Republic of Cyprus


General Information 

Cyprus is the third largest island in the Mediterranean after Sicily and Sardinia.

Located in the north-eastern end of the Mediterranean Sea Cyprus is effectively a crossroads linking Europe, Asia and Africa.

It covers an area of 9,251 sq km and lies 65 km south of Turkey, 96 km west of Syria, 385 km North of Egypt and some 980 km south-east of Athens.

The capital is Nicosia. The second largest and the most economically developed city is Limassol.

The principal topographical features of Cyprusare the two mountain ranges running along the centre and north-east of theIsland, separated by a wide and fertile plain.

Cyprus has a pleasant climate with dry, hot summers and mild winters.

Population

The population of Cyprus is about 802,500.

Greek Cypriots form the largest ethnic community representing approximately 85%; Turkish Cypriots comprise the second largest community representing 12% and the remaining 3% representing other minorities.

Political Structure

Cyprus became an independent Republic in 1960.

The political system is modelled on Western democracies in which individual rights are respected and private enterprise is given every opportunity to develop.

Under its Constitution, Cyprus has a presidential system of Government. The President is the Head of State and is elected for a five-year term of office.

The executive arm of the Government is the Council of Ministers to which the President appoints members.

The Ministers are responsible for the administration of all matters falling within the domain of their ministries and for the implementation of legislation.

Legislative power is in the hands of the House of Representatives, which consists of 56 elected members who hold office for a period of five years.

A multi-party system operates in Cyprusand the electoral system is based on proportional representation.

The legal system is based on that of theUnited Kingdom and all statutes regulating business matters and procedure are based on English Law.

Most laws are officially translated in to English.

 Infrastructure and Economy

Cyprusis readily accessible by air and sea.

The major port facilities are those of Limassol and Larnaca, situated along the south coast of the Island.

The economy of Cyprus is based on a free enterprise system. The Government’s role is limited to regulation, planning and the provision of public utilities.

During the last fifteen years, the economy of Cyprus has demonstrated spectacular growth and its currency has enjoyed relative stability.

Language

Greek, English and Turkish are the official languages of Cyprus.

English is widely spoken and understood, particularly in commercial and government sectors.

Currency

Euro.

 Type of Law

Civil with many English Common Law influences.


 Principal Corporate Legislation

The companies’ law inCyprusis the Cyprus Companies Law, Cap.113, which is based on the English 1948 Companies Act.

Single member companies were introduced by the Companies (Amendment) Act 2000 and other amending legislation was passed in 2000 and 2001.

Why Cyprus ?

Cyprushas developed a reputation as one of the most attractive European tax regimes ranking top for the stability of its tax law, consistency in interpretation of tax legislation as well as comparatively low tax rates.

The island holds a strategic location at the crossroads of three continents. Upon membership into the European Union, Cyprus is being transformed into a key outpost in the Eastern Mediterranean, facilitating partnerships and serving as a springboard for investments among Russia, CIS countries, Europe, Africa, Middle East and Asia. Providing the perfect gateway for businesses to penetrate new markets, Cyprus is a heaven for modern business.

In this respect, the island is increasingly becoming in our opinion, the best jurisdiction for the registration of Investment Firms (IF) with the most advantages, given that the applicant maintains a solid and serious operation: combination of low cost and low tax (flat 10% on profits and 0% dividends tax), as well as a reputation of adequate supervision and availability of compliance support.

Concerning the Cyprus Limited Companies, one must note that the “offshore” concept was made known 30 or more years ago. As of January 1, 2003 there is no longer a distinction between local companies and International Business Companies, following the new tax legislation which aims to conform with European Union law. With the new legislation Cyprus maintains and enhances its competitiveness and the International Financial character of the Country has never been better.

The low taxation, the sophisticated legal framework based on the English Legal System, the extensive network of Double Taxation Treaties, the freedom of exchange controls, the Political and Economical stability as well as numerous other advantages offered, have brought Cyprus today as being one of the most sought after destinations for the establishment of International Business Companies.

