The Cypriot economy has continued to record noteworthy growth, mainly driven by a faster than expected recovery in tourism-related activities and, to a lesser extent, by growth in information and communication activities and in professional services. In addition, the credit rating of Cyprus has also improved, which in turn has aided banks, financial institutions and private companies to raise capital, uphold strong capital positions and reduce the amount of non-performing loans (NPLs). The ratio of NPLs decreased to 6.2% by the end of December 2024, down from 6.5% at the end of September 2024. Since the 2013 banking crisis, the banking sector has had to restructure the way it functions, by refining and strengthening its capital and investing in its corporate governance. All domestic banks have been under the supervision of the European Central Bank (ECB) and gone through various stringent assessments that have successfully created more robust and steady foundations.

A popular trend in the market has been the consolidation of businesses via mergers and acquisitions, including in the financial sector with larger banks acquiring smaller ones, whilst particular divisions handling the management of NPLs have improved lending conditions in general.

A milestone for 2025 has been the buyout of Hellenic Bank PLC by Eurobank SA (of Greece) from the former’s remaining shareholders, and the merger of Eurobank Cyprus Ltd and Hellenic Bank by their common parent. This process was concluded in 2025, and resulted in the creation of a single, strong and modern financial institution in Cyprus.

Reforms, New Laws and Current Trends

The dominant theme in Cypriot banking regulation over recent years has been the resolution of NPLs and the modernisation of the framework governing the transfer and enforcement of secured credit.

The foundational measure is the Securitisation of Credit Facilities or Other Forms of Claims or Exposures Law of 2018 (Law 88(I)/2018) (the “Securitisation Law”), which allows a lender to refinance a portfolio of loans, exposures or receivables by converting them into tradeable securities that can be offered to investors. Its aim is to deepen the secondary loan market and, ultimately, to reduce the stock of NPLs held by Cypriot banks.

This was followed by the Credit Servicers and Credit Purchasers and Related Matters Law of 2024, enacted on 8 November 2024 (Law 122(I)/2024) (the “Credit Law”), which transposed EU Directive 2021/2167 (the “NPL Directive”) into national law. The NPL Directive regulates the sale, purchase and servicing of NPLs originated by EU credit institutions, seeking to curb the build-up of NPLs on banks’ balance sheets by fostering a secondary market while safeguarding borrowers’ rights.

Most recently, in April 2026 the House of Representatives enacted the most significant amendments to the foreclosure and personal-insolvency regime since 2018. For lenders, the reforms tighten the procedural requirements for enforcing security over immovable property by adding pre-enforcement notice and restructuring-assessment steps and lengthening enforcement timelines, which is accompanied by a Central Bank of Cyprus directive requiring a “restructuring-first” approach to non-performing exposures and enhanced supervisory reporting. The practical effect is to shift the balance further towards consensual restructuring over enforcement. The regime is not yet fully enacted; however, several provisions were referred back by the President on constitutional grounds and may be subject to Supreme Court review, and the Association of Cyprus Banks has cautioned that the changes could affect the sector’s capacity to manage non-performing exposures.

Despite the turmoil of recent economic and geopolitical events, the Cyprus banking sector has shown resilience over the past few years. In particular, Cyprus maintains a high liquidity level – among the highest within the Eurozone – with its liquidity coverage ratio standing at 315% in March 2026, and its common equity tier 1 ratio being 25.1%. These statistics further prove that the Cyprus banking sector has built up capability to absorb any future shocks which changing times may bring.

Exposure to the Russia–Ukraine conflict has been managed effectively and is limited. Russian nationals account for only a small share of the sector’s lending and deposit base, and the direct impact on Cypriot banks of the conflict and associated sanctions has been contained.

The more immediate pressure on the operating environment now stems from the conflict in the Middle East, which is transmitted to Cyprus principally through the real economy rather than through direct banking exposure. Higher international oil prices, linked to disruption to the passage of oil through the Strait of Hormuz, have pushed the inflation outlook sharply higher, and in its June 2026 economic bulletin the Central Bank of Cyprus lowered its 2026 GDP growth forecast to 2.5% (from 3.8% in 2025) and raised projected harmonised inflation to 3.2%, with risks tilted to the downside. The effects are expected to fall most heavily on tourism, shipping, construction and real estate sectors, which are a prominent feature in Cypriot banks’ credit portfolios.

This uncertainty has also begun to dampen credit demand. After a sustained expansion through 2025 and early 2026, growth in lending to the domestic private sector eased to 6.4% year-on-year in March 2026, from 7.4% in February, as businesses grew more cautious about investment. The moderation was driven largely by weaker corporate borrowing, while household lending, particularly mortgages, continued to strengthen. New lending to the private sector totalled EUR1.1 billion in the first quarter of 2026, only marginally below the EUR1.2 billion advanced in the same period of 2025. Borrowing costs remained contained, with new mortgage rates steady at 3.1% as at March 2026 and below the eurozone median, while deposit rates likewise stayed below the eurozone median, reflecting the sector’s high excess liquidity and stable funding base. The Central Bank has characterised credit growth as remaining resilient notwithstanding the uncertain environment, which is consistent with the sector’s broader capacity to withstand current pressures.

A true high-yield market has yet to develop in Cyprus. The issue of corporate bonds, other than to related parties, remains uncommon outside the banking sector, and the bond issuance that does take place is predominantly investment-grade, concentrated among the larger banks and the sovereign.

The Republic itself commands ready access to the international debt markets, a reflection of its improved credit standing. Cyprus is now accorded investment-grade status by each of the four principal rating agencies – Moody’s (A3, stable outlook), S&P and Fitch (both A-, positive), and DBRS (A, stable). It is on the strength of this profile that the Republic has announced a euro-denominated ten-year benchmark bond maturing in January 2036, to be issued under its Euro Medium-Term Note (EMTN) programme. Barclays, J.P. Morgan, Morgan Stanley and Société Générale have been mandated as joint lead managers, with Bank of Cyprus acting as co-manager.

