Cyprus: Doing Business In Cyprus

Introduction

Cyprus is the third largest island in the Mediterranean Sea, with an area of 9,251 square kilometres. It is strategically located in the Eastern Mediterranean at the crossroads of Europe, Asia and Africa. Its total population is estimated at 1.1 million, of whom approximately 840,000 live in the area controlled by the Republic of Cyprus according to the 2011 census. Up to date information for the occupied area is unavailable.

The island was invaded in 1974 by the Turkish army and about 37% of the territory remains under Turkish occupation. The so-called Turkish Republic of North Cyprus is recognised only by Turkey, and all the references in this brochure to Cyprus relate to the legitimate government of the Republic of Cyprus. While political uncertainty continues to surround "the Cyprus problem", and it is hoped that there will be a satisfactory resolution in the near future, day-to-day business life is unaffected by the issue.

Cyprus is very well placed as an international business and financial centre. Apart from its strategic geographical location, relaxed way of life and attractive climate, it offers an excellent commercial infrastructure, a highly educated English-speaking labour force, a business-friendly environment, particularly in the area of taxation, a high standard of living and a low rate of crime. Living costs are moderate, and good airline connections and telecommunications and increasing alignment with the European position in matters of culture and trade make it an effective bridge between West and East. Its time zone is 7 hours ahead of New York, 2 hours ahead of London, 1 hour behind Moscow and 5 hours behind Beijing. The official languages are Greek and Turkish, but English is the lingua franca of business.

Cyprus is an independent, sovereign republic with a presidential system of government and a written constitution which safeguards the rule of law, political stability, human rights and the ownership of private property. Cyprus has been a member of the European Union since 1 May 2004. In preparation for EU membership Cyprus made significant structural and economic reforms that transformed its economic landscape and created a modern, open and dynamic business environment. Since accession, Cyprus has successfully faced the challenge of European integration, and has established itself as the natural portal for inward and outward investment between the EU and the rest of the world, particularly the rapidly-growing economies of Russia, Eastern Europe, India and China. Cyprus is a member of the Commonwealth, the Council of Europe, the IMF, the UN, the World Bank and the WTO, and a founder member of the Organization for Security and Co-operation in Europe.

On 1 January 2008 Cyprus adopted the euro as its currency.

The legal system, modelled on the English common law system since independence in 1960, is harmonised with the acquis communautaire of the EU. Cyprus is a signatory to a large number of international conventions and treaties, including an extensive network of more than 40 double taxation treaties.

Cyprus is a low-tax jurisdiction whose fiscal and regulatory regimes are aligned with EU norms, particularly the Code of Conduct for Business Taxation, and fully satisfy the

requirements of the OECD, the Financial Action Task Force of the OECD and the Financial Stability Forum. It has been on the OECD White List of jurisdictions complying with international best practice since its inception. The regulatory framework is designed to maintain the respectable and responsible reputation of Cyprus while allowing businesses to conduct their activities in an environment as free as possible from onerous bureaucratic restrictions.

Commercial environment

Cyprus has an open, free-market, service-based economy with some light manufacturing. According to the International Monetary Fund, in 2012 GDP per capita was USD 27,086, thirty-seventh in the world and on a par with Malta and the Czech Republic. The United Nations Human Development Index for 2012 ranks Cyprus thirty-first in the world as regards quality of life.

The government's economic policy is aimed at promoting and maintaining favourable investment conditions and supporting private initiatives. Foreign participation in the economy has been officially encouraged and liberalised for some time. Administrative procedures have been simplified and in all but a few strategic or specifically regulated industries such as banking there are no limits on foreign investment. Citizenship is available for significant investors. There is a growing awareness among foreign corporations and individuals of the particular advantages of using Cyprus as a business base for both inward and outward investment. At the 2011 population census, 24% of residents of the government-controlled area were non-Cypriots, of whom a small majority were EU nationals.

In recent years the inflow of approved foreign investment has increased considerably. Cyprus has 24 bilateral treaties for the encouragement and reciprocal protection of investments and more are under negotiation. The purpose of the treaties is to create and maintain favourable conditions for investments made by nationals of one treaty state in the other treaty state for their mutual benefit on a long-term basis, to guarantee the protection of such investments (including the repatriation of profits) and to establish procedures for settling any disputes that may arise. Cyprus is a signatory to the convention which in 1988 established the Multilateral Investment Guarantee Agency, a member of the World Bank Group.

