VZCZCXYZ0000
RR RUEHWEB

DE RUEHNC #0032/01 0141019
ZNR UUUUU ZZH
R 141019Z JAN 08
FM AMEMBASSY NICOSIA
TO RUEHC/SECSTATE WASHDC 8485
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPCIM/CIMS NTDB WASHDC
INFO RUEHAK/AMEMBASSY ANKARA 5106
RUEHTH/AMEMBASSY ATHENS 3959
RUEHBS/USEU BRUSSELS

UNCLAS NICOSIA 000032 
 
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: 2008 INVESTMENT CLIMATE STATEMENT 
 
REFS: (A) 07 STATE 158802, (B) 07 NICOSIA 0045 
 
Per Ref A request, Post submits below the 2008 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, 2008 
 
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 for inward 
investment.  At the same time, the Government of Cyprus 
offers 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) for EU 
investors.  Specifically, the GOC has lifted most capital 
restrictions and limits on foreign equity participation 
or 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 required 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. 
 
In 2007, the GOC established the Cyprus Investment 
Promotion Agency (CIPA) tasked with attracting foreign 
investment, advising foreign investors, and providing 
assistance to them.  The CIPA will operate as a private 
organization reporting to the Ministry of Commerce, 
Industry, and Tourism and will work in tandem with the 
Foreign Investors Service Centre, under the same 
ministry.  The CIPA is not fully staffed yet and will be 
launched officially in 2008.  Through these two 
organizations, Cypriot authorities offer expedited 
processing by other GOC departments for larger projects 
(over USD 2.2 million) in line with country-sustainable 
growth, e.g. benefiting Cyprus' economic development 
goals and objectives.  For example, a proposed Cyprus- 
U.S. joint venture, involving the establishment of a 
health spa/residential estate project in the foothills of 
the Troodos mountains, received the first ever such 
expedited processing about a year ago.  Additional 
information, including a PDF "Guide for Foreign 
Investors," and information on expedited treatment of 
investment applications can be obtained from the two 
organizations directly: 
 
The Foreign Investors Service Centre 
Ministry of Commerce, Industry & Tourism 
13-15 Andreas Araouzos 
1421 Nicosia 
Cyprus 
Tel. +357-22-409433, 22409322, 22409328 
Fax: +357-22-409432, 22375541 
Email: onestopshop@mcit.gov.cy 
Website: www.investincyprus.gov.cy 
 
Ms. Marina Theodotou 
Deputy Director 
Cyprus Investment Promotion Agency (CIPA) 
9A Makarios Ave 
Severis Bldg 
4th Flr 
1065 Nicosia 
Tel. +357-22-441133 
Fax: +357-22-441134 
E-mail: mtheodotou@cipa.org.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 
 
Government-Controlled Area: 
 
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. 
 
For information pertaining to the risks associated with 
investing in Greek Cypriot property in the north or in 
Turkish Cypriot property in the government-controlled 
area, please see the section on "Protection of Property 
Rights." 
 
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 companyQs 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.  These advantages have 
encouraged thousands of foreign investors to set up 
companies in Cyprus, structuring their investments 
through a holding company on the island or investing here 
directly.  As a result, the number of annual company 
registrations continues to grow, particularly since EU 
accession in 2004. 
 
A low level of taxation is one of Cyprus's major 
advantages.  At 10 percent, CyprusQs corporate tax rate 
is currently the lowest among the EUQs 27 countries. 
CyprusQs other tax advantages include: 
 
-- one of the EUQs 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. 
 
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 Q 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 Q notwithstanding the fact that they are 
not so registered in the books of the Land Registry 
Office." 
 
It must be stressed, though, that the Republic of Cyprus 
outright rejects 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. 
 
A new QOne-stopQ investment office was created in late 
2007 with the responsibility of approving all investment 
and providing incentives. Contact information: 
 
QNorth Cyprus Investment Development AgencyQ 
Tel. 90 392 228 9378 
e-mail: ayse_donmezer@yahoo.com 
 
 
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 
foreign investorQs right to private ownership and 
establishment in Cyprus.  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 or  set up in 
Cyprus a campus of an existing university abroad  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 BankQs 
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: 
 
The Acquisition of Real Estate (Aliens) Cap and the 
Amending Laws of 2003, in force since May 1, 2004, places 
important restrictions on the acquisition of real 
property in Cyprus by non-EU persons and entities.  The 
same law also distinguishes between EU persons and 
entities that are permanent residents of Cyprus and those 
who are not, placing certain restrictions on the latter 
group, albeit, less severe than restrictions on non-EU 
persons and entities.  Specifically, this law provides 
the following: 
 
¶1.  EU nationals permanently residing in the Republic of 
Cyprus, and EU registered legal entities with 
jurisdiction, central management or primary place of 
business in the Republic of Cyprus may acquire real 
estate (of any type or size) without prior approval by 
the District Administration Offices. 
 
