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Country Commercial Guides
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VII. INVESTMENT CLIMATE
(A1) Openness to Foreign Investment
(Note: This report covers only the Government-controlled area of Cyprus. Please refer to section III for more details on the current political situation.)
Attitude Towards Investment and Regulatory Framework
In February 1997, Cyprus introduced a more liberal policy on foreign direct investment, replacing the previous policy which had been in effect for a decade. The government expects that the new policy will gradually expand direct investment in Cyprus and help promote Cyprus as an international business center.
Cyprus' Exchange Control Law makes a distinction between residents and non-residents, as opposed to between Cypriot nationals and aliens. Non-residents are Cypriots living abroad, aliens and foreign companies. A new policy introduced in 1997 minimizes bureaucratic intervention and opens up opportunities for investment by non-residents in most sectors. Non-residents can invest in Cyprus after obtaining permission under the Exchange Control Law from the Central Bank.
Non-residents wishing to invest in Cyprus should apply for permission through an appropriate professional (attorney or accountant) practicing in Cyprus. The professional will submit to the Central Bank an application containing the requisite information, i.e., share capital, economic activities, etc. (The Embassy's Consular Section can supply interested persons with a List of Attorneys in Cyprus. The Consular Section can be contacted, inter alia, through the Embassy's Internet Homepage: www.americanembassy.org.cy.) The Central Bank's policy distinguishes between three different forms of foreign investment:
-- Direct Investment, which may belong partly or wholly to non-residents, conduct their business in Cyprus, and derive income from Cyprus;
-- International Business Companies (a.k.a. offshore enterprises), covering Cypriot firms belonging entirely to non-residents and conducting business and deriving income exclusively from outside Cyprus; and
-- Ship Ownership Companies, covering Cypriot firms belonging entirely to non-residents and limiting their activities to the ownership, bareboat chartering and operation of ships outside Cyprus.
Upon receiving an investment application, the Central Bank (sometimes, in consultation with appropriate government departments) will normally respond within 30 days. In the case of international business companies and ship ownership companies, the Central Bank normally issues the permit within a few days, if all the information is complete. Where the procedure cannot be completed in one month, the applicant is notified by the Central Bank. After the permit is issued, the non-residents' shares or participation must be registered in their names or in the names of their nominees at the Department of the Official Receiver and Registrar under the Companies or Partnerships Laws. These laws are based on corresponding Acts of the United Kingdom but are currently in the process of being harmonized with EU norms.
Registration, re-organization and liquidation of businesses must be undertaken through attorneys or accountants practicing on the island. Businesses with non-resident participation must prepare and submit to the Central Bank of Cyprus and to the Department of Inland Revenue annual financial statements audited by accountants practicing in Cyprus.
It should also be noted that U.S. franchises, particularly in the food sector, have proved tremendously successful in Cyprus in recent years and show great potential for further growth in the future. Although franchises are not considered a form of foreign investment, this success is largely due to the fact that U.S. goods and services enjoy a good reputation in the Government-controlled area, which also reflects Cyprus' overall receptivity to U.S. investment projects.
Employment Permits
Non-residents wishing to take up employment in Cyprus require work permits by the Immigration Department. Employment permits are readily issued to the senior executives of companies as well as to other foreign personnel when administrative or technical staff of the same caliber cannot be found in Cyprus, or when the employment of the non-resident is absolutely necessary for conducting the business of the enterprise. In the case of international business companies, arrangements have been made for the Ministry to issue and renew the permits of expatriate employees upon the recommendation of the Central Bank.
Direct Investment
The screening mechanism used by the Central Bank for prospective foreign investors is routine and non-discriminatory. In general, the new policy allows up to 100.0 percent foreign participation in manufacturing and services and up to 49.0 percent in agriculture, provided some prerequisites are met -- concerning an adequate level of investment, environmental considerations, national security matters, etc. Following is a summary of the new screening criteria, currently used by the Central Bank for foreign direct investment:
(i) In the primary (agriculture) sector, foreign participation of up to 49.0 percent is allowed, provided the minimum level of investment is CP 100,000 (currently, the exchange rate between the Cyprus Pound (CP) and the USD is about CP 1.00 = USD 1.80).
(ii) In the secondary (manufacturing) sector, foreign participation of up to 100.0 percent is allowed. (For investments of up to CP 750,000 or for participation of up to 49.0 percent, the Central Bank approves the investment on its own, but for larger projects and more foreign participation it consults with the Ministry of Commerce, Industry and Tourism.)
