Cyprus WT/TPR/S/25
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II. TRADE AND INVESTMENT POLICY REGIME: INSTITUTIONAL FRAMEWORK
(1) Institutional Structure ofPolicy Formulation
(i) Form ofGovernment
1. TheGovernmentoftheRepublicofCyprusisbasedonapresidentialsystemwithstrictseparation
ofpowers between thethreebranches ofGovernment, theexecutive, thelegislative andthejudiciary.1
Under the1960 Constitution, theexecutive branch consists oftheCouncil ofMinisters, appointed
andchaired bythePresident, theHead ofState, whoiselected byuniversal suffrage toafive-year
term.2TheCouncil ofMinisters (theCabinet) istheexecutive authority andmaintains arightofveto
andapproval onmosteconomic issues. Members oftheCouncil ofMinisters maynotsimultaneously
bemembers oftheunicameral House ofRepresentatives; ifappointed, theymustresign theirseats.
2. Inthehierarchy ofdomestic legislation, theConstitution isthesupreme law; legislation
subordinate toparliamentary Laws includes Regulations andOrders, thelatter issued bytheCouncil
ofMinisters, thecompetent Minister orrelevant authority depending ontheprovisions oftheparticular
law(SeeTable II.1forthemain trade related laws). Cyprus isintheprocess ofharmonizing its
legislation withthatofthe"acquis communautaire" (body ofEuropean law).
Table II.1
Trade lawsandregulations andmain provisions
Law/Regulation Application/provision
TheConstitution TheCouncil ofMinisters holds thepower toconclude
international treaties.
Customs andExcise Law(Law 82/67) Basis forchanging andcollecting duties
Art.24-imports require appropriate customs form
Art.30-dutymust bepaidonentry
Art.41-legal basis forexporting
Customs andExcise Duties Law Annual revision
Value Added TaxLaw(Law 246/90)
Temporary Refugees 'Levy Law(14/77)
Imports Regulation Law(49/62) Basis forthelicensing system/Safeguards
Amendments 7/6739(1) 1994, 82(1) of1994
Trade Description Law(5/87) Labelling
FreeZones Law1975
Defense (Export ofgoods) Regulations 1993 Procedures required forexports
Importation ofProduce (Control) Orders Protect local crops from introduction ofpests
Diseases ofPlant Prevention Law Allplant products subject toimport permits issued bythe
Director oftheDepartment ofAgriculture
Food Hygiene (General) Regulations Regulates thehygienic condition andregistration ofpremises
Food Law(Sale andControl) Foodstuff Controls thequality andadulteration offood
Agricultural Products (Exports) Law Phytosanitary (Exports) Regulations
TheLawfortheProtection ofCompetition (207/89)
Source: WTO Secretariat based oninformation provided bytheGovernment ofCyprus.
1Under British administration since 1878, Cyprus became acrown colony in1923 andgained independence
on16August 1960. TheGovernment oftheRepublic ofCyprus istheinternationally recognized Government.
2ThePresident isnotbarred bytheConstitution from seeking re-election foranother five-year term.WT/TPR/S/25 Trade Policy Review
Page 14
3. Thelegislative power oftheRepublic isexercised bytheHouse ofRepresentatives.3Like
thatofthePresident, theterm ofoffice fortheHouse ofRepresentatives isfiveyears. Both
Representatives andMinisters havetherighttointroduce billsintheHouse. Representatives arenot,
however, permitted tointroduce anybillsrelated toanincrease inbudgetary expenditure. Draft bills
aresenttotheAttorney-General forlegalverification; theyarethensubmitted totheCouncil ofMinisters
forapproval; thesame procedure applies toRegulations drafted byvirtue ofalaw.Once theCouncil
approves thebillitissenttotheHouse ofRepresentatives. Laws andDecisions arepassed byasimple
majority ofRepresentatives present; one-third ofmembers represents aquorum.
4. ThePresident oftheRepublic andtheVice-President havetherighttofinalvetoonanyAct
passed bytheHouse which concerns certain specified issues offoreign affairs, defence andsecurity
(Article 50).Inothercases, theymayreturn alawordecision totheHouse which mustagain pronounce
onthelawwithin fifteen daysor,ifitconcerns thebudget, thirty days(Article 51).Ifthelegislature
approves thebillordecision asecond time, thePresident andVice-President arebound topromulgate
thelawinquestion within 15days, whilst retaining aright ofreference totheSupreme Court on
questions ofconstitutionality.