As the sovereign and the banks continue to demonstrate consistent access to the bond market at investment-grade levels, larger corporates may increasingly look to bond issuance as an alternative to the shareholder equity, bank and trade finance on which they currently rely.

The use of financial channels outside the traditional finance system in Cyprus is showing signs of growth, particularly through credit arrangements offered by retailers, either on their own account or in partnership with specific suppliers of goods or services, as well as through limited leasing schemes.

The provision of peer-to-peer and B2B financing is less straightforward, however, with the sector constrained by CBC regulations and guidance that restrict the provision of financing by non-banking or equivalent institutions.

The Cypriot banking crisis of 2013 and the subsequent reforms in the banking sector, aimed at addressing the challenges facing the banking system, have resulted in banks being very cautious towards new lending. In addition, the CBC has restricted the use of B2B or peer-to-peer financing from being processed via the banking sector. Banks now tend not only to over-collateralise their exposures, but also to seek greater assurance regarding borrowers’ underlying repayment capacity. This, in turn, has resulted in lower application approval rates and longer turnaround times, together with the associated increase in overheads. The management and sale of NPLs has also remained a topic of ongoing discussion in the market, with some progress made in this area.

While these measures are intended to reassure investors, this has not been reflected in stock market pricing trends, with banking stocks continuing to decline.

Aside from these developments and the increasing use of retail-sector financing, there has been no other significant change in banking and finance techniques to date.

Environmental, social and governance (ESG) considerations and sustainable lending remain an emerging theme in Cyprus rather than a primary driver of investment, although ESG factors increasingly form part of the due diligence undertaken when appraising a prospective investment. The Sustainable Finance Disclosure Regulation (EU) 2019/2088 (SFDR), applicable since 2021, imposes harmonised transparency and disclosure obligations on financial market participants and financial advisers, requiring entities within its scope to address how sustainability risks are integrated into investment decision-making and how remuneration policies align with sustainability objectives. Its reach therefore extends across much of the Cypriot financial services industry.

The Cyprus Securities and Exchange Commission (CySEC) has confirmed that supervised entities are expected to comply fully with their SFDR disclosure obligations and ESG commitments, and that adherence will be closely monitored. Corporate sustainability reporting was originally governed by the Non-Financial Reporting Directive 2014/95/EU (NFRD), which required large public-interest entities to disclose non-financial information covering environmental protection, treatment of employees, respect for human rights, anti-corruption measures and board diversity. The NFRD has since been superseded by the Corporate Sustainability Reporting Directive (EU) 2022/2464 (CSRD), which substantially broadens both the range of entities caught and the detail of disclosure required, phased in from the 2024 financial year, though the precise scope and timing of these obligations remain subject to ongoing revision at EU level. Adoption to date has been led by the regulated sectors, namely banking, insurance and funds, and by larger, predominantly listed, companies, with privately held businesses increasingly engaging with ESG performance. Momentum has been dampened, in line with the EU-wide experience despite the EU regulatory framework due to the global situation and conflict in the Middle East/Gulf.

Under the Business of Credit Institutions Law of 1997 (66(I)/1997), as amended (the “Credit Business Law”), banks require a licence to conduct banking services.

The application for obtaining a banking licence should be made in writing by or on behalf of the applicant to the CBC, and no application fee is payable. This application form must be accompanied by a business plan describing the types of activities envisioned and the organisational framework intended. In addition, relevant questionnaires issued by the CBC for the licensing of banks in the Republic of Cyprus need to be appropriately completed, and the CBC can request additional details prior to deciding whether to approve the application.

In order to be granted a banking business licence, the applicant must be either a legal person set up in Cyprus under the Companies Law, Chapter 113 (the “Companies Law”) as amended, or a credit institution established and approved in its relevant country. If the applicant is not an existing EU credit institution, it must have initial capital of at least EUR5 million (meeting the capital requirements as set out in EU Regulation 575/2013 on prudential requirements for credit institutions and investment firms), although there may be specific situations where the CBC will consider allowing for a smaller initial capital).

Although the process is managed by the CBC, the ultimate decision-making powers on whether to grant relevant authorisation vest with the ECB.

EU Credit Institutions and Non-Banks

The aforementioned criteria do not apply to EU credit institutions wishing to establish a branch in Cyprus, since credit institutions licensed by competent authorities of another EU member state may, under the provisions of Section 10A of the Credit Business Law, establish a branch in Cyprus without the need to obtain a banking business licence from the CBC.

With regard to non-banks, the Investment Services and Activities and Regulated Markets Law (87(I)/2017), as amended, provides guidance as to the corporations and institutions capable of providing financial services. Such non-banks include any licensed Cyprus investment firms (CIFs), which require the prior approval and authorisation of CySEC. The requirements for a CIF depend on the specific type of investment and financial services provided by such company.

An investment firm originating from another member state or a third country is able to provide such services in Cyprus through its branch, provided it is authorised and overseen by a competent authority in that member state or third country and it complies with all the disclosure requirements of CySEC.

Finally, it is noted that private lending (eg, peer-to-peer or similar) or cross-border lending does not fall within the above framework, but under general principles of commercial law.

Foreign lenders are not restricted from granting loans provided doing so is compliant with the laws of their own jurisdiction and this does not amount to doing business in Cyprus as a financial institution (ie, falls under the definition of offering banking services). The latter generally means retail banking, as opposed to the provision of one-off financing.

Borrowers are not restricted from granting security over any type of property, or guarantees to foreign lenders, provided there are no such restrictions in their constituent documents, the Companies Law or other provisions (such as AML regulations).

