Foreign Direct Investments In Cyprus


  • Charis Anastasiou, Barrister-at-Law
    Member of the Board of Directors of The Cyprus Investment Promotion Agency (CIPA)

The Republic of Cyprus is an established international financial and business centre, being a member of the EU and the Eurozone and strategically situated at the Eastern end of the European Union. Cyprus offers itself as an ideal location for investing, setting up a holding company and generally serves as a gateway for routing investments anywhere in the world. The Republic of Cyprus has created a very attractive environment for Foreign Direct Investments (FDI) through its EU harmonized legislation, favourable tax regime as well as its excellent organization facilities and services. On the taxation side, the Republic of Cyprus offers a combination of low corporate tax along with an extensive network of double tax treaties. This helps to facilitate tax optimisation and maximise after tax returns to investors. It is not a coincidence that the most important sector of the Cypriot economy is “services”, including tourism and financial services, from which around 70% of the Gross Domestic Product (GDP) is generated. In addition to the above, it is worth mentioning that Cyprus is distinguished in the sector of shipping having presently the one and only EU approved tonnage tax which has made the island an even more attractive destination for the whole of the industry. It would come as no surprise if these developments lift Cyprus from the 3rd place within EU states to an even higher. Based on the latest data of the Central Bank of Cyprus the Republic of Cyprus was in 2011 one of the most attractive locations for foreign investments, indicating both high FDI performance as well as high FDI prospective. The term “Foreign Direct Investment” reflects the involvement of more than 10% in the share capital of an enterprise resident in one country, by an investor resident in a different country (direct investor) and indicates the presence of a long-term interest on the part of the foreign investor. The strong combination of the Republic of Cyprus economy with the rest of the world is mirrored in its high FDI Intensity which goes beyond that of the European Union average in every year since 2006. In 2009 FDI in the Republic of Cyprus reached 2.5 billion euro but fell back to just under 800 million in 2010-2011 as an outcome of the worldwide financial crisis. The confirmation of significant reserves of natural gas in Cyprus’ Exclusive Economic Zone towards the end of 2011 in conjunction with the adoption of some appealing amendments recently introduced into the island’s legislative framework have led to a significant growth in interest for FDI into Cyprus despite the present economic challenges that the island faces. It has to be said that the country is prepared and determined to take every measure necessary for a fast and solid recovery, to which the N. Gas reserves are certainly expected to play an important role.

Broadly speaking due to the advantageous prevailing conditions and circumstances Cyprus has rightfully been established as a reputable business/investment centre where foreign investors have the opportunity of investing and establishing a business on equal terms with local Investors. According to the World Bank and the latest “Doing Business report” (2013) Cyprus ranks 36th on a global basis, up four placed from 2012 on the ease of doing business.


The Tax Law which came into force before Cyprus joined the EU, on 1 January 2003 has brought some significant changes to the Cypriot tax system as it had a strong impact upon companies. One of the most remarkable changes it has brought about is the elimination of any difference between local companies and international business companies (IBCs). Following the Republic of Cyprus’ entry into the European Union in 2004, its tax system became fully compliant with EU requirements as well as part of the Organisation for Economic Co-operation and Development (OECD) requirements against harmful tax practices. The Government has liberalised the Foreign Direct Investment Policy not only for EU citizens but also for investors from third countries. In light of the desirable tax system in the Republic of Cyprus which provides to its investors a 10% corporation tax, the lowest standard rate in the EU, the absence of withholding tax on dividends for non­resident companies and a low income - labour tax, the Republic of Cyprus appears to be an ideal place for trade and investment for foreigners. Another important benefit for investing in the Republic of Cyprus is its extensive network of Double Taxation Treaties, while at the same moment many other treaties are under negotiation. In the absence of an applicable Double Taxation Treaty, a company registered in the Republic of Cyprus can benefit of the EU Directives to reduce withholding taxes when collecting income from the EU. Unilateral tax credit on foreign taxes withheld at source is also available. The treaty network covers all members of the European Union, USA, Canada, India, Singapore, China, South Africa, along with many Middle East countries such as Kuwait, Qatar and Egypt. This fact has undoubtedly strengthened the Republic of Cyprus’ position as a business gateway for Middle East, EU, Asia and North Africa. Today, the country hosts more than 255,000 companies thus rightfully being considered to be a place where multinational companies may be based for their regional services to set up their head offices. The frequent updating and constant review of tax, company and other coherent legislations aim at reaching the highest level of competitiveness possible thus attracting new investors into the country. Certain recent enactments constitute a concrete proof of a continuous optimization such as the new Tonnage Tax System legislation which has highlighted Republic of Cyprus’ position as a ship management midpoint, the updated law on Cyprus International Trusts for the improvement of benefit protection amongst other features, a law exempting 80% (which combined with other clauses comes to an effective tax of less than 2%) of intellectual property profit from taxation and a new financing scheme that permits Cypriot corporations to be the beneficial owners of a loan.


