Cyprus

Robust growth driven by tourism boom, private consumption and investment

Despite unpredictable international winds and a slight slowdown, Cypriot growth will remain robust and well above the European average in 2026. It will once again be mainly supported by household consumption, whose purchasing power will continue to improve thanks to higher real incomes, stimulated by a favorable job market. The jobless rate remains on a downward trajectory and reached 4.1% in Q3 2025, its lowest level since the financial crisis, after hovering around 18% in 2015. Consumption will also benefit from the extension of the VAT exemption on essential goods until the end of 2026, despite the absence of inflation in 2025. The government also reduced VAT on domestic electricity in April 2025 from 19% to 9% for a period of one year. In addition, the economy will continue to be driven by tourism (14% of GDP in 2019), which continues to post record performances. In 2025, international arrivals increased by 12% compared to 2024 and are 14% above pre-pandemic levels. The island nation has therefore managed to overcome the loss of the Russian market (20% of arrivals in 2019) thanks to an increase in the number of visitors from Western Europe (mainly the United Kingdom, Poland and Germany) and Israel. Tourism revenues increased by 15% between January and November 2025 compared to the same period in 2024. On the other hand, the professional and financial services sectors are heavily dependent on local subsidiaries of Russian companies exposed to sanctions.

With financial conditions easing, the outlook for investment should brighten, but this will be a very gradual process. It should be fuelled in particular by an increase in construction, driven by FDI and the residence-by-investment programme, with numerous large-scale projects exceeding EUR 8 billion according to the Association of Major Investment Projects covering infrastructure, new marinas, commercial and residential properties and driven by local and international demand, etc.. However, although the country is receiving substantial European aid in the form of NGEU funds (5% of 2019 GDP), the disbursement schedule for these funds has been slowed down by the failure to implement reforms on time. By early 2026, Cyprus had received only 43% of the EUR 1.2 billion in approved recovery funds (EUR 1 billion in grants and EUR 200 million in loans). The August 2026 deadline for applications for European recovery plan funding could accelerate disbursements and the use of funds.

A sound fiscal trajectory but a high trade deficit

The combination of strong nominal GDP growth and successive budget surpluses will continue to result in a decline in the debt ratio. This downward trajectory had already brought the debt ratio below the 60% of GDP threshold set by European budgetary rules as early as 2025. Despite the continuation of VAT reductions and a 5% increase in primary expenditure, including higher social spending, the budget will remain in surplus thanks to strong economic conditions. Revenues will continue to be supported by tourism, a tight job market leading to wage increases, and robust consumption. With manageable financing needs (estimated at 3% of GDP per year), comfortable liquidity reserves representing 11% of GDP, and more than two-thirds of outstanding debt at fixed interest rates, sovereign risk is reasonably contained. The health of the banking system, although it still bears some scars from the eurozone crisis, is also on a positive trajectory. This is true on the asset side, where the NPL ratio totalled 4.2% in October 2025, as well as on the liability side, with a CET 1 capital ratio of 26.1%.

The current account deficit will continue to be deep due to deficits in trade in goods and primary income. The country's dependence on imports, exacerbated by strong domestic demand in terms of both consumption and investment, is reflected in a massive trade deficit in goods (equivalent to 24% of GDP in 2024). In addition, the prosperity of foreign service companies, which are increasingly numerous on the island, is generating increased repatriation of profits and has brought about a significant income deficit (9%). This is partially offset by a surplus in services (24%), which will be confirmed by the robustness of exports of services, particularly tourism, finance and IT. Nevertheless, the current account deficit is expected to gradually narrow in line with moderating commodity prices, the normalisation of foreign financial institutions' profitability and a growing surplus in services. Furthermore, this current account deficit is not a major concern as it is mainly financed by foreign direct investment inflows (12% of GDP in 2024), particularly in real estate, partly financed by the reinvestment of profits. Furthermore, the activities of the many special purpose entities domiciled in Cyprus, particularly in shipping and finance, distort external statistics through their investments (ships, licences, etc.), which are mainly financed by foreign commitments. These entities, which have little connection with the domestic economy, are largely excluded from our analysis.