5. Thepower toconclude international treaties, including trade andtrade-related agreements,
restsintheCouncil ofMinisters (Art. 54(169) oftheConstitution). Adecision bytheCouncil of
Minsters, concerning other thantrade andtrade-related agreements, becomes operative andbinding
when ratified bytheHouse. International treaties andagreements, onceratified, havesuperior force
toanymunicipal law"...oncondition thatthese areapplied bytheother party thereto". Since the
enactment intolawoftheWTO Agreements, these havehadsuperior force toanynational law. Asa
result, private individuals mayinvoke WTO provisions before national courts.
6. Theadministration ofjustice isexercised byaseparate andindependent judiciary. TheSupreme
Court, composed ofthirteen judges, adjudicates ontheconstitutionality oflegislation referred toit
bythePresident (Art.140)orarising fromanyjudicial proceedings andonquestions ofinterpretation
oftheConstitution. TheSupreme Court isalsothefinalAppellate Court, hasjurisdiction tohearand
determine appeals incivilandcriminal cases from lower courts andisvested withtheauthority to
review administrative orexecutive acts.TheSupreme Court maydeclare nullandvoidanadministrative
decision when acomplaint isfiledthat"adecision, actoromission ofanyorgan, authority orperson
exercising anyexecutive oradministrative authority iscontrary totheprovisions oftheConstitution
orofanylawormade inexcess orabuse ofpowers vested insuchorgan, authority orperson".4
(ii) Policy-making andadministration
7. UntiltheWTO Agreement wasratified, theexecutive wasinaposition toexercise considerable
discretionary power. According tostillexisting legislation, theCouncil ofMinisters "may restrict
orprohibit anyimport subject towhatever conditions itseesfitbyissuing anOrder".5Products subject
tolicensing aredesignated through Orders bytheMinistry ofCommerce, Industry andTourism,
determined viaofficial Decision andpublished intheOfficial Gazette. Thelicensing system is
3There are80seats; 24areleftvacant fortheTurkish Cypriots.
4TheConstitution, Article 146.
5Customs andExcise Duties Law 1996, Article 17(1). Thislegal provision issuperseded bytheWTO
Agreement.Cyprus WT/TPR/S/25
Page 15
administered bytheMinistry ofCommerce, Industry andTourism. Orders andDecisions bytheCouncil
ofMinisters donotrequire legislative approval whereas regulations do.
8. TheMinistry ofCommerce, Industry andTourism isdirectly responsible fortheformulation
andimplementation oftradepolicies. Itsfourdepartments (Trade, Industry, Competition andConsumer
Protection, andtheRegistrar ofCompanies) areincharge of:import andexport control, technical
regulations/standards; industrial development; bilateral andmultilateral trade negotiations; company
law;intellectual property protection; andcompetition policy, export promotion policies andpolicies
relatedtotheagriculturalMarketingBoardsandcooperatives(TableII.2).Inadditiontoregularmeetings
withrepresentatives oftheprivate sector, including theChamber ofCommerce andtheEmployers
andIndustrialists Federation, aJointConsultative Committee, chaired bytheMinister ofCommerce,
Industry andTourism, meets whenever theneeds arises toresolve problems encountered bythebusiness
community (see(iii)below).
9. TheMinistry ofFinance isresponsible fortariff policy. Changes tothetariff structure are
initiated bytheMinistry ofFinance onitsownorfollowing suggestions byinterested individuals,
organizations, other Ministries, especially theMinistry ofCommerce, Industry andTourism orthe
Customs andExcise Department. Changes arediscussed inadhocCommittees andDecisions forwarded
totheCouncil ofMinisters. Therequired billisthensubmitted totheHouse ofRepresentatives for
enactment intolawandgoesintoeffect afteritspublication intheOfficial Gazette.
10. TheDepartmentofCustomsandExcise,withintheMinistryofFinance,administerstheCustoms
andExcise Law, theCustoms andExcise Duties Law, theTemporary Refugees 'Levy Lawandthe
ValueAddedTaxLaw.Itactsastheenforcementarmofothergovernmentdepartmentsbyimplementing
thevarious domestic prohibitions andrestrictions onimports andexports aswellasthose resulting
from international agreements andUNresolutions.
