Legal Forms of Companies

Cyprus Company

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.

1. Company Limited by shares which is subdivided into:
   1. Public companies
   2. Private companies which are also subdivided into:
      1. Exempt Private Company
      2. Limited Private Company
2. Companies limited by guarantee (where the members give a guarantee to pay a stated sum in the event of winding up)
3. 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.

Partnerships

The Partnerships and Business Name Law also provides for two general types of Partnerships:

1. General Partnership
2. Limited Partnership

Sole Proprietor

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.

Uses of Cyprus Companies

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.