On this Page:
- Cyprus
Geography
- Cyprus
Population, Language and Culture
- Cyprus Government
- Cyprus Economy
and Currency
- Cyprus Stock Exchange
- Cyprus Entry
and Residence
- Cyprus Business
Environment
- Cyprus Larnaca
Industrial Free Zone
- Cyprus Import
of Foreign Capital
- Cyprus
Investments by Foreigners
Cyprus Geography
The island of Cyprus is the third biggest
in the Mediterranean (9,250 sq km). For the
ancients Cyprus was the home of Aphrodite, Goddess
of Love, and was also beautiful in itself. Only
some of the forest remains, but mountains and
beaches combine to make Cyprus a favourite resort.
Cyprus has a nearly ideal Mediterranean climate,
with more than 300 warm, sunny days a year,
and a brief, mild winter with occasional rain.
Back to top
Cyprus Population, Language & Culture
Cyprus has a population of just over 1.1m
(July 2011 est), of whom the majority are ethnically
Greek, living in the southern part of the island.
More than 200,000 Turkish Cypriots and Turkish
immigrants live in the northern part of the
island, separated from the south by a UN-supervised
buffer zone. The official languages in the two
zones are Greek and Turkish, but most Cypriots
speak English, which is extensively used in
business and commerce.
The main cities are Nicosia (the capital and
business centre), Limassol, Paphos and Larnaca,
these last three being coastal cities around
which the important tourist industry is concentrated.
The island's location has ensured that it played
a full part in Mediterranean history, and its
essentially Greek culture is leavened with many
other influences. Classical ruins abound, but
the most important modern influence has probably
been that of the British, whose stay has contributed
substantially to the island's Western business
environment.
Cyprus successfully completed the EU accession
process, and in May, 2004, the island joined
the EU. After a referendum on the so-called
'Annan' plan to re-unify Cyprus saw a heavy
vote against the plan in the Greek Cypriot zone
(although the Turkish Cypriot north voted in
favour) the EU's 'acquis communautaire' is temporarily
suspended in the north. Reunification is nonetheless
likely to take place along with Turkey's eventual
entry to the EU, but the referendum has soured
relationships between the parties, and the timing
or terms of reunification are now very unclear.
Back to top
Cyprus Government
Cyprus is an independent sovereign republic.
The 1960 constitution established a unicameral
presidential republic, as well as safeguarding
human rights, political pluralism and private
property. The country is a member of the UN,
the Council of Europe and the Commonwealth.
Members of the House of Representatives are
elected for a 5-year term by proportional representation.
There is a multi-party system with right-wing,
centrist, socialist and communist parties.
The last Parliamentary elections took place
in May, 2011 (next in May, 2016), with the result
that the top six parties contesting the election
are represented in the new House of Representatives.
The top four parties were the Democratic Rally
(DISY), with 34.3% of the vote, followed by
the lef-wing AKEL with 32.7%. Centre-right DIKO
acquired 15.8% and the Social Democrats (EDEK)
won 8.9% of the votes.
The executive government is appointed by the
President; presidential elections in March,
2003, saw Tassos Papadopoulos replace Glafcos
Clerides as President.
In February 2008, Papadopoulos's bid for a
second five-year term as President of Cyprus
came to an end.
It emerged after the first round of voting
in the general election held that month that
Ioannis Kassoulides, a former foreign minister
and leader of the conservative DISY party, and
Demetris Christofias, the leader of the communist
AKEL party, were the two leading candidates
to take on the country's presidency.
According to election results posted on the
Cypriot government website at the time, Kasoulides
gained 33.51% of the total votes cast, closely
followed by Christofias with 33.29%. Papadopoulos
attracted 31.79% of the vote.
Demitris Christofias subsequently became President
on February 28, 2008.
Voting in Cyprus is compulsory for all Greek
Cypriots over 18, including those enclaved in
the Turkish occupied north, Latins, Maronites,
Armenians and others who are citizens of the
Republic of Cyprus through naturalisation.
There is an independent judiciary, and the
Cyprus Supreme Court is the final court of appeal,
although of course now that Cyprus is a member
of the EU, the European Court of Justice has
jurisdiction in some areas of law.
Ongoing differences over the North, and Turkey's
putative EU entry dominate politics. In June,
2006, Cyprus avoided using its veto over the
opening of the first chapter in Turkey's EU
accession talks, on science and research.
However, the Greek Cypriot government urged
the EU to push first for action in areas such
as the opening of Turkish ports and airports
to Cypriot vessels, and the recognition by Turkey
of the authorities in Nicosia.
