Guidance

Overseas business risk: Cyprus

Updated 5 September 2022

Information on key security and political risks which UK businesses may face when operating in Cyprus.

1. Political and economic

1.1 Political

The Republic of Cyprus (RoC), which was established in 1960, is a full member of the EU and the Eurozone. It is also a member of the Commonwealth.

The island remains divided between north and south since the conflict in 1974 and separated by UN peacekeepers who patrol a buffer zone. The boundary dividing the island is often referred to as the Green Line. In 1983 the north of the island declared itself the ‘Turkish Republic of Northern Cyprus’ (‘TRNC’) which is not recognised by the UK or the international community, except Turkey. The UK only recognises the Republic of Cyprus.

Negotiations to resolve the problem and reunite the country last took place in 2017 and ended unsuccessfully. Although the RoC is a full member of the EU, the EU acquis is suspended in the north as it is not controlled by the Republic. Trade between the two areas is feasible through the application of the Green Line regulation.

Despite the problem of the division of the island the Republic of Cyprus has a stable political environment based on a presidential system. Executive power is exercised by the President elected by universal suffrage for a 5-year term and his Council of Minsters (appointed, not elected). Legislative power is exercised by the House of Representatives elected by proportional representation for a 5-year term. Judicial power lies with the Supreme Court and Districts Courts.

The UK and Cyprus enjoy strong and close links at multiple levels, political, cultural, people to people and educational. Cyprus and UK are members of the Commonwealth. The UK retains 2 British sovereign base areas on the island in Akrotiri and Dhekelia.

Approximately 70,000 British citizens live in the RoC with another 15,000 British citizens living in the north of the island. In 2019 more than 1.3 million British tourists visited Cyprus, which is more than one third of the entire tourist population visiting the island.

1.2 Economic

Cyprus is primarily a service-based economy (74.1% of GDP). Tourism is one of the most important sectors, as it has a wider impact on retail, transport and employment, through value-added contributions particularly linked to accommodation and food services.

Professional services such as financial, legal and accounting services as well as real estate have been growing in importance over the last 3 decades, this is partly the result of a growth model based on a high level of tertiary education attainment and government policy geared towards attracting foreign funds and companies.

However, the sector has also suffered a series of crises starting from the stock exchange crisis of 2001 to 2002, the banking crisis of 2013, the now defunct Cyprus Investment Programme (CIP) a citizenship for investment program terminated in 2020 following revelation of abuses, and the impact of sanctions on Russian investment following Russia’s war against Ukraine. These crises had affected activity in these sectors, however professional services remain a sizable part of economic activity especially with regards to exported services. The resilience of the Cypriot services sector can be attributed to a number of factors such as Cyprus’ EU membership, a traditionally extraverted business-friendly government policy, the relativity low cost of highly qualified Cypriot service providers, and the country’s friendly environment and sunny climate.

Merchant shipping is the third most important contributor to the economy. It has developed rapidly over the last decades ranking the country amongst the main maritime powers of the world with, the 11th largest fleet globally and the 3rd largest fleet in EU. As a third-party ship management centre it is the largest in the EU and amongst the top 3 worldwide. More than 20% of the worlds’ third-party management fleet is managed by companies based in Cyprus.

The economy of the RoC grew 5.6 percent year-on-year in the first quarter of 2022. Based on seasonally and working day adjusted data, GDP growth rate in real terms is also estimated at 5.6%. On an annual basis, real GDP growth is forecast at 3.2% in 2022 and 2.1% in 2023.

Domestic demand, professional services as well as shipping and tourism are expected to continue to provide the main impetus for economic growth.

However, the fiscal response to the covid-19 pandemic caused a sharp expansion in public debt. Furthermore in the banking sector nonperforming loans (NPLs) are an outstanding issue although banks have been relatively successful in getting them off their balance sheets.

Foreign direct investment, notably in construction, is expected to be impacted to a greater or lesser extent following the abolition of Cyprus’s citizenship by investment programme in late 2020, as well as because of persistent supply disruptions and high prices for construction materials due to covid and sanctions on Russia. In other sectors, although the overall regulatory framework encourages foreign direct investment and entrepreneurship, bureaucracy and red tape remain an impediment.

The war in Ukraine and sanctions against Russia are reducing Cyprus’s economic growth this year. The RoC‘s policy will therefore focus on mitigating and reducing any negative impact.

2. Business

UK expertise enjoys a very positive image among the Cypriot business community and UK is considered a business partner of choice. Although Cyprus has a population of less than a million, it is one of the UK’s top 52 export markets. British products and services are well established on the island. The UK is the most important business partner for Cyprus when taking into consideration trade in goods and services between the two countries as well as the tourist flow from UK to the island. British businesses find it easier to operate in Cyprus because of the similarities between the two countries in the legal and accounting systems, engineering and other standards as well as the wide use of the English language.