There are no foreign currency exchange controls or restrictions as Cyprus is a euro area member state. Local borrowers are not restricted from borrowing in any foreign currency. Temporary restrictive measures were only imposed under the Enforcement of Restrictive Measures on Transactions in case of Emergency Law (12(I)/2013) for a limited period of time. Further, the Movement of Capital Law (115(I)/2003) ensures that there are no restrictions on the movement of capital, including payments to and from residents of Cyprus and residents of the EU or third countries. See 3.4 Restrictions on the Borrower’s Use of Proceeds.

The proceeds from loans or debt securities must be used for legitimate purposes and remain subject to any restrictions imposed by the financing documents themselves. Where a borrower uses the proceeds contrary to the approved purpose, the consequences may, depending on the circumstances, include the contract being rendered void on the grounds that its objects are partly unlawful, or being voidable at the option of the lender where its consent was obtained through fraud or misrepresentation, under the Cyprus Contract Law, Chapter 149 (the “Contract Law”). In addition, the use of such proceeds must remain within the scope of the borrower’s activities as set out in its memorandum of association and must comply with the general principles of contract law, as well as any specific restrictions or prohibitions under applicable law.

Further, Cyprus is a full member of the European Union and the United Nations, and applies, enforces and implements any international sanctions arising from a relevant decision or resolution adopted by the UN Security Council, and restrictive measures adopted by the Council of the EU via relevant decisions and regulations, within the framework of Common Foreign and Security Policy. Accordingly, the use of proceeds to make, or participate in, any arrangement to provide loans or credit to, or to enter into transactions or dealings involving certain financial instruments with, any legal person, entity or body appearing on a relevant sanctions list, or any legal person, entity or body majority-owned by, or acting on behalf of, such a sanctioned person, is prohibited.

Both the agent and trust concepts are recognised in Cyprus. Agency law is generally governed by several pieces of legislation, including Sections 142–198 of the Contract Law, which ultimately mirror English common law.

Likewise, trusts are of common law application and the relevant domestic law is the Trustees Law, Chapter 193, as amended, and the International Trusts Law of 1992 (69(I)/1992), as amended. The general idea of a trust is that it creates a fiduciary relationship, where the trustee holds title to a property for the benefit of a third party. Thus, a trust can also be used to hold security over the possessions of debtors on behalf of creditors.

An alternative concept, which falls between the two and is commonly used in financing/banking as well as commercial transactions, is that of the escrow agent, whereby the escrow agent assumes the role of both a trustee and an agent for both parties, in order to facilitate the conclusion of a transaction.

There is no statutory mechanism for loan transfers. The loan documentation will usually provide that the lender may freely assign its rights and obligations to a new lender; the borrower will not usually be allowed to novate its obligations without the prior express or written consent of the lender.

With respect to securities granted to the original lender, these may be either released with the simultaneous execution of termination agreements with respect to the existing security agreements between the borrower and the original lender, and the new security agreements between the borrower and the new lender as secured party (or a tripartite agreement between the borrower, the original lender and the new lender), or transferred without release in favour of the new lender. The process is regulated by general principles of law and the Contract Law.

There are no general statutory restrictions on debt buyback by the borrower or sponsor; it is a matter of commercial terms (existence or negotiation) and capacity under the constituent documents of the parties involved. There may be instances of specific restrictions (such as when the buyback by an affiliate amounts to financial assistance) and therefore each case needs to be examined on its particular facts.

With respect to public takeover bids pursuant to the Public Takeover Bids Law (41 (I)/2007), as amended, for the acquisition of securities of companies (or a squeeze-out or a sell-out) it is possible to offer securities, cash or a combination of both. The consideration must be equal to at least the highest price paid or agreed to be paid for the same securities by the offeror, within 12 months before the bid announcement.

When a bid is made for a cash consideration, the bidding party must, in support of the bid, provide confirmations by (i) its board of directors, and (ii) one or more credit (or other) institutions with the necessary solvency (determinable by the regulatory authority with respect to public takeover bids, CySEC) that the cash is and will remain available to such institution until the day of payment with respect to the bid. In the absence of such confirmations, CySEC shall reject the takeover bid documents. The public offer documents must be submitted to CySEC and the board of directors of the offeree company and, following approval by CySEC for publication, must be made available to the holders of securities subject to the bid. The bid must also be announced in at least two daily newspapers with national circulation.

There have been no major developments that necessitate anything other than the customary ongoing refinement of legal documentation.

Usury principles are contained in the Criminal Code, Chapter 154, (the “Criminal Code”) which prohibits the receiving, charging and/or collecting of interest at a higher rate than the interest rate ceiling during the provision of any loan period, except by credit institutions. The CBC must calculate the interest rate ceiling every three months, which is then published in the Official Gazette of the Republic of Cyprus.

Usury is punishable upon conviction with a fine of up to EUR30,000 and/or imprisonment of up to five years. Banking regulations also prohibit the charging of interest on interest (double counting), and general contractual principles render void/unenforceable provisions that are penalty clauses in disguise.

There are several disclosure requirements implemented in Cyprus, particularly in relation to financial transactions, tax matters, and financial reporting. These requirements are governed by various laws and regulations, such as the Law on Transparency Requirements (Securities admitted to trading on a Regulated Market) – Law 190 (I) 2007, and the Law on Insider Dealing and Market Manipulation (Market Abuse) – Law 116(I) of 2005, which can be summarised as follows.

