At a time of increasingly intensified international competition, the Government has taken several measures to enhance Cyprus competitiveness, both in the international and local market, to achieve steady and self-sustained growth, and to maximize the Gross Domestic Product. Specifically, the Government having extensively considered ways for the development and reconstruction of the economy, with an emphasis on the industrial sector, has introduced a framework of incentives within the EU harmonization process and the Acquis-Communautaire in general.

The basic goals, which form the central core of the governmental incentives framework, are:

• Attraction and development of new high-tech industries and skill intensive products.
• Assistance and reconstruction of Cyprus traditional economic sectors.
• Productivity and labour skills improvement.
• Attraction of capital-intensive foreign investment.

Industrial development has also been amongst the primary objectives of the Government, as it constitutes a vital component of the broad economic policy, which subsequently contributes substantially to economic welfare.

The accession of Cyprus to the European Union provides Cypriot small and medium-sized enterprises the opportunity of participating in the various community programmes concerning industrial technology, professional training, product development, marketing etc. thus further enhancing the process of restructuring. Further, the full liberalization of the capital market, within the context of harmonization with the European Union, fosters the inflow of foreign investment capital and the establishment of joint ventures. Foreign capital plays a fundamental role in these efforts, as it contributes substantially to the introduction of high technology, know-how and expertise.

The main incentives and schemes are briefly described below. Please note that the various grant schemes may be subject to alterations.

High Technology – Research & Development

One of the programme’s primary objectives is to establish institutions, where applied research and development will be carried out in specific high-tech fields. In addition, it intends to promote fruitful relations and co-operations among Cypriot and International academic, research and educational institutions.

Significant contribution to these efforts can be given by the newly established School of Engineering, which operates since September 2003 at the University of Cyprus. The School of Engineering is engaged in research in the areas of Civil and Environmental Engineering, Electrical and Computer Engineering, as well as Mechanical and Manufacturing Engineering.

Moreover, the Research Promotion Foundation (RPF), an initiative of the Government of the Republic of Cyprus, was established in order to promote the development of scientific and technological research in Cyprus. One of its main activities is the development of a national framework programme for financing research and development projects. The framework programme’s total budget for 2003-2005 is expected to reach CY£11,65 million is to be contributed by the Government. A total of 250 research projects and 150 supporting activities are expected to be financed through the project.

The research programmes are categorized in three “Activity Areas”:

• Multi-thematic Research and Development, involved in the implementation of multi-thematic research projects.
• Applied Research Development, related to the development of new products and services.
• Infrastructure Development and Research Support, related to the upgrading of the research infrastructure, the promotion of research co-operation, as well as the exploitation of human research resources. See Appendix 5 for the list of the various research programmes concerning each “Activity Area”.

Recently, an agreement has been signed with the Harvard School of Public Health (HSPH) regarding the establishment of the Cyprus International Institute for the Environment and Public Health (CII). The HSPH Associate Institute will assist researchers in Cyprus to address environmental and public health needs both locally and regionally. The Institute is designed to attract scientists from Europe, Africa, the Middle-East, and the U.S. to Cyprus for training, research studies, and international conferences and is expected to generate long-term benefits on the public health and environment in Cyprus and the surrounding region, while strengthening Unites States-Cyprus relations.

“Harvard School of Public Health wants to make greater contribution to research, technology transfer, and education internationally. We believe our efforts in Cyprus will strengthen environmental science throughout the Mediterranean Region.”

ames Ware, Dean for Academic Programs, Harvard School of Public Health

Testing and Laboratories for Quality Assurance

Grants for Products’ Testing Abroad

The objective of the scheme is to assist existing or new small and medium-sized enterprises of the manufacturing sector, to cover expenses for laboratory testing, products’ testing and/or analysis, calibration of measurement and testing instruments abroad.

The scheme applies in the case that the above needs cannot be met by Cypriot laboratories.

Eligible costs include:

• Laboratory test
• Issuance of the relevant certification and/or report
• The conveyance of samples for assessment, testing, analysis and/or collaboration of measurements and testing instruments.
• The grant may cover up to 50% of the cost of the total laboratory test abroad and is offered under the “De Minimis Rule” (Appendix 6). Beneficiaries of the grant are small and medium-sized enterprises (Appendix 6) in the manufacturing sector as defined under the Statistical Classification of Economic Activities NACE, Rev.1.1 of the European Union. However, since 1st of May 2004, the scheme is not applicable for products related to fish industry, animal and crop farming.Interested parties may submit applications to the Ministry of Commerce, Industry & Tourism. The grant will be in effect under the above conditions until the 30th of June 2007.