The implementation of Cyprus’ Recovery and Resilience Plan (RRP) is expected to support investment and accelerate the implementation of structural reforms needed to support economic growth.

The RRP is based on three pillars which provide opportunities linked to the green transition plan, the digital transition and economic and social resilience.

Various projects / activities resulting from the RRP have already opened up opportunities for UK companies in these sectors of the economy.

On the 2022 Economic Freedom Index Cyprus ranks 23rd most free economy with a score of 72.9 which is above the regional and world averages. This score ranks Cyprus 16th among the 45 countries in the Europe region

Registering a company and starting a business in Cyprus is easier than in many countries, though in specific cases there are procedures to be followed which can be complex and time consuming. There are also delays in legal procedures and a backlog in court cases which can influence the operation of businesses.

The website of the Association of Large Investment Projects offers information for interested parties about investing in Cyprus.

3. Labour and Human Rights

All workers in the Republic of Cyprus, except members of the police and military forces, have the legal right to form and join independent unions of their own choosing without prior authorisation. The law allows unions to conduct their activities without interference and although authorities have the power to curtail strikes in ‘essential services,’ this power is rarely used in practice. Anti-union discrimination is illegal.

Although collective bargaining agreements (which cover approximately 60% of workers) are not legally binding, their terms are generally observed by employers and employees. Workers covered by such agreements are predominantly in the larger sectors of the economy, including construction, tourism, the health industry, and manufacturing. A number of domestic and international human rights groups operate without government restriction, investigating and publishing their findings on human rights cases. There is a government ombudsman, whose portfolio includes human rights, and a legislative committee on human rights.

Those seeking advice on the Human Rights and legal situation in north Cyprus should refer to the British High Commission Nicosia website.

4. Bribery and corruption

Bribery is illegal in Cyprus and in the UK. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world. In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.

In Cyprus, corruption in its various forms (active, and passive, public and private) constitutes a criminal offence punishable by imprisonment and pecuniary penalty. In addition, a whistle-blowers protection law, provides protection to persons who report acts or omissions related to criminal offences or possible criminal offences, non-compliance of a person with their legal obligations, violations that endanger the safety or health of any person, or that cause or are likely to cause damage to the environment.

An Anti-corruption Authority has been set up in 2022 headed by the Transparency Commissioner. The authority is the go-to body to report suspected corruption in the broader public sector. Its work will be guided by the standards set by GRECO, Council of Europe’s Group of States Against Corruption that aims to improve the capacity of its members to fight corruption by monitoring their compliance with anti-corruption standards.

According to the NGO Transparency International’s Corruption Perception Index (CPI) for 2021, Cyprus ranked 52 out of 180 countries and scored 53 on a scale from 100 (Highly Clean) to 0 (Highly Corrupt). Cyprus dropped by 4 places compared to the last 2 years and lost 13 points from its score since 2012 (when it scored 66 out of 100). According to the most recent Eurobarometer survey (published in July 2022), 94% of Cypriots consider corruption to be widespread, whilst 92% think that there is corruption in public institutions. These numbers have risen in recent years, following the revelations in the media of financial scandals.

Some foreign companies complain of lack of transparency and possible bias in government consideration of competing bids.

Hard statistics are unavailable, however anecdotal evidence indicates that corruption and patronage appear to exist in the north of Cyprus.

5. Terrorism threat

There is a general threat from terrorism. Attacks could be indiscriminate, including in places frequented by foreigners. Read the information provided on our Terrorism threat page.

6. Protective security advice

See our safety and security advice on the FCO Travel advice pages.

7. Intellectual property

Cyprus is a signatory to a number of treaties and follows the latest intellectual property laws, bringing the country into line with the ‘acquis communautaire’ and the international intellectual property laws. The courts and authorities in Cyprus adhere strictly to the relevant provisions of the law so as to ensure the protection of intellectual property rights against piracy and infringement.

Protection for Intellectual Property Rights (IPRs) may be obtained via independent registration in the Republic of Cyprus. For information on registering your Trademark in Cyprus, you should contact the Intellectual Property Section of the Department of Registrar of Companies and Official Receiver.

Department of Registrar of Companies and Intellectual Property

Corner Makariou III Avenue and Karpenisiou Street
“XENIOS” Building 1427 Nicosia
Tel: 00357 2240 4367 / 00357 2240 4422
Fax: 00357 2230 4887

Email: deptcomp@drcor.meci.gov.cy

Read our pages on protecting Intellectual Property.

8. Organised crime

As in many other major European countries, international organised criminal activity takes place in Cyprus, in particular linked to drugs and people trafficking. There has been government action to tackle these issues and the UK and Cyprus work closely together in this area.

Read the information on our organised crime page.

9. Contact

Contact the Department for Business and Trade (DBT) team in Cyprus for more information and advice on business opportunities.