Attracting foreign capital has always been among the island's primary objectives hence the numerous advantages and incentives on offer to the foreign investor. The constitution guarantees the right of private property while it does not discriminate between Cypriots and non-Cypriots. Nationalisation has never been part of government policy, nor is it contemplated in the future. Furthermore, Cyprus is a signatory to the Convention for the Settlement of Investment Disputes Between States and Nationals of Other States and the Multilateral Investment Guarantee Agency Agreement. INVESTMENT POLICY In its efforts to liberalise the economy and attract foreign capital, the government has further relaxed the rules and regulations applicable to inward investment. Under the liberalised regime, administrative procedures have become simpler and, in most cases, foreign participation of up to 100 percent is permitted. Only projects which may create environmental problems or may appear detrimental to the country's economy or national security are rejected. The wholesale and retail trade sector is now open to non-resident investors. Applications are considered by the Central Bank alone if the foreign participation is up to 49 percent. If a higher percentage is required or if the investment exceeds CYP750.000 (US$1,5 million), applications are considered jointly by the Central Bank and the Ministry of Commerce, Industry and Tourism. Applications for foreign participation higher than 49 percent are rejected outright by the Central Bank if the total investment is less than CYP300.000. In the case of industrial projects, the Central Bank handles applications if foreign participation does not exceed 49 percent. If a higher percentage is required or if the investment exceeds CYP750.000, applications are considered jointly by the Central Bank and the Ministry of Commerce, Industry and Tourism. As far as the services sector is concerned, up to 100 percent foreign ownership is permitted and the Central Bank has the sole responsibility for approving applications. Over 70 types of services have been divided into two categories so that, depending on the service involved, the required minimum level of investment of each company to be formed will be either CYP50.000 or CYP100.000. Investors in the tourist sector are subject to the tourist policy applicable at the time. The current policy provides for up to 49 percent maximum foreign participation in hotels, tourist villages, villas, etc. However, up to 100 percent may be allowed for projects which enrich tourism such as golf courses, theme parks, etc. In the case of new insurance companies, banks, financial services, newspaper publishing and airline companies, the extent of foreign participation is decided on the merits of each individual case. For existing public companies outside the banking sector, up to 49 percent of the issued capital may be owned by non-Cypriot non-residents. There are no restrictions for Cypriot non-residents (natural persons only). The maximum allowable individual shareholding by a non-resident individual or corporation is restricted to 5 percent of a company's issued capital. In the case of new public companies the allowable foreign participation is decided on the merits of each individual case and may exceed 49 percent. For public companies in the banking sector, up to 15 percent of the issued capital may be owned by non-residents. Of this, 6 percent may be owned by non-Cypriot non-residents and the other 9 percent by Cypriot non-residents. The maximum allowable individual shareholding by a non-resident individual or corporation is restricted to 0,5 percent of a company's issued capital. All the percentages mentioned above may be exceeded in worthy cases. FINANCING ARRANGEMENTS The permit issued by the Central Bank to non-resident investors specifies the allowable activities of the legal entity concerned. At the same time, it imposes conditions that must be observed with regard to financing arrangements. The non-resident investor's equity capital must emanate from external sources and, together with local capital, it must be commensurate with the total cost of the project. Additional financing in Cyprus pounds can be freely raised from local sources. Financing in foreign exchange may be secured either from banks operating in Cyprus or from foreign sources, in accordance with Central Bank policy applicable at the time. The terms under which such foreign loans are received must be approved in advance by the Central Bank. One of the basic requirements is that interest and other costs must be at market rates. Permission for the repatriation of capital (including capital appreciation), profits, dividends and interest arising from a direct investment in Cyprus is readily granted. There is no prescribed maximum percentage of profits that may be repatriated each year or minimum period before which the non-resident may dispose of his investment. Transfers of equity are permitted on the basis of share valuations and bank references in the case of new non-resident owners. The savings of expatriate employees may be transferred abroad or credited to a freely convertible or foreign currency account in Cyprus. FISCAL AND OTHER INCENTIVES The general advantages offered by Cyprus are enhanced by the following tax incentives: Low corporation tax. Net profits are taxed at the rate of only 20 percent for chargeable income up to CYP40.000 (US$80.000) and 25 percent for chargeable income in excess of this amount. Low income tax. Expatriates employed in the Industrial Free Zone pay half the rates applicable to locals ie 0-20 percent. No Withholding Tax. Dividends paid by resident companies to foreign incorporated companies are exempt from withholding tax. If dividends are paid to shareholders (natural persons) then the tax withheld is credited against their own tax liability. Ten Year Tax Holiday. Profits resulting from the operation of auxiliary tourist projects, such as golf courses, marinas, theme parks, health centres, etc are, subject to certain conditions, exempt from corporation tax for a period of 10 years. Generous investment allowances for machinery and equipment used in the manufacturing sector and considerable wear and tear allowances covering both machinery and certain categories of hotel buildings. Book losses may be carried forward for up to 5 years from the year in which they occur. Zero customs and excise charges for operations in the Industrial Free Zone. Double tax treaties with 27 countries. Foreign investors can also take advantage of other incentives. These include: industrial training schemes; export promotion services; bonded warehouses; and industrial plots at very low rentals. THE EUROPEAN UNION In 1973, the island entered into an association agreement with the European Union (EU), which provided for the gradual abolition of all barriers to trade and the establishment of a customs union. The union, which was completed at the end of 1997, undoubtedly opened up new prospects for the production and distribution of goods and services by enterprises based on the island. As mentioned in Chapter I, the EU is already Cyprus' main trading partner. A formal application for full membership of the EU was made in 1990 and accession negotiations began in 1998. Cyprus offers unique opportunities to businessmen from the EU wishing to service the Middle East and to businessmen from third countries wishing to service the EU. Investors from the EU may have access to the EC International Investment Partners Scheme (ECIP) which offers support through co-investment in joint ventures between firms in the EU and the Mediterranean region (including Cyprus), Latin America and Asia. Financial assistance is available at the various stages of the investment cycle and applications are handled by the Cyprus Development Bank.
