The investment framework
The Foreign Direct Investment (FDI) policy in Cyprus has been liberalised for both EU and non-EU nationals. Administrative procedures have been simplified, bureaucratic intervention has been reduced and no limitations apply in most sectors of the economy concerning the minimum level of investment and the foreigners’ participation percentage. Consequently, foreign companies now have the opportunity of investing and establishing business in Cyprus on equal terms with local investors. Virtually no distinction is made between foreign and Cypriot companies.
Overseas investors have the opportunity of participating in most sectors of the economy with an equity participation of up to 100% in any Cypriot enterprise without a minimum level of capital investment. Foreigners considering of registering companies, acquiring shares of existing companies or setting-up business activities in Cyprus, no longer need approval from the Central Bank of Cyprus.
As from 01 October 2004, overseas investors can register a company directly with the Registrar of Companies. Initially, an application for the approval of the name of the company is submitted and once the name is approved, the relevant documents for the company’s registration (Memorandum of Understanding, Articles of Association, etc.) are submitted through a lawyer. In the case of a partnership registration, the involvement of a lawyer is not mandatory. Registration is completed within one month under normal procedure and within one week under the accelerated procedure with a small additional fee. Shares or participation must be registered under the investor’s name at the Registrar of Companies according to the respective Company or Partnership Law.
Moreover, overseas investors can obtain any licence, if needed, from the appropriate authority according to the nature of the investment.
Two extremely important developments that took place in 2006, concern the possibility for the re-domiciliation of foreign companies and the registration of a European Company (SE) in Cyprus. The company thus registered, is considered as a legal person duly incorporated according to the laws of Cyprus and has the same liabilities but also powers that every company registered in Cyprus has. This makes it easier for overseas entrepreneurs to register or transfer their companies to Cyprus, availing themselves in this way of the favourable tax regime of the country.
Trading of shares by foreigners on the Cyprus Stock Exchange (CSE) is as easy as on any modern stock market. Foreign investors are subject to the same rules and regulations of the CSE as Cypriots or other EU nationals, regarding capital distribution. Provided that the investment is in line with the CSE’s laws and procedures, overseas investors may invest without any restrictions (in the same manner as Cypriot investors can) except for specific sectors, such as the banking sector.
As far as the banking sector is concerned, no person, either resident or non-resident, may own directly or indirectly 10% or more of a banking corporation’s share capital or voting stock without the Central Bank’s approval. Banking corporations are also required to obtain the Central Bank’s approval before registering more than 50% of their share capital in the name of non-residents.
The acquisition of real estate is also largely liberalised particularly for EU nationals and EU registered enterprises. In fact, no restrictions are imposed on EU nationals and EU registered enterprises in relation to the acquisition of primary residence and Foreign Direct Investment, or the acquisition of real estate by EU real estate agents and land developers. As regards non–EU nationals, legal entities registered in non-EU member-states and legal entities registered in Cyprus with share capital controlled by non-EU nationals, real estate may be acquired subject to the approval of the Council of Ministers. In case the real estate concerned exceeds 2 donums, approval may be granted only for the purposes of primary or secondary residence not exceeding an area of 3 donums, professional or commercial premises and industrial sectors deemed beneficial for the Cypriot economy.
It is also noted that as of the date of Cyprus’ accession to the EU on 01 May 2004, the Exchange Control Law has been abolished and hence, residents and 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.
It needs to be underlined however, that the liberalisation of the FDI policy should not be interpreted as conferring the right to the third country (i.e. non-EU) companies’ foreign shareholders, principals / directors or employees’ representatives to secure residence and / or work permits. Residence or work permits are handled by the Ministry of Interior and the Ministry of Labour and Social Insurance. In the case of international business companies, arrangements have been made whereby the Ministry of Interior may issue and renew the temporary residence – employment permits of expatriate executives. Apart from a preference to the nationals of countries under accession to the EU, no other distinction is made between nationalities on granting working and residence permits. The decision lies upon the availability of EU nationals for the specific job, on scientific and academic qualifications and on the probability of the investment to be made by the applicant. However, labour legislation applies equally to EU nationals and foreign employees. The liberalisation of the FDI policy should neither be interpreted as prejudicing the stance of other governmental departments, organisations or authorities regarding the issue of any other permits or consents which may be required under separate laws or regulations.
Since Cyprus’ accession to the EU, the European Union’s legislation framework regarding labour relations has been adopted. Hence the rights of workers in Cyprus are adequately protected in a wide range of areas including health and safety, equal treatment, maternity, working time, posting of workers, transfer of enterprises etc. Furthermore, the Cyprus labour market has a tradition of social dialogue and a well-developed institution of free collective bargaining. Collective agreements regulate employment conditions such as remuneration, working hours, health and safety, annual holidays and provident funds. Labour costs are lower than EU average as well as social insurance employers’ contributions. Employers must contribute 7,8%, employees an additional 7,8% and the Government 4,6% summing up the total social insurance contribution to 20,2% of the gross salary. In the case of self-employed individuals, 14,6% is contributed by the self-employed and 4,6% by the Government, summing up to a total contribution of 19.2%. The participation to the social insurance scheme is mandatory for all employees. The scheme provides for several benefits, such as the maternity allowance, sickness allowance, unemployment allowance, pension, widow’s pension, orphan’s allowance, allowances for industrial accidents and occupational diseases. Other employer contributions include 1,2 % to the Redundancy Fund, 0,5 % to the Human Resources Development Fund and 2 % to the Social Cohesion Fund excluding shipping / ship management companies in relation to the emoluments of their foreign employees. In addition, legislation provides for minimum wages in six service occupations (sales staff, clerical workers, auxiliary healthcare staff and auxiliary staff in nursery schools, crèches and schools).