Cyprus has an open free market economy, which is dominated by the services sector. In the past decade economic growth has been erratic, reflecting the reliance on this sector, which itself has seen a slowdown in times of regional political uncertainty and poor economic conditions in Western Europe.
Despite this, the economy has performed well since the beginning of the decade, with growth rates averaging 3.7 per cent during 2000-08. EU membership has played a vital role in the recent success of the economy. Cyprus is one of ten countries that gained membership in May 2004. On 1 January 2008, the country joined the eurozone.
Economy
Cyprus' economic growth has been well above the EU average in recent years. This trend continued and was magnified in 2008, with a growth rate of 3.7 per cent, despite the existence of the global economic crisis, that had a major impact on the EU economy. The main impetus for growth was provided by private consumption expenditure, private investment in the construction sector and export of services, other than tourism. From the supply side, the tertiary or services sector is the fastest growing area and accounted for about 80 per cent of GDP in 2008.
Labour market conditions in Cyprus generally have been conducive, with the unemployment rate being around to 3.7 per cent of the labour force and employment rate rising close to 71 per cent in 2008. Inflation for 2008 rose to 4.7 per cent mainly due to the high international commodity and oil prices. For 2009 though, the inflation rate is expected to be below 2.0 per cent, given the fall in domestic demand and the significant drop in oil prices.
Over the last years, public finances have been substantially improved, reaching a surplus of 1.0 per cent of GDP in 2008. The public debt, as a percentage of GDP, entered a downward course and is estimated at around 49.3 per cent in 2008.
The current international economic crisis has not had an impact on the Cyprus economy as large as that experienced by other EU countries. This is mainly due to the fact that the banking system in Cyprus had a very limited exposure to toxic financial products. The impact of the economic crisis on the real economy of Cyprus is likely to be evident in 2009, with the signs of a slowdown being more visible in the tourist and construction sectors of the economy. Nevertheless, Cyprus is expected to exhibit positive growth in 2009, whereas almost all the other European countries are projected to have negative growth rates.
Investment Climate
Cyprus' geographical location in the eastern Mediterranean sea places the island close to the busy shipping and air routes that link Europe with the Arab world and the Far East. This strategic position combined with tax incentives and modern infrastructure have contributed to development of the island as a business hub for multinational companies seeking to conduct operations in the Middle East, Eastern Europe, Russia and other former Soviet Union republics, the EU and North Africa.
The country has a liberal investment policy for both EU and non-EU nationals. Since October 2004, most restrictions concerning non-EU residents have been lifted, signalling the completion of earlier reforms concerning EU investors.
In 2008, the government established the Cyprus Investment Promotion Agency (www.cipa.org.cy); its aim is to promote the island more effectively in overseas markets, as an attractive foreign direct investment destination. Complementing the role of CIPA the government operates also “One-Stop- Shop” under the auspices of the Ministry of Commerce, Industry and Tourism in order to facilitate and expedite the whole process of establishing operations in Cyprus. The role of the “One-Stop-Shop” will be greatly enhanced in order to take up the functions of the “Point of Single Contact” envisaged by the Services Directive. Member-states have to implement this EU legislation by the end of 2009.
Tax Benefits
The government continues to encourage foreign trade and investment by offering several tax benefits.
These include the following:
• A general corporate tax rate of ten per cent.
• Profit from the disposal of securities (such as shares, bonds, debentures etc of companies incorporated in Cyprus or abroad, and options thereon) is exempted from income taxation.
• Dividends paid by a Cypriot company to a company overseas are exempted from deduction of tax at source.
• 20 per cent of remuneration from any employment exercised in the Republic by an individual, who was resident outside the Republic before his employment, is tax-exempt for the first three years, up to an annual exemption of about €8,550.
• Profits generated from ship owning activities in relation to Cyprus ships are exempted from income tax and so are the dividends generated from ship owning activities.
• Capital gains from the sale of Cyprus ships or sale of shares in a ship owning company are tax-exempt.
• The proceeds from the sale of real property in third countries are not subject to capital gains tax in Cyprus.
• An extensive network of Double Tax Treaties with over 40 countries, including most EU Member States, China, India, Russia, Ukraine, the USA, and many other states.
Key Sectors
Financial Services
This is an increasingly important sector of the economy. There are several local banks as well as foreign banks operating both in retail as well as in specialised banking services. The Cooperative Credit Sector is an important player in the banking system of Cyprus especially in the retail sector. It consists of 118 Cooperative Credit Institutions (CCIs) with branches all over Cyprus both in urban and rural areas. The Cooperative Central Bank acts as their banker and lender of last resort.
