VZCZCXYZ0000
RR RUEHWEB

DE RUEHNC #0021/01 0161309
ZNR UUUUU ZZH
R 161309Z JAN 09
FM AMEMBASSY NICOSIA
TO RUEHC/SECSTATE WASHDC 9475
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPCIM/CIMS NTDB WASHDC
INFO RUEHAK/AMEMBASSY ANKARA 5357
RUEHTH/AMEMBASSY ATHENS 4114
RUEHBS/USEU BRUSSELS

UNCLAS NICOSIA 000021 
 
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: 2009 INVESTMENT CLIMATE STATEMENT 
 
REFS: (A) 08 STATE 123907, (B) 08 NICOSIA 0032 
 
Per Ref A request, Post submits below the 2009 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 
Gregory N. Hicks, as requested. 
 
BEGIN TEXT 
 
INVESTMENT CLIMATE STATEMENT ON CYPRUS, 2009 
 
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, shipping, 
desalination and water management services 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. 
 
Since October, 2004, the GOC has lifted most investment restrictions 
concerning non-EU residents, completing earlier reforms concerning 
EU residents.  Specifically, the GOC has elimiated most capital 
restrictions and limits on foreign equity participation or 
ownership, thereby granting national treatment to investors outside 
the EU.  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 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 identical to that for local residents.  Similarly, 
foreign investors may now acquire shares in an existing Cypriot 
company directly, without previous 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 operates as a 
private organization reporting to the Ministry of Commerce, 
Industry, and Tourism and works in tandeQwith the Foreign Investors 
Service Center, under the same ministry.  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.  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 Center 
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 
Director Business Development & Operations 
Cyprus Investment Promotion Agency (CIPA) 
9A Makarios Avenue 
Severis Bldg 
4th Fl. 
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. 
 
 
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.  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." 
 
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.  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, Cyprus's corporate tax rate is currently the lowest among 
the EU's 27 countries.  Cyprus's other tax advantages include: 
 
-- one of the EU's lowest top statutory personal income tax rates at 
30 percent; 
 
-- an 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 - 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." 
 
It must be stressed, though, that the Republic of Cyprus outright 
rejects such claims and, specifically, it does not recognize title 
changes effected in the north by the Turkish Cypriot administration 
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 is 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 "One-stop" investment office was created in late 2007 with the 
responsibility of approving all investment and providing incentives. 
 Contact information: 
 
"North Cyprus Investment Development Agency" 
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 
investor's 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 building contractor in 
Cyprus is reserved for citizens of EU member states.  Non-EU 
entities are not allowed to own a majority stake in a local 
construction company.  Non-EU physical persons or legal entities may 
bid on specific construction projects but only after obtaining a 
special license by the Council of Ministers. 
 
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: 
 
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 or 
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 not 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 company's activities 
are conducted based on his/her will during the real estate 
acquisition period.  In the case that the authority is provided to 
two or more persons, a legal entity is considered to be controlled 
by non-EU citizens if 50 percent or more of the people granted such 
authority are non-EU citizens. 
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 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. 
 
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 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?OpenDocument 
 
Furthermore, 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. 
 
On the intellectual property front, the Government-controlled area 
of 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 in 1994 and the 
subsequent adoption of the Patents Law in 1998 were important legal 
milestones in this context, helping Cyprus comply with its 
obligations under the WTO TRIPS agreement. 
 
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. 
The UK Foreign and Commonwealth Office website 
(http://www.fco.gov.uk/en/about-the-fco/count ry- 
 
profiles/europe/cyprus) notes: 
 
"The ownership of many properties is disputed across the island, and 
particularly in northern Cyprus, with many thousands of claims to 
ownership of properties from people displaced during the events of 
¶1974.  Purchase of these properties could have serious financial and 
legal implications.  The European Court of Human Rights has ruled in 
a number of cases that owners of property in northern Cyprus prior 
to 1974 should continue to be regarded as the legal owners of that 
property.  Purchasers could face legal proceedings in the courts of 
the Republic of Cyprus, as well as attempts to enforce judgements 
from these courts elsewhere in the EU, including the UK.  Potential 
purchasers should also consider that a future settlement could have 
consequences for property they purchase in Cyprus (including 
possible restitution of the property to its original owners)." 
 