Strengthening the Laboratory Infrastructure in Cyprus

The objective of the scheme is to strengthen the laboratory infrastructure in Cyprus through the provision of assistance, to existing or new laboratories in order to meet their immediate needs in equipment for product testing.

Beneficiaries of the scheme are existing and newly established laboratory units. The maximum subsidy amount that each applicant/laboratory can obtain is CY£175.000, covering the following:

• Laboratory equipment: The subsidy for equipment is 20%, plus an additional 10% for Small and Medium-sized enterprises (Appendix 6), with a maximum subsidy of CY£ 100.00.
• Buildings: The subsidy for buildings is 20%, plus an additional 10% for Small and Medium-sized enterprises (Appendix 6), with a maximum grant of CY£75.000 / sqm or CY£50.00 whichever is the lower.
• Accreditation: Beneficiaries are only Small and Medium-sized enterprises with a maximum subsidy of CY£20.000 divided into two categories:

1. 50% of the consultancy services cost with a maximum grant of CY£10.000.
2. 50% of the accreditation cost, with a maximum grant of CY£10.000.

The scheme is operated by the Ministry of Commerce, Industry & Tourism and will effect until December 2006.

The HACCP System in the Food and Beverage Industry

The objective of the scheme is to assist and motivate companies of the food and beverage industry to implement the HACCP system. The implementation of the system is mandatory by the Cyprus legislation, in accordance with the relevant directives of the European Union. It is a systematic approach for the risk assessment, as well as the control of microbiological, chemical, and physical hazards related to any food production procedure.

• Registered at the Medical and Public Health Services of the Ministry of Health and the Veterinary Services of the Ministry of Agriculture, Natural Resources and Environment.
• Investing in new equipment required by the implementation of the HACCP system.

The scheme is offered under the rule of “De Minimis”, and covers up to 30% of the expenditure for equipment with a maximum subsidy of CY£50.000. The grant covers only investment cost incurred subsequent to the application’s submission. The scheme operates under the supervision of the Ministry of Commerce, Industry & Tourism.

Government Guarantee Scheme for Loans Granted to SMEs of the Manufacturing Sector

The aim of the scheme is to assist small and medium-sized enterprises (Appendix 6) of the manufacturing sector, as defined under the Statistical Classification of Economic Activities NACE, Rev.1.1 of the European Union, which do not have adequate collateral, to obtain loans from the banks or other financial institutions.

Applicants are to address to the Ministry of Commerce, Industry & Tourism for obtaining loans with Government Guarantee, through their bank or other financial institution, for:

• Restructuring and/or expansion in the case of existing enterprises.
• Establishment of a new manufacturing unit preferably engaged in the production of new and/or high technology products.

Eligible enterprises may obtain loans with Government Guarantee from the Commercial Banks or other Financial Institutions. The Government Guarantee can be obtained for loans to:

• Existing enterprises, an amount equal to or up to 20% of its previous year’s turnover, with a maximum amount of CY£100.000.
• Newly established enterprises, an amount equal to 40% of the total investment, with a maximum amount of CY£100.000.

In addition, the interest charged for the guaranteed loan will be subsidized by up to 2% in the case where the interest rate exceeds 5% per annum. The subsidy will be granted for a period not exceeding 7 years including any grace period. Finally, it must be noted that any State Grant provided through the above scheme will be based on the rule of “De Minimis” (Appendix 6)/

Subsidization of Specific Studies and Projects

The Cyprus Institute of Technology provides incentives, in the form of Government grants, for the promotion of the competitiveness and the technological upgrading of the Cypriot enterprises.

Beneficiaries of the schemes are small and medium-sized enterprises (Appendix 6), operating in Cyprus, in the manufacturing sector as defined under the Statistical Classification of Economic Activities NACE, Rev.1.1 of the European Union.

Studies on the Implementation of Quality Control Standards

Objective: To subsidize the provision of consultancy services on the implementation of quality standards to a company, in order to lead the company to certification.

Standards Included: ISO 9000/14000, CE Marking, OHSAS 18001, HACCP, ECO Labelling and any other standard that has a prerequisites the provision of consultancy services for its adoption.

Subsidy: 40% subsidy of the consultancy cost at a maximum subsidy amount of CY£6.000.

Further Conditions: The final report, in this case the quality manual, should be reviewed and presented to the Cyprus Institute of Technology.