• Disclosure to Regulatory Authorities: If the transaction involves securities or derivatives, it may need to be reported to the CySEC, especially if it impacts market transparency or involves insider trading regulations.
• Tax-Related Disclosures: For transactions between related parties, proper documentation and disclosure are required under Cyprus’s transfer pricing rules. This ensures that transactions are conducted at arm’s length and are compliant with international tax standards.
• AML Disclosure: Entities such as banks, lawyers and accountants must perform customer due diligence and report suspicious financial transactions to the Financial Intelligence Unit (FIU). They must disclose large or suspicious transactions that may indicate money laundering or terrorist financing activities.
• Disclosure of Cross-Border Financial Transactions (Directive 2018/822/EU, or “DAC6”): This relates to disclosure in the event of a cross-border arrangement that is indicative of tax avoidance.
• The Common Reporting Standard (CRS) is a global standard for the automatic exchange of financial account information.
• FATCA focuses on the reporting of financial account information with respect to US taxpayers.

Generally, repayments of loans to the lenders (whether located within or outside Cyprus, including interest repayments) would not be subject to Cyprus withholding tax deductions as Cyprus does not levy withholding tax on such payments.

Interest payments made to related-party companies in jurisdictions that are in an EU non-cooperative jurisdiction (EU blacklist) are subject to WHT of 17% (excluding payments by individuals).

Stamp duty, historically a routine consideration in Cypriot financing transactions, has been abolished with effect from 1 January 2026. Any instruments executed on or after this date are exempt from stamp duty.

Registration of a charge that is registrable with the Cyprus Registrar of Companies is subject to a flat registration fee of EUR680.

Cyprus does not apply withholding tax on interest payments made to non-resident lenders (whether corporate or individual).

If the foreign lender is resident in an EU non-cooperative jurisdiction (EU Blacklist), interest payments to related parties are subject to WHT of 17%.

Interest payments to related-party lenders in a low-tax jurisdiction (headline corporate tax rate under 7.5%) are non-deductible as a business expense at the level of the Cyprus borrower.

Typically, the assets that are used as collateral to lenders are immovable property (real estate), tangible movable property (eg, goods, stock, equipment and ships), financial instruments such as shares, bonds, receivables, present or future cash and intellectual property. The security usually takes the form of an encumbrance or charge/pledge over the asset depending on its nature.

Where the security is financial collateral, no formalities exist under Section 90 of the Companies Law, and the requirements contained in Section 138 of the Contract Law do not apply.

The formalities are outlined in more detail in 5.5 Other Restrictions.

Generally, no restrictions exist on the type of assets over which a security can be fixed unless it is a future asset, in which case any type of security can be granted (including a floating charge), besides a legal mortgage and a pledge. Likewise, any security can be fixed over interchangeable assets, besides a legal mortgage.

It is possible for corporate entities to provide downstream, upstream and cross-stream guarantees as long as the guarantee is in accordance with Section 53 of the Companies Law (financial assistance) and as long as they have the necessary corporate power to do so. Section 53 provides whitewash provisions regarding unlawful financial assistance of private companies. Specifically, the provision of direct or indirect financial assistance by a private company for acquisition of its own shares or of the shares of its holding company is not unlawful in cases where:

• such private company is not a subsidiary of any public company; and
• the relevant transaction is approved by the general meeting of the company by a resolution passed by a majority of 90% of all the issued shares of the company.

It is important to highlight that the general prohibition on the provision of financial assistance by a public company for acquisition of its own shares still exists.

Furthermore, the whitewash provisions do not affect the obligation to comply with other applicable legal requirements. In particular, when acting as a guarantor, the directors of a company owe a duty to the company to act in good faith and in its best interests. Accordingly, the benefit to the company of providing the guarantee should be properly established.

See 5.3 Downstream, Upstream and Cross-Stream Guarantees.

Security

Charges (fixed or floating)

This is a common form of security taken over movable property. If the chargor is a Cyprus legal entity, the charge must be registered with the Registrar of Companies (RoC) within the given statutory timeframe, on the prescribed ΗΕ24 form and accompanied by the relevant fee. If a charge is not registered appropriately, it will be invalid against a future liquidator of the legal entity chargor.

Liens

Liens can arise under common law or equitable principles with no formalities being observed, although a contract may explicitly provide for a lien.

Mortgages

Mortgages are a common form of security taken over property such as real estate, vessels and ships. The lender obtains a right in rem over the property. If a mortgage is not properly registered with the RoC within the time limit set out by the Companies Law, the mortgage will be void against a liquidator or creditor of the mortgagor company.

Pledges

A pledge of shares of a Cypriot company is not registrable for perfection purposes. However, if a pledge has been taken over a foreign company’s shares by a Cypriot-registered company, the pledge has to be registered as a charge with the RoC to be perfected and valid against a liquidator of the pledgor. In addition, a pledge can be created over any kind of movable property.

The formalities for a pledge of shares of a Cypriot company, in order to be valid and enforceable according to Section 138 of the Contract Law are as follows:

• It must be in writing, signed by the pledgor and the pledgee, and have at least two witnesses.
• The pledgee must give notice of the pledge to the company whose shares are being pledged.
• A memorandum of the pledge has to be added in the members’ register of the company whose shares are being pledged.
• The company must issue and deliver to the pledgee a certificate executed by the appropriate official of the company confirming the fact of the registration of the pledge in favour of the pledgee.

No formalities are applicable when a security is financial collateral, and the requirements contained in the Contract Law are not relevant.

Guarantee

Usually, a company offers guarantees as security for money owed on behalf of itself or a third party. In order for a company to grant a guarantee, it must have the adequate corporate power to do so and if it does not, the corporate guarantor must show that it will have a corporate benefit in giving the guarantee and that it serves its commercial and business interests. Furthermore, guarantees are usually formed by way of a written agreement and are bound to the contractual principles agreed between the parties themselves.

Security is usually released via an agreement between the relevant parties. If, however, security is registered as a charge under the Companies Law, the RoC may release the security, either on whole or partial repayment of the secured debt. Filing the release with the RoC is a formality and it does not affect the validity of the release.

