CENTRAL BANK OF CYPRUS

FOREIGN DIRECT INVESTMENT POLICY

Basic prerequisites for the approval of applications

Applications by foreign investors are approved for the percentage of foreign participation indicated below, provided the proposed investment satisfies the following basic prerequisites:

• National security matters are not compromised.
• Natural environmental conditions are not threatened.
• The Cypriot economy is not harmed.
• The level of investment is adequate, with indicative minimum amounts of investment as described below:

1. Primary Sector
Up to 49% foreign participation is allowed for activities relating to agriculture, animal husbandry, fishing, forestry etc. Applications are examined by the Central Bank of Cyprus in consultation with the Ministry of Agriculture, Natural Resources and Environment. The indicative minimum level of investment is CY100.000.

2. Secondary / Manufacturing Sector

2.1 Foreign participation of up to 100% is allowed.

2.2 If the extent of foreign participation does not exceed 49% and the level of investment is lower than CY750.000, the Central Bank approves the investment and notifies the permit to the Ministry of Commerce, Industry and Tourism.

2.3 If the extent of foreign participation exceeds 49% or the level of investment is over CY750.000, the Central Bank consults with the Ministry of Commerce, Industry and Tourism.

2.4 Foreign participation of up to 100% is permitted for bonded factories or industrial units in the Free Zone, in accordance with the relevant laws and regulations governing the operation of such factories/units.

3. Tertiary Sector

3.1 Foreign participation of up to 100% is permitted for services listed in Appendix 1. The indicative minimum level of investment is CY50.000. Applications are assessed and approved by the Central Bank and the permits are notified to the competent Ministry.

3.2 Foreign participation of up to 100% is permitted for services listed in Appendix 2. The indicative minimum level of investment is CY100.000. These applications are assessed and approved by the Central Bank and the permits are notified to the competent Ministry.

3.3 The Central Bank has the discretion to approve any application for up to 24% foreign participation even if the aforementioned requirements of indicative minimum levels of investment are not satisfied. The permits granted are notified to the competent Ministry.

Exceptions to the general policy applicable to the tertiary sector mentioned above are set out below:

3.4 Restaurants and other recreational centres
Up to 49% foreign participation is allowed. provided the following additional prerequisites are fulfilled:

3.4.1 The minimum level of investment is CY125.000.

3.4.2 The foreign investor's contribution to the project exceeds CY60.000.

3.4.3 The proposed investment contributes to the upgrading and diversification of the tourist product, especially leisure centres. The aim is to establish high quality centres as regards the structure of buildings, decor and appearance, as well as the quality of management and services offered.

Applications are assessed and approved by the Central Bank and the permits are notified to the Ministry of Commerce, Industry and Tourism and the Cyprus Tourism Organisation. For applications where the level of investment is over CY750.000, the Central Bank consults with the Ministry of Commerce, Industry and Tourism.

3.5 Agents representing imported goods and services
Up to 49% foreign participation is permitted. The indicative minimum level of investment is CY50.000. Applications are assessed and approved by the Central Bank and permits are notified to the competent Ministry.

3.6 Wholesale and Retail Trade

3.6.1 Up to 100% foreign participation is permitted.

3.6.2 If the percentage of foreign participation is below 49% and the level of investment is lower than CY750.000, the applications are assessed and approved by the Central Bank and permits are notified to the Ministry of Commerce, Industry and Tourism.

3.6.3 If the percentage of foreign investment exceeds 49% or the level of investment is over CY750.000 (irrespective of the level of foreign participation), the Central Bank consults with the Ministry of Commerce, Industry and Tourism. Applications for projects with foreign participation higher than 49% are rejected outright by the Central Bank if the level of investment is lower than CY300.000.

It should be noted that if the level of foreign participation exceeds 49%, the carrying out of the proposed activity should not contravene the provisions of paragraph 3.5 above.

4. Activities of Specific Treatment

4.1 For the following activities a predetermined maximum allowable level of foreign participation exists

4.1.1 Banks:
For the three local banks whose shares are quoted on the Cyprus Stock Exchange, the maximum allowabie participation for non-resident foreigners and Cypriot non-residents is 15%. Of this, not more than 6% may be owned by non-resident foreigners. However, the participation of each non-resident individual or corporation is restricted to a maximum of 0,5% of any one company's issued capital. The Central Bank reserves the right to approve larger percentages of non-resident participation, if it deems it appropriate.

4.1.2 Tourist Projects:
The percentage of foreign participation is determined by the tourist policy in force at the time. Such applications are examined by the Central Bank in consultation with the Ministry of Commerce, Industry and Tourism. According to the tourist policy currently in force, up to 49% foreign participation is allowed in hotels and other tourist establishments (e.g. hotel apartments, villas etc.) while in supplementary tourist projects e.g. golf courses, marinas etc. up to 100% foreign participation is allowed.