Scheme for the Subsidisation of Purchase / Development of Specialised Software

Objective: To subsidise the purchase and/or development of specialised software

Subsidy:

• 15% subsidisation of the purchase/development cost of the software at a maximum subsidy of CY£2.400 for small enterprises.
• 7.5% subsidisation of the purchase/development cost of the software at a maximum subsidy of CY£2.400 for medium-sized enterprises.

Further Conditions: The applicant provides the Cyprus Institute of Technology with the proposal, with which the process for the implementation of the software id described in detail.

Scheme for the Subsidisation of Market Research Studies on Foreign Markets

Objective: To subsidise the provision of consultancy services for market research studies on foreign markets, in an effort to investigate the potential of entering new markets.

Subsidy: 

• 30% of the cost of the study at a maximum subsidy of CY£6.000, if studies are undertaken for only one enterprise.
• 40% of the cost of the study at a maximum subsidy of CY£8.000, if studies are undertaken for two or more enterprises.

Further Conditions:

• The study is to investigate the possibility to enter a market in a new geographical region.
• Beneficiaries need to provide the Cyprus Institute of Technology with a detailed proposal of the market research.

Scheme for Promoting the Utilization of the Internet

Objective: To promote the use of the Internet by Cypriot enterprises particularly in securing export business.

Subsidy: The scheme offers 50% subsidy of the cost for the development of the website at a maximum subsidy of CY£500.

Further Conditions: The subsidy is granted following an evaluation of the website of the applicant enterprise by the Cyprus Institute of Technology.

Consultancy Services Scheme

Objective: To subsidise the provision of consultancy services on issues directly related to the competitiveness of the enterprise, such as the improvement of product quality, energy saving, technological issues, environment, organization, information, human resources.

Subsidy:

• 40% of the cost of the study at a maximum subsidy of CY£6.000.
• Additional 50% subsidy for the implementation cost of the study at a maximum subsidy of CY£2.500

Further Conditions: The beneficiaries need to provide the Cyprus Institute of Technology with a detailed proposal of the market research, as well as a detailed proposal on the implementation of the study’s result.

State Grants for Upgrading the Manufacturing Sector

State Grant for Technological Upgrading

The scheme aims at assisting the technological upgrading of existing and newly established manufacturing enterprises, through Government grants. Any manufacturing enterprises, excluding those located in selected rural areas, investing in new machinery, new equipment and know-how within a period of three years, presently 2004-2006, can be eligible for applying. The minimum investment amount is CY£10.000 per annum.
The above scheme foresees the provision of Government grant as a percentage on investment cost as follows:

• 30% of the investment cost for the small and medium-sized enterprises
• 20% of the investment cost for large courier

The total amount of Government grants, within the three-year period (2004-2206), cannot exceed CY£300.000 for small and medium-sized enterprises and CY£600.00 for large enterprises.

Supplementary Grant Scheme for the Manufacturing of Agricultural Products

The scheme aims at supporting, developing, and promoting companies involved in the manufacturing of numerous agricultural products, included in Appendix 1 of the Treaty on European Union. State grants are provided to existing or new enterprises for investments in new equipment, machinery, and technological know-how; which lead to productivity and employment enhancement, upgrading of the production, managerial, administrative and monitoring systems, as well as to the development of new products.

The grant covers up to:

• 30% of the eligible investments for small and medium-sized enterprises
• 20% for large enterprises

Whereas, the maximum amount is:

• CY£300.000 for small enterprises
• CY£600.000 for medium and large enterprises

The grant is provided for the period of 2004-2006 and minimum investment is set to CY£10.000.

The programme is carried out on a yearly basis and the proposals are submitted, within a specified period of time announced by the Ministry of Commerce, Industry & Tourism.

State Grant for the Relocation of Small Enterprises to Authorized Areas

The aim of this scheme is to motivate the existing small enterprises, engaged in manufacturing activities or specified service activities, to move from residential or inappropriate for their activities areas, to authorized areas.

The authorized areas are those where enterprises can legally have its premises and engage into manufacturing or service activities such as the Industrial Areas, Industrial Zones, Handicrafts Zones or any other authorized areas. The amount to be granted upon approval of the application, is calculated as follows:

• For small enterprises a grant of 7.5% on the eligible costs (cost of land and buildings) with maximum amount of CY£15.000.
• For every small enterprises a grant of 15% on the eligible costs with maximum amount of CY£10.000.

State Grant for the Protection of the Environment from Industrial Pollution

The aim of the scheme is to provide financial incentives in the form of State Grants to cover part of the cost incurred by companies investing in the protection of environment from the industrial pollution.

