and reviewing 
tender submissions. 
 
Area Administered by Turkish Cypriots: 
 
Although the Embassy is unaware of any recent complaints 
from U.S. businesses involving corrupt practices in the 
north, anecdotal evidence suggests that corruption and 
patronage continue to be a factor in the economy, despite 
recent ?government? efforts to introduce standards of 
transparency in licensing and tendering. 
 
 
Bilateral Investment Agreements 
 
Government-Controlled Area: 
 
The Government of Cyprus has 15 bilateral agreements for 
the encouragement and reciprocal protection of investments 
with the following countries: Armenia, Belgium, Bulgaria, 
Belarus, China, Egypt, Greece, Hungary, India, Israel, 
Lebanon, Poland, Romania, and the Seychelles.  Another 40 
bilateral investment agreements are currently under 
negotiation.  Cyprus does not have a bilateral investment 
protection agreement with the United States; however, the 
Cypriot Ministry of Foreign Affairs and the U.S. State 
Department have exchanged letters on the reciprocal 
protection of investments. 
 
Cyprus has entered into bilateral double tax treaties with 
a total of 40 countries.  The main purpose of these 
treaties is the avoidance of double taxation of income 
earned in any of these countries.  Under these agreements, 
a credit is usually provided for tax levied by the country 
in which the taxpayer resides for taxes imposed in the 
other treaty country.  The effect of these arrangements is 
normally that the taxpayer pays no more than the higher of 
the two rates.  Cyprus has such agreements with Armenia, 
Austria, Azerbaijan, Belarus, Belgium, Bulgaria, Canada, 
China, the Czech Republic, Denmark, Egypt, France, Germany, 
Greece, Hungary, India, Ireland, Italy, Kuwait, Kyrgystan, 
Malta, Mauritius, Moldova, Norway, Poland, Romania, Russia, 
Singapore, Slovakia, Slovenia, South Africa, Sweden, Syria, 
Tajikistan, Thailand, Ukraine, United Kingdom, the United 
States, and Yugoslavia.  Treaties with Algeria, Estonia, 
and Kazakhstan are at various stages of negotiations. 
 
The Republic of Cyprus has Trade Centers (under the 
Ministry of Commerce, Industry and Tourism) in eleven 
locations outside Cyprus, including one in New York City 
handling trade with the United States of America, Canada, 
and Latin America.  The full list of these offices can be 
downloaded from: 
 
http://www.mcit.gov.cy/mcit/trade/trade.nsf/ 
 
Main?OpenFrameSet 
 
Contact details for the New York Trade Centre follow: 
 
Mr. Aristos Constantinou 
Commercial Counsellor 
Cyprus Trade Centre in New York 
13 East 40th Street 
New York, NY 10016 
Tel: 212-213-9100 
Fax: 212-213-2918 
E-mail: ctcny@cyprustradeny.org 
http://www.cyprustradeny.org 
 
 
OPIC and Other Investment Insurance Programs 
 
The U.S. Overseas Private Investment Corporation (OPIC) is 
not active in Cyprus, but OPIC finance and insurance 
programs are open and may be useful when bidding on BOT 
contracts in the government-controlled area.  The 
Government of Cyprus has started a campaign to attract U.S. 
corporate investors.  Cyprus is a member of the 
Multilateral Investment Guarantee Agency (MIGA). 
 
 
Labor 
 
Government-Controlled Area: 
 
The local labor force in the government-controlled area of 
Cyprus is estimated at 367,200 persons.  Of these, 6.5 
percent work in agriculture, 0.6 percent in fishing and 
mining, 10.9 percent in manufacturing and utilities, 9.9 
percent in construction, and the remaining 72.1 percent in 
services (including 28.4 percent in trade and tourism). 
 
Since 1977, the rate of unemployment in Cyprus has not 
exceeded 4.0 percent of the economically active population, 
significantly lower than the more than 10 percent EU 
average rate of unemployment.  Unemployment stood at 3.5 
percent in 2006, compared with 3.7 percent the year before. 
 
Cyprus has a high per capita rate of college graduates, 
including many U.S. graduates, and offers an abundant 
supply of white-collar workers.  English is widely spoken, 
a legacy of Cyprus's experience as a British colony (until 
1960). 
 
