Identifier
Created
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07NICOSIA45
2007-01-12 15:19:00
UNCLASSIFIED
Embassy Nicosia
Cable title:  

CYPRUS: 2007 INVESTMENT CLIMATE STATEMENT

Tags:  EINV EFIN ECON ETRD ELAB OPIC KTDB USTR CY 
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DE RUEHNC #0045/01 0121519
ZNR UUUUU ZZH
R 121519Z JAN 07
FM AMEMBASSY NICOSIA
TO RUEHC/SECSTATE WASHDC 7421
RUCPDOC/USDOC WASHDC
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INFO RUEHAK/AMEMBASSY ANKARA 4828
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RUEHBK/AMEMBASSY BANGKOK 0556
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UNCLAS NICOSIA 000045

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E.O. 12958: N/A
TAGS: EINV EFIN ECON ETRD ELAB OPIC KTDB USTR CY
SUBJECT: CYPRUS: 2007 INVESTMENT CLIMATE STATEMENT

REF: 06 STATE 178303

Per reftel request, Post submits below the 2007 Investment
Climate Statement (ICS) for Cyprus. Each section covers
both the government-controlled area in the south and the
non-recognized "area administered by Turkish Cypriots? in
the north of the island. We will also e-mail a copy of
this text to J. Nathaniel Hatcher and Ann Kambara, as
requested.

BEGIN TEXT

INVESTMENT CLIMATE STATEMENT ON CYPRUS, 2007

Openness to Foreign Investment

Government-Controlled Area:

Cyprus, a full EU member since May 1, 2004, has a liberal
climate for investments. The sectors of niche tourism,
energy and shipping offer excellent potential, while the
Government of Cyprus offers generous 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.

On October 1, 2004, the GOC lifted most investment
restrictions concerning non-EU residents, completing
earlier reforms (introduced in January 2000) concerning EU
investors. Through this decision, the GOC has lifted most
capital restrictions and limits on foreign equity
participation/ownership, thereby granting national
treatment to foreign investors. 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 primarily 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 that is
exactly the same for local residents. Similarly, foreign
investors may now acquire shares in an existing Cypriot
company directly, without earlier authorization by the
Central Bank. They are expected, however, to inform the
Registrar of Companies about any change in ownership
status. Foreign investors are still expected 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.

The GOC is currently preparing to launch the Cyprus
Investment Promotion Agency (CIPA) in 2007. This agency
will be tasked with promoting investment and disseminating
information. It will operate as a private organization
reporting to the Ministry of Commerce, Industry, and
Tourism semi-annually. The CIPA has also been assigned the
task of evaluating foreign investment proposals and
granting authorization for expedited processing by other
GOC departments of deserving investments for projects of
national interest. Although not fully staffed yet, this
agency has already granted one such authorization (its
first ever) for expedited processing for a proposed Cyprus-
U.S. joint venture, involving the establishment of a health
spa/residential estate project in the foothills of the
Troodos mountains. In order to be given priority under
this scheme, an investment application must have a project
value of over Cyprus Pounds (CP) 1 million (USD 2.2
million),and demonstrably contribute positively to
Cyprus?s balance of payments or otherwise benefit the
Cypriot national interest. Additional information,
including a PDF ?Guide for Foreign Investors,? and
information on the expedited treatment scheme, can be
obtained from:

Ms. Eleftheria Ioannou
Commercial & Industrial Officer
Foreign Investors Service Centre (FISC)
Ministry of Commerce, Industry & Tourism
6 Andreas Araouzos
1421 Nicosia, CYPRUS
Tel: +357-22-867143, +357-22-867100
Fax: +357-22-375541
Email: elioannou@mcit.gov.cy
Website1: www.mcit.gov.cy
Website2: www.investincyprus.gov.cy

Area Administered by Turkish Cypriots:

Since 1974, the southern part of Cyprus has been under the
control of the Government of the Republic of Cyprus, while
the northern part has been administered by a Turkish

Cypriot administration, which proclaimed itself the
?Turkish Republic of Northern Cyprus? (?TRNC?) and has not
been recognized by any country except for Turkey. Turkish
Cypriot authorities actively encourage foreign investment,
giving preference to foreign investments facilitating the
transfer of modern technology, know-how and new management
technologies, as well as investment in export-oriented
industries. There are no particular restrictions for
specific sectors, except for projects deemed threatening to
?national security.? Complications arising, however, from
the lack of international recognition of the ?TRNC? and the
continuing non-resolution of the Cyprus problem, especially
regarding property, should be taken into consideration by
the foreign investor (see section on Protection of Property
Rights for additional information.)

