|THE ECONOMY OF CYPRUS IN PERSPECTIVE |
During the years since independence in 1960, Cyprus has been gradually transformed from a mostly closed economy, based on agriculture and mining, into a service-based, export-oriented economy. During this period, the tourism, shipping, electricity and telecommunications industries recorded remarkable growth. The banking sector, including the cooperative movement, also exhibited an impressive expansion. Beginning in 1976, there was a dramatic increase in the number of offshore companies established in Cyprus, attracted by a favorable tax system in a number of services sectors, including shipping, banking, insurance, information technology, and consulting. Accounting and Law firms also played a major role in attracting these offshore companies, strengthening the otherwise modest direct employment creation impact of these companies.
In conclusion, the Cyprus economy has performed remarkably well for most of the period since independence. It has weathered significant external shocks and has taken advantage of a number of different opportunities. A key driving force has been the openness and the responsiveness to international markets and a successful partnership between the private and public sectors. The government invested in infrastructure essential for growth, and the private sector exploited exogenous opportunities such as the crisis in Lebanon, and the expanding markets in the Arab World, Eastern Europe and Russia. Economic policies have been overall appropriate, though sometimes uneven, providing a supportive framework of exchange rate and financial stability and expansionary fiscal policy when appropriate, all these resulting in reasonable price stability, strong employment growth and rising living standards.
Major events, such as the prospect of entering the World Trade Organisation (WTO), the European Customs Union, the EU and the Eurozone were intelligently used to anchor important and long-debated reforms. Good industrial relations and economic migration underpinned a relatively manageable wage growth, and when wage growth outpaced productivity the transformation to a service economy accelerated.
Finally, natural gas explorations that have recently taken place in the Exclusive Economic Zone of Cyprus have revealed significant reserves of natural gas which are estimated to have significant revenue implications. The Government is currently in the process of a second round of licensing for the offshore explorations of hydrocarbons and is exploring options of best conduct regarding economic policy surrounding the exploration, discovery and exploitation of natural gas in Cyprus.
BASIC ECONOMIC CHARACTERISTICS
The economy of Cyprus can generally be characterised as small, open and dynamic, with services constituting its engine power. Since the accession of the country to the European Union on 1st of May 2004, its economy has undergone significant economic and structural reforms that have transformed the economic landscape. Ιnterest rates have been liberalised, while price controls and investment restrictions have been lifted with a full liberalisation of the foreign direct investment regime in Cyprus. Moreover, other wide-ranging structural reforms have been promoted, covering the areas of competition, the financial sector and the enterprise sector.
The services sector is the fastest growing area and accounted for about 80,5% of GDP in 2011. This development reflects the gradual restructuring of the Cypriot economy from an exporter of minerals and agricultural products in the period 1961-73 and an exporter of manufactured goods in the latter part of the 1970s and the early part of the 80s, to an international tourist, business and services centre during the 1980s, 1990s and the 2000s. The secondary sector (manufacturing) accounted for around 17,1% of GDP in 2011. The primary sector (agriculture and fishing) is continuously shrinking and only reached 2,4% of GDP in 2011.
The economy of Cyprus is open, as shown by the share of total imports and exports to GDP being around 90% in 2011. The major trading partners of Cyprus are the EU member-states, especially Greece and the United Kingdom.
The private sector, which is dominated by small and medium-sized enterprises, has a leading role in the production process. On the other hand, the government's role is mainly to support the private sector and regulate the markets in order to maintain conditions of macroeconomic stability and a favourable business climate, via the creation of the necessary legal and institutional framework and secure conditions of fair competition.
During the last years, Cyprus has exhibited rising living standards, as shown by the high level of real convergence with the EU. The per capita GDP stood at around 99% of the average for the EU27 in 2010.
ESTABLISHING A BUSINESS IN CYPRUS
Capitalizing on its strategic location, Cyprus has developed through the years into a reputable international services hub especially in the banking and shipping activities. Since Cyprus's accession to the European Union, its role as a business bridge between Europe, Asia and Africa has been further enhanced.
International legal entities and natural persons may establish a business in the Republic of Cyprus on equal terms as the local entities and natural persons. Administrative procedures for establishing a company have been simplified reflecting the importance placed on the country's development as an international business centre.
Local and foreign investors may establish any of the following legal entities or businesses in the Republic of Cyprus:
· Companies (private or public);
· General or limited partnerships;
· Business/trade name;
· European Company (SE);
· Branch of overseas companies.
Initially, except in the case of a branch, the application for the approval of the name of business is submitted to the One Stop Shop or to the Registrar of Companies and Official Receiver.
After securing the name approval, the relevant documents for the registration of the legal entity are to be submitted, according to the legal form of the entity/business either to the One Stop Shop or to the Registrar of Companies and Official Receiver.
Thereon, according to the nature of the business activity pursued, subsequent licences are to be obtained, by the competent authorities.
