CYPRUS: 2010 INVESTMENT CLIMATE STATEMENT

UNCLAS NICOSIA 000055

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SUBJECT: CYPRUS: 2010 INVESTMENT CLIMATE STATEMENT

REFS: (A) 09 STATE 124006, (B) 09 NICOSIA 0021

Per Ref A request, Post submits below the 2010 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 David J. Ahn and Thomas J.
Walsh, as requested.

BEGIN TEXT

INVESTMENT CLIMATE STATEMENT ON CYPRUS, 2010

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, shipping,
desalination and water management services offer excellent potential
for inward investment. At the same time, the Government of Cyprus
offers incentives in the field of research and technology.

International companies may invest and establish business in Cyprus
on equal terms with local investors in most sectors. Foreign
investors can register a company directly with the Registrar of
Companies, and are eligible to obtain any license, if needed, from
the appropriate authority depending on the nature of investment.

Since 2004, the GOC has eliminated most capital restrictions and
limits on foreign equity participation or ownership, thereby
granting national treatment to investors outside the EU. Non-EU
investors (both natural and legal persons) may now invest freely in
Cyprus in most sectors, either directly or indirectly (including all
types of portfolio investment in the Cyprus Stock Exchange). The
only exceptions concern the acquisition of property and, to a lesser
extent, ownership restrictions on investment in the sectors of
tertiary education, mass media, banking and construction (see "Right
to Private Ownership and Establishment").

There is no mandatory screening of foreign investment. Foreign
investors can register a company directly at the Registrar of
Companies through qualified accountants or lawyers, a procedure
identical to that for local residents. Similarly, foreign investors
may now acquire shares in an existing Cypriot company directly,
without prior authorization by the Central Bank. They are expected,
however, to inform the Registrar of Companies about any change in
ownership status. Foreign investors are required to obtain all
permits that may be necessary under Cypriot law to do business in
Cyprus. For example, they may need to obtain a municipal permit to
set up a kiosk or abide by prevailing health standards to own and
operate a catering company, etc. Furthermore, non-EU residents
wishing to take up employment in Cyprus must obtain work permits
issued by the Migration Department.

In 2007, the GOC established the Cyprus Investment Promotion Agency
(CIPA) tasked with attracting foreign investment, advising foreign
investors, and providing assistance to them. The CIPA operates as a
private organization reporting to the Ministry of Commerce,
Industry, and Tourism and works in tandem with the "Point of Single
Contact," under the same ministry. Through these two organizations,
Cypriot authorities offer expedited processing by other GOC
departments for larger projects (over USD 2.5 million) in line with
country-sustainable growth, e.g. benefiting Cyprus' economic
development goals and objectives. 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:

Point of Single Contact
Ministry of Commerce, Industry & Tourism
13-15 Andreas Araouzos
1421 Nicosia
Cyprus
Tel. +357 22 409433, or 328
Fax: +357 22 409432
Email: onestopshop@mcit.gov.cy
Website: www.businessincyprus.gov.cy
(currently under construction)

Cyprus Investment Promotion Agency
Severis Building
9 Makariou III Ave.
4th Floor
Nicosia
1065 Cyprus
Tel.: +357 22 441133
Fax .:+357 22 441134
E-mail: info@cipa.org.cy
Website: www.cipa.org.cy

Registering a Company

The process of registering a company involves submitting an
application for the approval of the legal entity's name at the
Registrar of Companies or at the Point of Single Contact for a small
fee (slightly more for an accelerated procedure). The applicant may
submit the form in person, through a lawyer or by mail (accompanied
by a check in the name of the Registrar of Companies. The company
names already registered in Cyprus may be reviewed by visiting the
following website:

http://www.mcit.gov.cy/mcit/drcor/drcor.nsf/i ndex_en

/index_en?opendocument

After securing the legal entity's name, the relevant documents for
the legal entity's registration (i.e. Memorandum of Understanding,
Articles of Association, etc.) are to be submitted depending on the
type of the legal form of the entity. In case of registering a
company (private or public) the documents are to be submitted
through an advocate / lawyer practicing in Cyprus. For a complete
list of lawyers, please visit the Cyprus Bar Association's website:

www.cyprusbarassociation.org

Different types of legal entities may be registered at the
Department of Registrar of Companies and Official Receiver. These
types include: Company (Private or public),Branch Company, General
or Limited partnership, European Company and Business Name.
Additional information regarding "Legal Forms of Entities" and
"Incorporation Fees" is available from:

http://www.cipa.org.cy/cipa/cipa.nsf/All/6A15 D813808B2

A2DC22571BC0027D098?OpenDocument

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).

The authorities in the area administered by Turkish Cypriots
established YAGA - the Turkish Cypriot Investment Development Agency
- in 2007 with the aim of creating a one-stop-shop for both local
and foreign investors.

"North Cyprus Investment Development Agency"
Tel: 90 392 228 9378
Website: http://www.investinnorthcyprus.org
E-mail: ayse.donmezer@investinnorthcyprus.org


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.
Area Administered by Turkish Cypriots:

There is no limitation on the transfer of goods and proceeds from
the area administered by Turkish Cypriots. Foreign investors have
the right to take part in the operation and/or management of a
company, to repatriate all investments and all capital (if
anticipated in the initial article of association of the company),
to take part in profits, and to transfer and reinvest profits,
including the trade of currency. The foreign investor may make use
of all the rights guaranteed by the domestic legal framework.



Expropriation and Compensation
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.

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. 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."

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.

Foreign investors have the legal right to claim any damages that
have been made by non-legal means or by incorrect performance of
responsibilities by state representatives of governmental bodies.
We have no information regarding the effectiveness of this
approach.


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.

Area Administered by Turkish Cypriots:

The foreign investor may make use of all the rights guaranteed by
the domestic legal framework.


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, relatively 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, Cyprus's corporate tax rate is currently the lowest among
the EU's 27 countries. Cyprus's other tax advantages include:

-- one of the EU's lowest top statutory personal income tax rates at
30 percent;

-- an 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 will be
available soon from the following website, currently under
construction:

Website: www.businessincyprus.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."

It must be stressed, though, that the Republic of Cyprus outright
rejects such claims and, specifically, it does not recognize title
changes effected in the north by the Turkish Cypriot administration
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 is 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.

-- "State owned" land and building lease

-- Fund credits

The North Cyprus Investment Development Agency was created in late
2007 with the responsibility of approving all investment and
providing incentives. Contact information:

"North Cyprus Investment Development Agency"
Tel: 90 392 228 9378
Website: http://www.investinnorthcyprus.org
E-mail: ayse.donmezer@investinnorthcyprus.org


Right to Private Ownership and Establishment

Government-Controlled Area:

Aside from real estate acquisition issues, outlined in the next
section, several other restrictions infringe on the foreign
investor's right to private ownership and establishment in Cyprus.
For example, current Cypriot legislation restricts ownership of
local electronic mass media companies (e.g. TV and radio stations
but excluding print media) to a ceiling of 25 percent of each local
media company for EU investors, and to just 5 percent of each local
media company for non-EU investors.

Furthermore, under the Registration and Control of Contractors Laws
of 2001 and 2004, the right to register as a building contractor 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).

Area Administered by Turkish Cypriots:

Registered foreign investors may buy property for investment
purposes. Foreign natural persons also have the option of forming
private liability companies and foreign investors can form mutual
partnership with one or more foreign or domestic investors.


Protection of Property Rights
Government-Controlled Area:

Cypriot law imposes significant restrictions on the foreign
ownership of real estate by non-EU residents. Non-EU persons and
entities may purchase only a single piece of real estate (not to
exceed three donums, or roughly one acre) 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 they are difficult to obtain and are rarely granted.