A fragmented political landscape and ongoing tensions with Turkey

According to polls (January 2026), the May 2026 general elections are expected to confirm the parliamentary division. Political fragmentation already increased during the European elections in June 2024, when the two main parties supporting the government – the centrist Democratic Party (Diko) and the centre-left Social Democratic Movement (Edek) – performed poorly, obtaining only 15% of the vote between them. Since his election in February 2023, President Níkos Christodoulídes, an independent, has been forced to govern with a minority government in parliament (holding only 17 seats out of 56). While legislation is passed on a case-by-case basis by ad hoc majorities, the results are likely to make the process even more difficult. Plagued by these governance issues, Cyprus has been slow to take advantage of EU funds due to delays in implementing reform objectives – involving tax collection, energy, health, education and transport infrastructure – necessary to access its allocated share. This further complicates the development of a political consensus on the division of the island.

The island of Cyprus is divided between the Republic of Cyprus (RC), allied with Greece and a eurozone member, which controls the southern half of the island, and the Turkish Republic of Northern Cyprus (TRNC), which is recognised only by Turkey. Although a ceasefire has been in place since 1974, with the establishment of a green line and the presence of UN forces, tensions persist between Greece, Cyprus and the EU on the one hand, and Turkey on the other. The maritime claims of Turkey and the TRNC in the eastern Mediterranean, including the exploration of large gas fields, are a crucial point of tension. Since 2018, Turkey has repeatedly sent exploration vessels escorted by military ships into the disputed waters. The Republic of Cyprus remains a key member of the EastMed Gas Forum, an alliance with Egypt, Greece, Israel, Italy, Jordan and Palestine, aimed at promoting a regional gas industry. Cyprus could take advantage of its presidency of the EU Council in the first half of 2026 to invite the Turkish President to an informal Council meeting to be held in Cyprus in April 2026. Striking a lasting solution is unlikely at this stage. The Republic of Cyprus and the EU seek a federation, while the Turkish President is set on two states. In this case, even if the current President of the TRNC were to agree to a federation, Turkey would oppose it.

Payment

Bills of exchange are used by Cypriot companies in both domestic and international transactions. In the event of payment default, a protest certifying the dishonoured bill must be drawn up by a public notary within two working days of the due date.

Although cheques are still widely used in international transactions, in the domestic business environment they are customarily used less as an instrument of payment, and more as a credit instrument, making it possible to create successive payment due dates. It is therefore a common and widespread practice for post-dated cheques to be endorsed by several creditors. Furthermore, issuers of dishonoured cheques may be liable to prosecution provided a complaint is lodged under both civil and criminal procedures.

Instead of promissory letters or notes, which are not usually used as a security or payment method in Cyprus, a written acknowledgement of debt may be obtained, which can be used as essential evidence during the hearing trials in a later stage to the court.

SWIFT bank transfers, well-established in Cypriot banking circles, are used to settle a growing proportion of transactions, and offer a quick and secure method of payment. In addition, SEPA bank transfers are becoming more popular as they are fast, secure, and supported by a more developed banking network.

Debt Collection

Amicable phase

Before initiating proceedings in front of the competent court, an alternative method to recover a debt is to try to agree with the debtor on a settlement plan. Reaching the most beneficial arrangement is usually achieved by means of a negotiating process.

The recovery process commences with the debtor being sent a final demand for payment by recorded delivery mail, reminding him of his payment obligations, including any interest penalties as may have been contractually agreed – or, failing this, those accruing at the legal rate of interest.

Interest is due from the day following the date of payment stipulated in the invoice or commercial agreement at a rate, unless the parties agree otherwise, equal to the European Central Bank’s refinancing rate, plus seven percentage points.