Attracting foreign capital has always been among the island's primary objectives hence the numerous advantages and incentives on offer to the foreign investor. The constitution guarantees the right of private property while it does not discriminate between Cypriots and non-Cypriots. Nationalisation has never been part of government policy, nor is it contemplated in the future. Furthermore, Cyprus is a signatory to the Convention for the Settlement of Investment Disputes Between States and Nationals of Other States and the Multilateral Investment Guarantee Agency Agreement.
INVESTMENT POLICY
In its efforts to liberalise the economy and attract foreign capital, the government has further relaxed the rules and regulations applicable to inward investment. Under the liberalised regime, administrative procedures have become simpler and, in most cases, foreign participation of up to 100 percent is permitted. Only projects which may create environmental problems or may appear detrimental to the country's economy or national security are rejected.
The wholesale and retail trade sector is now open to non-resident investors. Applications are considered by the Central Bank alone if the foreign participation is up to 49 percent. If a higher percentage is required or if the investment exceeds CYP750.000 (US$1,5 million), applications are considered jointly by the Central Bank and the Ministry of Commerce, Industry and Tourism. Applications for foreign participation higher than 49 percent are rejected outright by the Central Bank if the total investment is less than CYP300.000.
In the case of industrial projects, the Central Bank handles applications if foreign participation does not exceed 49 percent. If a higher percentage is required or if the investment exceeds CYP750.000, applications are considered jointly by the Central Bank and the Ministry of Commerce, Industry and Tourism. As far as the services sector is concerned, up to 100 percent foreign ownership is permitted and the Central Bank has the sole responsibility for approving applications. Over 70 types of services have been divided into two categories so that, depending on the service involved, the required minimum level of investment of each company to be formed will be either CYP50.000 or CYP100.000.
Investors in the tourist sector are subject to the tourist policy applicable at the time. The current policy provides for up to 49 percent maximum foreign participation in hotels, tourist villages, villas, etc. However, up to 100 percent may be allowed for projects which enrich tourism such as golf courses, theme parks, etc.
In the case of new insurance companies, banks, financial services, newspaper publishing and airline companies, the extent of foreign participation is decided on the merits of each individual case.
For existing public companies outside the banking sector, up to 49 percent of the issued capital may be owned by non-Cypriot non-residents. There are no restrictions for Cypriot non-residents (natural persons only). The maximum allowable individual shareholding by a non-resident individual or corporation is restricted to 5 percent of a company's issued capital. In the case of new public companies the allowable foreign participation is decided on the merits of each individual case and may exceed 49 percent. For public companies in the banking sector, up to 15 percent of the issued capital may be owned by non-residents. Of this, 6 percent may be owned by non-Cypriot non-residents and the other 9 percent by Cypriot non-residents.
The maximum allowable individual shareholding by a non-resident individual or corporation is restricted to 0,5 percent of a company's issued capital.
All the percentages mentioned above may be exceeded in worthy cases.
FINANCING ARRANGEMENTS
The permit issued by the Central Bank to non-resident investors specifies the allowable activities of the legal entity concerned. At the same time, it imposes conditions that must be observed with regard to financing arrangements. The non-resident investor's equity capital must emanate from external sources and, together with local capital, it must be commensurate with the total cost of the project. Additional financing in Cyprus pounds can be freely raised from local sources. Financing in foreign exchange may be secured either from banks operating in Cyprus or from foreign sources, in accordance with Central Bank policy applicable at the time.
The terms under which such foreign loans are received must be approved in advance by the Central Bank. One of the basic requirements is that interest and other costs must be at market rates.
Permission for the repatriation of capital (including capital appreciation), profits, dividends and interest arising from a direct investment in Cyprus is readily granted. There is no prescribed maximum percentage of profits that may be repatriated each year or minimum period before which the non-resident may dispose of his investment.
Transfers of equity are permitted on the basis of share valuations and bank references in the case of new non-resident owners. The savings of expatriate employees may be transferred abroad or credited to a freely convertible or foreign currency account in Cyprus.
FISCAL AND OTHER INCENTIVES
The general advantages offered by Cyprus are enhanced by the following tax incentives:
Foreign investors can also take advantage of other incentives. These include: industrial training schemes; export promotion services; bonded warehouses; and industrial plots at very low rentals.
THE EUROPEAN UNION
In 1973, the island entered into an association agreement with the European Union (EU), which provided for the gradual abolition of all barriers to trade and the establishment of a customs union. The union, which was completed at the end of 1997, undoubtedly opened up new prospects for the production and distribution of goods and services by enterprises based on the island. As mentioned in Chapter I, the EU is already Cyprus' main trading partner.
A formal application for full membership of the EU was made in 1990 and accession negotiations began in 1998.
Cyprus offers unique opportunities to businessmen from the EU wishing to service the Middle East and to businessmen from third countries wishing to service the EU. Investors from the EU may have access to the EC International Investment Partners Scheme (ECIP) which offers support through co-investment in joint ventures between firms in the EU and the Mediterranean region (including Cyprus), Latin America and Asia. Financial assistance is available at the various stages of the investment cycle and applications are handled by the Cyprus Development Bank.