Specifically, the Acquisition of Real Estate (Aliens) Cap and the
Amending Laws of 2003, in force since May 1, 2004,
provides that 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 company's 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.

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 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.

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 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_pro

perties.nsf/index_en/index_en?OpenDocument

Furthermore, 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.

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

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. In response to the
ECHR's 2005 ruling in the Xenides Arestis case that Turkey's
"subordinate local authorities" in Cyprus had not provided an
adequate local remedy for Greek Cypriot claims, Turkish Cypriot
authorities established a "Property Commission" to handle claims by
Greek Cypriots (please see website below). In 2006 the "Property
Commission" began reviewing Greek Cypriot claims and had reportedly
received over 500 applications by the end of 2009.

http://www.northcyprusipc.org/

On January 19, 2010, the UK Court of Appeal enforced an earlier
court decision taken in the Government-controlled area backing a
Greek Cypriot person's efforts to claim trespassing (the Orams case)
effectively voiding property transfers of Greek Cypriot property in
the Turkish Cypriot controlled sector. As a result of the ruling,
the Orams -- a British couple, who had bought the land and built a
holiday home on it -- have been ordered to pay compensation and
court fees, demolish the home, halt all improvements on the
property, and deliver it to its legal owner. This ruling by the
Cypriot court is enforceable against the Oram's assets in the UK per
the UK Court of Appeal and the European Court of Justice. Lawyers
believe that the effect of this case is that assets of any
individual in an EU member state could be attached in settlement of
property cases in north Cyprus based on court decisions in the
Republic of Cyprus.

The UK Foreign and Commonwealth Office website

(http://www.fco.gov.uk/en/about-the-fco/count ry-

profiles/europe/cyprus) notes:

"The ownership of many properties is disputed across the island, and
particularly in northern Cyprus, with many thousands of claims to
ownership of properties from people displaced during the events of

1974. Purchase of these properties could have serious financial and
legal implications. The European Court of Human Rights has ruled in
a number of cases that owners of property in northern Cyprus prior
to 1974 should continue to be regarded as the legal owners of that
property. Purchasers could face legal proceedings in the courts of
the Republic of Cyprus, as well as attempts to enforce judgements
from these courts elsewhere in the EU, including the UK. Potential
purchasers should also consider that a future settlement could have
consequences for property they purchase in Cyprus (including
possible restitution of the property to its original owners)."

Foreign investors have the right to claim any damages that have been
made by non-legal means or by incorrect performance of
responsibilities by state representatives of governmental bodies, in
accordance with the law.
Intellectual property rights are not adequately protected in the
area administered by Turkish Cypriots, where laws in this area 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. 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 operation of
private venture capital firms. The banking sector is generally
sound and well-supervised.

Since its official launch in 1996, the Cyprus Stock Exchange (CSE)
has gone through two boom-and-bust cycles - the first during
1998-2001 (largely attributable to endogenous factors and
shortcomings),and the second during 2005-2008 (mainly resulting
from exogenous factors). The CSE is currently the EU's
third-smallest stock exchange, ahead of Malta and Slovakia, with a
capitalization of around Euros 7.3 billion (USD 10.7 billion) as of
January 2010. Since 2006, the CSE and the Athens Stock Exchange
(ASE) operate from a joint trading platform, allowing capital to
move more freely from one exchange to the other, even though both
exchanges retain their autonomy and independence. The joint
platform has increased capital available to Cypriot firms and
improved the CSE's liquidity.

Foreign investors may acquire up to 100 percent of the share capital
of Cypriot companies listed on the CSE with the notable exception of
companies in the banking sector. The Central Bank's prior approval
is necessary before any individual person or entity, whether Cypriot
or foreign, can acquire over 9.99 percent of a bank incorporated in
Cyprus (whether listed on the CSE or not).

