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.
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Cyprus Population, Language & Culture
Cyprus has a population of 788,450
(July 2007 est), of whom the majority are
ethnically Greek, living in the southern part
of the island. About 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.
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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,
2006 (next in May, 2011), with the result that
the top six parties contesting the election are
represented in the new House of Representatives.
The
top four parties were left-wing AKEL which captured
the leading position (for the second time) with
31.1% of votes, followed closely by the previous
ruling party, the Democratic Rally (DISY), with
30.3%. Centre-right DIKO acquired 17.9% and the
Social Democrats (EDEK) won 7.9% of the votes.
The
executive government is appointed by the President;
presidential elections in March, 2003, saw Tassos
Papadopoulos replace Glafcos Clerides as President.
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
differneces 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."
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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
has come 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.
Growth has averaged almost 4% in recent years, and
Cyprus is expected to notch up growth of 3.9%
in 2007 and 3.8% in 2008. GNP per capita
at purchasing power parity was US$23,000 in 2006.
Inflation
and unemployment are both under control, at 2.5%
and 3.7% respectively in 2005.
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 is the Cyprus Pound, divided into 100
cents. The currency is managed by the Central
Bank using the Exchange Control Law Cap 199; the
Bank targets stability against the Euro, and entered
the EU's Exchange Rate Mechanism in May, 2005,
with a pivot rate of 0.585274 per euro, and 15%
divergence bands. The government needs to tighten
its control over bloated public expenditure if
it is to achieve long-term currency stability.
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 1st
2002.
Cyprus
will adopt the euro currency in January
2008. Entry into the eurozone
requires that member states have sound
control of fiscal policy and budget deficits.
The Cypriot government, through
fiscal austerity measures, reduced the budget
deficit from 2.3% of GDP in 2005, to 1.5% of GDP
in 2006, a figure which has enabled the European
Council of Finance Ministers (Ecofin), acting
on a Commission proposal, to close the excessive
deficit procedure started upon EU accession, in
2004.
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Cyprus Stock Exchange (CSE)
The
Stock Exchange began operations only in March
1996; it is governed by a Stock Exchange Council.
Transactions are displayed electronically and
clearing and settlement have been computerised.
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 continues to toy 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 betwen
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 will include
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. It consists 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 make up the country's representation
on the exchange, and the CSE has a guarantee that
the number of Cyprus stocks will not fall below
this level. The companies represented are 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 hopes will revive the fortunes
of the institution by bringing it into line with
internationally accepted practices and European
Union Directives. Under the plan, the bourse has
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.
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Cyprus
Entry & Residence
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 which are: offshore workers, reporters,
foreign correspondents, accountants with big firms,
lecturers, teachers and those who have invested
more than £100,000 in local businesses.
The
five-year permits will be automatically granted
to new foreign entrants into these sectors and
those renewing permits will be given extensions
long enough to enable them to meet the 'five years
in total' clause.
For
tax purposes, residence is defined as presence
in the country for more than six months of a year.
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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 27 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.
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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.
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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.
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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 CY£750,000,
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 CY£300,000
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 £500,000
without prior permission from the Central Bank,
but need to ask above that figure.
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