Northern Cyprus welcomes all investments in the production of goods and services. The Turkish Republic of Northern Cyprus(TRNC) attaches importance and priority to all investments that increase production, employment, exports, and the use of new technology in her economy. Recently, sectors that have significant growth potential in the country and can attract the attention of investors have been unearthed. Foreign investors can now identify opportunities that are suitable for them.

Company Types in Northern Cyprus

Local Company

Regulated by Companies Act. Cap 113, which is based on the UK Companies Act 1949, forming the local company allows investors to conduct businesses both within the local market and between TRNC and other countries. The corporate governance structure of local TRNC companies is very similar to those in the UK. If the target consumers of the company’s goods and services are TRNC residents, and at least one shareholder is a TRNC citizen, then this company structure will be the best option. Local company structures are prominent within the real estate sector as this is a growing industry in the TRNC.

Formation Requirements of the local company;

• Limited Liability Company Articles of Association and Memorandum of Association need to be prepared.
• Payment of stamp duty and relevant fees
• Proof of ID and address document.
• Certification for Non-Citizen directors from TRNC tax office.
• Company shares capital amount deposit to the bank account (for non-citizens min. amount is $100.000).

Foreign Branch Company

Cap 113 – Companies Law permits foreign investors to set up branch companies in TRNC. Foreign companies can conduct their operations freely. One of such example is the multinational banks in Northern Cyprus. Procedures are very similar to the Local company foundation.

Free Trade Zone Company

With the law named Free Trade Port Law 26-1983, companies can set up in Northern Cyprus. Free trade zones offer very good tax advantages. Same requirements for local company setup also needs to be fulfilled in the free trade zone company. Free trade zone companies are exempt from corporation tax and value-added tax(VAT). Also, there are no restrictions on the movement of capital. Operations can be conducted with no taxes. Since the popularity of the free trade zone companies increased, the North Cyprus free trade zone allows companies to operate without a physical place at the port. Consulting, Advisory, IT, Financing, and Insurance companies are the most popular sectors operating this method. More than 500 companies are operating in the North Cyprus free trade zone. There are only two fees for setting up a company;

• Application fee (about 200$-1000$)
• Initial free trade zone licence fee (2,500$)

Read more about Free Trade Zone Companies

Offshore Company

The offshore company structure is based on the law of “38/2005 International Business Company (Offshore),” which was prepared by the European Union. This company type only services to foreign countries and foreign customers. Offshore companies are exempt from value-added tax, but a corporation tax rate of %1 of taxable income applies. There is no withholding tax, and company capital movements are free, without any restrictions.

Annual renewal of international business license (€5000 per year) needs to be paid. This company type allows for proxy shareholders and directors. Personal information can remain hidden. Company requirements need to be fulfilled in Cap 113 – Companies Law. Min. paid-up share capital of €20.000; also, there is an application fee of about €500. 3 – 4 weeks later, the company incorporation can be done. Finance, travel agency, consulting, IT, online services, telecommunication, and aviation services sectors hold a special attraction for the offshore companies in TRNC.

Read more on Offshore Companies

North Cyprus Government-Implemented Incentive Policies

There are seven types of government investment incentives issued in the Northern Cyprus Constitution;

Investment Discount

The investment allowance rate for the investments to be made in priority development regions is to be determined by the state planning organization, within the framework of development plans and/or annual programs is 200% over the cost of ownership. In other regions, the investment discount rate is 100% on the cost of ownership.

Customs Tax and Fund Exemption

The machinery and equipment related to the investment to be imported within the scope of the Incentive Certificate are exempt from all kinds of customs duties and funds.

Value-added Tax Application in Machinery and Equipment Procurement

0% Value-added tax is applied to imported and domestic machinery and pieces of equipment within the scope of the incentive certificate.

Read more about tax advantages of Northern Cyprus

Land and Building Supply

In the case of investments with incentive certificates, if the investors request immovable property, these requests are evaluated by the legislation in force and by the possibilities and given to these persons by leasing method.

Exemption Of taxes, duties, fees, and all kinds of contributions related to a construction permit

The investments made within the scope of the incentive certificate are exempted from the duties, fees, and all kinds of contributions related to the building construction license.

Stamp Tax Reduction Regarding Capital Increases

For the investments to be made within the scope of the incentive certificate, a reduction in stamp tax to be collected during capital increase shall be provided by the regulation.

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When you use a free trade zone company for your import and export activities, you stand to benefit from a large number of tax incentives. Free trade zone companies are exempted from payments such as income tax, corporation tax, customs duty, and value-added tax for income generated via international trade.