4.1.3 Cypriot Tourist and Travel Agencies:
Up to 49% foreign participation is allowed provided the following additional prerequisites are satisfied :

4.1.3.1 The foreign investor's contribution is at least CY150.000.

4.1.3.2 The foreign investor can provide evidence of his/her experience as a tour operator.

4.1.3.3 The importance of a tour operator is assessed by:
a) the number of tourists he/she attracts to Cyprus and other competing countries;
b) the possibility of expanding his/her business in Cyprus; and
c) the possibility of increasing the tourist flow to the island.

4.1.3.4 The participation of foreign investors is allowed only in licensed domestic tourist agencies which have been operating successfully in Cyprus for not less than 7 years.

4.1.3.5 Permission is granted only in cases where the objects of the local enterprise are restricted to activities of a tourist agent. In cases where this is not so, the objects have to be modified accordingly.

Applications under section 4.1.3 are assessed and approved by the Central Bank and the permits are notified to the Ministry of Commerce, Industry and Tourism and the Cyprus Tourism Organisation. For applications where the level of investment is over CY750.000, the Central Bank consults with the Ministry of Commerce, Industry and Tourism.

4.2 In the following cases the level of foreign participation is decided after taking into account the particular characteristics of each application :

4.2.1 Establishment of new banks. Applications are assessed and approved by the Central Bank and the licenses are notified to the Ministry of Finance.

4.2.2 Establishment of new insurance companies, participation in existing ones or representation of such companies in Cyprus.

4.2.3 Establishment of new financial services companies or participation in existing ones.

4.2.4 The publishing of newspapers and magazines.

4.2.5 The establishment of new airline companies for the
- transportation of passengers and cargo
- trading or maintenance of aircraft and spare parts.

It should be noted that as a matter of general policy the establishment and operation of offices by foreign airline companies are permitted nly in the case where such arrangements are covered by the provisions of bilateral airline agreements.

4.2.6 Any other activity where there is doubt as to which category/sector it belongs.

For the assessment of applications falling under categories 4.2.2 4.2.6 above, consultations will take place between the Central Bank and the competent Ministry.

5. Saturated Activities
Applications falling under the following activities are rejected outright by the Central Bank and notified to the competent Ministry.

5.1 Real estate development.

5.2 Tertiary education.

5.3 Offices for the servicing of foreign airlines at the airports. However, airline companies of foreign countries are exempt if they can offer such services to their own aircraft within the provisions of bilateral airline agreements.

5.4 The provision of public utility services covered by specific Legislation, such as the production and distribution of electricity, telecommunications services, postal services, as well as the provision of agricultural insurance, television and radio stations.

6. Public companies whose shares are quoted on the Cyprus Stock Exchange
The participation of non-residents in the share capital of existing Cypriot public companies, except companies in the banking sector, is as follows:
(a) Up to 49% for non-resident foreigners.
(b) No restrictions for Cypriot non-residents (physical persons only)

The maximum shareholding by a non-resident individual or corporation is restricted to 5% of a company's issued capital. Applications for a higher percentage or where the new purchase results in a higher than 5% holding, are considered by the Central Bank.

Non-resident foreigners may be allowed to hold higher percentages in new public companies. This is decided after consultations between the Central Bank and the Ministry Finance.

7. Applications by Cypriot non-residents
Applications for investments by Cypriots living permanently abroad are considered favourably for participation of up to 100% regardless of the level of the investment. However, the following restrictions apply :

(a) There is no distinction between Cypriot non-residents and Cypriot residents as regards their involvement in saturated activities. Hence, the repatriation of capital, profits or dividends is not allowed.

(b) Cypriot non-residents may own up to 9% of the issued capital of public companies in the banking sector with a maximum percentage of 15% if there is no demand for such shares by non-resident foreigners. However, the participation of each Cypriot non-resident is restricted to a maximum of 0,5% of any one company's issued capital.

(c) For tourist projects, the tourist policy in force at the time applies. Specifically, for those projects covered by the current tourist policy and for which certain restrictions are applicable as to the allowable level of foreign participation, no restrictions are imposed on Cypriot non-resident participation. However, to the extent of the applicable restrictions, the repatriation of capital, dividends or profits is not allowed.
It should be noted that as a condition of the permit issued by the Central Bank, applicants are required to obtain approval for the plans of the proposed tourist project by the Cyprus Tourism Organisation.

(d) Applications by Cypriot non-residents for other activities which are subject to restrictions on foreign participation are treated on an equal basis with those of residents. In such cases the repatriation of capital, dividends or profits is decided on a case-by-case basis.

For all the above cases the permits are issued by the Central Bank and notified to the competent Ministry except for (d) above, whereby the Central Bank may need to consult with the competent Ministry in order to determine the extent to which repatriation of capital, dividends or profits will be allowed.

8. Other Provisions
The permits issued by the Central Bank will not prejudice the stance of other government departments regarding the issue of any other permits or consents which may be required under separate law or regulations.