Releasing a legal mortgage over immovable property occurs when the mortgagor and the mortgagee present the district lands office with the necessary documentation, according to the Transfer and Mortgages Law. In the event that a mortgagee does not release the mortgage, even after the discharge of secured obligations, a court order to cancel the mortgage can be obtained by the mortgagor.

Procedures for the termination of a share pledge are specified in the pledge agreement and usually occur:

• when the secured obligations have been discharged in full;
• via written agreement of the pledgee and the pledgor;
• when the pledgee has served a termination notice on the pledgor; or
• when there has been enforcement of the pledge by the pledgee.

Following termination, the pledgee returns the pledge security documents to the pledgor and the secretary of the company whose shares were pledged is instructed to delete the memorandum of pledge against the pledged shares in the register of members.

Competing Security Interests

The priority of competing security interests is governed by the principles of common law. In general, priority is determined by the time of creation and the type of security interest created. For example, a fixed charge will have priority over a floating charge, and if the security interests are of the same kind (eg, two legal fixed charges), the earlier security will take priority.

The rules of priority are subject to limitations arising from insolvency laws.

Subordination

Various methods of contractual subordination are used in Cyprus to determine which lenders are the first eligible ones to receive interest and repayments, and which ones have first claim over loan collateral. Generally, the “senior” lender has priority over any other “junior” lender, whose interest is thus “subordinated” and entitled to interest, repayment or the collateral only once the “senior” lender’s claim is satisfied in full.

Contractual subordination of debt is common in lending transactions and can be achieved by having a contractual agreement between the senior lender, junior lender and borrower.

Structural subordination is another method used to arrange the priority of debts. This is done by concentrating the senior debt in an active group company, with available assets, and directing the junior debt to the parent company.

Priority of shareholders

In the event of insolvency, these arrangements will remain effective subject to the mandatory pari passu principle that the priority of creditors on insolvency is determined by whether they are preferential, general or deferred creditors.

Care must be given to the drafting of such arrangements to ensure that they do not run the risk of being considered ineffective if caught by the fraudulent preference provisions of the Companies Law.

Where the same security is provided to different classes of creditors, inter-creditor arrangements are also made between the lenders and the borrower company through an inter-creditor agreement that sets out the terms and conditions of their relationship.

The most common security interests, arising by operation of Cyprus law, that can prime a lender’s security interest include the following.

• Mortgage: A lender can establish a mortgage over immovable property, which provides it with a priority claim over the property in case of default.
• Pledge: A lender can secure its interest by taking a pledge over movable property, allowing it to have a priority claim over those assets.
• Floating Charge: This allows a lender to secure its interest over a class of assets, which can change over time until an event of default occurs.
• Fixed Charge: A lender can take a fixed charge over specific assets, ensuring their priority claim over those assets throughout the loan’s duration.
• Lien: A lien is frequently taken over items that are being transported, and might be a common law legal lien or an equitable lien. The lien grants the holder the right to keep the debtor’s property until payment is made and does not include a right to sell. The carrier’s lien (the right to maintain custody of the goods) is subsequently discharged upon payment of the transportation fees.
• Guarantee: Personal guarantees from third parties can be used to secure a lender’s interest and provide an additional layer of protection. Companies also commonly provide guarantees as security for money owed by themselves or a third party.
• Shareholding or Management Participation: This is less common, but saw increased use post-2013, especially with non-performing clients as part of a restructuring, whereby a lender would take a shareholding or management interest or position (or both) in the underlying asset. This would normally be coupled with exit and sale provisions.

Generally, a secured lender will be in a position to enforce its collateral in the event that the borrower (and/or any other party providing securities for the loan facility arrangement) is in default of their obligations, as will be more specifically set out in the loan facility or security documents.

In the event of a charge and pledge over shares and share certificates, the pledge agreement secures – through pre-delivered title documents – enforcement under specified circumstances without the need for court recourse.

In the event of a floating charge, on a default event, the charge will become fixed and crystallise over the secured assets in accordance with the terms of the agreement, enabling the secured lender (or its administrator/receiver) to liquidate the securities in settlement of the amounts due to it. It is noted that in the event of the security provider undergoing a winding-up procedure, in general, secured creditors by way of a fixed charge are entitled to enforce their security in settlement of their particular debt which the security provider has failed to pay, in accordance with the enforcement terms of the agreement or the document creating the charge. Floating charges, if not crystallised prior to the commencement of the liquidation or subject to the security documentation, rank for payment after liquidation costs and preferential payments, and before other unsecured creditors.

The Rome I Regulation (EC) No 593/2008 applies in Cyprus and sets out EU-wide rules for deciding the governing law to be applied to contracts in civil and commercial matters when parties from more than one country are involved, regardless of domicile (Regulation (EU) No 1215/2012 (“Brussels Recast”). The parties to a contract are free to choose the governing law, and the applicable law can be amended as long as all parties consent to it. Therefore, a choice of foreign law as the governing law of a contract in a security contract shall be recognised as long as it is made without duress and is not contrary to public policies of the Republic of Cyprus. However, when security is taken over immovable property in Cyprus, as well as a pledge of shares in a Cypriot company, domestic law will inevitably apply in order to be valid and enforceable.

Jurisdictional matters are governed by the Brussels Recast, which applies solely to civil and commercial cases. A judgment handed down in an EU member state will only be refused if its recognition is formally challenged; therefore, confirmation of a foreign judgment's enforceability is issued only after the related documents have undergone a proper, official review.

Applicable and Foreign Jurisdictions

The applicable jurisdiction is usually the one where a defendant is domiciled, irrespective of nationality, and domicile is governed by that member state’s law where a matter is brought before its court.