Another benefit you get from using a free trade zone company in North Cyprus is that there are no restrictions on the transfer of profits and retained earnings abroad. Furthermore, you can employ as many foreign nationals as your firm may require. By using a free trade zone company, you get to save money on taxes.

North Cyprus free trade zone also allows service companies to be incorporated and operate out of a P.O. box. Some service companies operating out of North Cyprus free trade zone are; Ofis Game,  BTC Turk, Webadam, Key to VoIP, Affilysis, etc. There are other service categories from consulting to online commerce that can be undertaken.

Securing an office space is quite easy as many real estate agencies operate in the free trade zone areas. Rental fees can be discussed with the free trade zone companies, operators, and tenants. Rental fees can also be negotiated with the tenants and operators. This company type allows the investors to operate in traditional production, buying-selling, or such.

Free trade zones are also security conscious. Security officers keep the area under control 24/7. Magusa Port (Famagusta Port) provides a better geographical advantage for the Middle East markets. Thanks to the strategic location of the port, goods can be exported faster and easily.

Advantages of North Cyprus Free Trade Zone Company

• North Cyprus Free Trade Zone company is not subject to any value-added tax (VAT).
• Other than the incorporation fees, there is no annual renewal fee required.
• 0% Tax on Corporate Profits.
• No withholding tax on Dividends paid from your company.
• No Income tax for no resident shareholders (Residing in TRNC less than 183 days in the calendar year).

To form a Free Trade Zone Company, there are some essential requirements you must fulfill. These requirements include;

• Minimum 2 shareholders required for incorporation
• If any shareholder has no TRNC citizenship, the minimum paid-up share capital is 50,000 Euros.
• According to the Cap.113 Companies Law, Free Trade Zone Companies must prepare a Memorandum of Association and Articles of Association papers.
• There needs to be 1 Director and 1 Secretary for the company board. Both can be no-TRNC citizens.
• Proof of address and proof of I.D. is required.
• Free Trade Zone Licence Fee costs $2,500. (Paid only once)

Investing in North Cyprus

The Cyprus Turkish Investment Development Agency (YAGA) was established to identify and execute investment guidance and promotional strategies. The agency is responsible for improving the investment climate and ensuring investments are more accurate and efficient. This is done to attract investments needed in the economic development of TRNC.

Cyprus is one of the most attractive locations for foreign investments. As an island, Northern Cyprus has tax promotions and treaties for the protection of investments. In the last decade, financial incentives provided to foreign investors have made the island a magnet for foreign investors and investments. As a result of this opportunity for foreign investors, income tax has decreased, offshore partnership profits have gone full tax exemptions, tax deductions on all expenses incurred for the earning of income, and full capital gains tax exemption.

In addition to all of these opportunities, there are other incentives, including a ten-year tax exemption for the manufacturing of the new products, investment discounts, duty-free status in free industrial zones, and reduced taxation for foreign experts employed there. The Northern Cyprus government introduced all these.

In Northern Cyprus, the constitution guarantees private property rights and does not discriminate between Cypriots and non-Cypriots. In 2000, Northern Cyprus liberalized all foreign direct investment controls on local businesses for residents of the European Union, who may now own 100% of local companies.

In Northern Cyprus, every business activity is protected by the government and the constitution. The incentives given to foreign investors have brought a lot of business to Northern Cyprus. Thanks to the multinational banking system and efficient business environment, North Cyprus allows investors to run offshore companies.

Government policies and ongoing incentives have been effective at attracting investors into Northern Cyprus. Tax-efficient business structures and the environment allows companies to operate freely and be more financially effective. Company operations are more effective, whether buying real estate or making international sales to the world. In addition, both local and foreign investors have a non-discriminatory business environment. Therefore, investments are not different from the local investors.

Offshore companies are under the law of “38/2005 International Business Company Law”. International business company law is compliant with European Union legislation. Company officials can set up an office anywhere in TRNC. Also, there are several opportunities for virtual offices. North Cyprus offshore company license allows the employment of foreign nationals. Company officials and investors can make proxy directors and shareholders. Proxy directors and shareholders allow the organization’s real owners to remain hidden.

The Council of Ministers has only the authority to approve foreign branches. There are no restrictions on the free movement of capital, but investments in the construction and travel agency sectors have certain rules. In these sectors, there must be a Turkish Cypriot citizen taking part in capital ownership or the company management. Foreign investors need to allow 51% of local participation in construction and travel agencies.