11. TheMinistry ofCommerce, Industry andTourism isresponsible forcertain semi-governmental
organizations, theElectricity Authority ofCyprus andtheCyprus Tourism Organization andthe
Agricultural Marketing Boards. TheMinistry ofCommerce, Industry andTourism isrepresented on
theBoards oftheseorganizations andapproves alldecisions ensuring thatpolicies comply withoverall
government policy; accounts aresupervised bytheAuditor-General. TheMinistry ofCommunications
andWorks oversees thepolicy framework related totelecommunications andmaritime services and
theMinistry ofFinance hascharge overpolicy andregulations governing financial andprofessional
services (Chapter IV(4)).
12. TheCentral Bank ofCyprus isthemonetary authority incharge ofexchange ratepolicy, and
isalsotheresponsible body, incoordination withother relevant Ministries, forformulating and
implementing policies towards, andapproving applications withrespect to,foreign direct investment.
Similarly itisthepublic organ overseeing theestablishment ofoffshore businesses.WT/TPR/S/25 Trade Policy Review
Page 16
Table II.2
Organizational structure oftheMinistry ofCommerce, Industry andTourism
Trade Department -Promotion ofAgricultural Exports
-Promotion ofManufactured Exports
-International Trade Relations
-Relations between Cyprus andtheEuropean Union
-Import Control
-Market Research andTrade Information
-Produce Inspection Service
-Export Credit Insurance Service
-Trade Centres Abroad
Industry Department -Research andPlanning
-Protection ofLocal Industries
-Industrial Estates andFreeZones
-Extension Service
-Energy
-Industry andEnvironment
-Standardization andQuality Control
-Weights andMeasures
-Handicraft Service
Competition andConsumer Protection Department -Protection ofCompetition
-Restrictive Practices
-Abuse ofDominant Position
-Concentration ofEnterprises
-Consumer Policy
-Protection ofHealth andSafety
-TheConsumer Product Safety Law(andRegulations)
-TheDefective Product (Civil Liability) Law
-Protection ofEconomic Interests
-TheSaleofGoods Law
-TheUnsolicited Goods andServices Law
-TheTrade Descriptions Law
-TheUnfair Terms inConsumer Contracts Law
Registrar ofCompanies andOfficial Receiver -Registration andInspection ofCompanies, Partnerships and
Business Names
-Receivership andLiquidations
-Intellectual Property: copyright
industrial property
-trade marks
-patents
-appellations oforigin
-industrial designs
Other Authorities -Organizations andBoards -Cooperative Development
-Cyprus Refinery
-Electricity Authority
-Cyprus Tourism Organization
-Cyprus State FairAuthority
-Vine Products Commission
-Cyprus Table Grapes Export Commission
-Cyprus Potato Marketing Board
-Cyprus Carrot andBeetroot Marketing Board
-Cyprus Olive Products Marketing Board
-Cyprus Milk Industry Organization
-Cyprus International Conference Centre
-Institute ofTechnology
Source: Ministry ofCommerce, Industry andTourism.Cyprus WT/TPR/S/25
Page 17
(iii) Advisory andreview bodies
13. Although there isnoindependent body established toreview trade policy inCyprus, aJoint
Consultative Committee coordinates efforts toseeksolutions topolicies affecting trade andindustry.
ThisCommittee comprises representatives oftheMinistry ofCommerce, Industry andTourism, other
Ministries, theCyprus Chamber ofCommerce andIndustry, theEmployers andIndustrialists Federation
andother trade associations. Furthermore, twenty-two expert inter-ministerial working groups were
setuptoadvise onthereform tothelegislative andinstitutional framework required fortheprocess
ofharmonizationwiththe"acquiscommunautaire"includingontrade-relatedissues,suchascompetition,
stateaids,standards andexternal trade relations.