Conversion and Transfer Policies

In recent years, Cyprus has progressively lifted
restrictions on the transfer of funds in and out of the
country pertaining to foreign investors. Currently, there
are no restrictions on remittances for investment capital,
earnings, loan repayments, lease payments or other business
transactions.

Expropriation and Compensation

The events of 1974 have resulted in a number of outstanding
investment disputes involving U.S. persons. Resolution of
these disputes prior to a settlement of the Cyprus problem
seems unlikely.

Government-Controlled Area:

In the government-controlled area, nationalization has
never been government policy and it is not contemplated in
the future. Private property is only expropriated for
public purposes in a non-discriminatory manner and in
accordance with established principles of international
law. In cases where expropriation is necessary, due
process is followed and there is transparency of purpose.
Investors and lenders to expropriated entities receive
compensation in the currency in which the investment is
made. In the event of any delay in the payment of
compensation, the Government is also liable for the payment
of interest based on the prevailing 6-month LIBOR for the
relevant currency.

The Turkish Cypriot Property Management Service (TCPMS),
established in 1991, administers properties of Turkish
Cypriots who are not ordinarily residents of the
government-controlled area. This service acts as the
temporary custodian for such properties until termination
of division of the island. The TCPMS is mandated to
administer properties under its custodianship ?in the
manner most beneficial for the owner.? Furthermore,
ownership of Turkish Cypriot properties cannot change
(unless for inheritance purposes) except in exceptional
cases when this is regarded as beneficial for the owner or
necessary for the public interest. Compensation for
Turkish Cypriot property used for the public benefit, as in
the case of Larnaca airport or for highways, has been
suspended as long as the division of the island continues.

Area Administered by Turkish Cypriots:

The ?TRNC constitution" guarantees the right of private
property in the area administered by Turkish Cypriots and
does not discriminate between citizens and aliens.
Furthermore, Turkish Cypriot authorities state that
nationalization has never been part of their policy and
that they do not contemplate any such action in the future.
However, Turkish Cypriot authorities do not grant any
protection for Greek Cypriot properties in the north. (See
section on "Protection of Property Rights.")

The 1974 events have resulted in a number of claims of U.S.
persons in the area administered by Turkish Cypriots, even
though U.S. interests were not specifically targeted. The
most well-known case concerns a U.S. copper mining company
that was forced to terminate its operations in 1974. The
company?s property and assets were confiscated in 1975
without compensation by military and civilian authorities
representing Turkey and the Turkish Cypriot administration.


Dispute Settlement

Government-Controlled Area:

There have been no cases of investment disputes or
outstanding expropriation/ nationalization cases in recent
years. Effective means are available for enforcing
property and contractual rights. Under the Arbitration Law
of Cyprus, an arbitrator is appointed when the parties'
attorneys cannot settle a dispute between the parties to an
agreement. The court may enforce an arbitral award in the
same way as a judgment. In 1979, Cyprus became a signatory
to the New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards and a foreign award
may be enforced in Cyprus by an action in common law.
Cyprus is also a signatory to the Convention on the
Settlement of Disputes Between States and Nationals of
Other States.


Performance Requirements and Incentives

Government-Controlled Area:

Cyprus offers many advantages to foreign investors,
including a strategic geographical location, favorable
business climate, low corporate and personal tax rates,
stable macroeconomic environment, modern legal, banking,
and financial system, excellent telecommunications and
infrastructure, a highly-educated labor force, and
widespread knowledge of English.

A low level of taxation is one of Cyprus's major
advantages. At 10 percent, Cyprus?s corporate tax rate is
currently the lowest among the EU?s 27 countries. Cyprus?s
other tax advantages include:

-- one of the lowest top statutory personal income tax rate
at 30%;

-- extensive double tax treaties network with over 40
countries, enabling lower withholding tax rates on dividend
or other income received from the subsidiaries abroad

-- no withholding tax on dividend income received from
subsidiary companies abroad under certain conditions;

-- no withholding tax on dividends received from EU
subsidiaries, etc.