In North Cyprus, except for online gambling and sports betting (these sectors have different rules and regulations), the following fields can conduct businesses without any restrictions: Finance, IT, consulting, communication, online services, and aviation.

Advantages of North Cyprus for offshore companies

• Corporation tax is %1 in year-end taxable profits. This company type cannot be subjected to any other tax types.
• All kinds of direct tax are exempted (VAT, stoppage tax, and others)
• Immovable property tax is also exempt for North Cyprus offshore companies.
• Shareholders are exempt from any inheritance or income tax that can result from transferring shareholding.
• Interest income on the company savings is limited to 1% tax.
• North Cyprus Offshore Company can open saving accounts in foreign currencies (USD, GBP and EUR) and pay only 1% tax on interest income.
• For competitive advantage, proxy directors and shareholders can keep the identity of the company owners.

Requirements for North Cyprus offshore companies

• The minimum number of shareholders allowed is two people, one director, and one secretary. Both can be non -TRNC citizens.
• Shareholders must be of foreign origin and not originally reside in TRNC.
• In the event of renting and setting up office space, at least one of the employees must be a TRNC citizen.
• One person should appoint a local person as a representative in TRNC. The biggest reason is to receive any notices or documents sent to the company from TRNC authorities.
• North Cyprus offshore companies must keep account records the same as a local company type.
• All the documents that are not in English and Turkish must be officially translated from certified translators and certified by a notary.

Documents to be Provided for North Cyprus Offshore Company

• Application Form for North Cyprus offshore company must be provided.
• Notarized photocopies of the applicants’ passports for proof of ID.
• Proof of Address with utility invoice for electricity, water, or local phone.
• Criminal records clearance needs to provide in the application process.
• Founder’s original CV.

If an already established company would like to operate in the TRNC, organizations should provide the following documents certified by a notary:

• Certificate of Incorporation
• The Memorandum and Articles of Association
• List of the shareholders showing type, number, and value of shares.
• Shareholders’ nationalities and addresses.
• Directors and secretaries’ names, addresses, and nationalities.
• A newly issued and dated certificate from the foreign Chamber of Commerce or Industry.

Fees of North Cyprus Offshore Company

• Minimum share capital is €20.000, which must be deposited into any TRNC bank.
• The annual license fee is €5000 per annum. The annual license fee is payable in the month following incorporation
• During the application process, stamp duty and related costs for company documents will be determined.

Since the Turkish Peace Operation of 1974, the controlled northern part of Cyprus has been dependent on Turkey economically and politically. But in 2003, this changed. Since April 23, 2003, to be precise, the “Turkish Republic of Northern Cyprus” (TRNC) economy has been able to make more contacts with the outside world, thereby building their economy.

The role of Turkey in the “TRNC” continues to be dominant. Turkey controls all governmental and institutional agencies. The Turkish Lira became the legal tender in TRNC in the early years following the invasion, which effectively establishing a monetary union with Turkey meaning Turkey’s economic and monetary problems would easily transfer to the “TRNC.” As a result, the economy of the “TRNC” suffered from problems of currency instability and high inflation during the 2000-2001 economic crisis in Turkey.

Economic activity in the northern part of Cyprus has accelerated following developments with UN-sponsored efforts for a lasting solution and the failure of the Anan Plan in 2004. However, the sustainability of this process would require well-designed macroeconomic and financial policies, a restructuring of the private and public sectors, and substantial assistance from outside sources.

There is no doubt that the island’s northern part holds vast economic potentials under the right set of circumstances. A combination of policies toward harmonization with the European acquis and further economic integration of the northern part with the government-controlled areas, and by extension with the EU, will open up ample possibilities.

Economic Overview and Current Position of Northern Cyprus

The political stance of the Turkish Republic of Northern Cyprus is dependent on Turkey. Because of the unrecognition in the international scene, Northern Cyprus’s economy, import, and export activities are carried out in Turkey. Despite the small size, Northern Cyprus’s economy has experienced high growth rates since 2003. North Cyprus applies a free market economy. Her per capita income was around $15.000 as of 2014.

The Turkish Republic of Northern Cyprus is dominated by the services sector, including the public sector, trade, tourism, and education. From a longer-term perspective, economic activities are gradually shifting from agriculture and manufacturing toward services, particularly trade and tourism, transport, communication, business, and personal services.

Tourism is one of the leading sectors in Northern Cyprus. Because of the geographical location, Cyprus has Mediterranean weather and flora. This is where the island gets its sunny days and sandy beaches from. Tourism has numerous potentials on the island, and most of the citizens work in the tourism sector. Public services remain an important contributory sector to overall economic activity, but their importance has experienced some decline in recent years as the private sector grows vigorously.