(2) Policy Objectives
14. The"Strategic Development Plan1994to1998", formulated bythePlanning Bureau, isbased
on(i)thepreparation foraccession ofCyprus totheEU,(ii)thetechnological upgrading and
enhancement ofthecompetitiveness oftheCyprus economy and(iii)theimprovement ofthequality
oflife,including environmental upgrading.6
15. TheGovernment 'soverriding policy objective istheharmonization oflaws, policies and
institutional structures withtheEuropean Union 's"acquis communautaire".7Eachharmonization step
istobebased ondetailed studies inwhich theexpected costs andbenefits ofthemeasure willbe
evaluated; thesestudies willserve asabasisbothforprioritizing thestaging ofharmonization measures
andforaccession negotiations.8Immediate priorities aretheadoption ofEUtechnical regulations and
standards, which hasbeenvirtually accomplished; thesimplification ofcustoms procedures; andthe
alignment ofCypriot indirect taxation withtheEUsystem ofindirect taxation. Inparallel, domestic
trade-related legislation isbeing brought intoconformity withmultilateral obligations.
16. InthecourseoftheUruguayRoundnegotiations,Cypruswasoneofthefewdevelopingcountries
tomake commitments toreduce export subsidies. Ithasbound themajority ofitsindustrial tarifflines
atauniform rateof40percent; thisratewillcome intoeffect by2000.9From 1January 1996, Cyprus
tariffied allitsquantitative restrictions onagricultural products, following protracted negotiations with
theEU. Under theGATS, Cyprus made initial commitments onprofessional andfinancial services
(seeAnnex IV). Table II.3presents thestatus ofnotifications totheWTO made byCyprus.
(Table II.3).
6Republic ofCyprus (1996), pp.12-13.
7According tooneobserver, harmonization isnotareadily definable concept. NoEUmember, Nicolaides
points out,isperfectly harmonized withtheacquis, norcanharmonization beentirely achieved because some
EUdecisions areunknown orinflux(e.g. changes totheCommon Agricultural Policy). Hismain point isthat
harmonizationisnotsimplyacopyingofdirectivesandpracticesbutrequiresastrategicapproachtoimplementation
oftherules (e.g. rules thatapply tostate aid).
8Planning Bureau (1994), pp.20-22.
9SeeMarrakesh Protocol: "Tariff reductions shall beimplemented infiveequal ratereductions, ...thefirst
suchtobemade effective onthedateoftheentry intoforce oftheWTO Agreement ...thefinalrateshallbecome
effectivenolaterthanthedatefouryearsafterthedateofentryintoforceoftheWTOAgreemen t,unlessotherwise
specified inthatMember 'sSchedule."WT/TPR/S/25 Trade Policy Review
Page 18
Table II.3
Notifications made totheWTO (asat6February 1996)
Requirement Periodicity Document symbol Comments
Agreement onImplementation ofArt.VIof
theGATT 1994
Art.18.5once G/ADP/N/1/CYP/1
15.05.95
G/ADP/N/1/CYP/2
1.4.96Legislation under review
Art.16.4 semi-annual G/ADP/N/9/Add.1
24.03.96 Noaction taken
G/ADP/N/4/Add.1/Rev.3
28.05.96 Noaction taken
G/ADP/N/16/Add.1/Rev.1
22.10.96 Noaction taken
Agreement onTextiles andClothing
Art.3.1
Art:3.2(b)once G/TMB/N/69
24.02.95
G/TMB/N/69/Add.1
27.11.95
G/TMB/N/69/Add.2
23.01.96
G/TMB/N/146
23.01.96Remaining restriction,
quotas andminimum
import prices abolished
from 1.1.96
Art.6.1 once G/TMB/N/124 Retains righttouse
transitional safeguards
Art.2.7 once G/TMB/N/137 +Add.1
4.01.96FirstIntegration Programme
GATT 1994 Art.XVII:4(a)
Understanding ontheInterpretation of
Art.XVIIannual (30.6) G/STR/N/1/CYP
11.09.95Provides information on
organizations withsole
trading privileges
Agreement onAgriculture
Art.18.2annual G/AG/N/CYP/1
29.05.96Domestic support 1995
Art.18.3 adhoc G/AG/N/CYP/2
11.2.95Newormodified domestic
support measures exempt
from reduction.
