Annual Report on Exchange Arrangements and Exchange Restrictions 2005
Chapter

CYPRUS

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2005
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(Position as of December 31, 2004)

Status Under IMF Articles of Agreement
Article VII4Date of acceptance: January 9, 1991.
Exchange Arrangement
CurrencyThe currency of Cyprus is the Cyprus pound.
Exchange rate structureUnitary.
Classification
Pegged exchange rate within horizontal bandsThe Cyprus pound is pegged to the euro within margins of ±15% around the central rate of €1.7086 per £C 1. Subject to certain limitations, including a limit on spreads between buying and selling rates, ADs (banks) are free to determine and quote their own buying and selling rates. The Central Bank of Cyprus (CBC) monitors foreign exchange rates and may intervene to safeguard the smooth functioning of the market and the stability of the currency. The CBC is also responsible for organizing the daily fixing session with the commercial banks, at which the official foreign exchange rates (“fixing exchange rates”) for the pound are determined.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketCredit institutions and their supervised subsidiary companies may trade in the forward market at rates freely negotiated with their customers.
Arrangements for Payments and Receipts
Prescription of currency requirementsYes.
Payments arrangements
Regional arrangementsOn May 1, 2004, Cyprus became a member of the EU.
Administration of controlEffective May 1, 2004, the Exchange Control Law was repealed and all exchange controls imposed under this law no longer apply. The Capital Movement Law (115(I)2003) came into force, providing for freedom of capital movements and payments in accordance with EU regulations. Commercial banks and cooperative credit institutions are authorized to carry out all foreign exchange transactions in accordance with EU regulations.
International security restrictionsPursuant to UN Security Council resolutions and EU regulations, economic sanctions are maintained against the former government of Iraq, Democratic Republic of the Congo, Liberia, Myanmar, Sierra Leone, Rwanda, Somalia, Sudan, Zimbabwe, the Taliban, the UNITA movement in Angola, and natural or legal persons associated with terrorism.
In accordance with IMF Executive Board Decision No. 144-(52/51)Although sanctions against Serbia and Montenegro have been lifted, some bank balances belonging to the former National Bank of Yugoslavia remain frozen at the request of the Prosecutor of the International Criminal Tribunal for the former Yugoslavia. These restrictions are solely for the preservation of international security and have been notified to the Fund.
In accordance with UN sanctionsYes.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)Effective May 1, 2004, natural and legal persons, whether resident or nonresident, are free to purchase or sell gold (coins and/or bullion) for commercial or industrial purposes. If gold is not used for commercial or industrial purposes, one of the parties to the transaction (purchase or sale) must be a credit institution or a subsidiary of a credit institution.
Controls on domestic ownership and/or tradePrior to May 1, 2004, residents were allowed to hold and acquire gold coins in Cyprus for numismatic purposes. Residents other than the monetary authorities, ADs in gold, and industrial users were not allowed to hold or acquire gold bullion at home or abroad.
Controls on external tradePrior to May 1, 2004, the exportation of gold coins or bullion required the permission of the CBC. ADs in gold were permitted to import gold bullion only for the purpose of providing it to industrial users.
Controls on exports and imports of banknotesEffective May 1, 2004, upon entering or leaving Cyprus, travelers must declare currency banknotes and gold whose value is equal to or in excess of £C 7,300 or £C 12,500, respectively, or the equivalent in any other currency.
On exports
Domestic currencyPrior to May 1, 2004, resident travelers could take out up to £C 1,000. Nonresident travelers could take out any amount of Cypriot banknotes that they imported and declared on arrival. In cases where declarations were not made, nonresidents could export up to £C 1,000 in Cypriot banknotes or the equivalent in foreign banknotes. In addition, nonresidents could export the full amount of refunded VAT in Cypriot banknotes. ADs could dispatch any amount of Cypriot or foreign banknotes to foreign banks in exchange for foreign currency.
Foreign currencyPrior to May 1, 2004, resident travelers could take out any amount of foreign banknotes purchased from ADs as part of their foreign currency allowances. Nonresident travelers could take out any amount of foreign banknotes that they imported and declared on arrival, as well as any amount purchased from banks in Cyprus against external funds or against Cypriot banknotes previously obtained from conversion of foreign exchange.
