CYPRUS, the idyllic island that attracts more than two million tourists each year has also established itself as an internationally competitive retirement destination. The island's warm Mediterranean climate and famous coastline have given Cyprus a clear head-start, but on top of this, the Cypriot Government has put in place a well-planned taxation and investment policy to attract retired people. ''We are not just promoting Cyprus because it has 330 days of sunshine each year,'' said Central Bank of Cyprus' international division head Iacovos Pashos. ''What we are offering is a lifestyle and retirement package that puts Cyprus right up with the top retirement destinations.'' To go to Cyprus as a retired resident, applicants must first demonstrate that they have the financial means to support themselves by providing authorities with either a pension certificate or a statement of assets. Overseas retirees in Cyprus are granted permanent resident status and, if they chose to, can apply for citizenship after eight years. To qualify for citizenship, retired residents must have spent five of the preceding eight years living in Cyprus. Residents must also spend the year before their request for citizenship living in Cyprus. Mr Pashos, who was recently in Hong Kong with a delegation of officials from the Central Bank of Cyprus, said the island was currently ranked as the ninth cheapest country in the world in which to live. With a population of only 600,000, Mr Pashos said Cyprus had retained the rich cultural base on which its international reputation for hospitality had been founded. As a compulsory subject in schools, English is widely spoken and used entirely in government communications with overseas residents. And, as part of its bid to capture the lucrative retiree market, the Cypriot Government has tailored its taxation and investment laws to offer retired overseas residents considerable financial incentives. The first US$2,000 (about HK$15,500) earned on investments outside Cyprus is tax-free, and a rate of five per cent is levied on any other income from overseas' investments over this amount. Income earned from money that retired residents invest in Cyprus, in bank accounts, shares, or government securities, is tax-free. Britain has so far been the most fruitful source of retirees, but Cyprus has also found favour with many Germans and Swedes at the end of their working lives. Conquered many times because of its strategic location, Cyprus has evolved into a prosperous economy with a per capita income of US$11,400. Shipping is a major part of its economic success, and Cyprus has the world's fifth largest shipping register. Cyprus also has an enviable unemployment rate of 1.8 per cent. To meet rising demands, labour is imported from Romania, Russia, Syria, Lebanon and Egypt. The real-estate sector in Cyprus operates on a freehold title system, and retired residents from overseas are free to purchase homes or flats on Cyprus. However, when they decide to sell, residents without citizenship can only withdraw the original sum of money invested on the property. According to foreign investment guidelines, capital appreciation or profits made on real estate investments can only be withdrawn from Cyprus at a rate of US$20,000 per year.