There are many well-qualified lawyers who are experienced in all aspects of company law and tax planning. The principal international accountancy firms practise in Cyprus, as well as insurance, financial services and fiduciary companies. Limassol, Cyprus's commercial and shipping centre, is among the world's most important third party ship management centres.

The Cyprus telecommunications system is excellent and costs are among the lowest in Europe. CYTA, the government-owned service provider, operates fixed and mobile networks with a full range of voice and data services. Following liberalisation of the market a number of other service providers now offer similar services in competition to CYTA.

The government has established a free trade zone close to Larnaca offering excellent infrastructure, low rents and customs-free status. It also plans to establish a Software Technology Park to stimulate and encourage the flow of knowledge and technology among research, development and educational institutions, corporate bodies and other participants in the IT market.

The country's two international airports, situated near Larnaca and Paphos, which serve numerous international airlines, were reconstructed and upgraded in the past few years

Seaborne traffic is served by the two multi-purpose ports of Limassol and Larnaca, which are used as warehouse, distribution and container transhipment centres.

Taxation

The far-reaching tax reform that took effect on 1 January 2003 brought about major changes to the Cyprus taxation system. An increase in the rate of VAT to 15% (since increased to 19% but still among the lowest rates in Europe) made possible a reduction of certain taxes and the abolition of others. The old, complex tax regime was replaced by a new system that eliminates discrimination and differential treatment between different categories of business and is simple and transparent. The distinction between local and international companies was abolished and the corporate tax rate is now uniform and only 12½%, among the lowest in the EU. The maximum tax rate for resident individuals is 35%.

Exchange control

With the abolition of exchange controls on 1 May 2004 both residents and non-residents, whether individuals or corporate bodies, may hold and manage assets and liabilities in any currency and in any country. There is no distinction between nationals of Cyprus, nationals of other EU member states or third country nationals.

Anti money-laundering measures

The principal anti-money laundering legislation in Cyprus is the Prevention and Suppression of Legalising Proceeds from Illicit Actions Law of 2007, Law 188(I) of 2007 ("the Law"). The Law, which was passed on 31 December 2007, consolidates, amends and replaces the Prevention and Suppression of Money Laundering Activities Laws of 1996 to 2004 with effect from 1 January 2008.

The Law contains both suppressive and preventive provisions against money laundering, and fully implements the Third Anti- Money Laundering Directive, Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 and the Financial Action Task Force's ("FATF") revised 40 Recommendations against money laundering and its 9 Special Recommendations against terrorist financing.

The Law criminalises money laundering from all crimes punishable with imprisonment in excess of one year as well as terrorist financing activities. All persons carrying on "relevant financial business" (including credit institutions, investment firms, insurance companies, lawyers, accountants, real estate agents and dealers in precious metals and stones) are obliged to implement strict procedures to preventing the abuse of their services for money laundering. Persons subject to the Law are required to implement procedures for customer identification, record keeping and internal reporting. They must ensure that their employees are aware of their obligations under the Law and provide adequate training to assist them in recognising money laundering transactions. Organisations must appoint properly qualified persons as "Money Laundering Compliance Officers".

The Law designates the Central Bank of Cyprus ("CBC") as the competent supervisory authority for all banks operating in Cyprus and assigns to it the responsibility of ensuring banks' compliance with the provisions of the Law. The CBC is also the supervisory authority for providers of money transmission services. The relevant professional bodies are responsible for their members' activities.

The CBC has issued useful guidance on customer identification, record keeping and other procedures for the prevention of money laundering, including the identification of beneficial owners of accounts and transactions and checks on the source and legitimacy of funds flowing through the banking system in Cyprus. These are available on the website of the Central Bank of Cyprus.

The Law established a special Unit for Combating Money Laundering ("MOKAS") as part of the Attorney General's Office, to take responsibility for the receipt and analysis of suspicious transaction reports and money laundering and terrorist financing investigations.

The measures taken in Cyprus for combating money laundering and terrorist financing have been evaluated several times by the FATF and the Council of Europe's Moneyval Committee, an FATF regional body whose membership comprises all European states, including Cyprus, which are not members of the FATF.

In its official report published in June 2000, the FATF recognised that the anti-money laundering system of Cyprus complies with international standards. Subsequent evaluation reports adopted by the Moneyval Committee commend the legal and other measures taken by Cyprus in line with international conventions and standards, and the efficiency and effectiveness of the practical implementation of those measures.