On imports
Foreign currencyPrior to May 1, 2004, although there were no limitations, nonresidents entering Cyprus were advised to declare to customs any Cypriot or foreign banknotes to facilitate their reexport, deposit with ADs, or use in purchasing property or goods for export. For the purpose of preventing money laundering, banks were not allowed to accept deposits of foreign banknotes in excess of the equivalent of $100,000 without prior approval of the CBC.
Resident Accounts
Foreign exchange accounts permittedEffective May 1, 2004, EU regulations apply.
Held domesticallyPrior to May 1, 2004, residents receiving or needing to make payments in foreign currency were permitted to hold foreign currency accounts with ADs. Cypriot repatriates and individuals temporarily working abroad and local companies wholly owned by nonresidents were also allowed to hold such accounts. With the exception of Cypriot repatriates, individuals temporarily working abroad, professionals holding funds of their nonresident clients, and the aforementioned companies, residents were required to convert into Cyprus pounds balances at the end of each year that were not necessary to make payments in foreign exchange during the next three months.
Held abroadPrior to May 1, 2004, resident natural persons 18 years or older were permitted to deposit up to the equivalent of £C 50,000 a year in accounts with banks abroad or, alternatively, use part or all of the balance for portfolio investment abroad. In addition, Cypriot repatriates and local companies wholly owned by nonresidents were permitted to keep in foreign currency accounts or external accounts with banks in Cyprus, or accounts with banks abroad, all of their foreign currency holdings and earnings accruing from properties they own abroad. Resident individuals temporarily working abroad could maintain their foreign currency earnings in foreign currency accounts, external accounts with banks in Cyprus, or accounts with banks abroad. In all other cases, CBC approval was required.
Accounts in domestic currency held abroadYes.
Accounts in domestic currency convertible into foreign currencyPrior to May 1, 2004, these accounts were designated as external accounts. They were maintained by Cypriot repatriates and individuals temporarily working abroad, local companies wholly owned by nonresidents, and professionals holding funds of their nonresident clients.
Nonresident Accounts
Foreign exchange accounts permittedEffective May 1, 2004, EU regulations apply. Previously, these accounts could be credited with funds from external sources and authorized payments from residents.
Domestic currency accountsYes.
Convertible into foreign currencyEffective May 1, 2004, EU regulations apply. Previously, these accounts were designated as external accounts, and the rules governing foreign currency accounts applied.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Advance payment requirementsEffective May 1, 2004, EU regulations apply. Previously, ADs were allowed to sell to departing residents foreign exchange up to £C 100,000 for purchases of goods to be imported into Cyprus; for larger amounts, approval by the CBC was required.
Documentation requirements for release of foreign exchange for importsNo.
Import licenses and other nontariff measuresEffective May 1, 2004, imports are governed by EU regulations, according to which most imports are free of licensing requirements and quantitative restrictions. A license is required for certain goods and for certain goods from non-EU countries.
Negative listYes.
Import taxes and/or tariffsEffective May 1, 2004, the EU Common Customs Tariff applies.
State import monopolyNo.
Exports and Export Proceeds
Repatriation requirementsEffective May 1, 2004, EU regulations apply. Previously, export proceeds must have been received within six months of shipment unless an exception was granted by the CBC.
Surrender requirementsPrior to May 1, 2004, in general, export proceeds were required to be surrendered to ADs not later than six months after the date of exportation. Manufacturers importing their own raw materials or making other payments in foreign currency were permitted to deposit export proceeds in foreign currency accounts with ADs, subject to the requirement that, at the end of each year, balances that were not necessary for payments in foreign exchange during the next three months be converted into Cyprus pounds.
Financing requirementsNo.
Documentation requirementsNo.
Export licenses
Without quotasEffective May 1, 2004, in accordance with EU regulations, exports of military equipment and goods that may be used for chemical or biological weapons, as well as nuclear-related products (including dual-use products), are subject to licensing for reasons of preserving international peace and security.
Export taxesNo.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersEffective May 1, 2004, EU regulations apply.
Investment-related paymentsPrior to May 1, 2004, profits and dividends, interest, and rent from approved foreign investments could be transferred abroad on presentation of appropriate documentation.
