Cyprus General Information

Pre-EU Accession

In 1975, Cyprus introduced a tax legislation aiming to attract international business companies to set up in Cyprus. This policy was extremely successful as it was founded on an attractive tax system and a wide and continuously expanding network of favourable tax treaties.

Cyprus became one of the most successful business and financial centres in Europe, particularly attractive to investors wishing to invest in Russia, the CIS and Central and Eastern Europe; and The Middle East.

Its importance increased dramatically with the collapse of communism in Central and Eastern Europe, and Russia. The conversion of these countries into free economies attracted significant incoming foreign investment.

Cyprus, traditionally, had good political and economic relations with all these countries, an attractive tax system and most beneficial bilateral double tax treaties. As a result, most of the investments into Central and Eastern Europe, and Russia occurred through Cyprus Companies.

The EU Post Accession Era

Cyprus has acceded to the EU on 1 May 2004 along with the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia. The Accession to the European Union has further enhanced Cyprus’ political and economic stability. Cyprus has become a prime business and financial business centre within the EU.

Cyprus is now not only the prime vehicle of investment in and out of Central and Eastern Europe, Russia, and the Middle East, but it is also a prime vehicle of investment in and out of the EU.

Indicatively, the Government of Cyprus’ decision to lift incoming direct investment restrictions for EU residents as of January 2000 has given a boost to foreign investment from the EU, which jumped from $225.2 million in 1999 to $374.7 million in 2000 (67% increase in a year)! The inflow of foreign direct investment from all countries reached $1.0 billion in 2003, 58.1% of which came from the EU.

Cyprus has the infrastructure, the know-how, the legal system, the professional services and the expertise to fulfil successfully its new strategic role as one of EU’s prime International Business and Financial Centre.

The Complete Liberalization – 1 October , 2004

As of 1 October 2004, the Government of Cyprus (GOC) has lifted all restrictions on foreign direct investment from non-EU countries in order to attract more foreign direct investment and further promote Cyprus as an International Financial Business Centre. All restrictions concerning maximum allowable percentage participation, as well as minimum monetary level of foreign investment in any enterprise (entity) in Cyprus, were lifted from 1 October 2004 for all non-EU citizens (and from January, 2000 for EU citizens) for most sectors of the economy.

The State Investment Policy now allows 100% foreign participation in Cyprus Entities in most sectors of the economy, not only for EU citizens, but also for investors from third countries.

Thus, entities and individuals from all over the world can establish Cyprus Companies or other legal entities to invest and do business in or out of Cyprus without restrictions whatsoever.
A further significant boost to foreign investment is expected in view of this latest development.

Tax Incentives

In July 2002 (with effect from 1 January 2003), the House of Parliament passed a tax reform legislation abolishing tax discrimination afforded to offshore companies by the end of 2005, in line with Cyprus’ commitments to the EU and OECD. Under the new regime, corporate tax on profits has been set at 10% – the same as for local companies.

Having amended its tax legislation in anticipation to EU Accession, Cyprus has set up a tax system that is ideally suited both to inbound and outbound EU investors.

The new tax climate offers to the investors:

• Low taxation
• Non offshore – EU – status
• Possibilities for tax planning in order to legally lower taxes even further (in some cases to 0%)
• Extensive double tax treaty network
• Exemption from tax on dividends received
• Exemption from tax of profit generated from transactions in securities
• Exemption from withholding tax on the repatriation of income either of dividends, interest and royalties.
• Access to EU directives

For comprehensive details of Cyprus’ Tax Incentives and other tax information please refer to the sections “Why Cyprus?” and “Tax Law – Tax Facts”.

Cyprus Double Tax Treaties (DTT)

A constructive use of the Cyprus Treaties’ Network has rendered considerable advantages to businesses and individuals who have chosen to establish legal entities in Cyprus.

Tax Treaties legally supersede local tax legislation and for this reason they are a useful tax-planning tool to protect businesses and individuals against double taxation of income earned in other countries.

Cyprus has concluded double tax treaties with the following countries:

Notes:

1. 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 allowed against the tax levied by the country in which the tax payer resides for taxes levied in the other treaty country, and as a result the tax payer pays no more than the higher of the two rates (a number of the treaties also contain very beneficial “tax-sparing credits”).
2. Refer to section “Tax Law – Tax Facts” for the treaty withholding tax rates for payments of dividends, interest and royalties.
3. The EU Parent Subsidiary and the Interest & Royalties Directives can be used to eliminate withholding taxes on payments of dividends, interest and royalties from or to EU Group Companies and the EU Merger Directive to eliminate the tax effects of EU Group reorganizations

* Azerbaijan, Armenia, Kyrgyzstan, Moldova, Tajikistan, Uzbekistan and Ukraine apply the USSR/Cyprus treaty.