Submission to a foreign jurisdiction would be upheld as long as the jurisdiction clause had been agreed between the contracting parties themselves and specified in the contract. Appearing in the proceedings or serving a defence would also be grounds for submission to a foreign jurisdiction. If a defendant does not want to submit to a specific jurisdiction, they must not contest the case on its merits but should acknowledge service, stating that they intend to dispute the jurisdiction and make a declaration that the specific member state lacks jurisdiction.

The Cypriot courts do acknowledge and uphold state immunity as long as such immunity is not consensually waived and a state is not acting in a private or commercial capacity.

Depending on the country of the foreign court, it is possible for a foreign judgment or arbitral award to be recognised and enforced in the Republic of Cyprus. In order for a judgment to be valid in Cyprus and to acquire the same status as a judgment from a national court, it must go through the Cypriot courts’ registration system. 

Cyprus is a signatory to various multilateral and bilateral international conventions, which significantly influence how foreign judgments are recognised and enforced. Different procedural mechanisms may be used to recognise and enforce a foreign judgment depending on the nationality of the court issuing the judgment or arbitral award. For example, Cyprus is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) (the “NY Convention”), and, although a judgment from New York would be recognised under the Recognition, Enforcement and Execution of Foreign Judgements Law (121(I)/2000), enforcement is not immediate. The law provides procedural requirements to be followed and ultimately sets a hearing where the respondent can object to matters concerning jurisdiction and substance.

When judgments or arbitral awards derive from an EU court, they will be recognised and enforced accordingly with the Brussels Regulation, and the recognition under national law will be automatic. Although a judgment handed down by a court in another EU member state can have its recognition challenged in domestic courts under specific circumstances, it cannot be challenged on substantive grounds. Consequently, Cypriot courts are not permitted to review the underlying substance or merits of such a judgment.

Aside from contractual restrictions specified in the security/loan agreements or specific debtor protection provisions (such as lending to homeowners for first homes), bankruptcy/insolvency may have an impact, as may any court proceedings initiated by other creditors.

The degree to which a lender’s rights of enforcement are affected upon the commencement of insolvency proceedings depends on the kind of security the lender has over the assets of the insolvent entity. Where relevant, a contract can set out insolvency as an event of default whereby termination and enforcement procedures can be triggered as set out in the contract.

If a winding-up order is made or a provisional liquidator has been selected, the (provisional) liquidator takes over all assets and choses in action to which the company is or seems to be eligible.

A secured creditor should file with the official receiver, liquidator or guarantor, a preparatory valuation of the secured asset and reach agreement about the valuation. An independent valuer may be appointed if no agreement is reached regarding the value. The court may also impose a deadline by which all lenders must verify any debts or claims they may have. If the creditors’ debts are not evidenced, they will be omitted from any distribution since the proof will set out whether the creditor is a secured or unsecured creditor.

Any distribution of the company’s property that occurs after the beginning of winding-up by the court is void unless the court orders otherwise. Once a winding-up order is issued by the court and a provisional liquidator is selected, no further action or proceeding can be continued or commenced against the company unless by leave of the court.

The priority ranking of creditors’ claims is determined by law and is as follows:

• the costs of the winding-up;
• preferential debts, ranking equally, which comprise:
1. all government and local taxes and duties due at the date of liquidation and having become due and payable within 12 months before that date and, in the case of assessed taxes, not exceeding one year’s assessment; and
2. all sums due to employees, including wages, up to one year’s accrued holiday pay, deductions from wages (such as provident fund contributions) and compensation for injury (claims of employees who are shareholders or directors may not rank as preferential depending on the nature of the shareholding or directorship);
• secured creditors;
• unsecured creditors;
• sums due to members in respect of dividends declared but not paid; and
• any share capital of the company.

Before payments may be made to creditors with a lower priority ranking, claims in that ranking must be fully fulfilled. If the assets of the firm are inadequate to satisfy all creditors of a particular ranking, payments to such creditors are made on a pro rata basis.

The duration of typical insolvency processes in Cyprus can vary depending on the complexity of the case, the size of the company, and other relevant factors. Generally, insolvency proceedings in Cyprus could take anywhere from several months to a few years to complete.

Secured creditors and preferential creditors usually have a higher likelihood of recoveries closer to the value of their claims due to their priority in the repayment order. On the other hand, unsecured creditors might receive lesser amounts or nothing if the company’s assets are insufficient to cover all its debts.

Corporate reorganisations can take place according to the Companies Law by way of compromises or arrangements, usually suggested between the company and either its creditors and/or its shareholders. A court application is therefore made either by the company, or any creditor or shareholder, seeking a court order for a creditors’ or shareholders’ meeting subject to the voting requirements being met. The compromise or arrangement becomes binding on all persons involved once the court approves the order requested.

The examinership procedure is intended to assist a company facing potential insolvency by providing an opportunity to avoid liquidation. Under this procedure, an examiner is appointed to assess the proposed rescue plan while the company is placed under the protection of the court. If the court considers the rescue plan submitted with the petition to be viable, it may permit the commencement of the process for “rescuing” the company. 

In order for the court to appoint an examiner, the following three conditions must be met:

• The company is, or most likely will be, unable to pay its debts.
• No liquidation resolution for the company has been published in the Official Gazette of the Republic of Cyprus.
• No court order has been issued for the liquidation of the company.

Furthermore, if the court is satisfied that there is a reasonable prospect of the company surviving as a going concern, whether in respect of its business as a whole or part of it, it may issue an order for examinership. During the examinership period, the company is afforded court protection, meaning that legal proceedings or other enforcement action may not generally be brought or continued against it without the specific sanction of the court.