On January 1, 2008, Cyprus joined the Eurozone, adopting the Euro as
the national currency. For a small country like Cyprus, this
development has many significant long-term economic benefits,
including a higher degree of price stability, reduction of currency
conversion costs and exchange rate risk, and increased competition
through greater price transparency. However, more than a year after
adopting the Euro, Cyprus continued having stubbornly high interest
rates (highest in the Eurozone in January 2010).

Area Administered by Turkish Cypriots:

The financial system in the area administered by Turkish Cypriots is
linked closely with that of Turkey. The Turkish Lira (TL) is the
main currency in use although the Euro, U.S. dollar and British
Sterling 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.

Currently, there are 24 commercial banks plus a Development Bank
operating. Seven are branches of Turkish banks. Total bank
deposits are around USD 6 billion as of 2008.


Competition from State-Owned Enterprises (SOEs)

Government-Controlled Area:

Cyprus has no Sovereign Wealth Fund but it does have about a dozen
organizations exclusively or majority-owned by the State providing
common utilities, and other essential services. These are
autonomous organizations (commonly referred to locally as
"Semi-Government Organizations") but they are subject to control and
supervision by the Executive, as well as the House of
Representatives. The most important of these organizations are:

-- Cyprus Airways
-- Cyprus Broadcasting Corporation
-- Cyprus Land Development Corporation
-- Cyprus Ports Authority
-- Cyprus Sport Organization
-- Cyprus State Fairs Authority
-- Cyprus Telecommunication Authority
-- Cyprus Theatre Organization
-- Cyprus Tourism Organization
-- Electricity Authority of Cyprus
-- Natural Gas Public Company of Cyprus

These organizations are active in different fields respectively, as
suggested by their names, and each is different in terms of
structure, scope, corporate culture, etc. They have independent
boards of directors, typically including politically-affiliated
individuals. They invariably publish annual reports and submit
their books to independent audits.

In years past -- prior to Cyprus' EU accession -- many of these
organizations used to enjoy state-sanctioned monopolies in their
respective fields. However, Cyprus' EU accession on May 1, 2004
ushered in a new era allowing competition from the private sector,
particularly in sectors with large commercial potential such as
telecommunications, and air transport. However, in some progress
towards a more competitive environment has been relatively slow, and
there are still a few hurdles to be overcome, especially in some
sectors. For example, power generation for households remains off
limits to private competition until 2013, thanks to a derogation
from the EU, while power generation for industrial consumers has
opened up partially. The importation of natural gas was made a
monopoly of a semi-government enterprise in 2009.

For more information on each of these organizations, please visit:

http://www.cyprus.gov.cy/portal/portal.nsf/Al l/F24141

09880E837BC2256FA3002FEA11?OpenDocument&a=1&z =

For more information on the Commission for the Protection of
Competition, responsible for the harmonious operation of the market
and fair competition, please visit:

http://www.competition.gov.cy/competition/com petition.

nsf/index_en/index_en?opendocument


Corporate Social Responsibility (CSR)

Government-Controlled Area:

In recent years, CSR awareness among both producers and consumers is
growing in Cyprus. Leading foreign and local enterprises tend to
follow generally-accepted CSR principles, while firms pursuing these
practices tend to be viewed more favorably by the public.


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 16.5
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. In 2009, Green Line (GL) trade from the Turkish
Cypriot community (TCC) to the Greek Cypriot community (GCC)
amounted to Euros 6.0 million, down 16 percent from 2008. In the
same year, GL trade in the opposite direction (from the GCC to the
TCC) amounted to Euro 811,637, down 41 percent from 2008.

The Green Line Regulation provides special rules for trade across
the buffer zone. The maximum allowable ceiling on the total value
of goods contained in the personal luggage of persons crossing the
Green Line is currently Euros 260 (USD 390). Details on the Green
Line Regulation are available from:

http://www.europa-eu-un.org/articles/en/artic le_7955_ en.htm

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.