Foreign workers’ wages
Quantitative limitsPrior to May 1, 2004, wages earned by legally employed nonresidents in Cyprus could be transferred abroad without any quantitative restriction through ADs. In order to establish the bona fide nature of the transaction, foreign workers were required to present ADs with their employment permits and contracts.
Other paymentsPrior to May 1, 2004, ADs could effect payments for royalties and license fees in accordance with relevant agreements. They could also carry out payments for subscription/membership fees, consulting/legal fees, and other services, up to the equivalent of £C 500,000. For larger amounts, CBC approval was required and was granted in bona fide cases.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Surrender requirementsEffective May 1, 2004, EU regulations apply. Previously, generally, receipts from invisibles must have been sold to an AD. However, residents expecting to make payments were permitted to deposit proceeds from invisibles in foreign currency accounts with ADs, subject to the requirement that at the end of each year, balances that were not necessary for payments in foreign currency during the next three months must be converted into Cyprus pounds.
Restrictions on use of fundsNo.
Capital Transactions
Controls on capital transactionsEffective May 1, 2004, capital investments are allowed freely in accordance with EU regulations.
Controls on capital and money market instruments
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsPrior to May 1, 2004, the acquisition of shares of public companies listed on the Cyprus Stock Exchange (CSE) by natural or juridical persons from EU member states was unrestricted, while the aggregate participation in the share capital of such companies, except banks, by other nonresident persons was subject to a 49% limit.
Prior to May 1, 2004, public companies and stockbrokers were authorized to carry out the relevant transactions with nonresidents without reference to the CBC, subject to the limit described above.
Sale or issue locally by nonresidentsPrior to May 1, 2004, securities issued by nonresidents were admissible but residents were not generally permitted to purchase them. ADs were permitted to approve applications by nonresidents for transfers abroad of proceeds from the sale of securities quoted on the CSE without limit and without reference to the CBC.
Purchase abroad by residentsPrior to May 1, 2004, resident natural persons 18 years or older were permitted to transfer abroad up to the equivalent of £C 50,000 a year to purchase securities on stock exchanges listed in EU countries or shares in mutual funds in transferable securities that fulfill EU requirements. Alternatively, part or all of this amount was permitted to be deposited in accounts with foreign banks or used to pay for life insurance or other investment plans offered by insurance companies.
Sale or issue abroad by residentsPrior to May 1, 2004, these transactions were subject to the ceilings described above for purchases by nonresidents.
Bonds or other debt securities
Sale or issue locally by nonresidentsPrior to May 1, 2004, securities issued by nonresidents were admissible to the CSE but residents were not generally permitted to purchase them.
Purchase abroad by residentsPrior to May 1, 2004, the purchase of debt securities abroad by residents was generally subject to the same rules as the purchase of shares or other securities of a participating nature.
On money market instruments
Sale or issue locally by nonresidentsPrior to May 1, 2004, prior approval of the CBC was required for residents to purchase such instruments.
Purchase abroad by residentsPrior to May 1, 2004, purchases of these securities were subject to the regulations governing purchases of capital securities.
Sale or issue abroad by residentsPrior to May 1, 2004, prior approval of the CBC was required.
On collective investment securities
Purchase locally by nonresidentsPrior to May 1, 2004, acquisition of securities issued by public investment companies in Cyprus was unrestricted for natural and juridical persons from EU member countries and was subject to a ceiling of 49% for other nonresident persons.
Sale or issue locally by nonresidentsPrior to May 1, 2004, securities issued by nonresidents were admissible to the CSE, but residents were not generally permitted to purchase them.
Purchase abroad by residentsPrior to May 1, 2004, purchases of these instruments by residents were subject to the regulations that govern purchases of capital market securities.
Sale or issue abroad by residentsPrior to May 1, 2004, prior approval of the CBC was required.
Controls on derivatives and other instrumentsPrior to May 1, 2004, there were controls on transactions in derivatives and other instruments.
Controls on credit operations
Commercial credits
By residents to nonresidentsPrior to May 1, 2004, credits with a maturity of up to 180 days for the export of goods from Cyprus could be freely provided by ADs. Controls on short-term lending in foreign currencies to nonresidents did not apply. Other credits required approval of the CBC.