In response to labor shortages in recent years, more women 
have joined the labor force (women are now about 44.0 
percent of the labor force, compared with 33.4 percent in 
1980) and a growing number of Cypriots are repatriating 
from abroad.  There are also 59,000 legally-registered 
foreign workers in Cyprus, including about 15,000 live-in 
domestic servants.  There are also many illegal workers -- 
30,000 according to one unofficial estimate. 
 
The legislated minimum wage for sales assistants, clerks, 
paramedical, and child care staff is currently CP 362 (USD 
760 per month), rising to CP 385 (USD 808) after six 
months' employment.  Neither amount is sufficient to 
provide a decent standard of living for a worker and 
family.  All other occupations, including unskilled 
workers, are covered under collective bargaining agreements 
between trade unions and employers within the same economic 
sector, and the wages set in these agreements are 
significantly higher than the legislated minimum wage. 
Existing legislation requires that foreign workers receive 
at least the minimum wage.  The starting minimum wage for 
foreign domestic servants, however, is CP 150 (USD 330) per 
month plus CP 40 (USD 88) for lodging if the worker is not 
a live-in. 
 
Currently, about 71.0 percent of the labor force is 
unionized (compared to 80.0 percent in 1980), which gives 
the unions a strong say in collective agreements.  Head-on 
confrontations between management and unions do occur, 
although long-term work stoppages are rare.  A recent study 
by Harvard University covering 60 countries found that 
union power in Cyprus was perceived to be "the strongest in 
the world," while labor relations were perceived to be 
"relatively peaceful."  International business companies 
are not required to hire union labor.  The continued 
existence and method of calculating the current economy- 
wide, twice per year, Cost of Living Allowance (COLA) for 
employees is a contentious issue between unions and 
employers.  Nonetheless, this practice is not expected to 
change in the near-term. 
 
Area Administered by Turkish Cypriots: 
 
The labor force in the area administered by Turkish 
Cypriots is estimated at 95,025.  The breakdown of 
employment by sector is as follows: 15.1 percent in 
agriculture, 9.5 percent in manufacturing and utilities, 
17.5 percent in construction, and 57.9 percent in services 
(including 11.4 percent in trade and tourism).  The minimum 
wage effective January 1, 2006 was 780 new Turkish Lira 
(YTL) per month (around 577 USD).  The rate of unemployment 
is estimated at around 9 percent. 
 
 
Foreign-Trade Zones/Free Ports 
 
Government-Controlled Area: 
 
Cyprus has three Free Zones (FZs).  The first two, located 
in the two main ports of Limassol and Larnaca, are used 
only for transit trade, while the third, located near the 
international airport in Larnaca, can also be used for 
repacking and reprocessing.  These areas are treated as 
being outside normal EU customs territory.  Consequently, 
non-EU goods placed in FZs are not subject to any import 
duties, VAT or excise tax.  FZs are governed under the 
provisions of relevant EU and Cypriot legislation.  The 
Department of Customs has jurisdiction over all three areas 
and can impose restrictions or prohibitions on certain 
activities, depending on the nature of the goods. 
Additionally, the Ministry of Commerce, Industry and 
Tourism has management oversight over the Larnaca FZ. 
 
Companies given permission to locate in the Larnaca FZ take 
advantage of the fact that the FZ operates outside the 
normal jurisdiction of Cyprus Customs.  This allows the 
company to import raw materials or goods for transshipment 
without paying the normal import duty and VAT.  The only 
limitation is that the goods must be sold or re-exported 
strictly outside the EU.  If the company wants to do 
business with the local market, it must obtain permission 
from Customs and pay the appropriate duties. 
 