More than 300,000 are currently active on the island. A number of these, operate from a fully fledged local office whereas many others use local Lawyers and Service Providers as their representatives.

Advantages

  • Lowest corporate tax inEuropeof 10% on net profits, arrived at after deducting all business expenditure incurred. Capital allowances available.
  • 15%VAT rate (the lowest in the EU)
  • Foreign employees do not pay income tax if working entirely outsideCyprusand receive their salary throughCyprus. Their salary is taxed on a scale from 0 to 35% if working inCyprus.
  • No exchange control regulations for the companies and their foreign employees.
  • Easily obtained residence and work permit for expatriate personnel and their dependants
  • Capital gains tax of 20% is payable only on gains from disposal of immovable property situated in Cyprus.
  • No contributions to local security schemes are payable in respect of foreign employees.
  • Profits after tax remitted abroad easily.
  • Large network of Double Tax Treaties with 43 countries around the world and applicable EU directives ensures reduced foreign withholding tax.
  • No withholding tax on dividends or interest paid to non residents. Same applies to Royalty payments provided Royalty was not used inCyprus.
  • No estate duty is payable when shares of a company pass on death.
  • No stamp duty is payable on documents referring to daily ordinary activities.
  • Strategic location, convenient geographical position.
  • Excellent telecommunication facilities.
  • Modern banking services.
  • Common Law system.
  • Easy accessibility by air and sea.
  • Low cost of living.
  • Low set up and running costs of a company.
  • Highly qualified professionals and well educated, competent labour force. High quality of services.
  • English widely used in business.
  • Pleasant Mediterranean climate.
  • Constructive approach by authorities.
  • Free zone and bonded warehouse facilities.
  • Complete anonymity of shareholders.
  • Nominee / trustee services available.

Companies in Cyprus

General
Type of entity: Private (IBC*)
Type of law: Common
Shelf company availability: Yes
Our time to establish a new company: 5 days
Minimum government fees (excluding taxation): Not applicable
Corporate taxation: 10%
Double taxation treaty access: Yes
Share capital or equivalent
Standard currency: Euro
Permitted currencies: Any
Recommended Minimum issued: €1,000
Usual authorised: €5,000
Directors or Managers
Minimum number: One
Local required: No, but advisable for purposes of tax residency
Publicly accessible records: Yes
Location of meetings: Anywhere, butCyprusadvisable for purposes of tax residency
Members
Minimum number: One
Publicly accessible records: Yes
Location of meetings: Anywhere
Company Secretary
Required: Yes
Local or qualified: No, butCyprusadvisable for residency and compliance
Accounts
Requirement to prepare: Yes
Audit requirements: Yes
Local Auditor: Yes
Requirement to file accounts: Yes
Publicly accessible accounts: Yes
Other
Requirement to file annual return: Yes
Change in domicile permitted: Yes

Company Information

When wholly foreign-owned, a private company is referred to as an international business company.

On 1 st January 2003 the favorable tax regime previously available to IBC’s was abolished and all companies are now taxed on the same basis.

Type of Company for International Trade and Investment

Company Limited by shares which is subdivided into:

(a) Public companies and

(b) Private companies which are also subdivided into:

i. Exempt Private Company

ii. Limited Private Company

Company Limited by shares

Company Limited by guarantee

(c ) The Partnerships and Business Name Law, Chapter 116, also provides for two general types of Partnerships:

i. General Partnership

ii. Limited Partnership

 Procedure to Incorporate

By submission of the Memorandum and Articles of Association to the Registrar of Companies, together with an affidavit before a Court and the appropriate registration fee.

The powers and objects of a Cyprus Company are contained within the Memorandum & Articles of Association and have to be specific.

Restrictions on Trading

Cannot undertake to the business of banking, insurance or the rendering of financial services to the public unless special permission is granted.

