INTRODUCTION
Attracting foreign capital has always been among the primary objectives of the country's development policy as it contributes to, among other things, the introduction of modern technology and increased export prospects.
Cyprus offers numerous advantages and incentives to the foreign investor. The constitution guarantees the right of private property while it does not discriminate between Cypriots and non-Cypriots. Nationalization has never been part of government policy, nor is it contemplated in the future.
Administrative procedures are simple and, in most cases, foreign participation of up to 100 percent is permitted. There are no complicated criteria other than the rejection of applications for projects which may create environmental problems or may appear detrimental to the country' s economy or national security.
INVESTMENT POLICY
Applications for investments in the wholesale and retail sector are considered by the Central Bank of Cyprus alone if the foreign participation is up to 49 percent. For foreign participation above 49 percent or when the investment exceeds CYP750.000 (approx. USD 1,5 million), applications are considered jointly by the Central Bank and the Ministry of Commerce, Industry and Tourism.
In the case of industrial projects, the Central Bank handles the applications if the foreign participation does not exceed 49 percent. As with wholesale and retail trade, 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 minimum capital 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, which was introduced in 1995, 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 the tourist product such as golf courses, theme parks, etc. In the case of portfolio investment important liberalisations came into effect in June 1996.Specifically:
- for public companies outside the banking sector: normally up to 49 percent of the issued capital may be owned by non-residents. The maximum allowable individual shareholding by a non-resident individual or corporation is restricted to 5 percent of a company's issued capital.
- for public companies in the banking sector: normally up to 15 percent of the issued capital may be owned by non-residents. Of this 6 percent may owned by foreign 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.
For a small number of business activities e.g. establishment of new banks, insurance and financial services companies, publication of newspapers and magazines and the establishment of new airline companies, applications are considered on a case-by-case basis with the extent of allowable foreign participation to be decided on the merits of each individual case.
The list of saturated activities, where no foreign participation is allowed, includes: land development, tertiary education and public utility services such as electricity production, postal services, etc.
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 and 25 percent for chargeable income in excess of CYP40.000. These tax rates also apply to registered branches of foreign companies which have been permitted to operate in the island.
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 (physical 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 centers, etc. are, subject to certain conditions, exempt from corporation tax for a period of ten years.
Generous Tax Allowances. There are 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. Cyprus has ratified 26 double tax treaties, many with former Eastern European countries.
Other Tax Exemptions. 60 percent of repatriated profits resulting from the rendering of professional services abroad are exempt from tax. 90 percent of profits or dividends repatriated to Cyprus from a business based permanently abroad are exempt from tax.
Such a business should be carried out by a Cypriot individual or a company in which Cypriots own at least 15 percent of the equity.
THE STOCK EXCHANGE
The Cyprus stock exchange commenced its operations in March 1996. At present (October 1998) 94 securities issued by 48 companies are listed on the exchange. These include shares (full-paid and partly -paid), rights, warrants and corporate bonds.
Nineteen stockbroking firms are members of the exchange. The total market capitalisation is currently (October 1998) CYP 1,9 billion (US$ 3,8 billion approx.)
Transactions are electronically displayed and the present clearing and settlement processes have been computerised. The exchange is planning in the near future to proceed to a fully computerised on-line trading and settlement system.
Commissions at the exchange can be negotiated between members and their clients. In the absence of an agreement the following rates apply:
|
|
|
| CYP1,00 to CYP1,000 | 1,25 percent |
| CYP1,001 to CYP100,000 | 1,00 percent |
| CYP100,001 and above | 0,3 percent |
The commission for bond trading is 0,5 percent. In addition to commissions, transaction fees for local securities are paid by the buyer, currently at the rate of 1,5 per thousand. The transaction fee for foreign or offshore securities is 0,25 per thousand, again payable by the buyer.
The Stock Exchange Law provides for the establishment of a compensation fund called the "Joint Compensation Fund Securing Stock Exchange Transactions". The aim of this fund is to protect investors in the event of financial collapse, or whenever a member of the exchange is unable to meet his obligations to its principals or to third parties.
The process of acquiring shares by foreigners is simple enough and is more or less similar to that applicable to locals. Payment for any transaction by foreign and Cypriot immigrants alike should be made through external accounts.
