Establishing a business in Cyprus is a tax-efficient way to conduct business in the European Union and beyond. The island also boasts a large network of service providers such as advisory, legal, accountancy services who can assist in setting up a company.
Cyprus Companies offer many competitive advantages when compared with other global business centres. Investors seeking an EU compliant, tax-efficient and stable tax planning environment will find the island offers considerable opportunities to minimise tax exposure. The companies’ law in Cyprus is 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. Cyprus’ business structures, tax system, infrastructure, highly skilled workforce and membership of the European Union have made Cyprus one of the most attractive international business hubs in the world today. Cyprus has become a location of choice for international commerce as well as for reputable multinationals seeking a legitimate tax efficient jurisdiction. The laws and regulations for setting up and administering Cypriot entities are the same for foreign investors carrying on international business activities as they are for local investors. Entities may be registered in the following legal forms under Cypriot company law which is almost identical to the UK’s former Companies Act 1948:
The main types of business entities in Cyprus are:
- Cyprus Company
- Branch of a Foreign Company
- Sole Proprietor
- Cyprus International Trust
A company can be formed by registration under the Companies Act. The Companies Act provides for three different types of company. The majority of business organisations in Cyprus are limited liability companies.
Company Limited by shares which is subdivided into:
- Public companies
Private companies which are also subdivided into:
- Exempt Private Company
- Limited Private Company
- Companies limited by guarantee (where the members give a guarantee to pay a stated sum in the event of winding up)
- Unlimited companies (where the liability of members in the event of winding up is unlimited)
Branches of Foreign Legal Entities
Foreign investors tend to use either subsidiary companies incorporated in Cyprus or branches in order to do business in Cyprus. Subsidiary companies are treated as separate entities in company law. Branches are considered to be extensions of their foreign company. The foreign company is therefore liable for all debts of the branch.
The Partnerships and Business Name Law also provides for two general types of Partnerships:
- General Partnership
- Limited Partnership
Sole proprietors, or sole traders, are individuals who own and run a business on their own account with or without employees. They may trade under a chosen business name, if they so wish, but they are personally responsible for all the debts of the business. There are no statutory requirements governing the format of sole proprietors’ accounting records. No audit of their annual accounts is required nor do they have to be filed at Companies House. Sole traders’ profits are eligible to income tax, whether the profits are actually distributed to the proprietor or left in the business.
Cyprus International Trusts
The use of Cyprus International Trusts is increasingly becoming popular as a vehicle for international tax planning and business structuring. Income and gains of a Cyprus International Trust derived from sources outside Cyprus are exempt from any tax imposed in Cyprus.
- Cyprus holding company:
- A Cyprus company can act as an intermediary between EU and non-EU jurisdictions, as well as in combination with emerging markets such as Russia and India. A Cypriot company receives dividends from subsidiaries suffering no or little withholding tax at source in accordance with the provisions of the EC Parent-Subsidiary Directive or under Cyprus’ extensive network of double tax treaties. Disposals of shares in the subsidiaries can be made with no Cypriot tax consequences. Dividends can be paid by the company without deduction of withholding tax.
- Cyprus finance company:
- Undertaking a group financing function, a Cypriot company can receive interest income suffering no or little withholding tax at source in accordance with the provisions of the EC Interest & Royalties Directive or under Cyprus’ extensive network of double tax treaties and pay interest without deduction of withholding tax. The net profits would be taxable at 12.5%.
- Cyprus investment trading company:
- Profits from the disposal of securities (shares, bonds, debentures and options) are exempt from tax irrespective of whether this profit forms part of a company’s trading activity or is capital in nature.
- Cyprus intellectual property holding company:
- Royalty income can be derived suffering no or little withholding tax at source in accordance with the provisions of the EC Interest & Royalties Directive or under Cyprus’ extensive network of double tax treaties.
- Cyprus Ship owning and/or managing and crew employer company:
- Specific tax exemptions apply to companies owning Cyprus flagged ships or managing and employing crews working in international waters.
- Cyprus Company for oil and gas exploration:
- Combined with the permanent establishment exemption, often the exploration activity can be undertaken in an income tax free manner.
The procedure for the incorporation of a Cypriot legal entity can be completed within a period of two weeks at the most and enables the entity to start business forthwith. The principal information required when registering a Cypriot company includes:
- Name of the company:
- Company name reservation and approval procedures exist.
- Memorandum and Articles of Association:
- These specify the activities in which the company may engage and the means by which it will govern its affairs.
- Capital structure:
- There is no minimum required issued and paid up capital, however it is common to have share capital of at least 1,000 euro.
- There must be at least one shareholder. Shares can be held by trustees in Cyprus in trust for the beneficial owners.
- Although not a requirement, it is common practice for the majority of the directors to be Cypriot residents.
- Company secretary and registered office address:
- Every company must have a company secretary and a registered office address in Cyprus which may also be used as the business address of the company.
Every Cypriot company is required to maintain proper books of account and to prepare audited financial statements in accordance with IFRS. In accordance with Cypriot tax law, every company is required to submit an annual corporate income tax return. There is also the requirement for annual financial statements prepared in Greek and a company annual return to be submitted to the Registrar of Companies. The translations are often undertaken by the local advisers at minimal cost.
Unless a company is seeking to provide banking, insurance, financial or investment advisory services from Cyprus or undertake professional or medical services, there are no licences or permissions required to commence business in Cyprus.