Specifically, the scheme offers investment aid for qualified projects in the industrial sectors of mining and quarrying, manufacturing industry, car maintenance, packaging, the processing or recycling of waste, and the washing or dry cleaning of textiles.

In particular, the basic parameters of the subsidy are:

• The investment aid offered is in the range of 15% to 45% of the eligible costs, depending on the size of the enterprise, the environmental performance, and some maximum limits on unit land and building costs.
• Eligible investment costs include the cost of land, buildings, equipment and technology.
• Potential investors are required to contribute at least 25% of the required capital.
• The maximum grant offered is set at CY£150.000.
• The grant covers only investment costs incurred subsequent to the application’s submission.

The Ministry of Commerce, Industry & Tourism announces the launching of the State Grant a few times a year and replies to all applications within two months from the application deadline.

The scheme is to be carried out until the end of 2006.

Grant Scheme for the Establishment / Expansion of Manufacturing Units in Rural Areas

The Scheme aims to support, develop, and promote the manufacturing sector through grants for the expansion and modernization of existing and/or creation of new viable small and medium-sized enterprises, which are located, or will be located in specific rural areas.

Manufacturing units engaged in the primary processing of agricultural, animal and fishing products are excluded from the scheme. The grant covers 30% of the eligible investments, with a maximum amount of CY£300.000 for the period 2004-2006, and a minimum investment of CY£10.000.

Grant Scheme for Energy Conservation and the Promotion of Renewable Energy Sources Utilization

The aim of the scheme is to provide financial incentives for the materialization of investments in the field of energy conservation and the promotion of Renewable Energy Sources (RES) utilization. Overall, it intends to promote regional development, and encourage investments that positively affect the environment. The scheme is operated under the Cyprus Institute of Energy.

The scheme covers exclusively investments where the following prerequisites apply:

• Investment for the purchase and installation of new equipment.
• Investment that takes place where mandatory European Standards have not yet been met.
• Investment on technologies that have passed the research and development phase.

This Grant Scheme covers the cost of purchase and installation of equipment. Eligible costs vary according to the specific programme, and are thoroughly mentioned in each programme’s guide.

Investments take from of either “Regional” or “Environmental”. This differentiation is important as it defines the maximum amount of grant, as well as the grant percentage of the eligible costs, to be provided. In addition, according to the type of the investment, the State Grant may be provided under the “De Minimis Rule” (Appendix 6).

Eligible applicants are any physical and legal persons. The subsidised purchased equipment should be kept for at least 5 years. Subsidisation as a percentage of the eligible cost, as well as the maximum amount of the grant, range according to each programme’s characteristics and the type of investment.

Schemes of Energy Conversation

Energy conservation investments are defined as investments on system, which can lead to at least 10% energy savings on the total energy consumption, and the investments on Combined Heat and Power and Cooling (CHP) Systems.

Investments under the Energy Conservation scheme include:

• Energy Conservation in existing enterprises.
• Energy Conservation in existing private households.
• Co-generation of electricity – heating/cooling.

Schemes for the Promotion of (RES) Renewable Energy Sources Utilization

Recognising the importance of the utilization of Renewable Energy Sources (RES) as a valuable means for the improvement of environmental conditions and public health, as well as for the effective control of energy costs, the Cyprus Institute of Energy has introduced the following programmes:

• Wind Systems for electricity production.
• Solar Systems.
• Biomass Utilization.
• Photovoltaic Systems.
• Desalination using RES.
• Hydroelectric Systems.

Incentives for the Export Promotion of Industrial Products

The Ministry of Commerce, Industry & Tourism provides State Grants, in order to enhance the promotion of Cypriot Products abroad, to provide know-how and expertise to Cypriot entrepreneurs regarding business tactics in the foreign markets, and to explore exporting potentials to newly targeted markets.

The State Grant is subject to the following requirements:

• At least one member of the company in Cyprus must attend the subsidised event.
• The grant covers only costs incurred subsequent to the application’s submission and approval.
• Relevant evidence is to be submitted to the Ministry at the earliest possible after the completion of the exhibition.

In particular, the State Grant provided by the Ministry of Commerce, Industry and Tourism covers the following schemes:

Scheme for Granting Financial Aid for Exploring Export Potentials in Foreign Markets.