Once a company goes into liquidation, any activity relating to property such as mortgage, charge, payments and so forth, made up to six months prior to the commencement of the winding-up, could be considered as “fraudulent preference” and ultimately be set aside. This occurs when a creditor is given undue advantage over others and ends up having a better position than they would have, at a time when the company is not able to pay its debts. If found guilty, such creditors must pay back any benefit they obtained.

Where a transaction falls within the definition of a “financial collateral arrangement” under the Financial Collateral Arrangements Law (43(I)/2004), as amended (the “FCA Law”), such an arrangement is not automatically void based on the fact that a financial collateral agreement has been entered into or has been provided within the timeframe of six months prior to the commencement of winding-up. However, if the transaction is found to constitute a fraudulent preference of creditors, it may still be set aside. In such circumstances, the FCA Law should be interpreted by reference to the position of a bona fide person acting without prior knowledge of any fraudulent dealings intended to prejudice or defraud creditors.

Furthermore, a floating charge created within 12 months of a company commencing wind-up procedures and which is currently in liquidation will be void unless it is proved that the company was solvent after the creation of the charge. Where a charge has not been registered in accordance with the applicable requirements, it will be void against the liquidator and any creditor of the company, although the failure to register will not affect the validity of the charge as between the chargor and the chargee.

Project finance remains popular among local investors and Cypriot-owned businesses, with the majority of lenders being domestic credit and finance institutions. Notwithstanding the growth in foreign direct investment (FDI) into Cyprus, which the government increasingly presents as complementary to, rather than a substitute for, privately financed infrastructure, overall project finance activity remains lower than the level of investment interest might suggest.

The main recipients of project financing continue to be infrastructure development, energy (particularly renewable energy projects), real estate and transportation.

Public-private partnership (PPP) transactions in Cyprus are well established in Cyprus. There is no finance-specific PPP-enabling legislation currently in force, but general public procurement laws and regulations, as well as specific legislation, apply depending on the field of operations.

PPPs used in Cyprus include BOT (Build, Operate, Transfer) and DBFO (Design Build, Finance, Operate) structures. Both international airports of the Republic of Cyprus are managed by an operator with a BOT concession. The operator is an international consortium containing various local and international partners, such as dominant French construction groups and international airport operators.

PPPs are of significant importance to the Cypriot economy, as recognised by the Cyprus National Reform Programme of the Presidency’s Unit for Administrative Reform, which provided for the establishment of a dedicated PPP unit within the Public Works Department. Furthermore, as a member of the EU, Cyprus operates within the framework of EU laws and regulations and is regarded as a free-market economy. Accordingly, there are generally no significant legal restrictions on the outsourcing of certain public services or utilities to private entities.

Current PPP Projects

The newly completed integrated casino resort “City of Dreams Mediterranean” in Limassol is one of the biggest casino projects in Europe and was developed by a consortium of international investors (Melco International) and local investors.

Tourism infrastructure is one of the most advanced areas of PPP activity in Cyprus. In recent years, four major marina developments have been undertaken: Limassol Marina, which has been completed and is commercially successful; Ayia Napa Marina, which has been delivered and is operational; Paralimni Marina, which is expected to approach completion in the coming years; and Paphos Marina, a major new development comprising approximately 1,000 berths, for which international tenders are expected to be launched.

The Great Sea Interconnector with Greece and Israel, a regional electricity link with major geopolitical and energy implications, is another PPP project that is expected to lower energy costs, enhance energy security and boost renewable energy integration. 

The discovery of natural gas around and in the vicinity of Cyprus has attracted the attention of multinational companies like Total, Exxon Mobil, Kogas, Qatar Petroleum and Eni, which have undertaken exploration and development activities relating to the extraction of gas and the potential exploitation of oil deposits. Recent financing has also related to the development of an oil terminal and other hydrocarbon-related infrastructure.

Requirements for PPP Projects

The Law on Fiscal Responsibility and Public Finances Framework (20(I)/2014), as amended, sets out the minimum public sector requirements when dealing with and handling PPP projects. The Law outlines what a “significant project” actually is (in cases where PPP is applicable), the assessment principles, and other applicable specifications and tests that ought to be conducted by the public sector when assessing PPP offers.

The methodology for evaluating PPP projects is included in the Manual prepared by the World Bank and the Instructions of the Minister of Finance. PPPs can be applied to three types of projects: (i) projects where the private sector revenue comes from user payments – eg, airports; (ii) projects where the private sector revenue comes from the state; and (iii) projects where the private sector revenue is a combination of the two above.

In addition, the Law on Public Procurement (73(I)/2016), as amended, is the primary law on public procurement contracts in Cyprus. It effectively integrates the EU Procurement Directives 17/2004 and 18/2004 into domestic law, and handles the co-ordination of procedures for the award of public works contracts, public supply contracts, public service contracts and related matters.

The choice of law and dispute resolution mechanism for project documents can vary depending on the parties involved (including financing parties) and their preferences. Cyprus law allows parties to choose the governing law and jurisdiction of their contracts, making it possible to opt for laws other than Cypriot law and alternative dispute resolution methods. However, agreements on projects located in Cyprus will commonly be governed by local law.

It is permissible for international commercial contracts in Cyprus, especially those involving foreign parties, to use English law as the governing law. Additionally, international arbitration is often favoured as the dispute resolution mechanism, providing a neutral and efficient means to settle conflicts between parties.

There are no general restrictions on EU nationals owning real property in Cyprus. There are, however, some restrictions for non-EU nationals or companies.

A non-EU citizen or a company controlled by a non-EU citizen, foreign company or trust, the beneficiary of which is a non-EU citizen, cannot acquire real estate in Cyprus without prior permission from the Cypriot Council of Ministers (these powers are now vested in the relevant District Officers) under the Acquisition of Immovable Property (Aliens) Law, Chapter 109.

