The TRNC operates as an independent republic with a democratic governmental system. A constitution drawn up in 1985 provides for a semi-presidential system with a president as the head of state, who is elected directly and serves a five-year term. The political structure is comprised from independent executive legislative and judicial bodies elected or appointed. However, only Turkey recognises the TRNC as an independent state: the United Nations recognises the sovereignty of the Republic of Cyprus over the whole island; however, the government of the Republic of Cyprus has no control over the territory claimed by the TRNC.

There have been numerous efforts to unite the island under the auspices of the UN, although, to date, these have been unsuccessful. In the referendum held at the end of April 2004, the plan for the reunification of the island, put forward by then-UN General Secretary Kofi Annan, was rejected when 75% of Greek Cypriots voted against the proposal. Cyprus therefore remained divided and only the Greek Cypriot state became a full member of the EU when it expanded on the 1st May 2004. The EU has, however, signalled that it is keen to seek ways to end the economic isolation of the Turkish Cypriot state.

The TRNC has been subject to an embargo on air travel from the Republic of Cyprus, which makes travelling to and from the north somewhat more difficult, as it only possible to fly there from Turkey – hence, all flights to the TRNC go via Turkey. Various nations, including the UK and the USA, have expressed an interest in ending the embargo.

The free-market economy of the TRNC is composed mostly of the services sector, such as financial services, tourism and education, augmented by light manufacturing and agriculture.

However, economic development is hampered by the political isolation of the TRNC, a lack of inward investment, workforce shortages and high freight costs, since the only inbound flights come from Turkey.

In spite these problems, the economy of the TRNC is growing: growth rates in 2003 and 2004 were 9.6% and 11.4% respectively, and per capita income between 2002 and 2005 almost doubled, from US$4,409 to US$10,248. The Turkish Lira is relatively stable, and the TRNC receives substantial aid from the Turkish government - $200 million in 2002, with a further $450 million pledged.

The TRNC is fast becoming one of the most appealing emerging property markets in the world. The government of the TRNC has taken a massive step forward in terms of its treatment, registration and assessment of all land and property in Northern Cyprus by totally removing the emphasis on the type of the title deed a piece of land or property holds. This means all land and property registered in Northern Cyprus comes with government guarantee, making land and property in northern Cyprus very attractive for foreign investors and developers.

As a consequence in recent years Northern Cyprus has been transformed from a relatively unrecognised small state to a centre of investment opportunities. This process has been assisted by a number of developments such as a new 18-hole European standard championship golf resort, the proposed new marina in the Esentepe area, the future proposals for unification of the island and the availability of direct flights to Ercan airport. In addition, the overall lower cost of living and Mediterranean climate means that the country is currently attracting a wider investment market, making Northern Cyprus an attractive investment opportunity.

As the market unfolds, there is a concerted effort to ensure that Northern Cyprus maintains the characteristics that make it an attractive area and does not become over developed. To this end, the government in Northern Cyprus has put legislation in place to ensure that the unspoilt natural beauty is preserved. There is no construction permitted along the coastline, within the mountain ranges and ravines as well as greenbelt protected areas. Construction is also limited to 20 per cent of the total land area with a restriction of two storeys.

Compared to Spain, France and the Algarve where equivalent properties can cost up to three times as much, property prices in Northern Cyprus represent significant value for money. It is therefore unsurprising that both foreign and local investors are helping to create a flourishing property market, with expectations of high returns. The growth of the market is assisted by the fact that buying property in Northern Cyprus is a relatively uncomplicated process and a comprehensive legal system allows foreign purchasers to buy property with minimum difficulty.

According to local property investment firms, approximately 1000 properties were sold in 2003 rising to 3000 in 2004 and 6000 in 2005 and early indications for 2006 look promising as the profit margin in this sector increases with overall property prices rising 20 per cent annually. Northern Cyprus currently attracts in the region of 80,000 foreign visitors each year. The fact that nearly 2.5 million tourists visit Southern Cyprus indicates that the current market has quite some way to go before reaching its threshold and the promise of future growth is evident.

Because of its unusual status, the TRNC is heavily dependent on Turkey for both economic and infrastructural support. The TRNC uses the New Turkish Lira; incoming flights, imports and exports must be routed through Turkey; telephone calls are routed through the Turkish dialing code +90 392; the TRNC’s websites are registered under the Turkish second-level domain .nc.tr and mail has to be addressed to ‘Mersin 10, Turkey’, as the Universal Postal Union refuses to recognise the TRNC as a separate entity.

The TRNC is subject to an embargo from the Republic of Cyprus, which is why flights and shipping only arrives from Turkey. All flights to the north require a stopover in Turkey, which typically adds an hour and a half to travel times. Passenger and car ferry services between the TRNC and Turkey operate between Famagusta and Kyrenia in the TRNC and various ports in southern Turkey.

The TRNC has a population of about 265,000, which includes a large student community, migrant workers from Turkey and around 35,000 Turkish troops assisting TRNC defence forces. Most people in the TRNC speak Turkish, with English being in wide use as a second language.

The TRNC includes the northern part of the city of Nicosia (Turkish: Lefkosa,), which serves as its capital.