The Government of the Republic of Cyprus has been open to BOT (Build –Operate – Transfer) projects. A particular example of such project is the renovation of the two airports of the island, situated at Larnaca and Paphos, which are both well-organised and modern. Both airports have been recently renovated on a BOT basis by a Group of companies including Bouygues and Egis of France. Another running project developed on a BOT basis is the construction of a luxury marina at the port city of Limassol, Mediterranean’s most exclusive waterfront. This is yet another remarkable project in progress which is due to be completed by the end of 2012. Limassol marina is an outstanding project based on elegance and exclusivity aiming at bringing on the island a new lifestyle. The discovery in 2011 of around 8 trillion cubic feet of natural gas in block 12 of Republic of Cyprus’ Exclusive Economic Zone, , has triggered a fresh global interest upon the country. Besides a strong belief by experts supports that oil reserves could exist under the seabed. At the second gas licensing round, launched in February 2012, an increased worldwide interest was noted with the participation of 15 bids, 5 from individual companies and 10 from joint ventures, from 15 different countries. Upon the second licensing round, 4 licences for gas exploitation were granted at the end of October 2012. It is also of note that the gas and oil prospect has generated interest between investors in downstream activities. Another pertinent landmark project in the making is the creation of a natural gas liquefaction plant in the New Vasilikos Energy Centre which is expected to turn the island into the key strategic player in the region’s energy map. The prospect of the natural gas findings is of magnificent importance for the country. Noble Energy supports that natural gas findings in the Republic of Cyprus’ Exclusive Economic Zone could assist the development of good relations with its neighbours. Noble Energy’s Chairman and CEO, Charles Davidson has indicated that the amount of natural gas discovered could be even more and that its commercial exploitation is necessary through exports to other countries. As of November 2012 the Republic of Cyprus has entered into an agreement with Israel and Greece for the study and construction of an underwater power cable and an energy corridor connecting the three countries, which shall facilitate future exports of natural gas from Israel and Republic of Cyprus to Greece and ultimately Europe. Last but not least is the construction of an oil import, storage and distribution terminal at Vasilikos, estimated to be completed by the end of 2014 is already under construction. The terminal being built by Vitol Tank Terminals Vasiliko (VTTV) – a Republic of Cyprus subsidiary of the Dutch-based Vitol Tank Terminals International constitutes the most important organisation project currently investing in the Republic of Cyprus with 100% equity assets. The 300 million euro foreign investment establishes around 2% of the Republic of Cyprus’ GDP with VTTV stating that the project will generate around 500 jobs while under construction and 40 full time jobs when the terminal will be put into operation. It is expected that the Republic of Cyprus will have an important income from custom fees and corporate taxes while the importation, export and transhipment of oil products from and to the international market will undoubtedly advance the strength of Republic of Cyprus’ role as an international energy centre and increase confidence for foreign investments and commercial actions in the Republic of Cyprus.


The Government of the Republic of Cyprus has been significantly interested in appealing to and facilitating foreign investments in Cyprus and towards this end the Government has set a development policy. Within the framework of this policy in 2007 the Council of Ministers decided for the establishment of Cyprus Investment Promotion Agency (CIPA), that is a registered not-for-profit company limited by guarantee which is funded to a large extend by the Government. CIPA was created in order to embrace an extra institutional framework in effect for investment promotion and support. CIPA’s role is to effectively and actively contribute to the actual promotion of the Republic of Cyprus as an international investment and commercial hub along with the extraction of foreign investments in the targeted sectors by placing the Republic of Cyprus ‘on the radar screen’ as a competitive regional centre for an extensive range of targeted sectors.