The Cyprus insurance sector is considered to be highly competitive and sophisticated due to the large number of insurance suppliers operating on the island in relation to the size of the population.
An official stock market was established in 1997. The CSE is an associate member of the Federation of the European Stock Exchanges (FESE). In 2006, the CSE launched a common platform with the Athens Stock Exchange.
Shipping
As early as 1963, Cyprus has recognised the significant contribution that shipping could make to the island´s economic development. Since then, successive governments have implemented appropriate policies and have succeeded in attracting shipping entrepreneurs and in developing the island into a fully-fledged shipping centre which combines both a sovereign flag and a resident shipping industry, renowned for the high quality of its services and standards of safety (www.shipping.gov.cy).
Cyprus ranks tenth, with a merchant fleet exceeding 950 ocean going vessels of 19 million gross tonnage, and has the third largest fleet within the European Union with 12.2 per cent of the total fleet of the 27 EU Member States.
Around 50 ship management companies operate in Cyprus. Several of these companies rank among the largest of their kind in the world. Cyprus appears to be among the top five countries and territories in the world with the largest number of third party ship management companies on its territory.
Tourism
Since the 1980s, the tourism industry has been the island´s main driver of economic growth. Cyprus is among the world’s best loved holiday and retirement destinations. The island hosts more than 2.4 million tourists per year generating revenue of more than €1.7 billion and making a contribution to the GDP of about 11 per cent. Around half of the numbers visiting the island annually come from the UK.
Although traditionally focusing on the sun and sea sector, the Cyprus Tourism Organisations’ New Tourism Strategy, which was implemented in 2003 and will run until 2010, aims at also developing special interest tourism and creating a high quality tourist experience.
This strategy creates numerous investment opportunities in the tourism sector such as the development of theme parks, museums, parks exploiting the history of the island, conferences and exhibitions, sports tourism, medical and wellbeing tourism, nautical and rural tourism.
UK Trading Relationship
Traditionally the UK has been the single most important trading partner for Cyprus. The two countries have a longstanding and wide ranging bi-lateral relationship which has been further strengthened by Cyprus' EU membership.
In 2008, UK exports to Cyprus totalled €640.5 million. During the same year the UK imported from Cyprus goods worth €119.2 million.
The northern part of the island (37 per cent) which is occupied by Turkey refers to itself as the 'Turkish Republic of Northern Cyprus' (TRNC). It is not recognised by the UK, EU or UN, or by any other country except Turkey. Under the Treaty of Accession to EU of the Republic of Cyprus the acquis communitaire in this area has been suspended until a solution of the Cyprus problem is found.
The UK Government's policy on trade and investment with this part of the island is being kept under review.
KEY FACTS
Official Name: Republic of Cyprus
Capital: Nicosia (Lefkosia)
Area: 9,250 sq km
Population: 791,800 (2008 est.)
Major languages: Greek, Turkish, English
GDP (ppp): €18.8bn (2008)
GDP growth: 3.7% (2008)
GDP per capita: €23.800 (2008)
Inflation (consumer prices): 4.7% (2008)
Labour force: 404,900 (economically active population, 2008)Unemployment: 3.7% (2008)
Monetary unit: 1 euro = 100 cents
Exports to UK: €119.2m (2008)
Imports from UK: €604.5m (2008)
Main Industries
Tourism, business and professional services (banking, legal, financial, accounting, etc), construction and real estate, furniture, clothing, pharmaceuticals, aluminium products, cement, food and drink.
Main Exports
Pharmaceutical products (22.5%), photosensitive semiconductor devices (10.7%), potatoes ( 8.6%), Halloumi cheese (6.4%), citrus (5.4%), industrial waste and scrap (6.4%), meat (2.3%), cathodes of refined copper (2.6% ), fruit and vegetable juices (2.1%), aluminium bars, rods and profiles (1.8%). (2008)
Main Imports
Intermediate goods (28.9%), consumer goods (29.7%), petroleum and lubricants (19.7%), transport equipment (14.2%), machinery (9.0%). (2008)
CONTACTS
UK Trade & Investment
Web: www.uktradeinvest.gov.uk
British High Commission
Web: www.ukincyprus.fco.gov.uk/en
Cyprus High Commission Trade Centre
Web: www.cyprustrade.co.ukwww.cyprusmeansbusiness.com
High Commission for the Republic of Cyprus
Web: www.mfa.gov.cy/highcomlondon
Cyprus Investment Promotion Agency
Web: www.cipa.org.cy
Cyprus-UK Business Association
Web: www.cyprusuk.org.cy
Cyprus Chamber of Commerce and Industry
Web: www.ccci.org.cy