A full description of Cyprus's investment incentives can be
downloaded from:

http://www.investincyprus.gov.cy

Cyprus does not have a rigid system of performance
requirements for foreign investment across the board and
has signed the WTO's Trade-Related Investment Measures
(TRIMS) agreement. Applications by non-EU residents for
investment in Cyprus are judged on their own merit.

Area Administered by Turkish Cypriots:

The area administered by Turkish Cypriots offers generous
incentives for investing on ?state property.?
Specifically, after an initial screening, investments
granted an Incentive Certificate may benefit from the
leasing of ?state-owned? land and buildings at very
preferential rates.

However, prospective investors should be knowledgeable
about the risks associated with the purchase, lease or use
of property. The ?TRNC Constitution? -- Article 159 (1)
(b),May 7, 1985 ? defines ?state property? as: ?All
immovable properties, buildings and installations which
were found abandoned on 13 February 1975 when the "Turkish
Federated State of Cyprus" was proclaimed or which were
considered by law as abandoned or ownerless after the
above-mentioned date, or which should have been in the
possession or control of the public even though their
ownership had not yet been determined ... and ... situated
within the boundaries of the "TRNC" on 15 November 1983 ?
notwithstanding the fact that they are not so registered in
the books of the Land Registry Office.?

The Republic of Cyprus does not accept the above definition
and does not recognize title changes in the north since

1974. As stated under the ?Protection of Property Rights?
section of this report, potential investors should be
cautious and obtain independent legal advice concerning
purchasing or leasing property in the north.

The area administered by Turkish Cypriots also offers the
following investment incentives:

-- Investment Allowance. The ?TRNC State Planning
Organization (SPO)? offers an investment allowance in the
form of Incentive Certificates equivalent to: (a) 200
percent on the initial fixed capital investment for
investments in Priority Development Regions, such as the
regions of Guzelyurt (Morphou) and Karpaz (Karpasia) and
(b) 100 percent on the initial fixed capital investment in
other sectors.

-- Exemption from Custom Duties and Funds. Importation of
machinery and equipment for an investment project are
exempt from every kind of custom duty, in accordance with
the Incentive Certificate. Regulations on importation of
raw materials and semi-finished goods are specified by the
?Prime Ministry? and subject to the approval of the
?Council of Ministers.?

-- Zero VAT Rate. Both imported and locally purchased
machinery and equipment is subject to a zero VAT rate, in
accordance with the Incentive Certificate.

-- Fund Credits. Long term and low rate investment credits
are available from the Investment and Export Incentive
Fund.

-- Exemption from Construction License Fee and Reduced
Mortgage Fees. Investments granted an Investment
Certificate are exempt from all kinds of construction
license fees and taxes and also benefit from reduced stamp
duty and mortgage fees.

-- Other Tax Allowances. (a) A 50 percent allowance if
given on the Initial Investment Allowance. This rate can
increase up to 100 percent for priority sectors and
regions, with a ?Council of Ministers? decision. (b)
Annual wear and tear allowances for machinery and equipment
(10 percent); motor vehicles (15-25 percent); industrial
buildings and hotels (4 percent); shops and residences (3
percent),furniture and fixtures (10 percent). (c) Other
tax allowances include a VAT exemption for exports of all
goods and services and a 20 percent exemption from
corporate tax for exports of goods and services.


Right to Private Ownership and Establishment

Government-Controlled Area:

Aside from property acquisition issues, outlined in the
next section, several other restrictions infringe on the
right to private ownership and establishment in Cyprus,
from the foreign investor viewpoint. For example, existing
Cypriot legislation distinguishes between investment in
colleges and universities. Investment in universities,
defined as institutions with no fewer than 1,000 students
enrolled in a sufficiently diverse range of classes and
curricula, is encouraged. Foreign (including non-EU)
investors can set up or acquire a university in Cyprus by
simply registering a company on the island and following a
set of non-discriminative criteria. By contrast, non-EU
investment in colleges is discouraged. Non-EU investors
can set up or acquire a local college by registering a
company in Cyprus or elsewhere in the EU provided that the
company has EU-origin shareholders and directors. In other
words, non-EU investors are not allowed to have any
participation, whether as directors or shareholders, in the
administration of local colleges.