 
Intellectual property rights are not adequately protected in the 
area administered by Turkish Cypriots, where laws in this area 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.  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 
generally sound and well-supervised. 
 
The Cyprus Stock Exchange (CSE), launched officially in 1996, has 
already gone through two boom-and-bust cycles: one from 1998-2001 
(largely attributable to endogenous factors), and another from 
2005-2008 (mainly a result of the global credit crunch).  The CSE is 
currently the EU's third-smallest stock exchange, ahead of Malta and 
Slovakia, with a capitalization of around Euros 4.0 billion (USD 5.4 
billion) as of January 12, 2009. 
 
The launch of a joint trading platform between the CSE and the 
Athens Stock Exchange (ASE) on October 30, 2006 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 capital available to Cypriot firms and 
improved the CSE's 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 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). 
 
On January 1, 2008, Cyprus joined the Eurozone, adopting the Euro as 
the national currency. 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. 
 
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 and British 
Sterling 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 16.5 
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.  Total cross Green Line trade in 2008 totaled less 
than USD 13 million, a significant increase over previous years. 
 
The Green Line Regulation provides special rules for trade across 
the buffer zone.  The total value of goods contained in the personal 
luggage of persons crossing the Green Line has been increased to 
Euros 260 (USD 351).  Details on the Green Line Regulation are 
available from: 
 
http://www.europa-eu-un.org/articles/en/ 
 
article_7955_en.htm 
 
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. 
 
A plan for the reunification of the island, drafted under the 
auspices of the UN and dubbed "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. 
Negotiations for the resolution of the Cyprus problem between the 
Greek Cypriot and Turkish Cypriot leaders continued in 2009. 
 
 
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, Kyrgyzstan, 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 Center 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 380,400 persons.  Of these, 8.0 percent work in 
agriculture, 0.5 percent in fishing and mining, 10.6 percent in 
manufacturing and utilities, 9.9 percent in construction, and the 
remaining 71.0 percent in services (including 28.0 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 2008, 
unemployment edged up to 3.9 percent with a rising trend, albeit 
still 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 2008, Cyprus 
hosted about 65,000 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 
--with 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 70.0 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 9.4 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 2008," Cyprus ranks among the world leaders 
(18th in 2007) in terms of attracting foreign direct investment on a 
per capita basis. 
 
In 2007, the inflow of FDI reached USD 2.2 billion, compared with 
USD 1.8 billion in 2006.  The geographic origin of new investment in 
2007 was 61.0 percent from the EU; and 34.3 percent from non-EU 
countries in Europe.  In terms of sectoral allocation, incoming FDI 
in 2007 went to the following sectors: manufacturing 1.0 percent; 
construction 3.0 percent; trade and repairs 24.9 percent; transport 
and communication 3.3 percent; financial intermediation 14.8 
percent; real estate and business activities 47.6 percent; and other 
services 4.9 percent. 
The flow of U.S. investment in Cyprus reached USD 37.4 million in 
2007 or 1.7 percent of Cyprus' total inward FDI.  The stock of U.S. 
investment in the island was USD 338.2 million at the end of 2007. 
Projects involving U.S. investment in recent years have included 
real estate and various business activities, including 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 
Cyprus's 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.cipa.org.cy/cipa/cipa.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 
sectors, which have attracted most investment are tourism and real 
estate. 
 
Web Resources 
------------- 
 
Government-Controlled Area 
-------------------------- 
 
American Embassy in Nicosia: 
 
http://cyprus.usembassy.gov 
 
Commercial Section in Nicosia: 
 
http://www.buyusa.gov/cyprus/en 
 
Ministry of Foreign Affairs: 
 
http://www.mfa.gov.cy/mfa/properties/occupied area 
 
_properties.nsf/index_en/index_en?OpenDocumen t 
 
Cyprus Investment Promotion Agency: 
 
http://www.cipa.org.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 
 
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 
 
URBANCIC