CENTRAL BANK
FEBRUARY 1997

Appendix 1

LIST OF SERVICES FOR WHICH MINIMUM LEVEL
OF INVESTMENT IS CY 50.000
(This list is not exhaustive)

1. BUSINESS SERVICES

A. Professional Services

a. Legal services
b. Accounting, auditing and bookkeeping
c. Tax consultancies
d. Architectural design
e. Engineering
f. Urban planning and architectural landscaping
g. Medicine and dentistry
h. Veterinary services
i. Services provided by midwives, nurses, physiotherapists and paramedical personnel.

B. Computer and Related Services

a. Consultancy services related to the installation of computer hardware
b. Software implementation
c. Data processing
d. Data base management/ maintenance

C. Research and Development Services for:

a. Natural sciences
b. Social sciences and humanities

D. Other Business Services

a. Advertising
b. Market research and public opinion polling
c. Management consulting
d. Technical testing and analysis
e. Building - cleaning services
f. Photography
g. Packaging
h. Catering

2. COMMUNICATIONS SERVICES

A. Courier services

3. RECREATIONAL, CULTURAL, TOURISM AND SPORTING SERVICES

(other than audio-visual services)

a. Entertainment (including theatre, live bands and circuses)
b. News agencies

Appendix 2

LIST OF SERVICES FOR WHICH MINIMUM LEVEL
OF INVESTMENT IS CY100.000
(This list is not exhaustive)

1. BUSINESS SERVICES

A. Rental/Leasing Services Without Operators Relati

a. Ships
b. Aircrafts
C. Transport equipment
d. Other machinery and equipment

B. Other Business Services

a. Services incidental to mining and manufacturing
b. Investigation and security
c. Related scientific and technical consultancy
d. Maintenance and repair of equipment (not including maritime vessels, aircraft or other transport equipment).

2. COMMUNICATIONS SERVICES

Audio-visual Services

a. Motion picture and video tape production and distribution
b. Motion picture projection
c. Sound recording

3. CONSTRUCTION SERVICES

A. General construction companies

4. EDUCATIONAL SERVICES

A. Primary education
B. Secondary education
C. Other educational services

5. ENVIRONMENTAL SERVICES

A. Sewage treatment and disposal
B. Refuse disposal
C. Sanitation and similar services

6. RECREATIONAL, CULTURAL AND SPORTING SERVICES

A. Sporting and other recreational services

7. TRANSPORT SERVICES

A. Maritime Transport Services

a. Passenger transportation
b. Freight transportation
c. Rental of vessels with crew
d. Maintenance and repair of vessels
e. Pushing and towing services

B. Road Transport Services

a. Passenger transportation
b. Freight transportation
c. Rental of commercial vehicles with operator
d. Maintenance and repair of road Transport equipment
e. Supporting services

POLICY REGARDING INVESTMENTS ABROAD BY RESIDENTS OF CYPRUS

In recent years, the Cypriot authorities have been intensifying their efforts to harmonise Cyprus' policies, Legislation and institutions with those of the European Union. In this connection, the Central Bank has been steadily relaxing exchange control restrictions. This policy of liberalisation will encourage the undertaking of investments abroad by residents of Cyprus, for which Central Bank approval is required.

Within the context of liberalisation, the Central Bank has amended the criteria it uses to evaluate applications by residents of Cyprus wishing to invest abroad. The new criteria, which are listed below, aim to ensure that investments abroad are consistent with the Central Bank's objective to improve the prospects for the Cypriot economy. Applications need not satisfy all the following criteria:

1. The investment abroad should benefit the Cypriot economy in the form of, say, the inflow of foreign exchange from increased exports of goods, provision of services to people residing abroad, patents, management fees etc.
2. The profitability of the investment is such that it ensures coverage of probable future additional needs from own funds or foreign loans.
3. The investment enhances tourism to Cyprus, particularly quality, conference or special interest tourism, as well as the penetration into new markets within the framework of the government's policy on tourism.
4. The applicant's experience in the field of the proposed investment,
5. The percentage of participation in the foreign company. lt will be considered an advantage if the foreign company is controlled by the applicant investor.
6. The repatriation of capital and profits is allowed by the country where the investment will take place.

Irrespective of whether the proposed investment satisfies some or all of these criteria, the Central Bank's final decision will also take into consideration the amount of capital to be exported or any guarantees to be extended from Cyprus. Specifically:

1. The direct foreign exchange cost (i.e. direct transfer of capital) for each investment should not exceed CY 0,5 million.
2. If only the issue of a guarantee is required (rather than the export of capital), the guarantee should not exceed CY l million.
3. In cases where a combination of (a) and (b) above is required, condition (a) should always apply and the total direct and indirect foreign exchange cost should not exceed CY l million.
4. In exceptional cases where it appears certain that a large part of the investment will be repatriated in a short period of time, the Governor of the Central Bank may exercise his discretion and approve greater amounts.