(iii) In the tertiary (services) sector, the following regulations apply:
-- Foreign participation of up to 100.0 percent is allowed for up to 70 types of services. These services have been grouped into two categories, those with a minimum investment capital of CP 50,000; and those with a minimum investment capital of CP 100,000. The first category includes professional services, computer-related services, research and development services, other business services, courier services, entertainment services and new agencies. The second category of services (for investments of more than CP 100,000) includes business services, communications services, construction services, educational services, environmental services, sporting and other recreational services, and transport services.
-- Foreign participation of up to 49.0 percent is easily granted for wholesale and retail trading companies, even for relatively small projects. For foreign ownership in excess of 49 percent in the wholesale and retail trading sector, the Central Bank generally requires a capital investment of more than CP 300,000.
-- The Central Bank has the discretion to approve any application for up to 24.0 percent foreign participation for investments of less than CP 50,000.
-- Investments in hotels, tourist villas, tourist agencies, restaurants, etc. are subject to a maximum level of foreign participation of 49.0 percent, although other tourist investments which enrich Cyprus' tourist product (e.g. golf courses, theme parks, etc.) may have up to 100.0 percent foreign participation.
(iv) For a small number of business activities, including the establishment of new banks, insurance and financial services companies, publication of newspapers and magazines and new airline companies, applications (and the extent of foreign participation) will be considered on a case-by-case basis.
(v) Direct investment by non-residents continues to be discouraged in "saturated" sectors. The list of "saturated" activities has been substantially reduced from previous years and it includes real-estate development, tertiary education, and public utilities. It should be noted here that most public utilities (e.g. telecommunications, electricity, and water supply) continue to be monopolized by the state.
(vi) The Cyprus Stock Exchange (CSE) began operation on March 29, 1996, replacing the unofficial, over-the-counter stock market which existed previously. Since June 1996, foreign investors are no longer required to obtain the Central Bank's permission to invest in the CSE, provided the money comes from an external account and maximum foreign participation conforms to these rules: maximum foreign participation may be up to 49.0 percent for publicly-traded private companies other than banks and up to 6.0 percent for banks. The maximum allowable share-holding for individual non-resident companies or investors is 5.0 percent for non-bank publicly-traded private companies and 0.5 percent for banks. Foreign investors need to buy or sell their shares through one of the 30 or so licensed members of the CSE (stock brokers), just like local investors.
Cyprus is a signatory to the Convention of the Settlement of Disputes between States and Nationals of other States, the Multilateral Investment Guarantee Agency Agreement (MIGA), and the Convention on the Protection of Industrial Property. Additionally, Cyprus signed an Investment Guarantee Program with the United States in 1963. This program is essentially unused but, in principle, makes it possible to insure long-term U.S. investments abroad against the possibility of non-commercial risks.
The appropriate contact person at the Central Bank for further information on foreign direct investment is Mr. Yiannis Kalavanas, Senior Officer, International Division. Contact information follows:
Central Bank of Cyprus
80 Kennedy Ave.
P. O. Box 5529
Nicosia, Cyprus
Tel: 357-2-379800
Fax: 357-2-378153
e-mail: idfi@centralbank.gov.cy.
Homepage: www.centralbank.gov.cy.(A2) Conversion and Transfer Policies
1. Exchange Controls for Residents.
The Exchange Control Law does not distinguish between Cypriot nationals and aliens but rather between residents and non-residents. The residential status of physical persons is normally determined by their places of residence and employment. The residential status of firms is normally determined by the place of incorporation. Currently, residents are subject to exchange control restrictions, covering the holding of foreign currency accounts, investing abroad, travel allowance, etc.
Restrictions on outward investment for residents of Cyprus were somewhat relaxed in February 1997. Applications by Cypriot residents to invest abroad must meet the Central Bank's revised criteria, which generally aim to improve the prospects for the Cypriot economy. These criteria are as follows:
(i) The investment abroad should benefit the Cypriot economy in the form of, say, the inflow of foreign exchange from increased exports of goods, provision of services to people residing abroad, patents, management fees, etc.
(ii) The profitability of the investment is such that it ensures coverage of probable future additional needs from own funds or foreign loans.
(iii) The investment enhances tourism to Cyprus, particularly quality, conference or special interest tourism, and facilitates penetration of new tourist markets.
(iv) The applicant's experience in the field of the proposed investment.