According to reports, they argued that Turkey
had made no progress in these areas, and only
withdrew their veto, allowing the first of 35
chapters to be opened, once a version of the
agreement text had been drawn up which warned
Turkey that: "Failure to implement its obligations
in full will affect the overall progress in
the negotiations."
Back to top
Cyprus Economy & Currency
The Greek Cypriot economy is reasonably stable,
with a high proportion of GNP (around 40%) based
on tourism. Around 3m visitors come to the island
annually, 65% from the EU, although tourist
revenue came under pressure as a result of 9/11
and sharp rises in Cyprus prices. More than
half of the tourists are British. The Government's
successful encouragement of the offshore sector
has led to the development of a European-standard
commercial and financial infrastructure, although
there is now no distinction between domestic
and offshore companies. International links
are particularly strong in the shipping and
banking sectors.
In an interview with Bloomberg in January 2011,
Athanasios Orphanides, Governor of the Central
Bank of Cyprus, said that the country's banking
sector "is sound," and has been so
throughout the financial crisis. "It is
well capitalised. Moody's acknowledges that
the capitalisation and liquidity position of
the banking sector are in good order. The strict
prudential supervision framework we have always
had, has served us well," he said, adding
that macroprudential measures taken before the
crisis "helped protect the banking sector
from an exuberant real estate market."
"In July 2007, before the turbulences
began, the Central Bank tightened loan to value
ratios on real estate loans in order to contain
the risks associated with exposure to that sector,"
Orphanides said. "That decision made our
system more resilient and this is an example
of prudential supervision action we took in
Cyprus that is now discussed as part of a toolkit
that should be considered more broadly in Europe."
However, with Cypriot banking assets totaling
over 8 times GDP, and with significant exposure
to Greece, by the summer of 2011, it was becoming
apparent that all was not well with the economy
as the eurozone crisis threatened to engulf
the island.
On August 1, Cyprus's largest commercial bank,
the Bank of Cyprus, called on the Cypriot government
to make radical decisions to reduce the budget
deficit and quash speculation that Cyprus will
require an EU-funded bailout. In a bold public
statement aimed at spurring the government into
action, the Bank of Cyprus warned of alarming
trends in Cypriot bond yields, which could put
at risk Cyprus's ability to finance its debt,
despite support from cash-rich domestic banks.
“Indecisiveness, disagreements or plain
talk without substance are punished; bold actions
are rewarded," the bank stated. "[The
Bank of Cyprus] has the capital and the ability
to support the state’s policies, provided
they are characterized by effectiveness and
vision; provided they get the country out of
the crisis, leading it to progress and prosperity
on the basis of a modern European economy -
free of perceptions that corrode [Cyprus's]
competitiveness."
"Each day of inaction increases problems
and risks, which is why we must act today, not
tomorrow," the Bank warned.
Despite some progress on reining in the budget
deficit, which is expected to fall from 5.3%
of GDP in 2010 to 4% in 2011, the Cypriot economy
was rocked by the July 11 explosion of a munitions
cache which damaged Cyprus's largest power station,
causing nationwide blackouts and disruption
to business, and saddling the government with
an estimated EUR3bn in clean-up costs.
In October 2011, the International Monetary
Fund said that the significant deterioration
in Cyprus's public finances requires a "strong
and immediate policy response" to restore
confidence in the territory's international
finance centre, according to a report from the
International Monetary Fund (IMF), which predicted
a 7% deficit for 2011.
Accordingly, in the latter half of 2011, the
Cypriot parliament approved a number of austerity
measures including higher taxes on personal
incomes, savings interest and property, and
a new annual fee on companies.
Growth averaged almost 4% until 2009 when the
economy contracted by 1.9%. There was a moderate
rebound in 2010 when GDP growth of 1.1% was
recorded, but the IMF expects that the economy
flatlined in 2011.
GDP per capita at purchasing power parity was
USD29,100 in 2011 (est).
Inflation and unemployment are both under control,
at 3.3% and 5.1% respectively in 2011.
The cost of living is approximately 65% of
the EU average. The low crime rate, good housing
conditions, excellent climate and plentiful
international air links make Cyprus a desirable
place to live.
The currency, until January 1, 2008, was the
Cyprus Pound. In 2008, the country joined the
Eurozone, alongside Malta.
The island's EU accession has of course led
to the complete removal of exchange controls,
and the Cyprus Central Bank allowed local residents
to open foreign currency accounts from March
1, 2002.
In October 2011, Standard and Poor’s
lowered Cyprus’s long-term credit rating
by a notch to ‘BBB’ from ‘BBB+’,
with a negative outlook, citing ‘credit
risk’, exposure to Greek assets, and its
dependence on the performance of its financial
services centre.
Back to top
Cyprus Stock Exchange (CSE)
The Stock Exchange began operations only in
March 1996; it is governed by a Stock Exchange
Council.