A plan for the reunification of the island, drafted under the
auspices of the UN and dubbed "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.
Negotiations for the resolution of the Cyprus problem between the
Greek Cypriot and Turkish Cypriot leaders continue to the present
day.


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 (in 1999 and 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 "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, Kyrgyzstan, Malta, Mauritius,
Moldova, Norway, Poland, Romania, Russia, Singapore, Slovakia,
Slovenia, South Africa, Sweden, Syria, Tajikistan, Thailand,
Ukraine, United Kingdom, the United States, and Yugoslavia.
Treaties with Algeria, Estonia, and Kazakhstan are at various stages
of negotiations.

The Republic of Cyprus has Trade Centers (under the Ministry of
Commerce, Industry and Tourism) in eleven locations outside Cyprus,
including one in New York City handling trade with the United States
of America, Canada, and Latin America. The full list of these
offices can be downloaded from:

http://www.mcit.gov.cy

Contact details for the New York Trade Center 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 391,000 persons. The breakdown by broad sector is:
agriculture and mining, 8.2 percent; industry and construction, 20.5
percent; and services, 71.1 percent (including 28.0 percent in trade
and tourism).

At the end of 2009, unemployment in Cyprus exceeded 6.0 percent, the
highest it has been since 1977 due to the effects of the global
economic downturn. Still, unemployment in Cyprus compares favorably
with the Eurozone average of 10 percent.

Cyprus has a high per capita rate of college graduates, including
many U.S. university 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 2008, Cyprus
hosted about 65,000 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
--with the rate of illegal immigration increasing.

The legislated minimum wage (effective September 2009) for sales
assistants, clerks, paramedical, and child care staff is currently
around USD 1,186 per month, rising to USD 1,260 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
ecQomic sector, and the wages set in these agreements are
significantQ 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 70.0 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 "relatively
peaceful." International business companies are not required to
hire union labor. Wages and salaries economy wide are adjusted for
inflation twice a year through an automatic Cost of Living Allowance
(COLA). COLA has been in existence for many years, helping preserve
labor peace but also undermining competitiveness. Efforts are
currently underway to amend the way COLA is calculated.

Residency and Employment Permits

Non-EU residents wishing to establish a company in Cyprus need to
obtain a residence and employment permit by the Civil Registry and
Migration Department. The process of applying for and obtaining
such permits can be complex. A Temporary Residency application
(without the right to work in Cyprus) requires a bank guarantee and
a full medical insurance certificate, valid for one year, along with
multiple forms that need to be filled out. Applying for an
employment permit is more complicated, involving, for example, a
requirement on the part of the employer to place an ad in local
media, as well on EURES (the EU's seasonal employment portal) for
the specific position. Only if there are no other applicants from
Cyprus or the rest of the EU after six weeks can the GOC consider
the non-EU applicant. Applying for permanent residency requires
continued presence in Cyprus for over 10 years, being over the age
of 30 and having a clean police record. Such applications are
reviewed on a case-by-case basis by an inter-agency committee,
comprising of Ministry of Commerce, Ministry of Interior, Ministry
of Labor and other officials.

Exceptionally wealthy investors, for their part, may apply to the
GOC for permanent residency status, provided they meet the following
criteria (approved in November 2007).
-- Direct investor applicants must have in Cyprus direct investments
(e.g. real estate, factories) in excess of Euros 26 million.

-- Business applicants must have established in Cyprus companies
with a total turnover of over Euros 86 million the year preceding
the application.
-- Bank depositor applicants must have bank deposits in Cyprus in
excess Euros 17 million for a minimum five-year term.

-- Alternatively, an applicant must have over Euros 26 million
invested in a combination of the above.

Area Administered by Turkish Cypriots:

The labor force in the area administered by Turkish Cypriots is
estimated at 92,000. The breakdown of employment by sector is as
follows: 6.0 percent in agriculture, 9.8 percent in manufacturing
and utilities, 12.0 percent in construction, and 72.0 percent in
services (including in trade and tourism). The minimum wage
effective September 2009 was 1,237 Turkish Lira (TL) per month
(around USD 840). The rate of unemployment is estimated at around
9.8 percent.