(v) The percentage of participation in the foreign company. It will be considered an advantage if the foreign company is controlled by the applicant investor.
(vi) The repatriation of capital and profits is allowed by the country where the investment will take place.
Irrespective of whether the proposed investment satisfies some or all of the above criteria, the Central Bank's final decision will also take into consideration the amount of capital to be exported or any guarantees to be extended from Cyprus. Specifically, the direct foreign exchange cost for each investment should not exceed CP 0.5 million. If only the issue of guarantee is required (rather than the export of capital), the guarantee should not exceed CP 1.0 million.
Within its overall liberalization of the financial system and as part of the GOC's drive to harmonize fully with EU norms, we expect the Government's exchange control policy to be relaxed before January 1, 2003. For now, however, these restrictions remain in place.
2. Non-residents Exempt from Exchange Controls.
Non-residents are exempt from exchange control restrictions. Non-residents may hold and manage assets and liabilities in any foreign currency and in any foreign country, including freely convertible and transferable balances with banks on the island.
Cypriot firms which belong partly or wholly to non-residents and which carry on business or derive income within the island are considered residents for exchange control purposes. Cypriot firms which belong exclusively to non-residents and which carry on business and derive income exclusively outside the island are exempt from exchange controls. Persons who are not permanent residents of Cyprus are also exempt from exchange controls.
Once the non-resident investor has obtained the approval of the Central Bank, he/she is free to go ahead with an investment project and repatriate freely capital, profits, dividends and interest arising from the investment. The savings of expatriate employees may be transferred abroad monthly or credited to a freely convertible or foreign currency account in Cyprus. 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. On both counts the foreign investor may act freely.
(A3) Expropriation and Compensation
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. Furthermore, investors and lenders to expropriated entities receive fair compensation in the currency in which the investment is made. In the event of any delay in the payment of compensation, the Government is liable to the payment of interest based on the prevailing 6-month LIBOR for the relevant currency in addition to the amount of compensation.
(A4) Dispute Settlement
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 a dispute between the parties to an agreement cannot be settled by the parties' attorneys. An arbitral award may be enforced by the court 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 of the Settlement of Disputes Between States and Nationals of Other States.
(A5) Performance Requirements/Incentives
Cyprus does not have a rigid system of performance requirements for foreign investment. Each application for investment is judged on its own merits and any conditions are negotiated and agreed before the investment is approved. Transfer of technology, for example, although not a requirement, is definitely considered a "plus" in the initial evaluation.
Investment incentives. Investment incentives currently available in Cyprus are summarized in the following paragraphs:
I. Direct Investment Incentives:
-- Relatively low corporate tax; resident companies are taxed at the rate of 20.0 percent for chargeable income up to CP 40,000 and 25.0 percent for chargeable income in excess of CP 40,000;
-- Initial investment and annual depreciation allowances;
-- Carry-forward of losses for five years;
-- Exemption from customs and excise charges for operations in the Larnaca Industrial Free Zone; and
-- Salaries of foreign employees working in the Industrial Free Zone are taxed at one-half of the standard rates.
II. Investment Incentives for International Business Companies:
-- International business companies are taxed on income at a rate of 4.25 percent.
-- International business branches which are managed and controlled from abroad and international business partnerships are totally exempt from corporation or income tax.
-- Beneficial owners of international business companies, branches and partnerships are not liable to tax on dividends or profits other than that paid by the firms themselves.
-- The expatriate employees of international business companies living and working in Cyprus are taxed at half the standard rates applicable to personal income, i.e. from 0 to 20.0 percent, instead of 0 to 40.0 percent.
-- Foreign employees of international business companies living and working outside the island are exempt from Cyprus income taxes if paid through any bank in Cyprus, and taxed at 10.0 percent of the standard rates if paid directly abroad.
-- No capital gains tax is payable on the sale or transfer of shares in an international business company.
-- No estate duty is payable on the inheritance of shares in an international business company.
Additionally, Cyprus has concluded 27 treaties for the avoidance of double taxation (including one with United States, effective January 1, 1986). These treaties offer significant possibilities for international tax planning.