Agreement onImplementation ofArticle VII
oftheGATT 1994
Art.22.2adhoc 17.11.95
G/VAL/N//CYP/1
Agreement onImport Licensing Procedures
Art.8.2(b)once G/LIC/N/1/CYP/1
7.6.96Laws andregulations
Art.7.3 annual
(by30.9)G/LIC/N/3/CYP/1
andRev.1
7.7.95; 1.5.96Replies toquestionnaires
Agreement onSafeguards
Art.11.2once G/SG/N/5/CYP
28.06.95
Art.12.7 once G/SG/N/3/CYP
02.03.95Article 11.1measures will
beeliminatd by31.12.1998
Agreement onSubsidies andCountervailing
Measures
Art.32.6once G/SCM//N/1/CYP/1
15.05.95
G/SCH/N/1/CYP/2
1.4.96Legislation under revision
Art.25.1 annual (30.6) G/SCM/N/3/CYP
G/SCM/N/16/CYP
4.11.96Subsidies
Art.25.11 semiannual G/SCM/N/12/ADD.1
G/SCM/N/1/CYP/2
27.03.96Nocountervailing actions
during July-December 1995
Agreement onTrade-Related Investment
Measures
Art.5.1once G/TRIMS/N/1/CYP/1
3.7.95
G/TRIMS/N/1/CYP/2
1.11.95TRIM onpeanuts
Decisions onNotification Procedures
forQuantitative Restrictionsbiennial G/MA/NTM/QR/1/Add.2
3.10.96
Agreement onTrade-Related Intellectual
Property Rights
Art.63.2once IP/N/1/CYP/1
30.1.1997Laws andregulations on
patents, trademark,
copyright.
Source: WTO Secretariat.Cyprus WT/TPR/S/25
Page 19
17. Withrespect tosectoral policies, asstipulated inSection VIoftheCustoms Union Agreement
withtheEU,andinlightofprospectiveaccessiontotheEU,CypruswilladopttheCommonAgricultural
Policy (CAP). Thiswillinvolve anincrease infarmsubsidies toEUlevels, although, ultimately,
subsidies willbereplaced byincome supports. TheGovernment hasshifted itsindustrial development
focus todiversification andthefostering ofspecialization through technological upgrading and
higher-quality production (Chapter III(4)(i)). Thedevelopment offorward andbackward linkages within
thedomestic economy isalsobeing sought inorder toincrease value added. With respect to
medium-term policy goals intheservices sector, theGovernment is,interalia,adapting itslegislation
onfinancial services inlinewithEUDirectives, including theFirstandSecond Banking Directives
anddismantling thestatetelecommunications monopoly, stepwise prior toEUaccession.
(3) Trade Relations
18. AGATT contracting party since July1963, Cyprus became anoriginal signatory totheWTO
on30July1995. Cyprus applies m.f.n. treatment toallitstrading partners.
(i) Regional andbilateral agreements
(a) EU-Cyprus relations
19. Cyprus hasbeenlinked withtheEuropean Community since thesigning oftheAssociation
Agreement on19December 1972 pursuant toArticle 238oftheTreaty ofRome. TheAgreement,
which came intoeffect on1June1973, wasintended toleadintwostages, overtenyears, toafull
customs union. TheAgreement wasnotified toGATT andreviewed byaWorking Party in1974.10
Theinitial stage wasprolonged bytheaddition ofanumber ofadhocProtocols; thatof
19October 1987, the1987 Protocol, alsoknown astheCustoms Union Agreement, laiddown the
conditions fortheimplementation ofthesecond stage oftheAgreement.
20. TheCustoms Union Agreement came intoforce on1January 1988 andprovides fortwo
successive phases, thefirstforaduration oftenyears andthesecond forfourorfiveyears to2001
or2002.11Thefirststageprovides forgradual abolition ofallCypriot duties andquantitative restrictions
onindustrial products originating intheEU,withexceptions forsome sensitive products, andthe
adoption byCyprus oftheCommon External Tariff forthesame products included intheProtocol
by31December 1997. Existing customs duties willbeabolished atarateof9percentperannum;
bytheendof1996, tariffs hadbeenreduced by90percent; forcertain "sensitive" products12,the
initial ratewassetlower tobeincreased progressively. TheCommunity abolished duties onindustrial
products originating inCyprus in1977.13Duties onanumber ofagricultural products (mainly fruit
andvegetables) originating inCyprus were abolished bytheEUin1988.
10BISD 21S/94.
11Thesecond phase willenter intoforce byDecision oftheAssociation Council which willdetermine whether
thestage willlastfourorfiveyears (Article 29oftheProtocol).
12Clothing, footwear, furniture, pharmaceutical products, cosmetics, chemical products, plastic articles and
travel goods.
