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Cyprus: Country and Foreign Investment

Executive Summary

Cyprus is an independent democratic republic and member of the Commonwealth. It is prosperous, with a GDP per head of US$ 23,320 (2016). The economy is based around services, with tourism particularly important. Unemployment is slightly above the world average, at 10.8% as of June 2017.

The Cypriot government has worked hard to create a favourable offshore tax regime while maintaining a normal-looking domestic economy with low rates of taxation. The success of this programme is attested to by the tens of thousands of offshore companies that have registered in Cyprus since 1975. However, the island's entry to the EU in 2004 led to a restructuring of the tax regime, which took place on 1st January 2003. Domestic and offshore companies alike now pay 12.5% tax.

Cyprus has double-tax treaties with more than 50 other countries and territories, including most major Western 'high-tax' countries, and many Eastern European states. This unusual feature for offshore financial centre means that Cyprus is a very effective place for holding and investment companies aimed at emerging markets.

Cyprus has a decent, European-standard business infrastructure, and English is very widely spoken. On the other hand, it is a relatively expensive jurisdiction for offshore operations, and many documents need to be filed in Greek. The legal system predominantly derives from English law and provides for various types of trust.

In 1974, right-wing Greek Cypriots staged a coup, demanding unification with Greece. Turkey responded by sending troops in to protect their interests. After the cease-fire, a UN Buffer Zone was set up, dividing the island into Greek Cypriot and Turkish Cypriot zones. The Greek area is internationally recognised as the Republic of Cyprus; the Turkish zone is considered Turkish-occupied territory of the Republic, though it has declared itself to be the Turkish Republic of Northern Cyprus. However, this delicate political situation does not greatly impede commercial or offshore operations, particularly not in the Greek zone.

In November 2002, the United Nations presented a plan for a two-state federation with a view to solving the problem before Cyprus's 2004 admission to the EU. The European Commission and the US vigorously the UN's Annan Plan for reunification, but it was rejected by a Greek Cypriot referendum in April 2004. As a result, only the Greek-held part, the Republic of Cyprus, acceded to the EU in April 2004.

The April 2017 referendum in Turkey gave the demagogue Recep Erdoğan sweeping powers, putting paid to Turkey’s EU ambitions. It also means that Greek and Turkish Cypriots will have to resolve their differences themselves. Negotiations started again in June 2017.

The island's listing by the FATF in June 2000, as one of 15 offshore jurisdictions with inadequate defences against money-laundering hastened a process of adjustment to international standards of banking supervision and information exchange. After the EU finally agreed its Tax Directive in June 2003, Cyprus announced that it would implement the 'information sharing' provision of the Directive on entry to the Union in 2004. This means that when nationals of other EU countries receive information about savings returns in Cyprus, it is passed on to the tax authorities in the individuals' home countries.

In late 2003 the government also announced plans to weaken previously tight banking confidentiality, although these were strongly resisted by the banks. In April 2009, Cyprus was placed on the OECD's 'white list' of jurisdictions which have 'substantially implemented' the internationally-agreed standards for tax cooperation.

 

 

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