Companies cannot trade with resident individuals or companies situated in Cyprus other than in relation to the maintenance of premises, banking and professional services, unless they have special permission from the Central Bank of Cyprus.

 Language and Legislation of Corporate Documents

English and Greek.

 Registered Office Required

Yes, must be maintained in  Cyprus.

 Time to Incorporate

Approximately five days, subject to name approval.

Company Name

The name of a company must be approved by the Registrar of Companies before the whole registration procedure commences.

Names of companies similar to existing company names are not approved. Likewise, names of a “general meaning” are not approved. Finally, names including words like “Royal”, “Queen”, “King”, “Saint”, “Common-wealth”, International”, “Bank”, etc, are not approved either.

Company names are approved in approximately in three working days time.

Company names must end with the word “Limited”.

It is advisable that a range of names is given to the Registrar of Companies to avoid unnecessary delay.

Our company maintains a list of already approved names by the Registrar of Companies. The registration of the company may therefore commence immediately if one of these names is chosen. The list of already approved names is available on request.

 Name Restrictions

Any word that the Registrar considers undesirable.

Any name that is identical or similar to an existing company or sounds similar.

Any name that implies illegal activity or implies royal or government patronage, the following words or their derivatives: asset management, asset manager, assurance, bank, banking, broker, brokerage, capital, credit, currency, custodian, custody, dealer, dealing, deposit, derivative, exchange, fiduciary, finance, financial, fund, future, insurance, lending, loan, lender, option, pension, portfolio, reserves, savings, security, stock, trust or trustees.

If the word “Group” is to be used in the company name the minimum number of corporate shareholders are two.

 Language of Name

Names may be expressed in Greek or any language using the Latin alphabet if the Registrar is in receipt of a Greek or English translation and the name is not considered undesirable.

 Names Requiring Consent or Licence

The following names or their derivatives require consent or a licence:
“Asset Management” “Asset Manager”, Assurance”, “Bank”, “Banking”, “Broker (s) / Brokerage”, “Capital”, “Credit”, “Currency (ies)”, “Custodian(s)”, “Custody”, “Dealer(s)” “Dealing”, “Deposit(s)”, “Derivative (s)”, “Exchange”, “Fiduciary (ies)”, “Finance”, “Financial”, “Fund (s)”, “Future (s)”, “Insurance”, “Lending”, “Loan(s)”, “Lender(s)”, “Option(s)”, “Pension(s)”, “Portfolio”, “Reserves”, ‘Savings”, “Security(ies)”, “Stock”, “Trust”, Trustees” their foreign language equivalents or any name that the Registrar considers may have a connection with the aforementioned

Company Seal

No mandatory requirement but is permitted and generally used.

Disclosure of Beneficial Ownership to Government Authorities

The identity of the beneficial owners of a Cyprus Company may remain confidential if corporate shareholders are engaged to act as the shareholder on behalf of the ultimate beneficial owners.

Confidentiality

With the use of nominee shareholders together with the appointment of a nominee director one can ensure complete confidentiality and anonymity of the beneficial shareholders.

As from the beneficial owner of the Company, we will require the following documentation to be provided via scan.

-passport copy

– bank reference letter

– confirmation of residential address (recently dated)

 Authorised and Issued Share Capital

The share capital usually expressed in Euros.

The usual authorised share capital of a Cyprus IBC company is € 5,000 and the recommended minimum issued capital is € 1,000.

Classes of Shares Permitted

Registered shares of par value, preference shares, redeemable preference shares and shares with no voting rights.

 Taxation

By virtue of special provisions in the Cyprus Income Tax Laws, the net chargeable profits of Cyprus IBC Companies are taxed at a rate of 10%.