13In1994, theCourt ofJustice oftheEuropean Communities issued aruling thatonlygoods accompanied
byEUR1 andphytosanitary certificates issued bytheGovernment oftheRepublic ofCyprus haveaccess tothe
EUinternal market.WT/TPR/S/25 Trade Policy Review
Page 20
21. Thesecond phase oftheProtocol (1998 to2001 or2002), provides fortheelimination ofall
remaining restrictions soastoachieve thefreemovement ofgoods covered bytheProtocol. Rules
oforiginwillbeabolished,andsomeprinciplesoftheCommonAgriculturalPolicywillapplytoCyprus.
CypruswillapplytherelevantagriculturalpoliciesandmechanismsoftheCommunityforthoseproducts
included intheProtocol andother accompanying policies suchascompetition rules, stateaids, taxation
ofproducts andharmonization oflaws.14
22. InJuly1990, theGovernment oftheRepublic ofCyprus applied forfullEUmembership.
Afavourable opinion ("avis") wasissued bytheCommission on30June1993. Accession negotiations
arescheduled tobegin in1998, sixmonths after thecompletion oftheIntergovernmental
Conference 1996 (expected tolastuntilmid-1997), toreview the1992 Treaty onEuropean Union
(theMaastricht Treaty). On6March 1995, theEUCouncil adopted aDecision forapre-accession
strategy forCyprus andinJunetheelements ofa"structured dialogue" wereestablished; objectives
include determining priority areas forharmonization andpreparing theposition formembership
negotiations. Since then,discussions atMinisterial levelhavecovered specific areasofcommon interest,
including agriculture, economic andfinancial matters, environment, transport, tradeandtechnology.15
(b) EFTA-Cyprus
23. TheEFTA States haveproposed thesigning ofanagreement forthecreation ofafreetrade
areawithCyprus. Cyprus hasnotyetresponded tothisrequest.
(c) Generalized System ofPreferences (GSP)
24. Cypriot products areeligible fortheGeneralized System ofPreferences (GSP) schemes of
Australia,Bulgaria,Canada,CzechRepublic,EuropeanUnion,Hungary,Japan,NewZealand,Norway,
Poland, Russia, Slovenia andSwitzerland. TheGovernment estimates thatabout 10percentoftotal
exports benefit from GSPtreatment.
(4) Trade Consultations andDisputes
25. Todate, there havebeennocases involving Cyprus, aseither plaintiff ordefendant, under
theGATT orWTO consultation ordispute settlement process. Within theframework oftheEU-Cyprus
Association Council, Cyprus hasthisyearengaged inrenegotiating itspreferential tariffs oncertain
agricultural products, following thetariffication ofquantitative restrictions on1January 1996.
(5) Investment Policy
26. Anewpolicy governing foreign direct andportfolio investment wasintroduced witheffect
from 10February 1997. Restrictions onforeign investment havebeenrelaxed; thecurrent regime
allowsforeignparticipationupto100percentinawiderrangeofactivities.Thepreviouspolicytowards
foreign direct investment (firstsetforthinNovember 1986bytheCouncil ofMinisters) limited foreign
participation tominority control (49percent), withtheexception ofmanufacturing exclusively for
export. Incertain "saturated" sectors, suchastrading, realestate development, travel agencies, and
14ECdirectives arebinding onmember States, butinaccordance withtheprinciple ofsubsidiarity, leave
acertaindegreeoffreedomtothenationallegislaturetomakenationallegislationcommen suratewithEClegislation.
15Planning Bureau (1996), p.54.Cyprus WT/TPR/S/25
Page 21
restaurants andlocaltransportation, foreign participation wasbanned completely.16For"traditional"
activities,suchasagriculture,quarryingandcertainareasofmanufacturing(food,beveragesandtobacco,
footwear andclothing, furniture, andpaper products) foreign participation waslimited to24percent
(inexceptional cases 49percent).
