CYPRUS: 2008 INVESTMENT CLIMATE STATEMENT

UNCLAS NICOSIA 000032

SIPDIS

SIPDIS

DEPT FOR EB/IFD/OIA AND EUR/SE

DEPT PLS PASS USTR

USDOC FOR 4212/ITA/OEURA/MAC/KNAJDI AND
6000/TD/AC/PNUGENT

E.O. 12958: N/A
TAGS: EINV EFIN ECON ETRD ELAB OPIC KTDB USTR CY
SUBJECT: CYPRUS: 2008 INVESTMENT CLIMATE STATEMENT

REFS: (A) 07 STATE 158802, (B) 07 NICOSIA 0045

Per Ref A request, Post submits below the 2008 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, 2008

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 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.

On October 1, 2004, the GOC lifted most investment
restrictions concerning non-EU residents, completing
earlier reforms (introduced in January 2000) for EU
investors. Specifically, the GOC has lifted most capital
restrictions and limits on foreign equity participation
or 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 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 will operate as a private
organization reporting to the Ministry of Commerce,
Industry, and Tourism and will work in tandem with the
Foreign Investors Service Centre, under the same
ministry. The CIPA is not fully staffed yet and will be
launched officially in 2008. 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. For example, a proposed Cyprus-
U.S. joint venture, involving the establishment of a
health spa/residential estate project in the foothills of
the Troodos mountains, received the first ever such
expedited processing about a year ago. Additional
information, including a PDF "Guide for Foreign
Investors," and information on expedited treatment of
investment applications can be obtained from the two
organizations directly:

The Foreign Investors Service Centre
Ministry of Commerce, Industry & Tourism
13-15 Andreas Araouzos
1421 Nicosia
Cyprus
Tel. +357-22-409433, 22409322, 22409328
Fax: +357-22-409432, 22375541
Email: onestopshop@mcit.gov.cy
Website: www.investincyprus.gov.cy

Ms. Marina Theodotou
Deputy Director
Cyprus Investment Promotion Agency (CIPA)
9A Makarios Ave
Severis Bldg
4th Flr
1065 Nicosia
Tel. +357-22-441133
Fax: +357-22-441134
E-mail: mtheodotou@cipa.org.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

Government-Controlled Area:

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.

For information pertaining to the risks associated with
investing in Greek Cypriot property in the north or in
Turkish Cypriot property in the government-controlled
area, please see the section on "Protection of Property
Rights."

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 companyQs 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. These advantages have
encouraged thousands of foreign investors to set up
companies in Cyprus, structuring their investments
through a holding company on the island or investing here
directly. As a result, the number of annual company
registrations continues to grow, particularly since EU
accession in 2004.

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

-- one of the EUQs 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.

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 Q 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 Q notwithstanding the fact that they are
not so registered in the books of the Land Registry
Office."

It must be stressed, though, that the Republic of Cyprus
outright rejects 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.

A new QOne-stopQ investment office was created in late
2007 with the responsibility of approving all investment
and providing incentives. Contact information:

QNorth Cyprus Investment Development AgencyQ
Tel. 90 392 228 9378
e-mail: ayse_donmezer@yahoo.com


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
foreign investorQs right to private ownership and
establishment in Cyprus. 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 or set up in
Cyprus a campus of an existing university abroad 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 BankQs
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:

The Acquisition of Real Estate (Aliens) Cap and the
Amending Laws of 2003, in force since May 1, 2004, places
important restrictions on the acquisition of real
property in Cyprus by non-EU persons and entities. The
same law also distinguishes between EU persons and
entities that are permanent residents of Cyprus and those
who are not, placing certain restrictions on the latter
group, albeit, less severe than restrictions on non-EU
persons and entities. Specifically, this law provides
the following:


1. EU nationals permanently residing in the Republic of
Cyprus, and EU registered legal entities with
jurisdiction, central management or primary place of
business in the Republic of Cyprus may acquire real
estate (of any type or size) without prior approval by
the District Administration Offices.


2. EU nationals not permanently residing in the Republic
of Cyprus and EU registered legal entities with
jurisdiction, central management or primary place of
business in any EU member State other than Cyprus may
acquire land (without any structures on it) of any size
without prior approval by the District Administration
Offices. However, if there is any building on this land,
the approval of the District Administration Offices needs
to be obtained. Approval is granted routinely for one
holiday home (but nor for multiple homes). This
derogation from the EU acquis will expire on May 1, 2009.
After that time, all EU nationals and companies will be
treated in the same manner, regardless of whether they
are permanent residents of Cyprus or not.