Schemes for Entrepreneurs/Manufacturers of Cypriot Products Participating in Trade Fairs Abroad (at their own expenses)

Schemes for Entrepreneurs/Manufacturers of Cypriot Products Participating in Foreign Trade Fairs Organized by the Ministry of Commerce, Industry & Tourism

Schemes for Entrepreneurs/Manufacturers of Cypriot Products and Services, Participating in “Cyprus Week” Trade Fairs Organized Abroad by the Ministry of Commerce, Industry & Tourism

Schemes for Entrepreneurs/Manufacturers of Cypriot Products and Services, Participating in Trade Mission Abroad Organized by the Ministry of Commerce, Industry & Tourism

Grant Scheme for the Encouragement, Strengthening, and Reinforcement of Entrepreneurship

The programme is offered under the “De Minimis Rule” (Appendix 6), and aims at fostering entrepreneurship by women and young people, in manufacturing sector as well as in specific segments of commerce, services, and tourism sector.

Hence, the scheme encourages the creation of new modern viable enterprises, the exploitation of innovative projects concerning new technologies, new products, as well as the provision of innovative services.

The programme is carried out on yearly basis and the proposals are submitted, within a specified period of time announced by the Ministry of Commerce, Industry & Tourism.

Programme’s for the Improvement and Development of Manufacturing and Trading of Agricultural Products

The programme is included in the Agricultural Development Plan 2004-2006 and is co-financed (50%) by the European Agricultural Guidance and Guarantee Fund.

The Programme’s objective is to provide incentives for:

• Improving trading and manufacturing procedures.
• Directing the production according to the foreseen market trends or encouraging the adoption of new channels for the distribution of agricultural products.
• Enhancing and monitoring the quality of products.
• Protecting the environment and improving sanitary conditions.

The programme applies to the production of milk, honey, cooking oil, wine, flowers, fruit and vegetables. Priority is given to investments made by groups of producers or small-medium united located in rural areas, units involved in the manufacturing and processing of products with protected geographical indication or protected name origin, as well as traditional or biological products.

Eligible expenditures:

• Creation, expansion and upgrading of buildings.
• Purchase of new, or modernization of existing productive equipment.
• General expenses, remuneration to architects, civil engineers and consultants, expenditure for feasibility studies, acquisition of patent diplomas and permits. The maximum amount of this specific costs should not exceed 12% of the other selected expenditures i.e. buildings and machineries. The grant amount is estimated as a percentage on the cost of the eligible expenditure as follows:
  

  	– Up to EUR 150.000 40%
  	– EUR 150.001 – 700.000 35%
  	– EUR 700.001 – 1.500.000 25%
  	– Over EUR 1.500.001 15%

The minimum investment must be EUR 30.000, while the total grant will cover at least 25% of the eligible expenditure. The grant is provided after the materialization of the investment, the completion of all the necessary audits, and the examination of the relevant documents.

Investment Incentives for the Services Sector

State Grant for the Export Promotion of Services and the Penetration of Foreign Markets

The scheme’s objective is to promote Cypriot services abroad and provide information to Cypriot exporters regarding the trading conditions within foreign markets. Consequently, State Grant is provided to companies going on business trips abroad, with sole purpose to explore penetration potentials in newly targeted countries.

The scheme’s basic parameters are:

• The grant covers the travel-flight cost of one individual at a maximum subsidy of CY£500.
• The subsidy is granted for newly targeted markets, at a maximum of two times per year, for each company.
• The applicant should not have explored or exported services to the target market, over the last three years.
• The grant is offered under the “De Minimis Rule” (Appendix 6).

Beneficiaries are Cypriot companies in the services sector. Applications are to be submitted to the Ministry of Commerce, Industry & Tourism, 15 days prior to departing, while the evidence form is to be submitted 15 days after returning to Cyprus.

State Grant for the Export Promotion of Services Through the Participation in Trade Fairs and Exhibitions Abroad

The scheme’s objective is to promote Cypriot services abroad and provide information to Cypriot exporters regarding the trading conditions within foreign markets. Consequently, State Grant is provided to companies participating in trade fairs and exhibitions abroad and reserving their own booth. The scheme’s basic parameters are:

• The grant covers up to 50% of the eligible costs.
• The eligible costs include the leasing rate of the booth, setting up the booth expenses, participation fees, water and electricity installation/consumption, and telephone line charges.
• The maximum subsidy for each exhibition is set to CY£1.500.
• At least one member of the company in Cyprus must attend the exhibition.
• The grant covers only costs incurred subsequent to the application’s submission and approval.
• The grant is offered under the “De Minimis Rule”
• Relevant evidence is to be submitted to the Ministry within one month following the completion of the exhibition.
• The beneficiaries are Cypriot companies in the service sector.

The grant operates under the auspices of the Ministry of Commerce, Industry and Tourism.