Serious weaknesses in the licensing and oversight system for tourist accommodations, inadequate control mechanisms and gaps in the management of the Deputy Ministry of Tourism’s grant programs are documented in the new Special Report by the Audit Office, with Auditor General Andreas Papakonstantinou warning that efforts to upgrade the Cypriot tourism product “is being called into question,” as only 23% of hotels and tourist accommodations hold a full operating license.

In the report’s preface, the Auditor General describes the sector’s situation as alarming, noting that 55% of tourist accommodations operate without a full license, while another 22% operate under a temporary operating license. The situation is particularly problematic in the Famagusta district, where, out of 241 accommodations, only 24 have a full operating license—a mere 9.9%.

The Auditor General notes that these figures raise serious questions about the effectiveness of the enforcement of the legislation, emphasizing that improving the quality of the tourism product cannot be achieved when a large proportion of businesses operate outside the prescribed licensing procedures.

Evidence of a large number of unregistered self-catering accommodations

Particular emphasis is placed on the self-catering accommodation market. The Audit Office reports that, during the audit, it identified serious indications that a large number of such accommodations are operating without being registered in the Registry of the Deputy Ministry of Tourism.

As noted, when cross-checking data from online booking platforms and other databases, it was found that hundreds of accommodations either could not be identified or did not appear in the official Registry. The Audit Office reports that, due to the lack of a comprehensive monitoring mechanism, the actual extent of the phenomenon cannot be determined; however, it points out that there are clear indications that a significant number of accommodations are operating outside the regulatory framework.

At the same time, it is noted that the actual situation may be even more dire than that reflected in the official data.

The Case of the Apartment Building That Collapsed in Germasogeia

Special mention is made of the apartment building that collapsed in Germasogeia in February 2025.

According to the report, three self-catering tourist apartments were operating in that building, which were duly registered with the Registry of the Deputy Ministry of Tourism and held operating licenses until the building’s collapse, at which point they were deregistered.

The Audit Office notes that this case highlights the need for more effective oversight of self-catering accommodations and announces that it will conduct a separate special auditexclusively on this specific issue.

At the same time, it is emphasized that the operation of accommodations in buildings with serious structural problems underscores the need to strengthen oversight mechanisms and cooperation among the relevant government agencies.

The Audit Office warns that the widespread operation of unlicensed or temporarily licensed accommodations may mean that their compliance with basic requirements for fire safety, structural adequacy, hygiene, and safety, with direct consequences for both guests and the reputation of Cypriot tourism.

Shortcomings in Inspections and Information Systems

The report also identifies serious weaknesses in the management of the Deputy Ministry of Tourism’s grant programs.

It finds that there are insufficient safeguards to prevent double funding, while the absence of a comprehensive information system hinders the tracking of applications, fails to ensure a complete audit trail, and increases the risk of errors or data loss.

At the same time, it was found that the Deputy Ministry had neither systematically recorded nor analyzed the reasons why a large number of businesses do not comply with the law, a fact which, according to the Audit Office, makes it difficult to design effective corrective measures.

It is “paradoxical” that even unlicensed businesses receive subsidies

The Audit Office is also particularly critical of the fact that the state essentially treats businesses that comply with the law and those operating without a full license in the same way.

As an example, the report cites the ability of hotels that are not fully licensed to participate in government economic support programs, such as those implemented during the pandemic, which, according to the report, creates conditions of unfair competition to the detriment of businesses operating legally.

A Culture of Tolerance and Non-Compliance

In its final conclusions, the Audit Office emphasizes that the long-standing failure to enforce the law has created a culture of tolerance and non-compliance, as businesses know that penalties are limited or not imposed.

It further emphasizes that citing potential impacts on tourism cannot serve as an excuse for failing to enforce the law, noting that if the existing framework is deemed unenforceable, it should be amended rather than applied selectively.

The Audit Office concludes that the current situation undermines the credibility of the institutional framework, creates conditions of unfair competition, and may negatively affect both visitor safety and the international image of Cypriot tourism.

Recommendations of the Audit Office

The Audit Office calls on the Deputy Ministry of Tourism to take immediate measures to substantially increase the licensing rate for tourist accommodations and to examine, in collaboration with all relevant stakeholders, the reasons why the licensing process is particularly time-consuming, especially for older developments. At the same time, it recommends intensifying inspections and enforcement of the law, as well as better informing business owners and citizens about their obligations and rights.

With regard to grant programs, the Agency recommends the creation of a comprehensive information system for managing applications and payments, the establishment of control procedures to prevent duplicate funding of the same expenses, the establishment of a formal program of on-site audits to monitor subsidized projects, as well as the adoption of a uniform evaluation framework to ensure equal treatment, transparency, and the uniform implementation of the projects.

The Audit Office also recommends revising the existing framework for the supervision of tourist accommodations, taking into account European practices, in order to establish a more effective control system that adequately ensures user safety, without overlooking the administrative costs of the regulations.

At the same time, the Audit Office notes that the draft report was forwarded to the Deputy Ministry of Tourism for comments prior to its finalization and that the Deputy Ministry’s are included in Annex III of the report. Furthermore, it notes that issues which had been included in the draft but do not appear in the final version of the report were deemed to have been adequately addressed or resolved through the positions submitted by the Deputy Ministry.