Current Cypriot legislation also restricts non-EU ownership
of local mass media companies to 5 percent or less for
individual investors and 25 percent or less for all foreign
investors in each individual media company.

Furthermore, under the Registration and Control of
Contractors Laws of 2001 and 2004, the right to register as
a constructor in Cyprus is reserved for citizens of EU
member states. Non-EU entities are not allowed to own a
majority stake in a local construction company. Non-EU
physical persons or legal entities may bid on specific
construction projects but only after obtaining a special
license by the Council of Ministers.

Finally, there is a restriction, applying equally to
Cypriot as well as foreign investors, regarding investment
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
Cyprus Stock Exchange or not).


Protection of Property Rights

Government-Controlled Area:

Cypriot law imposes significant restrictions on the foreign
ownership of real property. Persons not ordinarily
resident in Cyprus (whether of EU or non-EU origin) may
purchase only a single piece of real estate for private use
(normally a holiday home). Exceptions can be made for
projects requiring larger plots of land (i.e. beyond that
necessary for a private residence) but are difficult to
obtain and rarely granted. Cypriot legislation limiting
the acquisition of land in Cyprus by EU residents is not in
line with EU requirements. The EU granted Cyprus a
temporary derogation from the EU acquis communautaire on
this issue, lasting for five years after accession (i.e.
until May 2009).

The legal requirements and procedures for acquiring and
disposing of property in Cyprus are complex but
professional help by real estate agents and developers can
ease the burden of dealing with the GOC bureaucracy. This
procedure involves Central Bank verification that funds
from abroad are to be used by non-EU residents to purchase
real estate. It also involves final approval by the
Council of Ministers, which is given routinely for holiday
homes.

The Government?s Department of Lands and Surveys prides
itself in keeping meticulous records and in following
internationally accepted procedures (which have changed
little since British colonial times). Non-residents are
allowed to sell their property and transfer abroad the
amount originally paid, plus interest or profits without
restriction.

The Adoption of the Copyright Law on January 1, 1994 and
the subsequent adoption of the Patents Law on April 2, 1998
were important milestones in establishing a modern
legislative framework for the protection of intellectual
property on the island. These two laws have helped Cyprus
comply with its obligations under the WTO TRIPS agreement.
Cyprus is not currently listed on the U.S. "Special 301"
list of countries effectively denying adequate IPR
protection to U.S. persons. However, the U.S. Embassy in
Nicosia consistently receives complaints about IPR piracy
from representatives of the business community, which
attributes the problem to sporadic implementation of these
laws.

The Turkish Cypriot Property Management Service,
established in 1991, administers properties of Turkish
Cypriots who are not ordinarily residents of the
government-controlled area. This service acts as the
temporary custodian for such properties until termination
of the abnormal political situation. The TCPMS is mandated
to administer properties under its custodianship ?in the
manner most beneficial for the owner.? Most importantly,
ownership of TC properties cannot change (unless for
inheritance purposes) except in exceptional cases when this
is beneficial for the owner or necessary for the public
interest.

Area Administered by Turkish Cypriots:

Property remains one of the key outstanding issues that
constitute the Cyprus problem.

The absence of a political settlement and the lack of
international recognition for the ?TRNC? pose an inherent
risk for the foreign investor interested in buying or
leasing property in north Cyprus. Potential investors
should be cautious and obtain independent legal advice
concerning purchasing or leasing property in the north.
Unless the property in question was in Turkish Cypriot
hands prior to 1974, it will be very unlikely that the
title to the land will be free and unchallengeable.
Property issues will be at the heart of any settlement of
the Cyprus problem and will involve the return of property
and/or compensation to those displaced in 1974. The
Republic of Cyprus does not recognize title changes in the
north since 1974. Estimates of the percentage of land in
the north that belonged to Greek Cypriots pre-1974 run as
high as 85 percent. Determining the history of land in the
north can be difficult. Foreign buyers of land may also
face legal challenges from those displaced in 1974 either
in Republic of Cyprus courts or courts in their country of
residence.