By October 2001, the market was flirting with
the 100 level, having fallen precipitously from
800 at the peak of a short-lived boom in 1999.
During 2002 and 2003 the market continued a
long-term decline, with brief spurts of growth,
reaching a level of 80 in late 2003. In 2004
and 2005 the market remained becalmed, with
the index unable to break out of the range 80
- 90.
The Government has toyed with various schemes
meant to underpin the market, and litigation
rumbles on in the courts over compensation for
investors caught out when the market crashed,
but it's probably still too soon to imagine
that the party will start all over again, given
the attractions of the real estate market. Alongside
its trading problems, and partly as a result
of them, the CSE also has major structural and
governance problems, with incessant disagreements
between stockbrokers, investors' representatives,
the government and the CSE itself.
In March 2002 a co-operation agreement was
announced between the Cyprus Stock Exchange
(CSE) and the Athens Stock Exchange (ASE), which
included provision for the setting up of a Cyprus
derivatives market. In May, 2003, the CSE announced
its participation in the FTSE Med 100 Index
which was officially launched in June of that
year. It consisted of 100 stocks from the Athens,
Tel Aviv and Cyprus stock exchanges (weighted
56.55%, 42.55% and 0.89% respectively). Initially,
five Cypriot firms made up the country's representation
on the exchange, and the CSE had a guarantee
that the number of Cyprus stocks would not fall
below this level. The companies represented
were Bank of Cyprus, Laiki Bank, Hellenic Bank,
Louis Cruise Lines and Tsokkos Hotels.
In June, 2004, the CSE announced a package
of new measures that it hoped would revive the
fortunes of the institution by bringing it into
line with internationally accepted practices
and European Union Directives. Under the plan,
the bourse split into three separate markets
in 2005: the Main, Parallel and Alternative
markets; in addition, there are separate markets
for government and corporate bonds and mutual
funds.
In May, 2006, the CSE and the Athens Stock
Exchange (ASE) began the testing of a new common
trading platform.
At the end of June 2007, market capitalisation
of shares (excluding Investment Companies Market)
reached EUR19.49 billion. In February 2010,
total capitalisation across all markets was
given as just under EUR6.3bn.
In June 2009 the CSE was designated by the
UK's tax authority, HM Revenue and Customs,
as a recognised stock exchange. Securities admitted
to trading and listed on the EU regulated markets
of the Cyprus Stock Exchange (those regulated
under Title III of the Markets in Financial
Instruments Directive (MiFID) will meet the
HMRC interpretation of ‘listed’
as set out in section 1005.3a and b Income Tax
Act 2007 for tax purposes.
The CSE has been expanding its product offering
in recent months, with the launch of the Emerging
Companies Market in March 2010, and the commencement
of over-the-counter transactions in July that
year. The Emerging Companies Market, or NEA,
began trading with the listing of four companies,
including Executive S.A., Phone Marketing S.A.,
Cyprus Limni Resorts and Golfcourses plc, and
Constantinou Bros Asset Management plc.
CSE Chairman George Koufaris told a press
conference in July 2010 that the exchange would
continue to play a central role in the development
of Cyprus as a financial centre, announcing
at the same time that the bourse was working
on new initiatives to "become a more dynamic
and competitive market" in regional terms.
The combined profits of all companies listed
on the Cyprus Stock Exchange (CSE) fell by EUR249m
or 39% to EUR388.73m in 2009 (2008: EUR637.74m),
according to data compiled by the Financial
Mirror.
The Cyprus Stock Exchange in cooperation with
the European Central Bank is in the process
of implementing the T2S project in Cyprus.
T2S is an initiative of the European Central
Bank starting from 2014 and includes the introduction
of a technical single service, which will serve
the settlement of both the cross-border and
the domestic transactions in Central Bank money.
Depositories of the euro area as well as depositories
of European countries outside the euro area
will participate in the service with the support
of their Central Bank and will cover all dematerialized
securities: shares, bonds, etc, giving access
for the settlement of the clearing instructions
against any currency available.
The CSE signed the Memorandum of Understanding
(signed by 30 Depositories) in July 2008, which
covers mostly the preparation and the negotiation
of the compatible arrangements that cover the
development and the operation of the project.
Back to top
Cyprus Entry & Residence
The Civil Registry and Migration Department
deals mainly with the granting of Entry Permits
and also Temporary and Permanent Residence Permits
to European Union nationals and aliens. Moreover
it is the competent Department for determining
the Cypriot Citizenship and granting the Cypriot
Citizenship either by Registration or by Naturalisation.
For most nationalities, including the EU, the
Council of Europe, the USA and the Commonwealth,
no visa is required for entry into Cyprus. In
a few cases a visa is required but can be bought
at the airport or port on arrival.
