Commercial Guide

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Doing Business in Cyprus: 2010 Country Commercial Guide for U.S. Companies INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2010. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES.           Chapter 1: Doing Business In … Chapter 2: Political and Economic Environment Chapter 3: Selling U.S. Products and Services Chapter 4: Leading Sectors for U.S. Export and Investment Chapter 5: Trade Regulations and Standards Chapter 6: Investment Climate Chap
    Doing Business in Cyprus:2010 Country Commercial Guide for U.S. Companies INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S.DEPARTMENT OF STATE, 2010. ALL RIGHTS RESERVED OUTSIDE OF THE UNITEDSTATES.     Chapter 1: Doing Business In …     Chapter 2: Political and Economic Environment    Chapter 3: Selling U.S. Products and Services    Chapter 4: Leading Sectors for U.S. Export and Investment    Chapter 5: Trade Regulations and Standards    Chapter 6: Investment Climate    Chapter 7: Trade and Project Financing    Chapter 8: Business Travel    Chapter 9: Contacts, Market Research and Trade Events    Chapter 10: Guide to Our Services   Return to table of contents  Chapter 1: Doing Business in Cyprus   Market Overview    Market Challenges    Market Opportunities    Market Entry Strategy  Market Overview Return to top   Government-Controlled Area 1 :The government-controlled area of Cyprus offers good business and financial services,modern telecommunications, an educated labor force, good airline connections, a sound legal system, and a low crime rate. Cyprus’s EU membership, its geographical location, low tax rates, and modern infrastructure make it a natural hub for companies looking todo business within the EU and with the Middle East, Eastern Europe, the former SovietUnion and North Africa. A liberal investment regime has also helped increase the flow ofdirect investment in Cyprus in recent years. The inflow of total direct investment in Cyprus in 2008 (including “brass plate” companies) reached USD 4.0 billion in 2008. Intellectual property is protected under modern copyright and patent legislation, althoughbetter enforcement of these laws is needed.In 2009 growth in Cyprus declined as the effects of the global crisis hit Cyprus. It isestimated provisionally that the economy contracted by about1.5% in 2009, compared topositive growth of 3.8 percent in 2008. The outlook for 2010 remains weak, with agrowth forecast of 0.5 percent. Public finances also recorded a sharp deterioration in2009, deviating considerably from the governm ent’s predictions at mid-year. The government’s hopes of containing the deficit below 3.0% , and thus avoid supervisionfrom Brussels have been dashed, as 2009 closed with the deficit running at 6.1%, from asurplus of 0.9% in 2008. The outlook for the deficit in 2010 and beyond depends on the outcome of the government’s current efforts to contain spending and boost revenue.Total public debt grew from 48.4% of GDP in 2008, to 55.2% in 2009, and is poised toreach 60% in 2010. In the last couple of years (2007 and 2008) economic growth has 1 Since 1974, the southern part of Cyprus has been under the control of the Government of theRepublic of Cyprus, while the northern part has been administered by a Turkish Cypriotadministration, which proclaimed itself the “Turkish Republic of Northern Cyprus” (“TRNC”) and has not been recognized by any country except for Turkey. A substantial number of Turkish troops remain on the island. A buffer zone also known as the “Green Line,” patrolled by the U.N. Peacekeeping Force in Cyprus (UNFICYP), separates the two parts. The United Statesrecognizes the Republic of Cyprus as the Government of Cyprus. It is also U.S. policy to betterintegrate the Turkish Cypriot business community into the global economy and to promoteeconomic growth and opportunity in the Turkish Cypriot economy in order to pave the way for acomprehensive settlement and reunification. For clarity of presentation, this report outlines thedifferent circumstances that pertain in these separately administered parts of the island.  remained fairly strong at around 4.4% and 3.8%. The Cyprus government is expectingpositive growth in 2010, although it is forecast to remain barely above zero (0.3. Amidstthe turmoil, the banking sector on the island is holding up quite well, largely thanks toconservative banking practices, and a careful, conservative Central Bank that shieldedCypriot banks from some of the excesses of other financial centers. Inflation wascontained to 0.3% in 2009 (lowest since 1965), although unemployment shot up to 6.2%(highest since 1976 for Cyprus, although still moderate compared to other EU states).Cyprus is one of ten countries to have joined the European Union (EU) on May 1, 2004.Even though the entire island entered the union, the EU acquis communautaire  -- thebody of common rights and obligations  – applies only to the government-controlledareas and is suspended in the area north of the Green Line which is administered byTurkish Cypriots. The process of harmonization with the EU in the run-up to accessionhas transformed the economy of the government-controlled area, making it more open,liberal, and competitive. Among the many reforms which have already taken place arethe following: liberalization of trade and interest rates, abolition of investment restrictionsfor EU residents and liberalization of the general investment regime for all non-EUinvestors, abolition of price controls, introduction of private financing for the constructionand operation of infrastructure projects, and gradual liberalization of utilitiesCyprus