One Stop Shop
Corresponding to the contemporary needs for simplification of the business environment, the One Stop Shop has been established in order to reduce considerably the time needed for setting up a business. Specifically, the following services are offered to businessmen/investors:
· Provision of information/guidance to businessmen/investors for establishing businesses in Cyprus
· Registration of companies, partnerships, Business name, European Company (SE), and Branches of overseas companies
· VAT Registration
· Taxpayer´s Registration
· Issuance of temporary residence and employment permits
Cyprus Investment Promotion Agency
The Cyprus Investment Promotion Agency (CIPA) is a registered not-for-profit company limited by guarantee and fully funded by the Government of Cyprus with a threefold mandate:
· To promote Cyprus as an attractive international investment centre in key priority growth sectors
· To advocate reform in Cyprus required to improve the regulatory and business environment and infrastructure
· To provide investor support with after care and further development services
CIPA takes the lead in attracting foreign direct investment in conjunction and partnership with the private sector and related government organizations and agencies. CIPA has established its membership with the World Association of Investment Promotion Agencies (WAIPA) and Med-Invest, the Mediterranean Countries' Investment Promotion Agency Foundation. Memberships in these and other fora provide a platform of best practices sharing and learning in the area of FDI promotion and strategy implementation.
CIPA is actively involved in advocating key reforms to remove hurdles and strengthen the regulatory and business environment in Cyprus which is fundamental requirement to attract and retain foreign direct investment, especially in an increasingly competitive global economic framework. The CIPA team is dynamic and tightly knit with a broad array of expertise both locally and globally. CIPA encourages foreign businesses to explore opportunities for investment in Cyprus.
CYPRUS AS AN INTERNATIONAL BUSINESS CENTRE
Cyprus has a number of comparative advantages that have contributed towards the island becoming an important international business and shipping centre:
· EU and European Monetary union Member State
· Strategic geographical location at the crossroad of three continents – ideal for expansion in new markets
· Well developed socio-economic infrastructure
· Broad range and international quality of financial and business services - legal, tax, accounting, investment and brokerage
· Well developed banking sector for all financial needs
· An active Stock Exchange and robust Securities and Exchange Commission
· Market-oriented economy
· Macroeconomic stability and performance
· Highly educated, qualified and multilingual talent
· Stable and pleasant business environment, accompanied by simple administrative procedures
· Low set up and operating costs
· Advanced transport and telecommunications network
· Renown international shipping centre
· Enviable quality of life
· Stable, Reputable Political and Legal System
· Simple, Low Taxation
The government of Cyprus, taking into consideration the numerous challenges arising from increasing competition, globalisation and the recent global financial crisis, is promoting a number of measures and initiatives to further establish Cyprus as an attractive investment destination. For the elimination of the unnecessary red tape, a number of measures are being promoted, relating to "Better Regulation". Also, efforts are being undertaken towards the removal of regulatory barriers for the setting up of enterprises. Moreover, the government intends to maintain its low taxation system and further expand the avoidance of double taxation treaties with more countries. The establishment of the "Cyprus Investment Promotion Agency" has contributed dynamically and flexibly to the effective promotion of Cyprus as an international investment and business centre, as well as to the infusion of foreign investments in the targeted sectors. Lastly, the establishment of "One-Stop Shop" greatly simplifies procedures for foreigners wishing to create a business in Cyprus.
Cyprus, located at the crossroads of three continents, recognised as early as 1963 the political, economic and social importance of shipping. Since then, successive governments implementing the correct policy, managed to develop the island into a fully-fledged shipping centre, combining both a sovereign flag and a resident shipping industry, which is renowned for its high quality services and standards of safety.
Cyprus is today a fully fledged maritime centre, combining both a sovereign flag and a resident shipping industry, which is renowned for its high quality services and standards of safety. Cyprus is considered as one of the leading third-party ship-management centres in the world. A significant number of ship-management companies have been established in Cyprus and manage a sizeable proportion of the Cyprus merchant fleet as well as a large number of vessels under foreign flags. Among the ship-management companies established and operating from the Republic of Cyprus, 87% are controlled by Cypriot and EU interests. Such companies employ almost 40.000 seafarers out of whom 5.000 are EU nationals. Furthermore, several of the ship-management companies, which operate in Cyprus, rank among the largest of their kind in the world.
Responsibility for the development of maritime activities lies with the Ministry of Communications and Works, whose authority and jurisdiction are exercised through the Department of Merchant Shipping. The Cyprus Registry ranks tenth among international fleets and third within the European Union. The government's maritime policy is established on three pillars QUALITY, COMPETITIVENESS and RELIABILITY. The maintenance of a high quality fleet and the effective implementation of the internationally applicable safety, security and environmental protection standards, is the foundation on which Cyprus builds its reputation as a serious maritime flag and as a base of international operations.
Cyprus is, today, an active member of all international organizations regulating shipping, such as the International Maritime Organisation, the International Labour Organisation, the European Council and the Commission. Representatives of the Department of Merchant Shipping have been elected to significant positions in these organizations and this is a fact that reflects the key role of Cyprus in international shipping. The presence of Cyprus in these International Maritime Fora strengthens the entity and the image of the Republic of Cyprus and at the same time ensures that Cyprus maintains a strong voice internationally.
For further information and updates please refer to:
Department of Merchant Shipping