3. Non-EU member State citizens, legal entities
registered in non-EU countries, and EU registered legal
entities controlled by non-EU citizens (as per the
definition below),can acquire real estate subject to the
approval of the relevant District Administration Offices.
In case the real estate concerned exceeds two donums (one
donum = 1338 square meters),approval may be granted only
for residential purposes (not exceeding an area of three
donums),professional or commercial premises, and
industrial sectors deemed beneficial for the Cypriot
economy and relate to the production of products or the
utilization of new technology and/or technological know-
how.

The definition of a legal entity controlled by non-EU
citizens is as follows:

-- 50 percent or more of its board members are non-EU
citizens;

-- 50 percent or more of its share capital belongs to
non-EU citizens;

-- control belongs by 50 percent or more to non-EU
citizens;

-- Either its Memorandum or Articles of Association
provides authority to a non-EU citizen securing that the
companyQs activities are conducted based on his/her will
during the real estate acquisition period. In the case
that the authority is provided to two or more persons, a
legal entity is considered to be controlled by non-EU
citizens if 50 percent or more of the people granted such
authority are non-EU citizens.

Cypriot legislation limiting the acquisition of land in
Cyprus by EU residents is not in accord 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).

For additional information and application forms for the
acquisition of property by non-EU residents, the various
District Administration Offices can be contacted through
the Ministry of Interior website:
http://www.moi.gov.cy/da

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 GovernmentQs 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.

On the intellectual property front, Cyprus has a modern
set of laws, which it continues to upgrade. Enforcement
is typically quite diligent, although it can be improved
further. The Adoption of the Copyright Law on January 1,
1994 and the subsequent adoption of the Patents Law on
April 2, 1998 were important legal milestones in this
context, helping Cyprus comply with its obligations under
the WTO TRIPS agreement.

Property claims across the buffer zone constitute one of
the thorniest aspects of the Cyprus problem. As a
result, investors are well-advised to consider the risks
associated with Greek Cypriot property in the north and
Turkish Cypriot property in the government-controlled
area. Several high-profile cases have already been
brought before the European Court of Justice and other
international bodies, while other cases are still
pending.

The UK Foreign and Commonwealth Office website
(www.fco.gov.uk) notes:

"Property issues are closely linked to the political
situation. There are a number of potential practical,
financial and legal implications, particularly for those
considering buying property in the north. These relate
to the non-recognition of the "Turkish Republic of
Northern Cyprus", the suspension of EU law in northern
Cyprus, the possible consequences for property of a
future settlement, and the many thousands of claims to
ownership from people displaced in 1974. There is also a
risk that purchasers would face legal proceedings in the
courts of the Republic of Cyprus, as well as attempts to
enforce judgements from these courts of the Republic of
Cyprus elsewhere in the EU, including the UK.

Separately, potential purchasers should also ensure that
they are fully aware of the specific rules imposed by the
administration on foreigners purchasing property in the
north including the requirement to obtain consent to the
transfer of property.

On 20 October 2006 a criminal code amendment relating to
property came into effect. Under the amendment, buying,
selling, renting, promoting or mortgaging a property
without the permission of the owner (the person whose
ownership is registered with the Republic of Cyprus Land
Registry, including Greek Cypriots displaced from
northern Cyprus in 1974),is a criminal offence. This
also applies to agreeing to sell, buy or rent a property
without the ownerQs permission. The maximum prison
sentence is 7 years. Furthermore, the amendment to the
law states that any attempt to undertake such a

transaction is a criminal offence and could result in a
prison sentence of up to 5 years. This law is not
retrospective, so will not criminalise transactions that
took place before 20 October 2006. Documents relating to
the purchase of property in northern Cyprus will be
presumed by the Cypriot authorities to relate to the
illegal transfer of Greek Cypriot property and may be
subject to confiscation when crossing the Green Line.
Anyone in possession of these documents may be asked to
make a statement to the Cypriot authorities and may face
criminal proceedings under the 20 October 2006 amendment.
The full implications of this legislation are not yet
clear. Any enquiries about its scope should be made to
the Cypriot representation in the UK."