III. Investment Incentives for Ship Ownership Companies:
The Cyprus Register compares favorably with other open registers in terms of the registration costs and annual fees vis-à-vis the level of services provided. For example, the Cyprus Department of Merchant Shipping responds quickly to requests by foreign ship owners for technical support or assistance in dealing with the authorities in foreign ports (such as obtaining an exemption certificate for a crew member who falls sick during a journey). Other important incentives are:
-- Zero tax on profits from the operation of a Cypriot registered vessel and on dividends received from a ship ownership company;
-- Zero capital gains tax on the sale or transfer either of a Cypriot registered vessel or of the shares of a ship ownership company;
-- No estate duty on the inheritance of shares in a ship ownership company;
-- No income tax on wages and benefits of officers and crew; and
-- No stamp duty on ship mortgage deeds or other security documents.
For additional information, please contact Mr. Serghios Serghiou, Director, Cyprus Department of Merchant Shipping at:
Kyllinis Street
Mesa Geitonia
CY 4007 Limassol
CYPRUS
Tel: 357-5-848100
Fax: 357-5-848200
E-mail: dms@cytanet.com.cy
Internet Homepage: www.shipping.gov.cy(A6) Right to Private Ownership and Establishment
Approval of foreign investment in Cyprus is subject to a set of pre-conditions set out by the Central Bank, as described in the previous section (A1). The right of foreign entities to establish, acquire or dispose of interests in business enterprises is subject to these pre-conditions.
(A7) Protection of Property Rights
Investment in real estate is treated differently for residents and non-residents. Non-residents may buy a single piece of real estate for private use (normally a holiday home). The Central Bank must verify that non-residents purchase their real estate solely with funds from abroad. The Council of Ministers, which must approve such purchases, does so routinely. Non-residents are allowed to sell their property and transfer abroad the amount originally paid, with the remainder being released from a blocked account at the rate of CP 50,000 per annum from the capital plus the whole amount of interest earned that year.
The legal requirements and procedures for acquiring and disposing property in Cyprus are complex but professional help by real estate agents and developers can ease the burden of dealing with the GOC bureaucracy. Once a property title is issued, its security is iron-clad. The government's Department of Lands and Surveys prides itself in keeping meticulous records and following internationally accepted procedures (which have changed little since British colonial times).
Protection of intellectual property was improved in Cyprus with the adoption of a new Copyright Law on January 1, 1994 and of a modern Patents Law on April 2, 1998. These two laws have helped Cyprus comply with its obligations under the World Trade Organization (WTO) TRIPs agreement. As a result of these improvements, in 1998 (for the first time since 1990) the United States Trade Representative (USTR) removed Cyprus completely from the "Special 301" list of countries which effectively deny adequate protection of IPR.
(A8) Transparency of the Regulatory System
The GOC has promulgated detailed regulations concerning foreign investment in Cyprus (as outlined in section A1) and applies these regulations in practice and without bias. For this reason, the U.S. Embassy in Nicosia considers the existing procedures sufficiently transparent.
(A9) Efficient Capital Markets and Portfolio Investment
With a legislative ceiling on interest rates, and onerous foreign exchange controls for residents, the capital market in Cyprus can hardly be described as efficient. However, prospects for improvement are great, given the GOC's commitment to liberalize the financial system by January 1, 2003 as part of the GOC's EU harmonization efforts.
Current policy provides that the permit issued by the Central Bank to non-resident investors specifies the activities of the firm and imposes certain conditions with regard to financing arrangements. One of these conditions is that equity capital issued to non-resident investors must be funded from abroad.
Total capital must be commensurate with the total cost of the project. Loan financing must be raised from local and foreign sources in proportion to the equity participation by residents and non-residents. For example, if non-resident ownership is 40.0 percent, 40.0 percent of the loans must come from abroad. This requirement is waived if non-resident participation is 24.0 percent or less.
Terms for foreign loans must be approved by the Central Bank. Interest and other costs must be at market prices. Royalties and other payments for the use of patents, know-how, brand names, etc., must be approved in advance, but then may be readily remitted abroad.
The official Cyprus Stock Exchange (CSE) was launched on March 29, 1996, replacing the unofficial stock exchange, which had operated since 1983. Following a down correction which lasted for more than two years, the CSE has experienced an impressive bull run starting November 1998. The CSE Index, which was set at 100.0 points when the market was launched in March 1996, reached 162.8 points at the end of June 1999. The capitalization of the market currently stands at around USD 5.4 billion.
The passing of new draft legislation against insider dealing in early 1999, and the introduction of screen-based automated trading system in May 7, 1999 helped enhance the security of stock trading transactions and gradually build investor confidence. Further computerization of CSE's central registry (also known as the "back-room"), which carries out the clearing and settlement of transactions, will shorten the period required to transfer effective ownership of shares from nine days to three and render the CSE technologically at par with other advanced stock exchanges in the world.
