Cyprus enjoys a healthy and attractive business and investment environment.
Openness to Foreign Investment
Cyprus, a full EU member since May 1, 2004, has a liberal climate for investments. The sectors of niche tourism, energy, shipping, desalination and water management services offer excellent potential for inward investment. At the same time, the Government of Cyprus offers incentives in the field of research and technology. International companies may invest and establish business in Cyprus on equal terms with local investors in most sectors. Foreign investors can register a company directly with the Registrar of Companies, and are eligible to obtain any license, if needed, from the appropriate authority depending on the nature of investment. Since October, 2004, the GOC has lifted most investment restrictions concerning non-EU residents, completing earlier reforms concerning EU residents. Specifically, the GOC has eliminated most capital restrictions and limits on foreign equity participation or ownership, thereby granting national treatment to investors outside the EU. Non-EU investors (both natural and legal persons) may now invest freely in Cyprus in most sectors, either directly or indirectly (including all types of portfolio investment in the Cyprus Stock Exchange). The only exceptions concern the acquisition of property and, to a lesser extent, ownership restrictions on investment in the sectors of tertiary education, mass media, banking and construction (see “Right to Private Ownership and Establishment”).
Under the new policy, there is no mandatory screening of foreign investment. Foreign investors can register a company directly at the Registrar of Companies through qualified accountants or lawyers, a procedure identical to that for local residents. Similarly, foreign investors may now acquire shares in an existing Cypriot company directly, without previous authorization by the Central Bank. They are expected, however, to inform the Registrar of Companies about any change in ownership status. Foreign investors are required to obtain all permits that may be necessary under Cypriot law to do business in Cyprus. For example, they may need to obtain a municipal permit to set up a kiosk or abide by prevailing health standards to own and operate a catering company, etc. Furthermore, non-EU residents wishing to take up employment in Cyprus must obtain work permits issued by the Migration Department. In 2007, the GOC established the Cyprus Investment Promotion Agency (CIPA) tasked with attracting foreign investment, advising foreign investors, and providing assistance to them. The CIPA operates as a private organization reporting to the Ministry of Commerce, Industry, and Tourism and works in tandem with the Foreign Investors Service Center, under the same ministry. Through these two organizations, Cypriot authorities offer expedited processing by other GOC departments for larger projects (over USD 2.2 million) in line with country-sustainable growth, e.g. benefiting Cyprus’ economic development goals and objectives.
Efficient Capital Markets and Portfolio Investment
Cyprus has modern and efficient legal, banking and financial systems, ensuring optimum allocation of financial resources to product and factor markets. EU accession on May 1, 2004 was instrumental in establishing an efficient capital market in Cyprus, through the abolition of such restrictions as the interest rate ceiling in 2001, and exchange controls for residents. Credit to foreign and local investors alike is allocated on market terms. The private sector has access to a variety of credit instruments, which has been enhanced through the successful operation of private venture capital firms. The banking sector is sound and well-supervised. The Cyprus Stock Exchange (CSE), launched officially in 1996, has already gone through two boom-and-bust cycles: one from 1998-2001 (largely attributable to endogenous factors), and another from 2005-2008 (mainly a result of the global credit crunch). The CSE is currently the EU?s third-smallest stock exchange, ahead of Malta and Slovakia, with a capitalization of around Euros 4.0 billion (USD 5.4 billion) as of January 12, 2009. The launch of a joint trading platform between the CSE and the Athens Stock Exchange (ASE) on October 30, 2006 allows capital to move freely from one exchange to the other, even though both exchanges retain their autonomy and independence. The joint platform has increased capital available to Cypriot firms and improved the CSE?s liquidity. Foreign investors may acquire up to 100 percent of the share capital of Cypriot companies listed on the CSE with the notable exception of companies in the banking sector. The Central Bank’s prior approval is necessary before any individual person or entity, whether Cypriot or foreign, can acquire over 9.99 percent of a bank incorporated in Cyprus (whether listed on the CSE or not).
On January 1, 2008, Cyprus joined the Eurozone, adopting the Euro as the national currency. For a small country like Cyprus, joining the Eurozone has many significant long-term economic benefits, including a higher degree of price stability, lower interest
rates, reduction of currency conversion costs and exchange rate risk, and increased competition through greater price transparency.
Bilateral Investment Agreements
The Government of Cyprus has 15 bilateral agreements for the encouragement and reciprocal protection of investments with the following countries: Armenia, Belgium, Bulgaria, Belarus, China, Egypt, Greece, Hungary, India, Israel, Lebanon, Poland, Romania, and the Seychelles. Another 40 bilateral investment agreements are currently under negotiation. Cyprus does not have a bilateral investment protection agreement with the United States; however, the Cypriot Ministry of Foreign Affairs and the U.S. State Department have exchanged letters on the reciprocal protection of investments. Cyprus has entered into bilateral double tax treaties with a total of 40 countries. The main purpose of these treaties is the avoidance of double taxation of income earned in any of these countries. Under these agreements, a credit is usually provided for tax levied by the country in which the taxpayer resides for taxes imposed in the other treaty country. The effect of these arrangements is normally that the taxpayer pays no more than the higher of the two rates. Cyprus has such agreements with Armenia, Austria, Azerbaijan, Belarus, Belgium, Bulgaria, Canada, China, the Czech Republic, Denmark, Egypt, France, Germany, Greece, Hungary, India, Ireland, Italy, Kuwait, Kyrgyzstan, Malta, Mauritius, Moldova, Norway, Poland, Romania, Russia, Singapore, Slovakia, Slovenia, South Africa, Sweden, Syria, Tajikistan, Thailand, Ukraine, United Kingdom, the United States, and Yugoslavia. Treaties with Algeria, Estonia, and Kazakhstan are at various stages of negotiations. The Republic of Cyprus has Trade Centers (under the Ministry of Commerce, Industry and Tourism) in eleven locations outside Cyprus, including one in New York City handling trade with the United States of America, Canada, and Latin America.
Franchising
U.S. franchises, particularly in the food business, have been extremely successful in Cyprus in recent years. Companies that have opened franchise outlets in Cyprus since 1990 include: McDonalds, Burger King, Starbucks, Pizza Hut, Papa John’s Pizza, KFC, Bennigan’s, TGI Friday’s, Curves and Gold’s Gyms. Century 21, Remax and ERA have also opened offices on the island. The most recent opening on the island is The Coffee Beanery. Operation of these ventures results in a substantial outflow of capital in the form of licensing fees and royalty payments every year for U.S. and other foreign franchises. Present trends suggest that the franchising sector will continue to grow over the next several years.