CIPA’s responsibility is to attract foreign direct investment in the Republic of Cyprus and support investors throughout the complete procedure. CIPA is in direct contact with Government departments, ministries and stakeholders and indeed a liaison between those authorities and the investors, with the power to influence fast-tracking set up necessities and to offer investor assisting services. The Government is responsible for CIPA’s grants and other types of financial support to inspire in a way the development of higher-value zones such as exploration and expansion, energy and environment and business and services. Another example of the Government’s continuous efforts in enhancing the flow of foreign investors is the decision of the Council of Ministers on 27th June 2012 to implement a Fast Track Mechanism (FTM) for accelerating licensing procedures, which will subsequently lead to a faster implementation of Strategic Investments aimed at stipulating economic growth. CIPA has been assigned under this decision the responsibility of examining applications and proposing potential Strategic Investments for inclusion to the FTM and acting as the First Point of Contact for all foreign investors.


Services sector which includes tourism, banking, accounting, legal and medical services, telecommunications and human capital has gained an increasingly significant role as specified by its almost 70% impact to Gross Domestic Product (GDP) and its invaluable contribution to employment. It is undisputed that the size and rate of this sector’s development, considering to be the fastest-growing in the latest years, has fairly converted the Republic of Cyprus into a “service economy”. The passing of the Undertakings for the Collective Investments in Transferable Securities (UCITS IV) legislation in 2012 has generated new prospects for the Republic of Cyprus as a preferred jurisdiction for fund domicile and fund management, whereas foreign exchange trading is an important developing area. Notwithstanding the economic crisis the amount of investment companies and funds is increasing. The Republic of Cyprus attracted near to 1 billion euro from international financial service companies in 2009-10, underlying the island’s name as a trustworthy financial services hub. International banks have improved their presence on the island in recent years, while the possible association to the local banking sector could demonstrate chances for new traders. Cyprus’ economy is largely based upon the provision of services. Its human resources consist of professionals that are skilled and exceedingly experienced to support and provide assistance to foreign investors. Lawyers, attorneys, auditors and other specialists who are often highly educated in the best Universities of the world, may advise their clients with utmost professionalism and render excellent and high quality services in all aspects of business establishment and tax structuring. Evidence of Cyprus’ recognition as a reputable international financial and business centre whereby services hold a major role, is the decision of two of the world’s most important auditory bodies, the Institute of Chartered Accountants in England and Wales (ICAEW) and the Chartered Institute of Management Accountants (CIMA), to select our island, as the first country in the world outside the United Kingdom, to train ICAEW and CIMA accountants. Parallel to this, the University of Cyprus and the Technological University of Cyprus constitute two key factors that assist researches aiming at saving energy, protecting the environment and expanding their knowledge in technology and education. The scheduled technology park and the advertising of incubators also encompass an increasing range of prospects for investment. Finally, many other opportunities appear in the education sector in view of the establishment of new universities that contribute to the increase of the number of students by more than 10% every year.


Tourism holds a dominant position in the economy of the Republic of Cyprus which constitutes an attraction for tourists from anywhere in the world. This is the reason why advancing the tourism product has been one of the primary objectives of the Government and the competent authorities. Some of the major projects highlighted above, aim inter alia at this direction. Investment is pouring into special interest areas such as medical tourism, sports, nautical and agro tourism, conferences, theme parks and managed attractions. On the real estate sector the benefits for FDI have been increased as a result of the worldwide financial crisis. Local traditional investors, largely affected by the financial crisis, experience cash-flow issues and banking institutions are reluctant in providing them with finance facilities. As a result the prices have been reduced and the real estate market is one of the more appealing sectors for low-risk and potentially high-return investments. Besides, the advantages for real estate investors have been also seriously upgraded recently by a decision of the Minister of Interior under which a new and accelerated procedure is established for granting Immigration Permit, to applicants who are third country nationals and intent to invest in the Republic of Cyprus, with main condition the purchase of an immovable property of market value of at least €300.000. The establishment of casinos in the Republic of Cyprus which is another proposal on the table amongst the efforts for enhancing the tourism product, has been a controversial issue, while online gambling has reached around 2.5 billion Euro. A strong opposition to opening up the Republic of Cyprus’ market for casinos has recently fallen back to the Ministry of Finance’s suggestions for setting up five luxury casinos preferably in tourist areas. It is expected as well as appreciated that the establishment of a casino in the Republic of Cyprus could assist Foreign Direct Investments and income in the island.


To sum up, the Republic of Cyprus continuously and systematically strives to offer an updated, diverse and investor-friendly environment for Foreign Direct Investments. The Republic of Cyprus has developed over the years as an international financial and business centre, offering to the worldwide investors the opportunity of utilizing it not only as an effective jurisdiction for routing investments within the EU, but also as a portal for investment outside the EU, particularly into the rapidly growing economies such as Russia, Central and Eastern Europe, India and China.

More in this category: « Double Tax Treaty



Log in to your account or