The positive developments outlined above and the relaxation of regulations on portfolio investment by non-residents outlined in Section A1, has helped attract foreign investors in the CSE recently, particularly from Greece. However, official statistics on foreign portfolio investment in the CSE are still unavailable (they will be available after the computerization of the CSE central registry). It is estimated unofficially that foreign portfolio investment in the CSE is no more than USD 500.0 million at the moment.
(A10) Political Violence
The political events of 1974 led to a de facto division of Cyprus. The southern two thirds of the island are under the control of the internationally-recognized Republic of Cyprus. The Turkish-Cypriot administered northern third declared itself in 1983 as the "Turkish Republic of Northern Cyprus" ("TRNC"). This latter area is recognized only by Turkey. As stated in the beginning, this report covers only the part of the island controlled by the Republic of Cyprus.
In 1996, a demonstration along the buffer zone separating the two communities led to a violent intercommunal incident and the deaths of five Greek-Cypriots. This incident underscored the importance of continued cooperation between all concerned parties to avoid recurrence of similar events until a lasting solution is found to the Cyprus problem. Other than this isolated incident, intercommunal violence has been kept at bay since 1974, thanks to increased cooperation and vigilance between the two sides and the United Nations Force in Cyprus.
Also, there have been no incidents of politically-motivated serious damage to foreign projects and or installations since 1974. A number of demonstrations took place in early 1999 outside the U.S. Embassy in Nicosia in opposition to NATO air-strikes in Yugoslavia and in response to the death sentence verdict for PKK leader Abdullah Ocalan. These demonstrations resulted in some damage to the Embassy compound.
(A11) Corruption
In Cyprus, corruption, both in the public and private sectors, constitutes a criminal offense. The main laws dealing with this problem are listed below:
-- Criminal Code, Chapter 154: contains provisions related to corruption in the public sector, and specifically to extortion, abuse of office and receiving property to show favor.
-- The Prevention of Corruption Law, Chapter 161: deals with acts of corruption by public and private employees both in the private and public sectors.
-- The Customs and Excise Law, No. 82 of 1967: contains provisions related to public corruption -- both active and passive.
-- Law Number 65 of 1965: provides for the prosecution of persons holding public office who "acquire property by abuse of power." A weakness of this law is that it does not address the procedure for investigating the assets of such persons. This inefficiency is being addressed by a bill, currently pending before the House, obliging government officials and politicians to disclose personal financial details every year as long as they hold office and for three years thereafter.
-- A new law on public tenders was recently enacted, which contained detailed rules strengthening the openness and transparency of public procurement and minimizing the opportunities for corruption.
Furthermore, under Cyprus' 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 (on January 27, 1999) the Criminal Law Convention on Corruption and formally notified the Council of its intention to join the "Group of States Against Corruption-GRECO." Additionally, Cyprus' democratic regime, 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 an obstacle to foreign direct investment in Cyprus.
(B) Bilateral Investment and Double Tax Agreements
Cyprus has ten bilateral agreements for the encouragement and reciprocal protection of investments with the following countries: Armenia, Belgium, Bulgaria, Belarus, Greece, Hungary, Poland, Russia, Romania and the Seychelles. Another 23 bilateral investment agreements are currently under negotiation. Cyprus does not have a fully-fledged investment protection agreement with the United States other than an exchange of letters between the Cypriot Ministry of Foreign Affairs and the U.S. State Department on reciprocal protection of investments.
Additionally, Cyprus has entered into bilateral double tax treaties with a total of 27 countries. The main purpose of these treaties is the avoidance of 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 levied 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 Austria, Bulgaria, Canada, China, Czech Republic, Denmark, Egypt, France, Germany, Greece, Hungary, India, Ireland, Italy, Kuwait, Malta, Norway, Poland, Romania, Russia, Slovakia, South Africa, Sweden, Syria, United Kingdom, United States and Yugoslavia. Treaties with Algeria, Armenia, Belarus, Bulgaria, Czech Republic, Estonia, Kazakstan, Singapore, and Thailand are at various stages of negotiations.
(C) OPIC and Other Investment Insurance Program
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 build, own, operate and transfer (BOOT) contracts. 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).