Expectations for a comprehensive settlement associated with
the Annan Plan, and a recent ?TRNC? law liberalizing
property transfer procedures for foreign investors have
provided the impetus for an unprecedented boom in the
property market of north Cyprus over the past two years.
Applications by foreign nationals for the purchase of
property in the north corresponded to a total area of 2.1
million square meters in 2004, compared with only 309,000
square meters in 2001. The value of property sales in 2004
was unofficially estimated at up to USD 2 billion.

Intellectual property rights are not adequately protected
in the area administered by Turkish Cypriots. Laws are
inadequate and antiquated and enforcement is sporadic.


Transparency of Regulatory System

Government-Controlled Area:

In the government-controlled area, existing procedures and
regulations affecting business (including foreign
investment regulations, outlined in section A.1.) are
generally transparent and applied in practice without bias.
In some cases, U.S. companies competing on government
tenders have expressed concerns about lack of transparency
and the appearance of bias in decisions made by the
technical committees responsible for preparing
specifications and reviewing tender submissions. The U.S.
Embassy monitors these tenders closely to ensure a level
playing field for U.S. businesses.

Area Administered by Turkish Cypriots:

The area administered by Turkish Cypriots has made strides
in recent years in terms of adopting a more transparent
regulatory system. However, the level of transparency
still lags behind European or U.S. standards. A common
complaint among businessmen in north Cyprus is that the
court system is overloaded, resulting in long delays.


Efficient Capital Markets and Portfolio Investment

Government-Controlled Area:

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 recovered completely from the boom-and-bust cycle
of 1999-2001, recording impressive gains over the last
couple of years and offering currently excellent potential
for portfolio investment. After recording gains of 52
percent in 2005, the CSE index rose by an additional 128
percent in 2006, making it the EU?s top-performing stock
exchange in that year. The CSE is currently the EU?s
third-smallest stock exchange, ahead of Malta and Slovakia,
with a capitalization of around USD 22.0 billion as of
January 1 2007.

Furthermore, the launch of a joint trading platform between
the CSE and the Athens Stock Exchange (ASE) on October 30,
2006 signified the beginning of a new era in the turbulent
10-year history of the CSE. The joint platform promises to
increase the capital available to Cypriot firms and improve
the CSE?s liquidity. The platform now allows capital to
move freely from one exchange to the other, even though
both exchanges retain their autonomy and independence.

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).

Cyprus remains firmly on track to adopt the Euro on January
1, 2008. In June 2007, the EU is expected to make the
final decision to formally invite Cyprus to join the
Eurozone, provided Cyprus continues to meet the Maastricht
criteria. For a small country like Cyprus, joining the
Eurozone is expected to offer significant 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.

Provided Cyprus gets the go ahead to adopt the Euro in
2008, Cyprus plans to allow both the Euro and the Cyprus
Pound to circulate on the island for a period of one month
after January 1, 2008. Commercial banks will exchange
Cyprus pound banknotes and coins free of charge until June
30, 2008. The Central Bank will exchange national coins
free of charge until the end of 2009 and national banknotes
until the end of 2017. Dual pricing in Cypriot pounds and
Euros will be mandatory from September 1, 2006 until July
31, 2008. Central Bank Officials expect that the final
rate at which the Cypriot pound will be converted to the
Euro will be set in May 2007. The following website offers
additional information on the mechanics of Cyprus's
adoption of the Euro:

http://www.euro.cy

Area Administered by Turkish Cypriots:

The financial system in the area administered by Turkish
Cypriots is linked closely with that of Turkey. The New
Turkish Lira (YTL) is the main currency in use although the
Euro, U.S. dollar, British Sterling, and Cypriot Pounds are
frequently used. The vast majority of borrowing comes from
domestic sources and Turkey. There is no stock exchange in
the area administered by Turkish Cypriots.


Political Violence

There have been no incidents of politically motivated
serious damage to foreign projects and or installations
since 1974. However, it behooves the foreign investor who
is interested in Cyprus to have at least a basic
understanding of the existing political situation on the
ground.