27. Thenewregime allows foreign participation ofupto100percentinmany "traditional"
manufacturing activities andthroughout theservices sector butexcluding restaurants andthose service
activities listed below where foreign investment isdecided onacase-by-case basis; inallcases, acertain
minimum levelofinvestment isrequired. Inaddition, inaneffort tocutredtape, theCentral Bank
hassoleresponsibilityforapprovingapplicationsinvolvingwholesaleandretailtradeandmanufacturing,
where theequity participation isunder 49percentandthelevelofinvestment involved islessthan
£C750,000. Above these levels theCentral Bank consults withtheMinistry ofCommerce, Industry
andTourism. Infarming, forestry andfisheries, theceiling fornon-resident investment hasbeenraised
to49percent,from24percent. Foreign investment infinancial, banking andinsurance companies,
oilrefinery andtrading andtourist agencies, willbeconsidered onacase-by-case basis, while thenumber
of"saturated" sectors, where foreign investment isprohibited, hasbeenreduced tolanddevelopment,
tertiary education andpublic utilities.17
28. Under normal circumstances, theadministrative procedure iscompleted within 30days; where
theCentral Bank hassoleresponsibility forapproving theapplication theprocedure takes onlyafew
days. Acompany withnon-resident participation exceeding 24percentmayberequired tosecure
financing inaforeign currency inproportion tothelevelofitsnon-resident participation.18Foreign
loans mustbeapproved inadvance bytheCentral Bank; interest andother charges mustbeatmarket
rates. Royalties andother payments mustalsobeapproved inadvance.19Profits, dividends andcapital
gains accruing tonon-residents fromapproved investments aretransferable abroad without restriction
afterpayment oftaxes.
29. Under thenewpolicy onlyinvestments thatcould haveadeleterious impact ontheenvironment,
conflict witheconomic interest orpresent asecurity risk,willbeprohibited. Inthepast, inconsidering
applications, theBankhasweighed suchfactors asthepurpose oftheinvestment, theextent ofpotential
foreign exchange earnings orsavings and,ingeneral, benefits accruing tothenational economy.
Specifically, projects likely tobeapproved werethose investments involving: (i)manufacture ofgoods
newtoCyprus; (ii)development ofexport potential; (iii)transfer ofmodern technology andknow-how;
(iv)improvement inthequality oflocalproducts andservices; and(v)complimentary impact onexisting
activities.20
16Saturatedsectorsarethoseconsideredasadequatelyservicedbyresidentsor,bylaw,notopentonon-resident
aliens.
17Acquiring landrequires theapproval oftheCouncil ofMinisters under theImmovable Property Acquisition
(Aliens) Law, except inthecaseofnon-resident Cypriots.
18TheExchange Control Law, which draws adistinction between residents andnon-residents rather than
between Cypriot nationals andaliens, prohibits non-resident borrowing from local sources.
19Royalties tonon-residents aretaxed at10percent, although thisratemaybelower ifadouble taxation
agreement withthecountry ofresidence isinforce
20Central Bank ofCyprus (1996).WT/TPR/S/25 Trade Policy Review
Page 22
30. Foreign non-residents mayacquire upto49percentoftheissued capital ofpublicly traded
companies; individual non-resident holdings arelimited to5percent, permission maybeobtained
from theCentral Bank forahigher percentage, however theceiling fornon-resident participation in
publicly traded banks is15percent; 6percentmaybeowned byforeign non-residents and9percent
byCypriot non-residents.21
31. Under theprovisions oftheExchange Control Law, Cypriot residents investing abroad also
require Central Bank approval. Currently, thebasic criteria under which Cypriots mayinvest abroad
are:(i)theneedtohavetherequired know-how andexpertise inthefield; (ii)thatthehostcountry
allow fullrepatriation ofprofits anddividends without restrictions; and(iii)thattheinvestment abroad
willbenefit theCypriot economy, e.g.leading toindirect exports. Thenewpolicy relaxes thesecriteria
sothatnotallrequirements mustbemetsimultaneously: Cypriots wishing toinvest abroad maytransfer
upto£C500,000 andmayobtain abankguarantee forafurther £C500,000 tosecure foreign borrowing.
32. Therightofproperty issafeguarded bytheConstitution which doesnotdiscriminate between
citizens andnon-Cypriot aliens. Cyprus hasconcluded eight bilateral agreements forthereciprocal
promotion andprotection ofinvestments, while afurther 20areunder negotiation (Table II.4). In1966,
Cyprus ratified theConvention ontheSettlements ofInvestment Disputes between States andNationals
ofOther States administered bytheWorld Bank andisasignatory totheMultilateral Investment
Guarantee Agency Agreement which insures foreign investors against non-commercial risks.