Construction value has more than doubled since 2000 and is getting stronger in recent years, rising by 35% in 2006 alone. As a result, the corresponding share in output rose from 3.3% in 1980 to 13.5% in 2006, constituting the most important GDP growth source.

Services in total registered a growth of 45% between 2000 and 2006, whilst their respective share in total industry output rose from 62.8% in 1980 to 65.8% in 2006. Growth was particularly strong in trade, business, and personal services, transport, and communication.

Higher education (universities) is one of the main services sectors for the Northern Cyprus economy. A large number of Turkish and international students study in North Cyprus universities every year. This situation also gives a boost to the real estate sector, where students are major renters. Also, the retired population from Europe (mostly North Europeans) buy and rent houses during the summer times. This, again, impacts the North Cyprus economy gradually.

Currently, there are twenty-four commercial and one development banks operating in Cyprus. Seven of the banks are of Turkish origin. They are deposited billions of dollars on the island. International banks, such as HSBC, ING, Garanti BBVA, QNB Finansbank, Groupama, AXA, and many others, are providing banking and insurance services.

Foreign Investor Activities and Incentives

Despite the non-recognition status, Northern Cyprus has integrated itself into the free market economy. Northern Cyprus has witnessed very rapid growth since the inception of the incentives packages and policies to foreign investors. TRNC constitution has laws that protect private property rights. Foreign investors can operate in different company types in Northern Cyprus:

• Local Company
• Foreign Branch Company
• Free Trade Zone Company
• International Business Company (Offshore Company)

Only foreign nationals with valid work permits can work in North Cyprus. Free trade zone companies and offshore companies are required for the non-citizen and citizen representatives in the companies.

Revenue from taxation is one of the major strategies the government uses to generate funds in North Cyprus. Indeed the government has diverse sources of revenue which include tax revenue, non-tax revenue, and grants. Payments, charges, royalties, and hiring of public assets are expressed as samples of non-tax revenue. The North Cyprus tax system consists of different types of taxes divided into two subsets; direct and indirect taxes.

According to TRNC law, all the residents of Northern Cyprus are subject to income tax. The country has a progressive tax system. It means that individuals with a higher income level are to pay a higher percentage of tax than those with lower income. In other words, the taxation system in TRNC is structured so that the aggregate amount of tax liability is completely related to the quantity of income earned by the individual.

Tax Environment

All companies and other corporate bodies, except cooperative societies, are chargeable with corporation tax.

Corporations that are registered in the state as “Local Companies” are charged with 10% tax on chargeable income. Corporations that are “Foreign Companies,” whether registered in the state or not, are also charged at the rate of 10% on chargeable income only derived from a trade or other income in TRNC.

Foreigners operating in the field of transportation, including corporations, shall not be subject to withholding tax on taxable income to be ascertained under the provisions of the corporation tax law and the income tax law.

Stamp Duty

Stamp duty is the tax levied on documents. Legal documents or formal documents are issued with the stamp duty. It should be paid to the tax service within 21 days from the signing of the contract of sale. This payment is made when the contracts are being signed.

Taxation Of Companies Incorporated Under Special Laws

Free Zone Companies

Northern Cyprus free zone companies are subject to some taxes in TRNC. Some exemptions are available for these companies because of the special status of the free zone companies and laws.

Northern Cyprus free zone companies are exempt from corporation tax if the operations are conducted in other countries. Corporation tax and income tax are calculated on the profits if these companies carry out the trade activities with individuals or companies in TRNC.

There is no VAT (Value-added Tax) in transactions for Northern Cyprus free trade zone companies.

Northern Cyprus Free Zone Companies are to deduct the tax amounts from the wages of employees. Also, social insurance payments and other relevant payments are subject to the employee wages.

International Business Companies (Offshore Companies)

International business companies (offshore companies) are transactions carried outside of the TRNC. Corporation tax for international business companies is %1 of their net taxable profits.

International business companies are not subject to value-added tax(VAT) on their sales and trade activities.

International business companies should deduct the tax amounts from the wages of employees. Also, social insurance payments and other relevant payments are to employee wages.

Legal Environment in Northern Cyprus

The island of Cyprus was included in the Ottoman territories during the classical period in Ottoman history when all regions of the empire had the same legal system structure. From there on, a newly formed administrative body was connected to Istanbul, the capital city of the Ottoman Empire, and the judiciary applied Islamic laws on the island.

