Economic and Business Infrastructure
Cyprus is the third largest island in the Mediterranean Sea, with an area of 9,251 square kilometers. 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 a third of the territory remains under Turkish occupation. The so-called Turkish Republic of North Cyprus is recognized only by Turkey, and all the references in this chapter 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 center. Apart from its strategic geographical location, relaxed way of life, and attractive climate, it offers an excellent commercial infrastructure, a highly educated English- speaking labor 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 seven hours ahead of New York, two hours ahead of London, one hour behind Moscow, and five 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 (EU) 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 joining the EU, 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 International Monetary Fund (IMF), the United Nations (UN), the World Bank, and the World Trade Organization (WTO), and a founder member of the Organization for Security and Cooperation 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 harmonized 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 double taxation treaties covering 50 countries.
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 Organization for Economic Cooperation and Development (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.
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 US $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 favorable investment conditions and supporting private initiatives. Foreign participation in the economy has been officially encouraged and liberalized for many years. 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 and there is a growing awareness among foreign corporations and individuals of the advantages of using Cyprus as a business base for both inward and outward investment.
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 favorable conditions for investments made by nationals of one treaty state in the other treaty state for their mutual benefit ona 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.
World-class professional and business services are available: there are many well-qualified lawyers who are experienced in all aspects of company law and tax planning and the principal international accounting firms have offices in Cyprus, as well as insurance, financial services, and fiduciary companies. Limassol, Cyprus's commercial and shipping center, is among the world's most Important third-party ship management centers. The Cyprus tele- communications system is excellent and costs are among the lowest in Europe.
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 transshipment centers.
DOING BUSINESS IN CYPRUS
In general, there are no restrictions on direct investments by natural or legal persons from EU Member States except in regulated sectors such as financial services. Investors from the EU wishing to register a company in Cyprus may do so through a local lawyer.
They also may acquire shares in existing companies. Investors from the EU also may acquire up to 100 per cent of the share capital of a company listed on the Cyprus Stock Exchange. As noted below, there are limited exceptions in strategically important or regulated sectors.
Direct Investment by Non-European Union Citizens
Foreign direct investment in Cyprus from non-EU countries has been fully liberalized since 1 October 2004. Except in regulated sectors such as financial services, there are no minimum investment requirements or limits on the maximum percentages of participation. There is no distinction between companies carrying on business outside Cyprus (previously known as offshore or international business companies) and companies carrying on business inside Cyprus.
One of the practical effects of the liberalization is that non-EU investors wishing to register companies in Cyprus or buy shares in existing Cyprus companies no longer need to seek approval from the Central Bank of Cyprus. The rules for indirect investment are identical to those applied to EU investors. Up to 100 per cent of the share capital of a company listed on the Cyprus Stock Exchange may be acquired.
Restricted Investment Sectors
For both EU and third-country investors, a small number of restrictions do exist in respect of acquisitions in areas related to national interest. In the banking sector, the maximum equity participation is 50 per cent, and no individual may own, directly or indirectly, more than nine per cent of a bank's share capital without the approval of the Central Bank of Cyprus. Specifically, there are restrictions on investment in the areas of real estate, tertiary education, public utilities, radio and television stations, newspapers, magazines, and airlines. The Acquisition of Immovable Property (Aliens) Law, which regulates the purchase of immovable property in Cyprus by non-Cypriots, is a relic of British rule, and the restrictions on foreign ownership of immovable property have all but disappeared.
Since Cyprus joined the EU in 2004, the restrictions on EU citizens have been removed and EU citizens and companies incorporated in other EU member states are free to acquire property on the same terms as Cyprus citizens. Only third-country nationals and Cyprus companies controlled by them are required to go through the approval procedure set out in the law, which in any event is generally a formality.
The provision of public utility services is covered by specific legislation, such as the production and distribution of electricity, telecommunication services, and postal services. With the exception of universities, all private tertiary education institutions can be founded and operated only by EU nationals.
Based on the registration requirements of certain medical professions, only Cyprus nationals or other EU nationals are allowed to exercise their profession in Cyprus. Such professions include, but are not limited to, dentists, dental technicians, psychologists, opticians, chemists, dieticians, physiotherapists, and psychiatrists. Non-EU nationals can individually obtain up to five per cent of the total share capital of broadcasting corporations (television and radio stations), while the total percentage of share capital owned by non-EU nationals is limited to 25 per cent.
Import Controls and Duties
As a member of the EU and the EU Customs Union, Cyprus is committed to the free movement of goods, persons, services, and capital across EU Member States. The common EU customs tariff applies to goods imported from third countries. Import restrictions are, therefore, introduced only where they are necessary on the grounds of public morality, public policy, or public security; protection of health and life of humans, animals, or plants; protection of national treasures possessing artistic, historic, or archaeological value; and protection of industrial and commercial property, provided that these grounds are not used as a means of arbitrary discrimination or as a disguised restriction on trade. Import restrictions fall into two categories. In the first, the importation of certain articles is prohibited. In the second, there is a requirement for an import license. The main articles falling in the first category are those that could prove detrimental to the people, flora, or fauna of Cyprus. Thus, items such as firearms, daggers, narcotics, seditious publications, and certain agricultural products, such as raw vegetables, mushrooms, citrus fruits, vine plants, and grapes, are included.
The articles that may require import licenses appear in relevant lists published in the Official Gazette. These articles are of a varied nature, ranging from rubber gloves and matches to raw materials for medicine. Certain exports also are subject to licensing requirements, and the exporting of antiques is prohibited except under a special license from the Director of Antiquities.
Successive Cyprus governments have been keen to encourage foreign investment in Cyprus. To facilitate this aim, a number of incentives have been established. These include the following:
- A favorable business environment, with well-educated human capital available at reasonable rates of pay, and world-class infrastructure and services;
- A low taxation environment underpinned by double-taxation treaties with the main economic powers as well as developing nations;
- Freedom from exchange controls, allowing profits, interest, and dividends from approved investments, capital invested, and any capital gains from the disposal of shares in such investments to be freely remitted overseas;
- Membership of the EU and the Eurozone, providing a base for the production and export of goods to the large EU market;
- Modern industrial estates, bonded factories and warehouses, and the Larnaca Free Zone (LFZ), close to the port and international airport, to which equipment and raw materials may be imported free of customs duty through which products manufactured in the LFZ may enter the domestic market on payment of the lowest preferential tariff;
- A framework of grants and other financial incentives; and
- A network of 24 bilateral treaties for the encouragement and reciprocal protection of investments, with more under negotiation.
International Business Entities
Until the end of 2002, Cyprus had a special tax regime for international business companies, i.e., companies incorporated and resident in Cyprus but having all their activities outside Cyprus. In preparation for EU accession, the old arrangements were phased out and, since 1 January 2003, there has been:
- A single corporation tax rate for all Cyprus-resident companies;
- No geographical limitation on the exercise of any company's activities, whereby its income may be derived from any source, including a Cyprus-based source; and
- No restriction on the ownership of a company's shares.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.