Double Taxation Agreements

Cyprus has concluded 43 double tax treaties with: Austria, Bulgaria, Belarus, Belgium, Canada, China, the Czech Republic, Denmark, Egypt, France, Germany, Greece, Hungary, India, Ireland, Italy, Kuwait, Malta, Mauritius, Norway, Poland, Romania, Russia, (including most of the CIS countries, i.e. Azerbaijan, Armenia, Kyrgyzstan, Moldova, Uzbekistan and Ukraine), Singapore, Slovakia, Slovenia, South Africa, Sweden, Syria, Thailand, United Kingdom, USA and the former Yugoslavia.

 Financial Statement Required

Amendments made in 2003 to the Companies Law as part of the EU accession process included the following changes:

  • Every company must prepare a full set of financial statements in accordance with International Financial Reporting Standards, and every parent company that has one or more subsidiaries, other than a company which is itself a wholly owned subsidiary, should present consolidated financial statements
  • Under article 120, every company must complete an annual return within a period of 42 days from the date of its Annual General Meeting and must file immediately with the Registrar of Companies, a copy of the annual return, signed by a director and the company secretary. Under article 121, the annual return filed with the Registrar of Companies must be accompanied by the full set of financial statements

 Directors

The minimum number of directors is One.

They may be natural persons or bodies corporate, be of any nationality and need not be resident in Cyprus.

Company Secretary

All Cypriot companies must appoint a company secretary, who may be a natural person or body corporate.

It is advisable to appoint a resident company secretary.

Shareholders

The minimum number of shareholders is One.

Holding Companies

Cyprus’ a well established international centre, has been critically assessed as constituting an attractive location for holding companies from a tax perspective, among others. This is due to the accession ofCyprusto the European Union (EU) and the enactment of the newCyprustax legislation, which is now compatible with the acquis communautaire.Cypruslaws and practices are now harmonised with the EU Laws and Directives, the Code of Conduct and the Organization for Economic Cooperation and Development’s recommendation on Harmful Tax Corporation.

Audit

Companies need to be audited every year and to:

– Submit financial statements to Registrar of Cyprus Companies in Greek language

– Submit an annual company income tax return to the Inland Revenue. The Inland Revenue has the right to request the actual audited financial statements and tax computations of the company.

The audit must be carried out by a Cypriot firm of auditors in accordance with the International Accounting and Auditing Standards.

Tax Regime

Unlike other countries inEurope, a Cyprus Holding Company must only hold a minimum 1% of the share capital of a foreign subsidiary in order to receive the tax benefits awarded by the new tax reform.

According to the new tax regime which applies in Cyprussince the 1st of January 2003, a company is a resident for tax purposes inCyprus if the management and control of the company is carried out in or fromCyprus.

Management and control is taken to mean the ‘effective management’ of the company (e.g. that all important decisions regarding the Company are taken in Cyprus, all Board meetings take place in Cyprus – which would easily be facilitated if the majority of the Board of Directors are Cyprus residents).

Cyprustax resident companies pay annual corporate income tax on their annual taxable profit. This taxable profit is arrived at after deduction of business related expenses and other relevant tax adjustments.

The tax rates are as follows:

Companies which at 31.12.01 were and still are generating income from sources exclusively outsideCyprus(or were expecting income which have not resulted due to the nature of their businesses), have the option to elect to continue to be taxed at the rate of 4.25% until 31.12.2005 and 10% as from 1.1.2006.

For companies incorporated during 2002 the tax rate is 4.25% for the profits of 2002 and 10% as from 1.1.2003. For companies incorporated after 1.1.2003 the corporate income tax rate is 10%.

For companies being taxed under the new tax regime (i.e. at the rate of 10%) there are certain favourable tax provisions available, such as exemption system for dividend income, tax exemption from gain resulting from disposal of shares and group relief.

New Tax Legislation

A uniform 10% corporate tax rate, applicable to the worldwide income, is now levied on all resident companies. This is the lowest corporate tax rate in the European Union and thus the most advantageous standard rate of corporation tax for Cyprus.