The British Administration established a new legal system when they arrived at the island. Criminal disputes were of great importance for the British to maintain public order on the island when they first arrived.

Following the declaration of the TRNC, during an Assembly meeting in December 1983, it was decided that the Assembly would become “Constituent Assembly” with 70 members and was given the tasks of drafting the constitution, holding elections, and carrying out necessary legislative activities hitherto.

TRNC constitution has private property rights and legislation for foreign and local companies. Foreign investors from other companies must comply with law enforcement and courthouses. Foreigners’ rights are guaranteed in the constitution, and corporate laws are applied to the foreign shareholders.

Companies that operate within the TRNC must comply with the legal structures. Special incentives and special company types need to be recognized and organized before the company foundation. The Justice system in Northern Cyprus offers protection to foreign investors. Regarding the protection of the investments, courthouses and the state are responsible.

Cyprus, the third-largest island of the Mediterranean after Sicily and Sardinia, is located in the Eastern Mediterranean, where the trade routes of the three continents intersect. The island’s total surface area is 9,251 square kilometers, and the surface area of the Turkish Republic of Northern Cyprus is 3,242 square kilometers. The nearest neighbor to the island of Cyprus is Turkey, located 65 km north of the island. The island is also located 100 km west of Syria and 420 km north of Egypt.

Lefkoşa is the largest city in the Turkish Republic of Northern Cyprus(TRNC), while Gazimağusa and Girne are important coastal cities. Because of the political status of Northern Cyprus, all international flights are done through Turkey.

In the Turkish Republic of Northern Cyprus, multiparty democracy is implemented. The President is the head of state and is elected by a general election every five years. The official currency in the TRNC is the Turkish Lira (TL). It is free for natural and legal persons to hold foreign currency, make savings in foreign currency, use foreign currency as a means of exchange, and express the figures in payment orders and contracts in foreign currency. The TRNC has an advanced banking system, and in addition to the Central Bank and the Development Bank, there are 21 commercial banks and 7 International Banking Units (IBUs).

The Economy of Northern Cyprus

Despite the lack of international recognition, the TRNC economy has impressive performance. Northern Cyprus GDP per capita income was $15,109 in 2014. As of 2011, approximately 400 million dollars is earned from tourism and another 400 million dollars from the education sector. There is also a robust real estate sector with North European homebuyers investing in holiday villas to rent or to retire to. Over 10,000 British people visit Northern Cyprus during the summer months, and another 10,000 Brits reside in Northern Cyprus permanently.

Main export goods are dairy products, raw and processed citrus, rakı, scrap, chicken, and potatoes. In 2014 exports of Northern Cyprus were at $130 million.

Tourism is the fast-growing industry in Northern Cyprus. Improving the tourism industry is also the agenda of the economic targets that the “Five Year Development Plans have set” (FYDP) in North Cyprus since 1978. Because of the island’s location, tourism activities are considered vital for the economy of Northern Cyprus.

Investment Policy of Northern Cyprus

The main objective of the TRNC investment policy is to accelerate economic development, increase the competitiveness of the economy, mobilize potential resources, increase the efficiency of private enterprise in the economy and encourage foreign capital to invest in the country.

TRNC has many opportunities for start-up companies and foreign investments. The improved banking system, increasing tourist and students population, trained employees, and tax-exempt company opportunities have given many advantages to the entrepreneurs.

For those who would like to incorporate a business in Northern Cyprus, there are four options, each for different purposes and with different attached tax liabilities:

• Local Company
• Foreign Branch Company
• Free Trade Zone Company
• International Business Company (Offshore Company)

Investments in the form of joint ventures are actively supported between foreign and local firms with many advantages and incentives, including the full protection of private property rights. There is no distinction between citizens and foreign nationals with regards to such rights, which are guaranteed by the constitution.

Additional Reasons to Invest in North Cyprus

Thanks to governmental support in the form of several incentives, the attractiveness of Northern Cyprus to investors has increased reasonably over the years. Especially free trade zone companies and offshore companies are increasingly being preferred for the advantages they present to investors. For example, they are both VAT exempt. Also, the capital requirements for these company types are much lower than in many other countries.

Investment activities significantly increased in the last ten years. Government of the Northern Cyprus passing big milestones for ten years in the area of economy and politics. Right now, Northern Cyprus is an emerging market for property and banking, and business investments. The education sector offers significant investment opportunities for housing with a student base of 60,000 from over 100 countries. Targeting this sizeable market presents a huge potential for investors. Similarly, North Cyprus is increasingly preferred by internet companies for the tax benefits for such business structures.