The following GOC website provides additional information
on the risks of investing in the northern part of Cyprus:

http://www.mfa.gov.cy/mfa/properties/occupied area

_properties.nsf/index_en/index_en?OpenDocumen t

Similarly, there are politically-oriented restrictions to
investing in Turkish Cypriot property in the government-
controlled area of Cyprus. 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 led to an unprecedented boom in the
property market of north Cyprus in 2004. However, since
then, property sales have deflated by at least 25 percent
and construction activity has declined accordingly. There
are reports of foreign buyers of property who have been
unable to secure title to a property even after having
made full payment under a purchase agreement. A group
called the QHomebuyerQs Pressure GroupQ has formed to
seek means to mediate disputes between property sellers
and buyers in the north. Their website is:
http://www.hbpg-trnc.net.

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


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 three 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, and 24 points in 2007,
making it one of the EUQs top-performing stock exchanges.
The CSE is currently the EUQs third-smallest stock
exchange, ahead of Malta and Slovakia, with a
capitalization of around USD 29.0 billion as of January
1, 2008.

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 platform
now 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 the capital available to Cypriot firms and
improved the CSEQs 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 BankQs 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, along with Malta, became the
14th and 15th states to join the Eurozone, adopting the
Euro as their national currencies. The Eurozone now
covers 320 million people out of the EU's total
population of 495 million. 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.

The transition to the Euro has gone quite smoothly for
Cyprus. The main concern was, and continues to be,
keeping price increases in check during the transition.
The final exchange rate was set at one Euro equals CP
0.585274. Cyprus will allow both the Euro and the Cyprus
Pound to circulate on the island until the end of January

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 continue to be mandatory until July 31, 2008.
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 -Q almost
14 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. Shortly thereafter, 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 rather limited. For the period
August 2004 to November 2007, north-to-south sales
reached USD 13 million, while south-to-north sales
reached only USD 2.9 million. Neither side 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 and dabbed "the Annan Plan," 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

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 labor force in the government-controlled area of
Cyprus is estimated at 372,800 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 EU average rate
of unemployment. At the end of June 2006, unemployment
stood at 3.4 percent, compared with 4.1 percent a year
earlier, which makes it the third lowest in the EU.

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. In 2007, Cyprus hosted about
63,000 legally-registered foreign workers, including
about 15,000 live-in domestic servants. There are also
many illegal workers -- more than 30,000 according to one
unofficial estimate -Qwith the rate of illegal
immigration increasing.

The legislated minimum wage (effective April 2007) for
sales assistants, clerks, paramedical, and child care
staff is currently around USD 898 per month, rising to
USD 955 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 USD 330 per month plus 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 main seaports 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


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 2007," Cyprus ranks among the
world leaders (22nd in 2006) in terms of attracting
foreign direct investment on a per capita basis.

In 2006, the inflow of FDI reached USD 1.50 billion,
compared with USD 1.18 billion in 2005. The geographic
origin of new investment in 2006 was the EU 27.6 percent;
non-EU countries in Europe 23.2 percent; and Asia 35.1
percent. In terms of sectoral allocation, incoming FDI
in 2006 went to the following sectors: mining and
quarrying 1.7 percent; construction 3.9 percent; trade
and repairs 17.1 percent; financial intermediation 14.6
percent; real estate and business activities 35.0
percent; and other services 27.7 percent.

The flow of U.S. investment in Cyprus reached USD 51.9
million in 2006 or 3.4 percent of Cyprus' total inward
FDI. The stock of U.S. investment in the island was USD
298.9 million at the end of 2006. U.S. investment in
2006 was focused in real estate and business activities
(USD 27.9 million) as well as mining and quarrying (USD
22.2 million). 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. U.S.
investors may benefit from CyprusQs abolition of EU-
origin investment restrictions, provided they operate
through EU subsidiaries.

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 Q 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 Foreign Affairs:

http://www.mfa.gov.cy/mfa/properties/occupied area

_properties.nsf/index_en/index_en?OpenDocumen t

Ministry of Commerce, Industry, and Tourism:

http://www.investincyprus.gov.cy

Foreign Investors Service Centre (FISC):

http://www.mcit.gov.cy

Ministry of Interior:

http://www.moi.gov.cy/da

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

Cyprus Bar Association:

http://www.cyprusbarassociation.org/news_en.p hp


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

END TEXT

ZIMMERMAN