Announcement by the Central Bank of Cyprus on Exchange Control Liberalization

 

The Central Bank of Cyprus, within the policy for harmonization with the European Union (EU) acquis communautaire, announced the introduction of additional liberalization measures with respect to investments by non-residents in Cyprus and by Cypriots abroad. Specifically the following measures have come into effect since 7 January 2000:

1. Investments in Cyprus by citizens (physical or legal persons) of EU member states.

a. Direct investment.

All restrictions concerning the maximum allowable percentage of foreign participation as well as the minimum level of foreign investment in any enterprise in Cyprus are abolished, provided the foreign investors are citizens of EU member states.

The new Central Bank policy does not touch upon limitations applicable under other laws or regulations . Such limitations, for example, apply to the acquisition of immovable property.

b. Portfolio investment

Henceforth, investors who are citizens of EU member states may acquire up to 100% of the share capital of Cypriot companies listed on the Cyprus Stock Exchange. In the banking sector, the maximum foreign equity participation remains 50%, in accordance with the policy announced in July 1999. In case of liquidation of sizable portfolio investments undertaken after the issue of this announcement, the Central Bank reserves the right to demand the gradual transfer abroad of the capital gain, in order to mitigate possible negative effects on the balance of payments and foreign exchange reserves.

2. Investments abroad by Cypriots

a. Direct investment

Henceforth, citizens of Cyprus are allowed to undertake direct investment abroad without restriction as to the sector of the investment or the amount of foreign exchange involved. The transfer of capital abroad will be effected as soon as the Central Bank is satisfied that it is a genuine direct investment and that it does not involve a portfolio investment (e.g. purchase of foreign stocks or bonds) or deposits with foreign banks. Where the foreign exchange cost is substantial the Central Bank reserves the right to take measures in order to mitigate the impact on the balance of payments.

It is clarified that the term direct investment means any investment undertaken in order to create, extend or maintain a lasting and long-term relationship with an enterprise in another country and implies control or participation of the investor in the management of the enterprise to a significant degree. A direct investment is considered to take place when the equity holding is more than 10% of the share capital of the enterprise involved. An equity holding of less than 10% is considered to be a portfolio investment.

The aforementioned liberalization measures do not affect the obligation of all investors to register their investments with the Central Bank and to furnish it with any information and statistical data the Central Bank may deem necessary. For these purposes the Central Bank has prepared special forms, which must be completed by all investors.

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