Immigration

Cyprus has aligned its immigration law and regulations with the EU's acquis communautaire on matters such as entry and stay of third country nationals for self- employment and study purposes and long-term residence. Nationals of non-EU countries who have been residing in Cyprus for at least five years are entitled to Long-Term Residence Permits which have an indefinite limit; their issue is a requirement imposed on all EU member states. Visa obligations for foreign nationals are in line with EU obligations. Cyprus is a signatory to the Schengen agreement and is currently going through the pre-implementation evaluation procedure. A "fast-track" economic citizenship programme, offering accelerated citizenship by naturalisation to qualifying persons, is also available.

Work permits

Citizens of EU member states may work in Cyprus. If they are employed, they must obtain residence permits, to which they are entitled as of right. Nationals of other countries wishing to work in Cyprus require employment permits. These are granted for employment by a specific employer and are normally valid for one year, although they can be renewed .

As part of its drive to attract foreign investment the government has put in place a "fast-track" scheme for dealing with applications by foreign companies to employ workers from third countries, offering:

  • simplified procedures and conditions for granting work and residence permits for third country employees of foreign companies;
  • reduction of the time taken to examine applications;
  • indefinite work and residence permits for senior management and other key employees;
  • streamlined procedures for domestic staff employed by senior management personnel;
  • reduction of documentation required to support applications to the essentials; and
  • relaxation of re-entry visa requirements for third country workers who frequently travel outside Cyprus.

In particular, Russian businessmen in senior management positions who reside mainly in Cyprus may apply for permanent residence permits, and a fast-track procedure has been established for applications to be examined by the Immigration Control Committee. The Committee liaises closely with the Russian Chamber of Commerce and the Embassy of the Russian Federation in Cyprus in order to resolve any problems that may arise.

Economic citizenship programme

The Civil Registry Law, 141(I) of 2002 provides for non-Cypriots of full age and capacity to acquire citizenship by naturalisation. Applicants are generally required to have lived in Cyprus for seven years prior to submitting an application. In 2013 the Cyprus government introduced a fast-track procedure under which qualifying persons can obtain Cypriot citizenship by naturalisation on an accelerated basis. Applicants must own a permanent residence in Cyprus with a value of €500,000 or more excluding VAT and have no criminal record and no asset freezing orders outstanding against them. In addition they must satisfy at least one of the following criteria:

  • The applicant has invested at least €2 million in the purchase of shares or bonds (or a combination of the two) issued by the National Investment Company that is to be established and has donated €500,000 to the government Research and Technology Fund. Pending the establishment of the National Investment Company the funds may be deposited with the government.
  • The applicant has invested at least €5 million in Cyprus in the following:
    • acquisition of immovable property (residential properties, commercial properties, hotels, and other similar types of properties). Undeveloped land does not qualify;
    • acquisition of businesses or companies based and operating in Cyprus;
    • acquisition of shares of companies registered in Cyprus;
    • acquisition of financial assets such as bonds registered and issued by the Republic of Cyprus including those which will be issued by the Solidarity Fund in accordance with the National Solidarity Fund Law of 2013;
    • participation in a company or a joint venture which is undertaking the execution of a project in Cyprus. The investments concerned must be retained and not fall below the specified minimum for at least three years.
  • The applicant has deposits in Cyprus banks amounting to €5 million for a minimum term of 3 years. The deposits may be personal or corporate or held by a trust of which the applicant is the beneficiary.
  • The applicant has a combination of the investments specified in the preceding paragraphs amounting to at least €5 million.
  • The applicant has significant business activities in Cyprus, being a substantial shareholder or beneficial owner of a company incorporated and doing business in
  • Cyprus which has paid at least €500,000 per year to public revenues or for professional services over the preceding three years. If the company concerned is based in Cyprus and employs at least 5 Cypriot citizens the annual expenditure requirement is reduced from €500,000 to €350,000. If it is based in Cyprus and employs at least 10 Cypriot citizens the annual expenditure requirement is reduced to €200,000. If the annual payments fall short of the required minima the shortfall may be made good by financial investments described in earlier paragraphs. Up to two applications for naturalisation may be submitted in respect of a company.
  • The applicant was the holder of deposits in Bank of Cyprus or Laiki Bank at 15 March 2013 and incurred losses of €3 million or more as a result of the measures imposed on the two banks during March 2013. If the loss was less than €3 million the shortfall may be made up by investment in government funds or assets in Cyprus.

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