Table II.4
Agreements onthereciprocal promotion andprotection ofinvestment
Date ofsignature Duration
1. Bulgaria 12.11.87 10years*
2. Hungary 24.05.89 10years*
3. Belgium 26.02.91 10years*
4. Romania 26.07.91 10years*
5. Greece 30.03.92 10years*
6. Poland 04.06.92 10years*
7. Armenia 18.01.95 10years*
8. Russia 11.04.97 10years*
Drafts being negotiated
1. India 11. Syria
2. China 12. Kuwait
3. Czech Republic 13. Moldova
4. Slovakia 14. Belarus
5. Egypt 15. Georgia
6. Lithuania 16. Italy
7. Estonia 17. Austria
8. Latvia 18. Switzerland
9. Finland 19. Algeria
10. Albania 20. Israel
*Automatically renewable upon expiry oftheinitial period unless either oftheContracting Parties notifies theother ofitsdesire toterminate
theagreement.
33. TheRepublic isaparty to26double taxation avoidance agreements (with theUnited States,
most EUmember States andanumber ofeastern European andAsian countries), which aredrawn
upalong thelinesoftheOECD Model Convention.
21Individualnon-residentholdingislimitedto0.5percentunlesstheCentralBankpermitsahigherpercentage.Cyprus WT/TPR/S/25
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34. Thenumber ofapprovals forinvestment inCyprus hasriseneachconsecutive year, from 83
in1991to153in1995, foratotalof586;theEuropean Union accounted for93in1995.22Theapproval
ratehaslikewise risenfrom83.8percentin1991to90.5percentin1995(Table II.5). Annual inflows
offoreign direct investment haveoscillated between £C31.7million in1990to£C8.9million in1994
and£C20million in1995, totalling £C80.8million between 1991 and1995.23Royalty payments
tonon-residents havetotalled £C34.9million overthesameperiod, andremittances abroad ofprofits
anddividends £C41.3million. Since thebeginning ofthedecade, investment inmanufacturing has
dwindled while thatinbanking hasrisenconsiderably, withforeign participation intourism accounting
formostoftheremainingdirectinvestment(TableII.6).Anincreasingnumberofpermitsforinvestment
abroad byCypriots (atotalof427inthe1991-1995 period) isestimated atatotaloutflow overthe
five-year period of£C62.6million.
Table II.5
Approved foreign direct investment applications byorigin
1991 1992 1993 1994 1995
European Union 43 62 78 80 93
Other Europe 8 13 14 22 21
Middle East 8 7 5 8 13
North American &Australia 2 5 6 7 16
RestoftheWorld 22 20 9 14 10
Total number ofapplications approved 83 107 112 131 153
Percentofapplications approved to
total received andprocessed 83.8 85.6 81.2 82.4 90.5
Source: Central Bank ofCyprus.
Table II.6
Foreign direct investment inflows bysector
1991 1992 1993 1994 1995
£Cm % £Cm % £Cm % £Cm % £Cm %
Manufacturing 2.2 18.3 12.4 54.1 0.8 4.7 2.5 28.1 1.8 9.0
Tourism 4.8 40.0 3.3 14.4 1.0 5.9 1.3 14.6 4.3 21.5
Shipping, Travel,
Transport &
Communications- - 0.1 0.4 - - 0.1 1.1 - -
Trading 0.4 3.4 - - 1.9 11.2 0.9 10.1 0.6 3.0
Services 3.4 28.4 0.8 3.5 0.9 5.3 0.9 10.1 1.8 9.0
Insurance - - 2.1 9.2 0.9 5.3 0.5 5.6 0.3 1.5
Banking 0.4 3.3 3.9 17.0 10.8 63.5 - - 10.0 50.0
Mining 0.1 0.8 - - - - 2.2 24.8 - -
Other 0.7 5.8 0.3 1.4 0.7 4.1 0.5 5.6 1.2 6.0
12.0 100.0 22.9 100.0 17.0 100.0 8.9 100.0 20.0 100.0
- Negligible.
Source: Central Bank ofCyprus.
22Investors from theEUhaveaccess totheECInternational Investment Partners Scheme offering financial
support forjoint ventures.
23TheCentral Bank does notkeep records onstocks offoreign direct investment.