Cyprus has been divided since the Turkish military
intervention of 1974, following a coup d'etat directed from
Greece. Since 1974, the southern part of the island has
been under the control of the internationally recognized
Government of the Republic of Cyprus. The northern part of
the island is administered by a Turkish Cypriot
administration. In 1983, that administration proclaimed
itself the "Turkish Republic of Northern Cyprus" ("TRNC").
The "TRNC" is not recognized by the United States or by any
other country except Turkey. The two parts are separated
by a buffer zone patrolled by United Nations forces. A
substantial number of Turkish troops remain on the island.

There has been no serious inter-communal violence since
1974, other than an isolated incident in 1996 resulting in
the deaths of two Greek-Cypriot civilians during a
demonstration in the buffer zone. The partial lifting of
travel restrictions between the two parts of the island in
April 2003 has allowed movement of persons ? over ten
million crossings to date -- between the two parts of the
island. In August 2004, new EU rules allowed goods
produced in the north to be sold in the south provided they
were produced or "substantially transformed" in the north.
In May 2005, the Turkish Cypriot "authorities" adopted a
new regulation "mirroring" the EU rules and allowing
certain goods produced in the south to be sold in the
north. Nevertheless, trade between the two communities
remains limited. Neither sides permits finished goods
produced outside of Cyprus to cross the Green Line.

A plan for the reunification of the island, drafted under
the auspices of the UN, was submitted to the two
communities for approval in separate but simultaneous
referenda on April 24, 2004. The plan was approved by the
majority of Turkish Cypriots but rejected by the majority
of Greek Cypriots.

On May 1, 2004, the Republic of Cyprus joined the European
Union as a full member. The EU acquis communautaire has
been temporarily suspended in the northern part of the
island due to the unresolved political situation


Corruption

Government-Controlled Area:

In the government-controlled area of Cyprus, corruption,
both in the public and private sectors, constitutes a
criminal offense. Furthermore, under Cyprus's
Constitution, the Auditor General controls all
disbursements and receipts and has the right to inspect all
accounts on behalf of the Republic. In his Annual Report,
the Auditor General identifies specific instances of
mismanagement or deviation from proper procedures in the
civil service. Since 1991, Cyprus has also introduced the
institution of the "Ombudsman," who oversees the acts or
omissions of the administration.

Cyprus cooperates closely with EU and other international
authorities on fighting corruption and providing mutual
assistance in criminal investigations. Cyprus has signed
the European Convention on Mutual Assistance on Criminal
matters and is in the process of ratifying it. Cyprus also
uses the foreign Tribunal Evidence Law, Chapter 12, to
execute requests from other countries for obtaining
evidence in Cyprus in criminal matters. Additionally,
Cyprus is an active participant in the Council of Europe's
Multidisciplinary Group on Corruption. As such, it has
already signed and ratified (on January 27, 1999 and
January 17, 2001 respectively) the Criminal Law Convention
on Corruption and has joined the "Group of States Against
Corruption-GRECO." Furthermore, it diligently attends
GRECO meetings.

Additionally, Cyprus's democratic regime, relatively
transparent procedures and open, lively press act as a
further deterrent against corruption in the civil service.
The Embassy is not aware of any U.S. firms identifying
corruption as a significant obstacle to foreign direct
investment in Cyprus; however, in some cases, U.S.
companies competing on government tenders have expressed
concerns about lack of transparency and the appearance of
bias in decisions made by the technical committees
responsible for preparing specifications and reviewing
tender submissions.

Area Administered by Turkish Cypriots:

Although the Embassy is unaware of any recent complaints
from U.S. businesses involving corrupt practices in the
north, anecdotal evidence suggests that corruption and
patronage continue to be a factor in the economy, despite
recent ?government? efforts to introduce standards of
transparency in licensing and tendering.


Bilateral Investment Agreements

Government-Controlled Area:

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, Kyrgystan,
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. The full list of these offices can be
downloaded from:

http://www.mcit.gov.cy/mcit/trade/trade.nsf/

Main?OpenFrameSet

Contact details for the New York Trade Centre follow:

Mr. Aristos Constantinou
Commercial Counsellor
Cyprus Trade Centre in New York
13 East 40th Street
New York, NY 10016
Tel: 212-213-9100
Fax: 212-213-2918
E-mail: ctcny@cyprustradeny.org
http://www.cyprustradeny.org


OPIC and Other Investment Insurance Programs

The U.S. Overseas Private Investment Corporation (OPIC) is
not active in Cyprus, but OPIC finance and insurance
programs are open and may be useful when bidding on BOT
contracts in the government-controlled area. The
Government of Cyprus has started a campaign to attract U.S.
corporate investors. Cyprus is a member of the
Multilateral Investment Guarantee Agency (MIGA).