There is ample supply of university graduates. Foreign persons
obtain work permits through their employer. Foreigners have the
option of importing their key personnel, and employers can hire
trainees and part-time workers. Full-time working hours are 40
hours per week.


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

Area Administered by Turkish Cypriots:

Regulated by the "Free-Ports and Free Zones Law", there exists a
free port and zone area in Famagusta.

Operations and activities permitted in the Free Port and Zone are as
follows:

-- Engaging in all kinds of industry, manufacturing and production.

-- Storage and export of goods imported to the Free Port and Zone.

-- Assembly and repair of goods imported to the Free Port and Zone.
-- Building, repair and assembly of all kinds of ships.

-- Banking and insurance services.

Incentives provided to businesses established in the Free Port and
Zone are as follows:

-- All income derived from activities and operations undertaken by
investors in the Free Port and Zone are exempt from Corporate and
Income Tax. This exemption does not apply to the exports of goods
and services not manufactured and undertaken in the Free Port and
Zone and that are directed to the "TRNC".

-- No limit on repatriation of profit and capital

-- Exemption from custom duties and indirect taxes.

-- Permission to employ foreign expert, engineer and technical
personnel.


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 2008," Cyprus ranks among the world leaders
in terms of attracting foreign direct investment on a per capita
basis.

In 2008, the inflow of FDI (including "brass plate" companies)
reached USD 4.0 billion. The geographic origin of this investment
was 36.2 percent from the EU; and 49.8 percent from non-EU countries
in Europe. In terms of sectoral allocation, incoming FDI in 2008
went to the following sectors: construction 1.4 percent; trade and
repairs 15.2 percent; transport and communication 5.5 percent;
financial intermediation 48.0 percent; and real estate and business
activities 29.7 percent.

The flow of U.S. investment in Cyprus reached USD 42.0 million in
2008 or 1.0 percent of Cyprus' total inward FDI. The stock of U.S.
investment in the island was USD 434.8 million at the end of 2008.
Projects involving U.S. investment in recent years have included
real estate and various business activities, including 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, an oil field
products manufacturer, and a financial services company. U.S.
investors may benefit from Cyprus's abolition of EU-origin
investment restrictions, provided they operate through EU
subsidiaries.

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

http://www.cipa.org.cy

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
sectors, which have attracted most investment are tourism and real
estate.

Web Resources
--------------

Government-Controlled Area
--------------

American Embassy in Nicosia:

http://cyprus.usembassy.gov

Commercial Section in Nicosia:

http://www.buyusa.gov/cyprus/en
Government of Cyprus portal:

http://www.cyprus.gov.cy

Ministry of Foreign Affairs:

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

perties.nsf/index_en/index_en?OpenDocument

Point of Single Contact (Ministry of Commerce, Industry and
Tourism):

http://www.businessincyprus.gov.cy

Cyprus Investment Promotion Agency:

http://www.cipa.org.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

Department of Merchant Shipping:

http://www.shipping.gov.cy

Cyprus Bar Association:

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

The UK Foreign and Commonwealth Office:

http://www.fco.gov.uk/en/about-the-fco/countr y-

profiles/europe/cyprus

Green Line Regulation:

http://www.europa-eu-un.org/articles/en/artic le_7955_ en.htm

Government of Cyprus portal on state-owned organizations:

http://www.cyprus.gov.cy/portal/portal.nsf/Al l/F241410

9880E837BC2256FA3002FEA11?OpenDocument&a=1&z=

Commission for the Protection of Competition:

http://www.competition.gov.cy/competition/com petition.

nsf/index_en/index_en?opendocument


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

"North Cyprus Investment Development Agency:"

http://www.investinnorthcyprus.org

"TRNC Central Bank":

http://www.kktcmb.trnc.net/

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URBANCIC