(D) Labor
At the end of 1998, the local labor force comprised 289,000 persons. Of these, 26.9 percent worked in trade and tourism, 24.6 percent in community, social and personal services, 14.7 percent in manufacturing, 10.2 percent in agriculture, 8.5 percent in construction, 8.5 percent in finance and business, and 6.6 percent in transport and communications.
Since 1977, the rate of unemployment in Cyprus has not exceeded 4 percent, which is much lower than the EU average rate of unemployment of more than 10.0 percent. In recent years, though, unemployment has recorded a slight increase, from 2.6 percent in 1995 to 3.3 percent in 1998. Even so, conditions of full employment can be said to exist, requiring continued employment of a substantial number of foreign workers.
Cyprus has a high rate of college graduates per capita, many of whom have studied in the U.S., and offers an abundant supply of white collar workers and college degree-holders. One side-effect of Cyprus' experience as a British colony (until 1960) is the widespread use of the English language.
In response to labor shortages in recent years, more women have joined the labor force (women are now about 39.0 percent of the labor force, compared with 33.4 percent in 1980) and a growing number of Cypriots are repatriating from abroad. There are also about 25,000 legally-registered foreign workers in Cyprus and another 5,000 estimated to be working illegally. Existing legislation ensures that foreign workers receive minimum wages. The minimum wage for sales assistants, clerks, paramedical staff, and child care staff is currently USD 450.00 per month (USD 485.00 after six months). For live-in housemaids, the minimum wage is about USD 300.00 per month, plus room and board.
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 occur frequently, although long-term work stoppages are rare. International business companies are not required to hire union labor. The current economy-wide practice of giving all employees twice-yearly Cost of Living Allowance (COLA) increases has come under fire by employers and may soon be revised, if the government (itself, the largest employer in Cyprus) can find a compromise formula that will satisfy both unions and employers.
Productivity, measured as the ratio of real value added to gainful employment, rose by 3.6 percent in 1998, compared with only 2.2 percent the year before. This positive development helped the Cypriot economy regain some of its lost competitiveness, which was undermined in recent years by the fact that productivity gains stayed behind real earnings increases. In 1998 real earnings increased by 2.9 percent. The sector of agriculture recorded the biggest productivity gains (6.9 percent), followed by the broad services sector (4.5 percent).
(E) Foreign Trade Zones/Free Ports
In recent years, transit trade through the island has become an increasingly important source of business for Cyprus. This business is transacted through free trade zones in the two ports of Limassol and Larnaca or through bonded warehouses where goods are kept for onward transshipment. Permission for foreign participation in transshipment activities through Cyprus is usually granted easily by the Central Bank.
(F) Foreign Direct Investment Statistics
The Government of Cyprus did not establish an official policy on foreign direct investment until 1986 and it was only then that significant investments started taking place. Since 1986, the Central Bank has issued 1,477 permits for foreign equity participation amounting to USD 380.0 million in projects costing around USD 800.0 million. In 1998, the Central Bank issued 222 new permits for foreign investment of USD 21.6 million in projects costing around USD 45.4 million. By comparison, in 1997 the Central Bank issued 175 permits for foreign investment of USD 27.0 million.
Additionally, since January 1, 1976, non-residents have established over 38,000 international business companies for the management of their overseas affairs and 11,800 companies for the registration of ships under the flag of the Republic. There are currently 1,055 international business companies with fully-fledged offices on the island, at least 30 of which are from the United States (including two oil companies, two computer companies, and several accounting firms).
Breakdown of direct investment by country of origin and names of specific foreign investors are unavailable -- the GOC considers this information confidential. In terms of sector destination, the allocation of foreign direct investment in 1998 was as follows: tourism, 27.8 percent; trading, 21.5 percent; services 19.0 percent; banking and insurance, 17.2 percent; manufacturing, 4.3 percent; and miscellaneous 10.2 percent.
Traditionally, U.S. direct investment in Cyprus consisted of relatively minor projects, mostly by Greek-Cypriot expatriates. However, the liberalization of foreign direct investment regulations in February 1997 opens up new possibilities for U.S. investment in Cyprus. For example, one sizable new tourist project (a theme park) took place in 1998 with minority U.S. investment. In the manufacturing sector, the only major project involving direct U.S. equity investment in Cyprus in recent years was a 51.0 percent, USD 1.6 million investment by PepsiCo in a local snacks factory (through a Greek subsidiary). The venture has been extremely successful and has helped establish the local company as the island's leading snack manufacturer.
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[end of document] Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title17, United States Code.
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