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CYPRUS
INCORPORATION SERVICES

 

COMPANY FORMATION IN CYPRUS

ADVANTAGES TO INCORPORATE
IN THE EUROPEAN UNION
UNDER A VERY LOW TAX SYSTEM

 

CYPRIOT OFFSHORE COMPANIES ADVANTAGES
- There is only 10% declared corporate profit tax (4.25% for the companies formed before 2002).
- Dividends to shareholders are tax free.
- Double tax treaties have been concluded between Cyprus and 38 countries, Russia, Ukraine including.
- Offshore companies situated in Cyprus may purchase various items for their own needs duty free.
- The owner of a Cypriot off-shore company may remain anonymous using our nominee services.

Cyprus is a major offshore and onshore business centre, with great business facilities and thousands of offshore companies. It is also a wonderful place to be, close to almost everywhere by air and with a very good communications network.

 

GENERAL INFORMATION
GEOGRAPHY, POPULATION LANGUAGES

Cyprus is located in the north-eastern part of the Mediterranean, at the cross-roads of Europe, Africa and Asia. It is the largest island in the Eastern Mediterranean. 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 principal topographical features of Cyprus are the two mountain ranges running down the centre and across the north-east of the Island, separated by a wide, fertile plain.

Cyprus has a pleasant climate with dry, hot summers and mild winters, enjoying about 300 days of sunshine throughout the year. The rainy season is between November and March.

The population of Cyprus is about 706,000. Greek Cypriots form the largest ethnic community, representing about 82% of the population. The capital city is Nicosia, which has a population of about 200,000. The official languages are Greek and English. Northern Cyprus is occupied by Turkey, where 18% of the island’s population live and Turkish is the official language.

HISTORY, POLITICAL STRUCTURE AND LAW
Cyprus gained independence from Britain in 1960. In 1974 Turkey invaded Cyprus and has occupied the northern 40% of the island since then, although discussions are currently taking place with a view to reunification.

Since 1960 Cyprus has had a Presidential system of Government, with Presidential elections taking place every 5 years. The political system is modelled on Western democracies, in which individual rights are respected and private enterprise is given every opportunity to develop. The executive branch 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 Cyprus and the electoral system is based on proportional representation.

The legal system is based on British law, and all statutes regulating business matters and procedure are based on English Common Law. Most laws are officially translated into English. The Company law is modelled on the UK Companies Act of 1948. In addition, Cyprus has signed an associate agreement with the European Union.

ECONOMY AND INFRASTRUCTURE
There are frequent air connections to many international destinations. Larnaca International Airport replaced Nicosia as the main International airport in 1975, and the second international airport near Paphos became operational in late 1985. There are major port facilities at Limassol, Larnaca, and Paphos. All ports in Cyprus come under the Cyprus Ports Authority. There are a number of regular passenger services with neighbouring countries, especially in the summer. An excellent network of roads provides internal transport within the island. Northern Cyprus is only reachable from Turkey.

Cyprus has a good telecommunications system, and over a hundred countries can be reached by direct dialling from any telephone; excellent postal and courier services are also available.

Agriculture, traditionally an important sector of economy that still remains the largest employer, is no longer the principal source of income. Tourism accounts for the largest proportion of GNP, and the development of the service sector has exceeded all expectations. Manufacturing also provides an important source of foreign exchange.
The economy of Cyprus is based on a system of free enterprise. The Government’s role is only to regulate, plan and provide public utilities. During the last ten years, the economy of Cyprus has demonstrated spectacular growth, and its currency, the Cypriot pound, has enjoyed relative stability. There are exchange controls, but they do not apply to offshore companies.

CURRENCY
Euro

TYPE OF LAW
Civil with many English Common Law influences

PRINCIPAL CORPORATE LEGISLATION
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.

COMPANY INFORMATION
When wholly foreign-owned, a private company is referred to as an international business company. On 1st 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:
Public companies and
Private companies which are also subdivided into:
- Exempt Private Company
- Limited Private Company
Company Limited by guarantee

The Partnerships and Business Name Law, Chapter 116, also provides for two general types of Partnerships:
- General Partnership
- 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

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 LICENSE
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.

SUFFIXES TO DENOTE LIMITED LIABILITY
Limited or Ltd

COMPANY SEAL
No mandatory requirement but is permitted and generally used

DISCLOSURE OF BENEFICIAL OWNERSHIP TO GOVERNENT 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. This confidentiality is maintained as long as the company and its ultimate beneficial owners are not involved in any criminal activity.

COMPLIANCE

AUTHORIZED AND ISSUED SHARE CAPITAL
The share capital must be expressed in Euros. The usual authorized share capital of a Cyprus IBC company is € 8,543 and the minimum issued and paid up capital is € 1,708

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 34 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.

LICENSE FEES
Not applicable

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 of Cyprus to the European Union (EU) and the enactment of the new Cyprus tax legislation, which is now compatible with the “acquis communautaire”. Cyprus laws and practices are now harmonized with the EU Laws and Directives, the Code of Conduct and the Organization for Economic Cooperation and Development's recommendation on Harmful Tax Corporation.

TAX REGIME
Unlike other countries in Europe, 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.

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 from Cyprus 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.

TAX EXEMPTIONS
In view of the new tax legislation 50% of interest received by a corporation is tax exempt, excluding interest received from the recipient's ordinary course of business or closely connected with the recipient's ordinary business.

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% defense 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 reorganization (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 in Cyprus and shares in non-listed companies, which own immovable property in Cyprus.

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 in Cyprus) to non-resident recipients.

CORPORATE TAX BENEFITS
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
Cyprus combines 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.

 

KEY CORPORATE FEATURES

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

Minimum paid up:

€1,708

Usual authorised:

€8,543

Directors or Managers

Minimum number:

One

Local required:

No, but advisable for purposes of tax residency

Publicly accessible records:

Yes

Location of meetings:

Anywhere, but Cyprus advisable 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, but Cyprus advisable for residency and compliance

Accounts

Requirement to prepare:

Yes

Audit requirements:

Yes

Local Auditor:

Yes

Requirement to file accounts:

Yes

Publicly accessible accounts:

No

Other

Requirement to file annual return:

Yes

Change in domicile permitted:

No

* When wholly foreign-owned, a private company is referred to as an International Business Company

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 the Cyprus company totally tax free and the company can be used to take advantage of the extensive network of double tax treaties.

 

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