The procedure for applying is straightforward.  Interested 
companies apply to the Ministry of Commerce, Industry, and 
Tourism (contact info given below), laying out their 
investment plans.  The Ministry reviews the application and 
makes a recommendation.  An inter-agency Council, with 
participation from the Central Bank of Cyprus and the 
Ministry of Finance, reviews the application and the 
Ministry of Commerce, Industry and Tourism issues approval. 
Contact information follows: 
 
Mr. George Michael 
Commerce and Industry Officer A' 
Ministry of Commerce, 
   Industry and Tourism 
1421 Nicosia 
Tel. 357-22-867235 
Fax. 357-22-375120 
E-mail: mcindustry2@cytanet.com.cy 
Website: http://www.mcit.gov.cy/mcit/trade/trade.nsf/ 
 
Main?OpenFrameSet 
 
 
Foreign Direct Investment Statistics 
 
Government-Controlled Area: 
 
In the run-up to EU accession (May 1, 2004), Cyprus 
dismantled most investment restrictions, attracting 
increased flows of Foreign Direct Investment (FDI), 
particularly from the EU.  According to the latest United 
Nations Conference on Trade and Development (UNCTAD) "World 
Investment Report 2006," Cyprus ranks among the world 
leaders per capita in terms of attracting foreign direct 
investment. 
 
In 2005, the inflow of FDI reached USD 1.17 billion, 
compared with USD 1.08 billion in 2004.  Most of the new 
investment in 2005 (58.9 percent) originated from the EU, 
and particularly from Greece, the U.K., and Germany. 
Another 35.3 percent came from non-EU countries in Europe, 
and 4.2 percent from the Americas.  In terms of sectoral 
allocation, incoming FDI in 2005 went to the following 
sectors: mining and quarrying 1.7 percent; manufacturing 
3.6 percent; construction 6.9 percent; real estate and 
business activities 32.9 percent; trade 25.3 percent; and 
other services 26.4 percent. 
 
U.S. investors may benefit from Cyprus?s abolition of EU- 
origin investment restrictions, provided they operate 
through EU subsidiaries.  The inflow of U.S. FDI in Cyprus 
in 2005 reached USD 8.4 million, compared with USD 85.4 
million in 2004.  U.S. investment in Cyprus was unusually 
high in 2004 due to a large (USD 60.9 million), one-off 
project in business and management consultancy services. 
U.S. investment in 2005 was focused in mining and 
quarrying.  A further breakdown of direct investment from 
the U.S. is unavailable as it is considered confidential by 
the Central Bank.  Projects involving U.S. investment in 
recent years have included a well-known U.S. coffee 
retailing franchise, a university, an information 
technology firm, an equestrian center, a hair products 
manufacturing unit, a firm trading in health and natural 
foodstuffs, and a financial services company. 
 
Additional information, with graphs, on foreign direct 
investment statistics can be obtained from: 
 
http://www.investincyprus.gov.cy/mcit/iic.nsf / 
 
dmlstatistics_en/dmlstatistics_en?OpenDocumen t 
 
Area Administered by Turkish Cypriots: 
 
No detailed statistics on investment in the area 
administered by Turkish Cypriots are available.  However, 
it is clear that most foreign direct investment in north 
Cyprus since 1974 has come from Turkey ? both from the 
government and the private sectors.  The sector, which has 
attracted most investment, has been tourism and real 
estate.  Currently, there are plans for several large 
hotels in coastal areas in the north and one large marina. 
Web Resources 
 
American Embassy in Nicosia: 
 
http://www.americanembassy.org.cy 
 
Commercial Section in Nicosia: 
 
http://www.buyusa.gov/cyprus/en 
 
Government-Controlled Area: 
 
Ministry of Commerce, Industry, and Tourism 
 
http://www.investincyprus.gov.cy 
 
Foreign Investors Service Centre (FISC) 
 
http://www.mcit.gov.cy 
 
Ministry of Finance: 
 
http://www.mof.gov.cy/mof/mof.nsf/Main?OpenFr ameset 
 
Central Bank of Cyprus: 
 
http://www.centralbank.gov.cy/nqcontent.cfm?a _id=37 
 
Department of Merchant Shipping: 
 
http://www.shipping.gov.cy 
 
Area Administered by Turkish Cypriots: 
 
?TRNC State Planning Organization:? 
 
http://www.devplan.org/ 
 
Turkish Cypriot Chamber of Commerce: 
 
http://www.ktto.net/english/about.html 
 
END TEXT 
 
SCHLICHER