Financial credits
By residents to nonresidentsPrior to May 1, 2004, residents other than ADs were not allowed to grant these credits without the approval of the CBC.
To residents from nonresidentsPrior to May 1, 2004, short-term borrowing was subject to approval by the CBC.
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsPrior to May 1, 2004, ADs were allowed to issue these guarantees without reference to the CBC in certain cases, including tender guarantees up to 5% of the tender price, performance bonds up to 10% of the contract price, guarantees for the refund of advance payments, and guarantees in respect to any other transactions for which an immediate payment to the nonresident beneficiary could be made under the existing exchange control rules. In other cases, prior approval of the CBC was required.
Controls on direct investment
Outward direct investmentPrior to May 1, 2004, transfers of capital abroad could be made without reference to the CBC on presentation of documentation showing the bona fide nature of the transaction.
Inward direct investmentInward direct investment from EU member countries is unrestricted. Direct investment from non-EU countries is also free from restrictions in most sectors of economic activity. However, there are ceilings on the participation of non-EU natural or legal persons in enterprises engaged in the following activities: radio and television broadcasting, tertiary education, construction, travel agencies, distribution of newspapers and magazines, and ownership of merchant ships and fishing vessels.
Controls on liquidation of direct investmentPrior to May 1, 2004, permission of the CBC for the repatriation of the proceeds of sale or liquidation of approved investments (including capital gains) was readily granted at any time after payment of taxes.
Controls on real estate transactions
Purchase abroad by residentsPrior to May 1, 2004, each resident family was permitted to transfer abroad up to the equivalent of £C 200,000 to acquire a secondary residence abroad.
Purchase locally by nonresidentsThe acquisition of real estate in Cyprus by non-Cypriot EU nationals (natural or legal persons) is not subject to controls, except for the acquisition of secondary residences, which, effective May 1, 2004, will remain under the District Officer’s approval under the Immovable Property Acquisition (Aliens) Law for a five-year transitional period. Such acquisitions are effected under the same legal provisions that apply to Cypriots. In accordance with the Immovable Property Acquisition (Aliens) Law, the acquisition of immovable property in Cyprus by non-Cypriots from non-EU countries is subject to the approval of the District Officer (acquisition of immovable property by inheritance is not subject to this requirement). When the real estate concerned exceeds two donums (one donum = 1,338 m2), approval is granted only in the following cases: (1) a primary or secondary residence not exceeding three donums, (2) professional or commercial premises, or (3) premises for industry sectors deemed beneficial to the Cypriot economy.
Sale locally by nonresidentsPrior to May 1, 2004, proceeds from the sale of immovable property were transferable abroad without limit, provided appropriate documentation was submitted to an AD.
Controls on personal capital transactionsEffective May 1, 2004, personal capital transactions no longer require prior CBC approval.
Loans
By residents to nonresidentsPrior to May 1, 2004, prior approval of the CBC was required.
To residents from nonresidentsPrior to May 1, 2004, short-term borrowing was subject to CBC approval.
Settlement of debts abroad by immigrantsPrior to May 1, 2004, in cases where the immigrant debtor did not maintain sufficient balances in foreign currency or external accounts to repay a debt abroad, approval of the CBC was granted for repayment through local funds.
Transfer of gambling and prize earningsPrior to May 1, 2004, prior approval from the CBC was required.
Provisions specific to commercial banks and other credit institutions
Borrowing abroadYes.
Maintenance of accounts abroadBanks are allowed to maintain accounts abroad, subject to the net open positions in foreign exchange as described below.
Lending to nonresidents (financial or commercial credits)Banks are allowed to grant loans in foreign currencies with a maturity of up to 15 years to nonresidents, subject to the liquid asset requirements prescribed by the CBC for prudential reasons. Banks are allowed also to lend in local currency to nonresidents.
Lending locally in foreign exchangeBanks may grant loans with a maximum maturity of 15 years to residents without referring to the CBC (subject to the liquid asset requirements prescribed by the CBC for prudential reasons).
Purchase of locally issued securities denominated in foreign exchangeThese are subject to liquid asset requirements prescribed for prudential reasons.