¶2.  EU nationals not permanently residing in the Republic 
of Cyprus and EU registered legal entities with 
jurisdiction, central management or primary place of 
business in any EU member State other than Cyprus may 
acquire land (without any structures on it) of any size 
without prior approval by the District Administration 
Offices.  However, if there is any building on this land, 
the approval of the District Administration Offices needs 
to be obtained.  Approval is granted routinely for one 
holiday home (but nor for multiple homes).  This 
derogation from the EU acquis will expire on May 1, 2009. 
After that time, all EU nationals and companies will be 
treated in the same manner, regardless of whether they 
are permanent residents of Cyprus or not. 
 
¶3.  Non-EU member State citizens, legal entities 
registered in non-EU countries, and EU registered legal 
entities controlled by non-EU citizens (as per the 
definition below), can acquire real estate subject to the 
approval of the relevant District Administration Offices. 
In case the real estate concerned exceeds two donums (one 
donum = 1338 square meters), approval may be granted only 
for residential purposes (not exceeding an area of three 
donums), professional or commercial premises, and 
industrial sectors deemed beneficial for the Cypriot 
economy and relate to the production of products or the 
utilization of new technology and/or technological know- 
how. 
 
The definition of a legal entity controlled by non-EU 
citizens is as follows: 
 
-- 50 percent or more of its board members are non-EU 
citizens; 
 
-- 50 percent or more of its share capital belongs to 
non-EU citizens; 
 
-- control belongs by 50 percent or more to non-EU 
citizens; 
 
-- Either its Memorandum or Articles of Association 
provides authority to a non-EU citizen securing that the 
companyQs 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. 
 
Cypriot legislation limiting the acquisition of land in 
Cyprus by EU residents is not in accord 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). 
 
For additional information and application forms for the 
acquisition of property by non-EU residents, the various 
District Administration Offices can be contacted through 
the Ministry of Interior website: 
http://www.moi.gov.cy/da 
 
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 GovernmentQs 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. 
 
On the intellectual property front, Cyprus has a modern 
set of laws, which it continues to upgrade.  Enforcement 
is typically quite diligent, although it can be improved 
further.  The Adoption of the Copyright Law on January 1, 
1994 and the subsequent adoption of the Patents Law on 
April 2, 1998 were important legal milestones in this 
context, helping Cyprus comply with its obligations under 
the WTO TRIPS agreement. 
 
Property claims across the buffer zone constitute one of 
the thorniest aspects of the Cyprus problem.  As a 
result, investors are well-advised to consider the risks 
associated with Greek Cypriot property in the north and 
Turkish Cypriot property in the government-controlled 
area.  Several high-profile cases have already been 
brought before the European Court of Justice and other 
international bodies, while other cases are still 
pending. 
 
The UK Foreign and Commonwealth Office website 
(www.fco.gov.uk) notes: 
 
"Property issues are closely linked to the political 
situation.  There are a number of potential practical, 
financial and legal implications, particularly for those 
considering buying property in the north.  These relate 
to the non-recognition of the "Turkish Republic of 
Northern Cyprus", the suspension of EU law in northern 
Cyprus, the possible consequences for property of a 
future settlement, and the many thousands of claims to 
ownership from people displaced in 1974.  There is also a 
risk that purchasers would face legal proceedings in the 
courts of the Republic of Cyprus, as well as attempts to 
enforce judgements from these courts of the Republic of 
Cyprus elsewhere in the EU, including the UK. 
 
Separately, potential purchasers should also ensure that 
they are fully aware of the specific rules imposed by the 
administration on foreigners purchasing property in the 
north including the requirement to obtain consent to the 
transfer of property. 
 
On 20 October 2006 a criminal code amendment relating to 
property came into effect.  Under the amendment, buying, 
selling, renting, promoting or mortgaging a property 
without the permission of the owner (the person whose 
ownership is registered with the Republic of Cyprus Land 
Registry, including Greek Cypriots displaced from 
northern Cyprus in 1974), is a criminal offence.  This 
also applies to agreeing to sell, buy or rent a property 
without the ownerQs permission.  The maximum prison 
sentence is 7 years. Furthermore, the amendment to the 
law states that any attempt to undertake such a 
 
transaction is a criminal offence and could result in a 
prison sentence of up to 5 years.  This law is not 
retrospective, so will not criminalise transactions that 
took place before 20 October 2006.  Documents relating to 
the purchase of property in northern Cyprus will be 
presumed by the Cypriot authorities to relate to the 
illegal transfer of Greek Cypriot property and may be 
subject to confiscation when crossing the Green Line. 
Anyone in possession of these documents may be asked to 
make a statement to the Cypriot authorities and may face 
criminal proceedings under the 20 October 2006 amendment. 
The full implications of this legislation are not yet 
clear.  Any enquiries about its scope should be made to 
the Cypriot representation in the UK." 
 
