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Is Cyprus suitable for adult business?

Well, after having read all the above, I have come to the conclusion that the answer to the original question should be a simple no.
Background: It is probably possible but apparently a little bit risky. It is much better to incorporate such a company in the jurisdiction where such an activity is undisputably legal and accepted as well.
See, the adult business is a high-risk business by its nature. So it is worth to apply the golden rule of any high-risk business: Cover your a*s as much as possible because you are half-naked anyway :)