Cyprus Commercial Environment

 

Cyprus has an open, free-market, service-based economy with some light manufacturing. According to the International Monetary Fund, in 2009 GDP per capita was USD 29,620, twenty-sixth in the world and on a par with Greece , Hong Kong and New Zealand . The United Nations Human Development Index for 2009 ranks Cyprus thirty-second in the world as regards quality of life.

 

The government's economic policy is aimed at promoting and maintaining favourable investment conditions and supporting private initiatives. Foreign participation in the economy has been officially encouraged and liberalised for some time. Administrative procedures have been simplified and in all but a few strategic or specifically regulated industries such as banking there are no limits on foreign investment. Citizenship is available for significant investors. There is a growing awareness among foreign corporations and individuals of the particular advantages of using Cyprus as a business base for both inward and outward investment.

 

In recent years the inflow of approved foreign investment has increased considerably. Cyprus has 24 bilateral treaties for the encouragement and reciprocal protection of investments and more are under negotiation. The purpose of the treaties is to create and maintain favourable conditions for investments made by nationals of one treaty state in the other treaty state for their mutual benefit on a long-term basis, to guarantee the protection of such investments (including the repatriation of profits) and to establish procedures for settling any disputes that may arise. Cyprus is a signatory to the convention which in 1988 established the Multilateral Investment Guarantee Agency, a member of the World Bank Group.

 

There are many well-qualified lawyers who are experienced in all aspects of company law and tax planning. The principal international accountancy firms practise in Cyprus , as well as insurance, financial services and fiduciary companies. Limassol , Cyprus 's commercial and shipping centre, is among the world's most important third party ship management centres.

The Cyprus telecommunications system is excellent and costs are among the lowest in Europe . CYTA, the government-owned service provider, operates fixed and mobile networks with a full range of voice and data services. Following liberalisation of the market a number of other service providers now offer similar services in competition to CYTA.

 

The government has established a free trade zone close to Larnaca offering excellent infrastructure, low rents and customs-free status. It also plans to establish a Software Technology Park to stimulate and encourage the flow of knowledge and technology among research, development and educational institutions, corporate bodies and other participants in the IT market.

 

The country's two international airports, situated near Larnaca and Paphos, which serve numerous international airlines, were reconstructed and upgraded in the past few years. Seaborne traffic is served by the two multi-purpose ports of Limassol and Larnaca, which are used as warehouse, distribution and container transhipment centres.

 

 

Taxation

 

The far-reaching tax reform that took effect on 1 January 2003 brought about major changes to the Cyprus taxation system. An increase in the rate of VAT to 15% (still the lowest rate in Europe ) made possible a reduction of certain taxes and the abolition of others. The old, complex tax regime was replaced by a new system that eliminates discrimination and differential treatment between different categories of business and is simple and transparent. The distinction between local and international companies was abolished and the corporate tax rate is now uniform and only 10%, the lowest in the EU. The maximum tax rate for resident individuals is 35%.

 

 

 

Exchange control

 

With the abolition of exchange controls on 1 May 2004 both residents and non-residents, whether individuals or corporate bodies, may hold and manage assets and liabilities in any currency and in any country, including freely convertible and transferable balances with banks on the island. There is no distinction between nationals of Cyprus , nationals of other EU member states or third country nationals.

 

 

 

Anti money-laundering measures

 

The principal anti-money laundering legislation in Cyprus is the Prevention and Suppression of Legalising Proceeds from Illicit Actions Law of 2007, Law 188(I) of 2007 ("the Law"). The Law, which was passed on 31 December 2007, consolidates, amends and replaces the Prevention and Suppression of Money Laundering Activities Laws of 1996 to 2004 with effect from 1 January 2008.

 

The Law contains both suppressive and preventive provisions against money laundering, and fully implements the Third Anti- Money Laundering Directive, Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 and the Financial Action Task Force's ("FATF") revised 40 Recommendations against money laundering and its 9 Special Recommendations against terrorist financing.

 

The Law criminalises money laundering from all crimes punishable with imprisonment in excess of one year as well as terrorist financing activities. All persons carrying on "relevant financial business" (including credit institutions, investment firms, insurance companies, lawyers, accountants, real estate agents and dealers in precious metals and stones) are obliged to implement strict procedures to preventing the abuse of their services for money laundering. Persons subject to the Law are required to implement procedures for customer identification, record keeping and internal reporting. They must ensure that their employees are aware of their obligations under the Law and provide adequate training to assist them in recognising money laundering transactions. Organisations must appoint properly qualified persons as "Money Laundering Compliance Officers".

 

The Law designates the Central Bank of Cyprus ("CBC") as the competent supervisory authority for all banks operating in Cyprus and assigns to it the responsibility of ensuring banks' compliance with the provisions of the Law. The CBC is also the supervisory authority for providers of money transmission services. The relevant professional bodies are responsible for their members' activities.

The CBC has issued useful guidance on customer identification, record keeping and other procedures for the prevention of money laundering, including the identification of beneficial owners of accounts and transactions and checks on the source and legitimacy of funds flowing through the banking system in Cyprus . These are available on the website of the Central Bank of Cyprus .

 

The Law established a special Unit for Combating Money Laundering ("MOKAS") as part of the Attorney General's Office, to take responsibility for the receipt and analysis of suspicious transaction reports and money laundering and terrorist financing investigations.

 

The measures taken in Cyprus for combating money laundering and terrorist financing have been evaluated several times by the FATF and the Council of Europe's Moneyval Committee, an FATF regional body whose membership comprises all European states, including Cyprus , which are not members of the FATF.

 

In its official report published in June 2000, the FATF recognised that the anti-money laundering system of Cyprus complies with international standards. Subsequent evaluation reports adopted by the Moneyval Committee commend the legal and other measures taken by Cyprus in line with international conventions and standards, and the efficiency and effectiveness of the practical implementation of those measures.

 

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