The new taxation status on Company is residence-based. A company is only ‘resident in the Republic’ if its business is centrally managed and controlled in Cyprus. Therefore, under the new rules, a resident corporation is taxable on its worldwide income accrued or arising from sources both within and outside Cyprus if it is managed and controlled from Cyprus.

In view of the new tax legislation, the Holding International Business Companies operating fromCyprus are now in a much more beneficial position because they can enjoy the benefits deriving from the tax exceptions as well as the corporate tax benefits by virtue of the new tax legislation.

Dividends received

Dividends received from abroad are now totally exempt from corporation tax by virtue of the new tax legislation. Furthermore, they are also exempt from the 15% defence contribution provided that the direct holding is at least 1% of the share capital of the overseas company.

Restructuring provisions

In view of the incorporation of the EC Merger Directive 90/434/EEC into the new tax law, there are tax exemptions on the transfer of assets (including shares) under a reorganisation (merger / de-merger / transfer of assets).

Gains on shares and Capital Gains Tax

Profits from buying and selling shares are exempt from tax. Furthermore, there is no capital gains tax except for the 20% capital gains tax applying on gains accruing from disposal of immovable property held inCyprus and shares in non-listed companies, which own immovable property inCyprus.

Profits from activities of Permanent Establishment abroad

The profits from a permanent establishment abroad are exempt from taxation. The exemption does not apply if (i) the Permanent establishment directly or indirectly engages in more than fifty per cent (50%) in activities that produce investment income, and (ii) the foreign tax burden is substantially lower than that in Cyprus.

Cyprus Branches of Companies

With the accession of Cyprus in the EU, double taxation relief will be available to all Cyprus branches, of companies resident in other member states in the European Union, since there is no discrimination between the companies’ resident in a Member state and the branches of such companies’ residence in another member state.

Distributions by Cyprus Holding Companies

Dividends paid to non-resident shareholders are exempt from withholding tax. In fact,Cyprus does not impose withholding taxes on payments of dividend, interest and royalties (provided the intellectual property rights are not used inCyprus) to non-resident recipients.

Carry forward of Losses

Tax losses for the year 2000 onwards may be carried forward indefinitely. Losses incurred abroad by a permanent establishment of a Cyprus company can be offset against profits of the Cyprus Company.

Group relief

The Group relief rules are now enacted, providing for group relief of tax losses between a holding Company and its subsidiaries in the event where the Holding Company owns at least 75% of the Subsidiary directly or indirectly and/or otherwise among companies of the same group for the whole year. However, losses brought forward will not be available for Group Relief.

By virtue of the said rules a company is considered as a member of a group if it is at least a 75% subsidiary of the other, or both companies are at least the 75% subsidiaries of a third company.

Network of Double Tax Treaties

Cypruscombines a low-tax regime with a network of double tax treaties. It has concluded the highest number of double tax treaties compared to any other offshore jurisdiction, particularly with Central and Eastern European Countries and a number of Middle Eastern countries. Most of the Treaties follow the OECD model and all of them have the impact of reducing or eliminating the normal withholding taxes imposed by the Contracting states on dividends, interest and royalty payments. This is beneficial for trade with certain Eastern European Countries and Russia because foreign investors investing in Eastern Europe have the opportunity to channel their investments through a country, such as Cyprus, which has a treaty with the investment recipient country allowing for a reduction and in some cases elimination of the withholding taxes.

Conclusions

Cyprus, one of the smallest European low tax jurisdictions, is a suitable place for locating an intermediary company due to the island’s combination of tax treaties and low-tax regime.

Dividends can flow through theCypruscompany totally tax free and the company can be used to take advantage of the extensive network of double tax treaties.

For incorporation queries in this jurisdiction, please complete and return to us our Company Formation Questionnaire.

For further information on our services provided in this jurisdiction and for the list of our currently available self-companies in this jurisdiction, please Contact Us.

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