** Slovenia and Serbia/Montenegro have also adopted the double taxation convention concluded by the former Socialist Federal Republic of Yugoslavia.

DTT Table (Received in Cyprus)
DTT Table (Paid from Cyprus)

The full text of Cyprus’s Tax Treaties can be downloaded here:

(updated Jan 2006)

If you have difficulty in downloading the Tax Treaties, please contact us. We will send them to you.

Investment Climate

As mentioned in the previous paragraphs, as 1 October 2004, the Government of Cyprus (GOC) has lifted restrictions on foreign direct investment from non-EU countries in order to attract more foreign direct investment and promote Cyprus as an International Business Centre.

The Government of Cyprus’ earlier decision to lift incoming direct investment restrictions for EU residents as of January, 2000 has given a boost to foreign investment from the EU, which jumped from $225.2 million in 1999 to $374.7 million in 2000. The inflow of foreign direct investment from all countries reached $1.0 billion in 2003, 58.1% of which came from the EU.

Cyprus has bilateral agreements for the encouragement and reciprocal protection of investments with the following 15 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.

International Names Established in Cyprus

Professional Services

Professional Services are of a very high standard in Cyprus, with a considerable English influence. Many Cypriot lawyers are members of the United Kingdom Inns of Court or graduates of British Universities and are well versed in the developments of international commercial law.

The standards of the accountancy profession are extremely high, since the majority of its members are qualified Chartered or Certified Accountants of the UK or Certified Public Accountants of the USA, and are strictly adhered to International Accounting Standards and International Standards on Auditing.

Banking System

The unit of currency of the Republic is the Cyprus Pound. As of April 2006, the Cyprus Pound was approximately equivalent to: 1.74 EURO.

The banking system in Cyprus, which is modelled on the British System, is well developed, highly organized and capable of providing fast and efficient service worldwide. The system is structured around the Central Bank, which monitors the operations of the commercial banks and other financial institutions.

In their effort to satisfy the diverse needs of the business community, the commercial banks are full members of the Society for Worldwide Interbank Financial Telecommunications (SWIFT) and provide a wide range of facilities.

Exchange Control

There are no exchange control regulations.  Accordingly, the island is an ideal location for the maintenance, transfer and conversion of funds, which is facilitated by excellent telecommunication and efficient international banking services.

Confidentiality

Confidentiality in all business transactions is an element which the Cypriot Authorities have perfected, in respect to the activities of nearly all commercial sectors. It has been the cornerstone of State Policy for over thirty years. Laws and procedures governing financial and business conduct have been specifically drafted to ensure that this element is carefully protected and maintained.

Thus, the registration of Cyprus Companies can be done through the appointment of nominees to hold shares on behalf of the beneficial owners – whose identity remains secret.  Privacy of the trusts’ constitution and membership, as well their transactions and activities is secured through the absence of registration or reporting requirements – even the identity of the settlor may be protected, if required. In Cyprus, the cornerstone of banking policy is safeguarding the confidentiality of a bank’s customers and their transactions.

Telecommunications

Cyprus offers one of the most efficient telecommunication systems in the world, with the following services:

• Fully automatic 24-hour direct dial telephone connection with most countries – all other countries can be reached through the operator.
• Telegraph service connection with every part of the world.
• International automatic telex and facsimile service.
• Datel service for the transmission of computer data both nationally and internationally over the public telephone network.
• ISDN and ADSL connections for internet service.
• Radiotelegraph and radiotelephone services with ships at sea on a 24 hour basis.
• Automatic telex for ships through the Marisat Service (maritime service through satellite).
• TV transmission and reception on a 24 hour basis available to news agencies and television and radio networks through the Makarios satellite earth station.
• International courier service including Datapost operated by the Cyprus Department of Postal Services, DHL, Federal Express, Skypak, and Tradewinds Express, all delivering parcels to Europe and the US within 48 hours from time of collection.

International Transport

International traffic includes, in all cases, shipping and air traffic, and in certain cases – road transport as well. Cyprus is well-served by two international airports situated in Larnaca and Paphos. Air connections from and to Western and Eastern Europe, Africa, Middle East and the Arab Gulf are excellent.