has been a successful member of the Eurozone since January 1, 2008, when itreplaced the Cyprus Pound with the Euro. Joining the Eurozone was a majoraccomplishment for the Cypriot economy, resulting in such benefits as a higher degreeof price stability, lower interest rates, reduction of currency conversion costs andexchange rate risk, and increased competition through greater price transparency. Thefinal conversion exchange rate between the Cypriot pound and the Euro was one Europer 0.585274 Cyprus pounds. The following website offers additional information on themechanics of Cyprus's adoption of the Euro: Area Administered by Turkish Cypriots: The self proclaimed “Turkish Republic of Northern Cyprus,” is only recognized by Turkey and controls about one-t hird of the island’s area and around a fifth of the population. Implementation of the EU acquis communautaire  has been suspended in the areaadministered by Turkish Cypriots until political conditions permit the reunification of theisland.In the four years between 2003 and 2006, the Turkish Cypriot economy recorded growthrates averaging around 13.4 percent per annum. This growth was fuelled by the relativestability of the Turkish Lira, a large construction boom, the expansion of Turkish Cypriotuniversities -- which cater mainly to Turkish and other international students -- and theemployment of more than 4,000 Turkish Cypriots in the government-controlled area.However, since 2007, the economy in the north has grinded to a halt and went intorecession, with real growth rates of 1.5 percent in 2007 and minus 1.9 percent in 2008.Construction activity, which boomed in 2005 and 2006, came to a bust in 2007 and2008, while tourism and agriculture went reverse. The Turkish Lira is the main currency,although Pounds Sterling and Euros are widely used.Most businesses in the north are family-run and tend to be very small. Manufacturing islimited mainly to food and beverages, furniture and fixtures, construction materials, metaland non-metal products, textiles and clothing. Unemployment in 2009 was estimated at  9.8% and the total workforce was reported at 92,000 people. The minimum wage iscurrently USD 800 (1237 TL) per month.With hundreds of miles of coastline, medieval castles and antiquities, tourism is a majorpotential growth industry. Tertiary education is also one of the strongest sectors in thenorth. There are currently six universities attended primarily by students from Turkey. According to the “State Planning Organization, over  40,000 students, of which over 80percent are foreign, registered for the 2007-2008 academic year.The absence of a political settlement and the lack of international recognition for the “TRNC” pose an inherent risk for the foreign investor interested in buying or leasingproperty in the area administered by Turkish Cypriots. Potential investors should becautious and check out all the facts concerning purchasing or leasing property in thenorth. Unless the property in question was in Turkish Cypriot hands prior to 1974, it willbe very unlikely that the title to the land will be free and unchallengeable. Propertyissues will be a key issue for any settlement of the Cyprus problem and will involve thereturn of property and/or compensation to pre-1974 owners. Estimates of thepercentage of land in the north that belonged to Greek Cypriots pre-1974 run as high as85 percent. Foreign buyers or lessees of land may face legal challenges from thosedisplaced in 1974 either in Republic of Cyprus courts or courts in their country ofresidence. A recent UK court decision puts at risk the EU-located assets of occupants ofGreek Cypriot-owned land in north Cyprus. Market Challenges Return to top   Cyprus has been divided since the Turkish military intervention of 1974, following a coupd'etat directed from Greece. Since 1974, the southern part of the island has been underthe control of the internationally-recognized Government of the Republic of Cyprus. Thenorthern part of the island is administered by a Turkish Cypriot administration. In 1983,that administration proclaimed itself the Turkish Republic of Northern Cyprus ( TRNC ).The TRNC is not recognized by the United States or by any other country exceptTurkey. The two parts are separated by a buffer zone patrolled by United Nationsforces. A substantial number of Turkish troops remain on the island.There has been no serious inter-communal violence since 1974, other than an isolatedincident in 1996 resulting in the deaths of two Greek-Cypriot civilians during ademonstration in the buffer zone. The partial lifting of travel restrictions between the twoparts of the island in April 2003 has allowed movement of persons  – over eleven millioncrossings to date -- between the two parts of the island with no significant interethnicincidents. In August 2004, new EU rules allowed goods produced in the north to be soldin the south provided they met EU rule of srcin and sanitary/phyto-sanitaryrequirements. In May 2005, the Turkish Cypriot authorities adopted a new regulation mirroring the EU rules and allowing certain goods produced in the south to be sold inthe north. Nevertheless, trade between the two communities remains limited. Suppliersof imported products in the government-controlled area cannot directly serve the TurkishCypriot market and vice versa.A plan for the reunification of the island, negotiated under the auspices of the UN, wassubmitted to the two communities for approval in separate but simultaneous referendaon April 24, 2004. The plan was approved by the majority of Turkish Cypriots butrejected by the majority of Greek Cypriots.
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