Immigration as distinct from occasional or
periodic visiting requires a residence permit
from the immigration department, which is given
fairly freely to a foreigner retiring to Cyprus,
and to the senior employees of an offshore company,
for whom it is called a Temporary Residence
Employment (TRE) permit. Other work permits
are issued to foreigners only if there are no
suitably qualified local staff available.
Non-EU foreigners, whether or not resident,
require permits to acquire real estate in Cyprus,
which should normally be for temporary or permanent
residence.
Under a law implemented in July 2000, foreigners
in Cyprus must either have a five-year work
permit or have worked on the island for five
years or have a combination of worked time and
work permit totalling a minimum of five years
before their spouses can join them.
But in November 2000, the Cyprus government
introduced new regulations designed to make
it easier for some foreigners to have their
loved ones live with them. However, this solely
applied to those EU nationals and non-Cypriots
who work in certain sectors: offshore workers,
reporters, foreign correspondents, accountants
with big firms, lecturers, teachers and those
who have invested a designated amount in local
businesses.
The five-year permits would be automatically
granted to new foreign entrants into these sectors
and those renewing permits would be given extensions
long enough to enable them to meet the 'five
years in total' clause, the government revealed.
For tax purposes, residence is defined as presence
in the country for more than six months of a
year.
Back to top
Cyprus Business Environment
Cyprus has an excellent business infrastructure
with good telecommunications; this coupled with
the widespread use of the English language and
a legal system largely based on English law
makes the island a very convenient and effective
business base.
Nicosia, the administrative capital, is also
the chief business centre, although Limassol,
with its port, and Larnaca, with the main airport,
are also significant in business terms.
There are a number of local banks, but many
international banks have formed Offshore
Banking Units on the island and provide
services to foreign or offshore companies. Business
legislation created special offshore regimes
for a variety of types
of business, including shipping
companies, insurance
companies, and
'Offshore Financial Service' companies,
although as from 2003 most distinctions between
'offshore' and 'onshore' were abolished. There
is also legislation for Trusts modelled on English
trust law.
Taxation for offshore
entities was very light until 2003, and
Cyprus is unusual among low-tax countries in
having tax treaties with more than 40 other
countries. These include the CIS and many Eastern
European countries; for that reason Cyprus has
developed particularly close links with that
region.
In July, 2002, as part of the Income Tax Act
No. 118(I) of 2002, Parliament approved a uniform
10% corporate tax rate, to apply to both onshore
and offshore companies, plus a 2% levy on wage
bills (meant to subsidise pensioners), and a
'Special Contribution' related to defence which
in effect applies the 10% corporate tax rate
to inter-company dividend and interest payments.
The new regime was effective from January, 2003,
although certain Special Contribution payments
were increased as of January 1, 2012.
Back to top
Cyprus Larnaca Industrial Free Zone
Businesses operating within the Free Zone
are subject to minimal customs formalities;
they may import plant, machinery, equipment
and raw materials duty-free, while their foreign
employees are liable to only 50% of the normal
rates of income tax. For a variety of reasons,
the Free Zone has not been very successful.
Back to top
Cyprus Import of Foreign Capital
Personal interest income derived from foreign
capital imported into Cyprus and deposited with
a bank operating in Cyprus has traditionally
been exempt from income tax. However, the entry
into force of the EU Savings Tax Directive has
affected this.
Back to top
Cyprus Investments by Foreigners
For some time there was a restriction of
49% on foreign participation in Cypriot enterprises,
but in many sectors 100% ownership is now permitted,
especially in services.
The formal position remains that Central Bank
approval is required, and if the level of participation
exceeds 49% or if the investment exceeds a designated
amount (formerly CY£750,000, now its Euro
equivalent), then the Ministry of Commerce,
Industry and Tourism also becomes involved.
The chances of rejection are now only significant
if projects seem likely to cause environmental
problems or to compromise national security;
investments below the designated amount may
also be refused if more than 49% participation
is proposed.
The Central Bank permit for foreign investment
specifies the activities that may be carried
on. Usually, it also requires that foreigners'
equity capital must originate outside Cyprus,
and must equate to the size of the investment,
ie there are thin capitalization rules. Any
loan capital must be raised by foreign and domestic
shareholders in proportion to their equity stakes.
Permission is required for repatriation of
capital, profits, dividends and interest arising
from a direct foreign investment in Cyprus,
but is normally granted readily. From December
2000 stockbrokers were able to carry out foreign
transactions up to a designated amount (then
£500,000) without prior permission from the
Central Bank, but needed to ask above that figure.
Back to top
Back to
Cyprus Information: Business, Taxation and Offshore |