Legal proceedings

Introduced in 2015, cases with small claims (no?more than EUR 3,000) can follow a simplified and faster procedure. To engage such a procedure, the creditor must possess a written document substantiating the claim underlying his lawsuit, such as a Statement of Account, an acknowledgement of debt established by private deed, the original invoice summarising the goods sold and bearing the buyer’s signature and stamp certifying receipt of delivery, or the original delivery slip signed by the buyer.

For all other claims, the usual procedure is followed:

The creditor files a claim with the court, who serves it to the debtor via a private bailiff. A writ of summons cannot be in force for more than 12 months from the day of its issue, unless renewed by a court order.

On service of the writ of summons, the defendant has ten days to file an appearance, and then a defence must be filed within 14 days. If the defendant fails to file an appearance within the prescribed period, the claimant can apply for and obtain a default judgment. A defendant can file an appearance outside the prescribed time limit to block the issue of a judgment in default.

If the defendant files an appearance but not a defence, the claimant can file an application for issuance of judgment without a full hearing being conducted. Additionally, where the defendant files an appearance or a defence to a specially endorsed writ of summons, the claimant can, where appropriate, apply for a summary judgment on the grounds that there is no defence to the action.

When a defence is filed, the claimant can file a reply to the defence within seven days from its service. If the defendant submits a counterclaim, the claimant must file a reply to the defence and a defence to the counterclaim within 14 days from its service.

Once the pleadings are closed, the claimant has 90 days to issue and file a summons for directions together and in accordance with form 25 requesting the issuing of specific directions by the court (order 30, rule 1 (a) and (b), CPR).

Once all procedures are concluded, the case will be set for hearing and, depending on the court schedule, it may take more than three years from the date of filing to be heard. At the hearing, the claimant must prove its case on the balance of probabilities by adducing sufficient and admissible evidence regarding all allegations that are not admitted by the defendant. The same applies for the counterclaimant. Following the conclusion of the hearing and the advocates' final addresses, a judgment is issued.

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Enforcement of a Legal Decision

Enforcement of a domestic decision may begin once the final judgment is made. If the debtor fails to satisfy the judgment, the latter is enforceable directly through the attachment of the debtor’s assets.

The judgment creditor has several options on how to proceed with execution of the judgment debt. Under the Civil Procedure Law, every court's decision ordering the payment of money can be enforced through many methods such as:

A writ of execution for the sale of movables.

A writ for sale of immovable property or registration of a charging order over the property.

A writ of sequestration of immovable property.

An order to the judgment debtor to make payments over the debt on a monthly basis. The amount and dates of the payments will be determined by the court according to the financial position of the judgment debtor etc.

For foreign awards rendered in a European Union member-state, Cyprus has adopted advantageous enforcement conditions, such as EU Payment Orders or the European Enforcement Order. For decisions rendered by non-EU countries, they will be automatically enforced according to reciprocal enforcement treaties. In the absence of an agreement, exequatur proceedings will take place.

Insolvency Proceedings

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RESTRUCTURING PROCEEDINGS

This procedure aims to help debtors restore their credibility and viability, and continue their operations beyond bankruptcy, by aiming to negotiate an agreement between the relevant debtors and creditors. During this procedure, claims and enforcement actions against the debtor may be stayed, but the court will appoint an administrator to control the debtor’s assets and performances. The reorganization process starts with the debtor’s submission of a plan to the court, which conducts a judicial review of the proposed plan, while a court-appointed mediator assesses the creditors’ expectations.

LIQUIDATION

The procedure commences with an insolvency petition either by the debtor or its creditors. The court appoints an administrator as soon as the debts are verified. In addition, a Pool of Creditors (three members representing each class of creditors) will be given the responsibility of overseeing the proceedings, which terminate once the proceeds of the sale of the business’ assets are distributed.

Last updated: February 2026