The strategic location of the island of Cyprus and its considerable wealth in ancient times have made it subject to occupation by several different nations and civilizations. These occupations began many centuries before Christianity and ended in 1960 when the island became an independent republic, after 82 years as a British colony. Although the invasion of the northern part of Cyprus by Turkey in 1974 had a traumatic effect on different areas of growth, it did not hinder the economic development plans launched in 1962.
Strategic planning for economic development continues to be an essential goal of the Cypriot government. The importance of international trade and foreign investment as vehicles to offset the losses suffered by the economy of Cyprus following the Turkish invasion in 1974 was recognized at once. Foreign investment, whether direct or indirect, or in or through Cyprus, in the form of financial capital and human resources, as well as technology, know-how, and expertise was, therefore, greatly encouraged.
On 1 May 2004, Cyprus was admitted to full membership of the European Union (EU). On 1 January 2008, it adopted the euro as its national currency. In the run-up to EU membership, in order to attract inward investment and enhance economic prosperity in Cyprus, the government liberalized foreign direct investment policy for both EU and non-EU nationals.
In all but a very few strategic sectors of the economy, particularly those perceived to relate to national and public security, such as banking and media, foreign investors may now participate with no limits on equity holdings and without any prescribed minimum level of capital investment. In general, foreign investors no longer need approval from the Central Bank of Cyprus as was previously the case, and they may invest and do business in Cyprus on equal terms with local investors.
In 2006, Cyprus enacted legislation to allow the formation of European public limited companies (SEs) in line with EU Council Regulation 2157/2001. The aim of the SE regime is to allow companies incorporated in different member states (and in Iceland, Liechtenstein, and Norway) to avoid the legal and practical constraints arising from the existence of different national legal systems and to merge or form a holding company or joint subsidiary that is able to operate throughout the internal market and beyond. Incorporation as an SE can significantly reduce the costs for businesses operating in more than one member state of the EU and allow them to restructure quickly and easily to exploit the advantages presented by the internal market.
One of the major factors determining the attractiveness of an SE is the tax regime of the host country. Cyprus's low tax rates, its extensive network of double- taxation agreements, and its simple, modern tax legislation make it extremely attractive as a location for SEs. It is, therefore, likely that businesses from all over Europe will find it advantageous to re-incorporate as Cyprus SEs.
Existing companies from other member states may be merged into an SE in Cyprus without any tax cost, since Cyprus has fully implemented the EU Mergers Directive. To further facilitate inward investment, the Ministry of Commerce, Industry and Tourism has established a 'one stop shop' Foreign Investors Service Centre tasked with coordinating and simplifying potential investors' dealings with the authorities.
Admission of Foreign Investment
Except in a few sectors in which overseas participation is limited on public interest grounds, foreigners wishing to register a company in Cyprus or to buy shares in a Cyprus company may do so freely.
Investment by European Union Residents
All restrictions relating to the minimum level of investment and the maximum allowable percentage of participation in companies were abolished in 2000 in relation to resident citizens (whether individuals or corporate bodies) of the member states of the EU and the European Economic Area (EEA).
Restrictions on the acquisition of immovable property were removed in 2009 after a five-year transition period and the only remaining restrictions apply to regulated sectors such as financial services and the healthcare sector.
Investment by Non-European Union Residents
Foreign direct investment in Cyprus from non-EU countries was fully liberalized with effect from 1 October 2004. Minimum investment amounts and maximum participation percentages were generally abolished, allowing third-country citizens to invest on the same terms as EU citizens, with the following exceptions:
- Non-EU entities (persons and companies) may purchase only two real estate properties for private use. This restriction does not apply if the investment property is purchased through a domestic company or a company incorporated elsewhere in the EU.
- Non-EU entities cannot invest in the production, transfer, and provision of electrical energy. Additionally, the Council of Ministers may refuse granting a license for investment in hydrocarbons prospecting, exploration, and exploitation to a third-country national or company if that third country does not provide similar treatment to Cyprus or other EU member states.
- Individual non-EU investors may not own more than five percent of a local television or radio station, and total non-EU ownership of a local TV or radio station is restricted to a maximum of 25 per cent.
- 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, but may bid on specific construction projects after obtaining a license from the Council of Ministers.
- Non-EU entities cannot invest in private tertiary education institutions.
Economic Citizenship Program
Cyprus has an 'economic citizenship' program, granting accelerated citizenship to applicants who make substantial investments in Cyprus (above €2 million) or who are substantial shareholders of a company incorporated and doing business in Cyprus, the principal offices of which are situated in Cyprus, which employs at least ten Cypriot citizens and which has paid at least €500,000 per year to public revenues over the preceding five years.
Up to two applications for naturalization may be submitted in respect of each such company. The applicant must also have a clean criminal record and be the owner of a permanent residence in Cyprus with a value of €500,000 or more.
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