Labor

Government-Controlled Area:

The local labor force in the government-controlled area of
Cyprus is estimated at 367,200 persons. Of these, 6.5
percent work in agriculture, 0.6 percent in fishing and
mining, 10.9 percent in manufacturing and utilities, 9.9
percent in construction, and the remaining 72.1 percent in
services (including 28.4 percent in trade and tourism).

Since 1977, the rate of unemployment in Cyprus has not
exceeded 4.0 percent of the economically active population,
significantly lower than the more than 10 percent EU
average rate of unemployment. Unemployment stood at 3.5
percent in 2006, compared with 3.7 percent the year before.

Cyprus has a high per capita rate of college graduates,
including many U.S. graduates, and offers an abundant
supply of white-collar workers. English is widely spoken,
a legacy of Cyprus's experience as a British colony (until
1960).

In response to labor shortages in recent years, more women
have joined the labor force (women are now about 44.0
percent of the labor force, compared with 33.4 percent in
1980) and a growing number of Cypriots are repatriating
from abroad. There are also 59,000 legally-registered
foreign workers in Cyprus, including about 15,000 live-in
domestic servants. There are also many illegal workers --
30,000 according to one unofficial estimate.

The legislated minimum wage for sales assistants, clerks,
paramedical, and child care staff is currently CP 362 (USD
760 per month),rising to CP 385 (USD 808) after six
months' employment. Neither amount is sufficient to
provide a decent standard of living for a worker and
family. All other occupations, including unskilled
workers, are covered under collective bargaining agreements
between trade unions and employers within the same economic
sector, and the wages set in these agreements are
significantly higher than the legislated minimum wage.
Existing legislation requires that foreign workers receive
at least the minimum wage. The starting minimum wage for
foreign domestic servants, however, is CP 150 (USD 330) per
month plus CP 40 (USD 88) for lodging if the worker is not
a live-in.

Currently, about 71.0 percent of the labor force is
unionized (compared to 80.0 percent in 1980),which gives
the unions a strong say in collective agreements. Head-on
confrontations between management and unions do occur,
although long-term work stoppages are rare. A recent study
by Harvard University covering 60 countries found that
union power in Cyprus was perceived to be "the strongest in
the world," while labor relations were perceived to be
"relatively peaceful." International business companies
are not required to hire union labor. The continued
existence and method of calculating the current economy-
wide, twice per year, Cost of Living Allowance (COLA) for
employees is a contentious issue between unions and
employers. Nonetheless, this practice is not expected to
change in the near-term.

Area Administered by Turkish Cypriots:

The labor force in the area administered by Turkish
Cypriots is estimated at 95,025. The breakdown of
employment by sector is as follows: 15.1 percent in
agriculture, 9.5 percent in manufacturing and utilities,
17.5 percent in construction, and 57.9 percent in services
(including 11.4 percent in trade and tourism). The minimum
wage effective January 1, 2006 was 780 new Turkish Lira
(YTL) per month (around 577 USD). The rate of unemployment
is estimated at around 9 percent.


Foreign-Trade Zones/Free Ports

Government-Controlled Area:

Cyprus has three Free Zones (FZs). The first two, located
in the two main ports of Limassol and Larnaca, are used
only for transit trade, while the third, located near the
international airport in Larnaca, can also be used for
repacking and reprocessing. These areas are treated as
being outside normal EU customs territory. Consequently,
non-EU goods placed in FZs are not subject to any import
duties, VAT or excise tax. FZs are governed under the
provisions of relevant EU and Cypriot legislation. The
Department of Customs has jurisdiction over all three areas
and can impose restrictions or prohibitions on certain
activities, depending on the nature of the goods.
Additionally, the Ministry of Commerce, Industry and
Tourism has management oversight over the Larnaca FZ.

Companies given permission to locate in the Larnaca FZ take
advantage of the fact that the FZ operates outside the
normal jurisdiction of Cyprus Customs. This allows the
company to import raw materials or goods for transshipment
without paying the normal import duty and VAT. The only
limitation is that the goods must be sold or re-exported
strictly outside the EU. If the company wants to do
business with the local market, it must obtain permission
from Customs and pay the appropriate duties.