Differential treatment of deposit accounts in foreign exchangeThe prudential liquidity regulations applied to accounts in foreign currencies, held either by nonresidents or by residents, are different from those applied to accounts in Cyprus pounds.
Reserve requirementsA minimum reserve requirement of 6.5% applies to deposits in Cyprus pounds. Effective May 1, 2004, a minimum reserve requirement of 2% applies on deposits in foreign currency.
Liquid asset requirementsLiquid assets in foreign currencies equal to at least 75% of deposit liabilities in foreign currencies must be maintained. For deposits in Cyprus pounds, the liquidity positions of banks are monitored by the CBC for prudential purposes using a maturity mismatch approach. The maximum mismatch ratios allowed are (1) –10% of total deposits in the time band of “zero to 7 days,” and (2) –25% in the time band of “zero to 1 month.”
Differential treatment of deposit accounts held by nonresidentsNonresidents’ deposit accounts in foreign exchange or in domestic currency are not treated differently from deposit accounts of residents.
Investment regulations
Abroad by banksBanks may acquire assets abroad in accordance with the CBC directive establishing the framework within which banks may utilize the funds derived from foreign currency deposits from customers. Banks may also undertake direct investment abroad (e.g., establishment of a subsidiary or branch abroad), subject to the approval of the CBC.
In banks by nonresidentsThe acquisition of 10% or more of a bank’s share capital by any resident or nonresident person, either alone or with any associates, is subject to prior approval of the CBC in accordance with the Banking Law.
Open foreign exchange position limitsThe net open/uncovered overnight (intraday) position in any one foreign currency and the overall aggregate net position in all foreign currencies are 3% (5%) and 6% (8%), respectively, of the AD’s capital base.
Provisions specific to institutional investorsInvestments by institutional investors are subject to prudential rules.
Limits (max.) on investment portfolio held abroadPrior to May 1, 2004, there were no exchange control restrictions on investments of insurance companies, subject to EU rules on currency matching. Public investment companies were able to also invest abroad in securities quoted on foreign stock exchanges up to 50% of their capital and reserves (net worth), or the equivalent of £C 20 million, whichever was less. The CBC approved applications by other institutional investors on a case-by-case basis.
Currency-matching regulations on assets/liabilities compositionYes.
Other controls imposed by securities lawsThe Cyprus Stock Exchange and Securities Laws and the regulations issued under these laws apply to transactions by nonresidents and residents in a nondiscriminating manner.
Changes During 2004
Arrangements for payments and receiptsMay 1. Cyprus became a member of the EU.
May 1. Upon Cyprus’ accession to the EU, the Exchange Control Law was repealed and all exchange restrictions imposed under this law were lifted. The Capital Movement Law, (115(I)2003) came into force, providing for freedom of capital movements and payments in accordance with EU regulations.
May 1. Restrictions on the purchase or sale of gold for commercial and industrial purposes were lifted.
May 1. Upon entering or leaving Cyprus, travelers were required to declare currency banknotes and gold whose value is equal to or in excess of £C 7,300 or £C 12,500, respectively, or the equivalent in any other currency.
Resident accountsMay 1. EU regulations began to apply.
Nonresident accountsMay 1. EU regulations began to apply.
Imports and import paymentsMay 1. The EU Common Customs Tariff began to apply.
May 1. EU regulations began to apply, according to which most imports are free of licensing requirements and quantitative restrictions.
Exports and export proceedsMay 1. EU regulations began to apply.
May 1. In accordance with EU regulations, exports of military equipment and goods that could be used for chemical or biological weapons, as well as nuclear-related products (including dual-use products), were subject to licensing for reasons of preserving international peace and security.
Payments for invisible transactions and current transfersMay 1. EU regulations began to apply.
Proceeds from invisible transactions and current transfersMay 1. EU regulations began to apply.
Capital transactionsMay 1. Capital movements were allowed freely in accordance with EU regulations.
Controls on real estate transactionsMay 1. The acquisition of secondary residences in Cyprus by non-Cypriot EU nationals remained subject to local district approval for a transitional period of five years.
Controls on personal capital transactionsMay 1. Prior approval from the CBC was no longer required for personal capital transactions.
Provisions specific to commercial banks and other credit institutionsMay 1. A minimum reserve requirement of 2% was introduced for deposits in foreign currency.

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