Due to its geographical location and the most up-to-date facilities offered by its seaports, Cyprus is now an important shipping centre in the region.

The major ports are those of Limassol and Larnaca situated on the south coast of the island. They are multi-purpose ports, serving both containerized and break bulk cargo.

Economy – Facts

Cyprus has an open, free-market, serviced-based economy with some light manufacturing. Cyprus’ accession as a full member of the European Union as of 1 May 2004, has been an important milestone in the course of its economic development. The Cypriots are among the most prosperous people in the Mediterranean region.

In the past 20 years, the economy has shifted from agriculture to light manufacturing and services. The service sector, including tourism, contributes 76.2% to the GDP and employs 70.7% of the labor force.Industry and construction contribute 19.7% and employ 21.3% of labor. Manufactured goods account for approximately 63.6% of domestic exports. Agriculture and mining are responsible for 4.6% of GDP and 8.0% of the labor force. Potatoes and citrus are the principal export crops.

The average rate of growth in the 1990s was 4.4%, compared to 6.1% in the 1980s. In the last two years (2002 and 2003), the annual economic growth dropped to 2.0%, compared with 4.0% in 2001 and 5.1% in 2000. In 2003, unemployment accelerated to 3.5% of GDP, from 3.2% the year before. Inflation also recorded an increase to 4.1% from 2.8% in 2002. As in recent years, the services sectors and tourism in particular, provided the main impetus for growth. Economic activity in manufacturing and agriculture remained about the same in 2003.

Trade is vital to the Cypriot economy: the island is not self-sufficient in food, and has few natural resources. The trade deficit decreased to 9.2% in 2003 (on account of a considerable reduction in imports), reaching $3.0 billion.

Cyprus must import fuels, most raw materials, heavy machinery, and transportation equipment. More than 50% of its trade is with the European Union, particularly with the United Kingdom.

Growth in 2004 is expected to accelerate to 3.5%, due to a revival in tourism. Unemployment is expected to remain around 3.6% in 2004, while inflation is forecasted to drop considerably to 2.5%. The fiscal deficit is forecasted to decline to 4.4% of GDP in 2004, compared with 5.4% in 2003, remaining above EU Maastricht targets.

Export Opportunities

On 1 January 1996, Cyprus began full implementation of the Uruguay Round Agreement. Under this agreement, the Government of Cyprus eliminated quantitative restrictions and other non-tariff barriers to trade, allowing improved access to the Cypriot Market. After that, Cyprus has become a full member of the World Trade Organization.

Additionally, the accession to the EU on 1 May 2004 liberalized the island’s trade regime further, allowing all goods to be traded between Cyprus and the EU with a zero tariff rate. Under the same agreement, Cyprus has adopted fully the EU’s Common Customs Tariff (CCT) for products from third (non – EU) countries.

Best prospects generally lie in services and high technology sectors, such as computer equipment and data processing services, financial services, environmental protection technology, medical and telecommunications equipment, and tourism development projects.

Moreover, alternative energy sources and the energy sector in general are attracting an increasing amount of attention, while the possible existence of natural gas and petroleum reserves off the southern and eastern coast of Cyprus opens up new prospects. Finally, the island’s private sector has a growing appetite for office machines, computer software and data processing equipment.

Geography – Facts

People – Facts

Government – Facts

Cyprus is an Independent Presidential Republic. The Executive power is exercised by the Council of Ministers whose members are directly appointed by the President.

The highest legislative body is the House of Representatives, consisting of fifty-nine members elected for a five-year term of office.

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Judiciary & Law

The Cypriot Legal System is based upon The British Common Law (Cyprus was a British colony until 1960 when it gained its independence). The British Case Law is closely followed and all statutes regulating business matters and procedures are based on The British Law.

As provided in The Courts’ Law, the Country’s Courts apply:

• The Constitution which established the Republic in 1960
• The Statutes until then in force (1883 – 1960) and those enacted since 1960 by the Parliament
• The Common Law – Case Precedents
• The Principles of Equity
• The European Law since 1 May 2004 (EU Accession)

English is widely used in the Cypriot Courts.

The Cyprus Companies Law is governed by The Companies Law Chapter 113, as amended. This Law was based on the UK’s Companies Act 1948 and since then remains intact apart from various amendments that took place (31.10.2003) due to the EU Accession – harmonization needs.