Cyprus generally does not impose restrictions on the security of foreign lenders holding or exercising remedial rights on liens on real property. Foreign lenders will be subject to the same laws and regulations as domestic lenders when it comes to providing loans secured by real property, subject to the above restrictions on ownership and the need to comply with local legislation once the security is exercised.

When structuring a project finance deal, aside from the commercial elements, the key legal issues to consider include:

• asset ownership and corporate risks;
• authority/capacity of the counterparty to enter into the transaction;
• governmental or other authorisations or permits;
• financing structure; and
• security and collateral.

In terms of legal form, project vehicles are likely to take the form of a limited liability entity potentially coupled with either a shareholders’ agreement or a partnership at ownership level to allow for increased flexibility and discretion in decision-making.

Local rules and legislation may have an impact on the overall structuring beyond the customary employment, health and safety legislation (eg, the Safety and Health at Work Law of 1996 (89(Ι)/1996)). For example, hydrocarbon exploration and exploitation activities in the Republic of Cyprus are governed by the Hydrocarbon (Prospection, Exploration and Exploitation) Law of 2007 (No 4(I)/2007) and the Hydrocarbon (Prospection, Exploration and Exploitation) Regulations of 2007 and 2009 (No 51/2007 and No 113/2009).

Finally, in view of the ESG drive, relevant factors should also be considered, especially for projects in the energy sector.

Most project finance in Cyprus takes the form of either equity (capital) finance or bank finance (or a combination of both). A few examples of export credit agency financings are the following.

• Bank Financing: Traditional bank loans or credit lines are one of the most common sources of project financing. Banks may provide loans directly to the project company or participate in syndicated loans with other financial institutions.
• Private Equity (Capital) Funding: Private equity (either own or from third parties) provides equity capital to the project in exchange for ownership stakes.
• Export Credit Agency (ECA) Finance: This refers to transactions in which representatives of specific nations grant financial assistance for the export of qualifying capital goods and related services from their home jurisdiction. ECA finance is a type of trade credit that benefits both exporters and foreign purchasers.

The following may be used, but this is seldom the case in Cyprus.

• Project Bonds: Project bonds are debt securities issued by the project company to raise funds for the project. Institutional investors can engage in infrastructure projects using project bonds as they are listed, tradable instruments that can provide higher risk-adjusted returns.
• Alternative Sources of Financing:
1. Streaming or Royalty Financing: This is a type of alternative financing arrangement commonly used in the mining and natural resources industries. In this financing model, a company provides upfront capital to a mining or resource-extraction project in exchange for the right to receive a portion of the project’s future production or revenue.
2. Commodity Trader Financing: This is a subset of commodity finance that refers to the financing of the underlying commodity exchange from supplier to buyer and is linked to the asset conversion cycle.

Different legislation is in place for each type of natural resource in Cyprus, and, depending on the industry of the project, various and/or different licences may be required prior to commencing any actual work.

A licence to carry out mining activities from the Mining Service of Cyprus is required for any exploration and exploitation of minerals per the Mines and Quarries Law Chapter 270, as amended. A recent example is the discovery of hydrocarbons in the region of Cyprus, which prompted the Hydrocarbon (Prospection, Exploration and Exploitation) Laws of 2007 to 2019. The EU Directive has been incorporated into Cypriot law, specifying the conditions for approving and authorising the prospection, exploration and production of hydrocarbons. Any successful licensee will be required to enter into an exploration and production sharing contract (EPSC) with the Ministry of Energy, Commerce, Industry and Tourism, as the relevant authority, and ultimately share their revenues with the Republic of Cyprus.

The EPSC obliges the contractor to comply with the applicable tax laws and regulations of Cyprus and the EU, as a 5% withholding tax on gross income derived from within Cyprus is charged. However, in contrast, no exact tax regime is applicable in relation to oil and gas companies operating in Cyprus.

Furthermore, any grade-scale construction projects, such as the construction of marinas, golf courses and/or hotel resorts, will require an assessment of the building procedures and environmental impact as they may have a harmful impact on the environment. In such cases, the Town and Country Planning Law (90/1972), as amended, and the more recent Law on the Estimation of Repercussions on the Environment for Specific Construction Work specify the requirements for the issuing of certain licences related to town planning and the restrictions on the foreign entities that are eligible to apply for such licences.

There is no legislation specific to project financing. However, aside from general legislation, such as the Safety and Health at Work Laws (89(I)/1996), as amended, depending on the specific industry, there may be further regulations regarding the operations and safety requirements specific to that sector – eg, in order to protect the worker and the environment in natural resource projects, the Safety and Health at Work (Safety of Offshore Oil and Gas Operations) Regulations of 2015 (P.I. 424/2015) have been introduced under the Safety and Health at Work Laws of 1996 to (No 2) of 2015 (the “Regulations”). The Regulations lay down minimum requirements for the prevention of major accidents during offshore oil and gas operations and the mitigation of the consequences of such accidents.

In addition, the Law on Environmental Liability with regard to the Prevention and Remedying of Environmental Damage (189(I)/2007), as amended, renders any natural or legal, private or public person who operates or controls the occupational activity or to whom decisive economic power over the technical functioning of such an activity has been delegated by law (including the holder of a permit or authorisation for such an activity or the person registering or notifying such an activity) liable for environmental damage caused. The law imposes strict liability on the operator for the costs of preventing and remedying environmental damage caused by any of its registered “occupational activities”. The term encompasses “any activity carried out in the course of an economic activity or an undertaking, irrespectively of its private or public, profit or non-profit character”.

The competent authority for Cyprus is the Environmental Authority of the Ministry for Agriculture, Natural Resources and Environment. A lender financing a project or a guarantor providing security for a project is not liable under environmental legislation unless it is deemed to be an operator.