The procedure for applying is straightforward. Interested
companies apply to the Ministry of Commerce, Industry, and
Tourism (contact info given below),laying out their
investment plans. The Ministry reviews the application and
makes a recommendation. An inter-agency Council, with
participation from the Central Bank of Cyprus and the
Ministry of Finance, reviews the application and the
Ministry of Commerce, Industry and Tourism issues approval.
Contact information follows:

Mr. George Michael
Commerce and Industry Officer A'
Ministry of Commerce,
Industry and Tourism
1421 Nicosia
Tel. 357-22-867235
Fax. 357-22-375120
E-mail: mcindustry2@cytanet.com.cy
Website: http://www.mcit.gov.cy/mcit/trade/trade.nsf/

Main?OpenFrameSet


Foreign Direct Investment Statistics

Government-Controlled Area:

In the run-up to EU accession (May 1, 2004),Cyprus
dismantled most investment restrictions, attracting
increased flows of Foreign Direct Investment (FDI),
particularly from the EU. According to the latest United
Nations Conference on Trade and Development (UNCTAD) "World
Investment Report 2006," Cyprus ranks among the world
leaders per capita in terms of attracting foreign direct
investment.

In 2005, the inflow of FDI reached USD 1.17 billion,
compared with USD 1.08 billion in 2004. Most of the new
investment in 2005 (58.9 percent) originated from the EU,
and particularly from Greece, the U.K., and Germany.
Another 35.3 percent came from non-EU countries in Europe,
and 4.2 percent from the Americas. In terms of sectoral
allocation, incoming FDI in 2005 went to the following
sectors: mining and quarrying 1.7 percent; manufacturing
3.6 percent; construction 6.9 percent; real estate and
business activities 32.9 percent; trade 25.3 percent; and
other services 26.4 percent.

U.S. investors may benefit from Cyprus?s abolition of EU-
origin investment restrictions, provided they operate
through EU subsidiaries. The inflow of U.S. FDI in Cyprus
in 2005 reached USD 8.4 million, compared with USD 85.4
million in 2004. U.S. investment in Cyprus was unusually
high in 2004 due to a large (USD 60.9 million),one-off
project in business and management consultancy services.
U.S. investment in 2005 was focused in mining and
quarrying. A further breakdown of direct investment from
the U.S. is unavailable as it is considered confidential by
the Central Bank. Projects involving U.S. investment in
recent years have included a well-known U.S. coffee
retailing franchise, a university, an information
technology firm, an equestrian center, a hair products
manufacturing unit, a firm trading in health and natural
foodstuffs, and a financial services company.

Additional information, with graphs, on foreign direct
investment statistics can be obtained from:

http://www.investincyprus.gov.cy/mcit/iic.nsf /

dmlstatistics_en/dmlstatistics_en?OpenDocumen t

Area Administered by Turkish Cypriots:

No detailed statistics on investment in the area
administered by Turkish Cypriots are available. However,
it is clear that most foreign direct investment in north
Cyprus since 1974 has come from Turkey ? both from the
government and the private sectors. The sector, which has
attracted most investment, has been tourism and real
estate. Currently, there are plans for several large
hotels in coastal areas in the north and one large marina.
Web Resources

American Embassy in Nicosia:

http://www.americanembassy.org.cy

Commercial Section in Nicosia:

http://www.buyusa.gov/cyprus/en

Government-Controlled Area:

Ministry of Commerce, Industry, and Tourism

http://www.investincyprus.gov.cy

Foreign Investors Service Centre (FISC)

http://www.mcit.gov.cy

Ministry of Finance:

http://www.mof.gov.cy/mof/mof.nsf/Main?OpenFr ameset

Central Bank of Cyprus:

http://www.centralbank.gov.cy/nqcontent.cfm?a _id=37

Department of Merchant Shipping:

http://www.shipping.gov.cy

Area Administered by Turkish Cypriots:

?TRNC State Planning Organization:?

http://www.devplan.org/

Turkish Cypriot Chamber of Commerce:

http://www.ktto.net/english/about.html

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