The following GOC website provides additional information 
on the risks of investing in the northern part of Cyprus: 
 
http://www.mfa.gov.cy/mfa/properties/occupied area 
 
_properties.nsf/index_en/index_en?OpenDocumen t 
 
Similarly, there are politically-oriented restrictions to 
investing in Turkish Cypriot property in the government- 
controlled area of Cyprus.  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 led to an unprecedented boom in the 
property market of north Cyprus in 2004.  However, since 
then, property sales have deflated by at least 25 percent 
and construction activity has declined accordingly. There 
are reports of foreign buyers of property who have been 
unable to secure title to a property even after having 
made full payment under a purchase agreement. A group 
called the QHomebuyerQs Pressure GroupQ has formed to 
seek means to mediate disputes between property sellers 
and buyers in the north. Their website is: 
http://www.hbpg-trnc.net. 
 
Intellectual property rights are not adequately protected 
in the area administered by Turkish Cypriots.  Laws are 
inadequate and antiquated and enforcement sorely lacking. 
 
 
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 three 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, and 24 points in 2007, 
making it one of the EUQs top-performing stock exchanges. 
The CSE is currently the EUQs third-smallest stock 
exchange, ahead of Malta and Slovakia, with a 
capitalization of around USD 29.0 billion as of January 
1, 2008. 
 
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 platform 
now allows capital to move freely from one exchange to 
the other, even though both exchanges retain their 
autonomy and independence.  The joint platform has 
increased the capital available to Cypriot firms and 
improved the CSEQs liquidity. 
 
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 BankQs 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). 
 
On January 1, 2008, Cyprus, along with Malta, became the 
14th and 15th states to join the Eurozone, adopting the 
Euro as their national currencies.  The Eurozone now 
covers 320 million people out of the EU's total 
population of 495 million.  For a small country like 
Cyprus, joining the Eurozone has many significant long- 
term 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. 
 
The transition to the Euro has gone quite smoothly for 
Cyprus.  The main concern was, and continues to be, 
keeping price increases in check during the transition. 
The final exchange rate was set at one Euro equals CP 
0.585274.  Cyprus will allow both the Euro and the Cyprus 
Pound to circulate on the island until the end of January 
¶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 continue to be mandatory until July 31, 2008. 
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 -Q almost 
14 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.  Shortly thereafter, 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 rather limited.  For the period 
August 2004 to November 2007, north-to-south sales 
reached USD 13 million, while south-to-north sales 
reached only USD 2.9 million.  Neither side 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 and dabbed "the Annan Plan," 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 
 
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 labor force in the government-controlled area of 
Cyprus is estimated at 372,800 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 EU average rate 
of unemployment.  At the end of June 2006, unemployment 
stood at 3.4 percent, compared with 4.1 percent a year 
earlier, which makes it the third lowest in the EU. 
 
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.  In 2007, Cyprus hosted about 
63,000 legally-registered foreign workers, including 
about 15,000 live-in domestic servants.  There are also 
many illegal workers -- more than 30,000 according to one 
unofficial estimate -Qwith the rate of illegal 
immigration increasing. 
 
The legislated minimum wage (effective April 2007) for 
sales assistants, clerks, paramedical, and child care 
staff is currently around USD 898 per month, rising to 
USD 955 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 USD 330 per month plus 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 main seaports 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 
 
 
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 2007," Cyprus ranks among the 
world leaders (22nd in 2006) in terms of attracting 
foreign direct investment on a per capita basis. 
 
In 2006, the inflow of FDI reached USD 1.50 billion, 
compared with USD 1.18 billion in 2005.  The geographic 
origin of new investment in 2006 was the EU 27.6 percent; 
non-EU countries in Europe 23.2 percent; and Asia 35.1 
percent.  In terms of sectoral allocation, incoming FDI 
in 2006 went to the following sectors: mining and 
quarrying 1.7 percent; construction 3.9 percent; trade 
and repairs 17.1 percent; financial intermediation 14.6 
percent; real estate and business activities 35.0 
percent; and other services 27.7 percent. 
 
The flow of U.S. investment in Cyprus reached USD 51.9 
million in 2006 or 3.4 percent of Cyprus' total inward 
FDI.  The stock of U.S. investment in the island was USD 
298.9 million at the end of 2006.  U.S. investment in 
2006 was focused in real estate and business activities 
(USD 27.9 million) as well as mining and quarrying (USD 
22.2 million).  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.  U.S. 
investors may benefit from CyprusQs abolition of EU- 
origin investment restrictions, provided they operate 
through EU subsidiaries. 
 
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 Q 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 Foreign Affairs: 
 
http://www.mfa.gov.cy/mfa/properties/occupied area 
 
_properties.nsf/index_en/index_en?OpenDocumen t 
 
Ministry of Commerce, Industry, and Tourism: 
 
http://www.investincyprus.gov.cy 
 
Foreign Investors Service Centre (FISC): 
 
http://www.mcit.gov.cy 
 
Ministry of Interior: 
 
http://www.moi.gov.cy/da 
 
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 
 
Cyprus Bar Association: 
 
http://www.cyprusbarassociation.org/news_en.p hp 
 
 
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 
 
ZIMMERMAN