CYPRUS COMPANIES
LEGAL FRAMEWORK
17th June, 2010
Prague
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Agenda
• Incorporation, duties and maintenance
– Directors / Secretary obligations
• Tax regime – corporate and personal
• Accounting and audit requirements
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The Cyprus Legal System and Companies Legal Framework
• Cyprus Legal System
– Modeled after English Legal System
– Principles of common law
• Cyprus Companies Law based on UK’s
Companies Act 1948
– Adjusted with Cypriot reality / EU Law;
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Regulatory framework for the Incorporation of
Cyprus Companies
• Pre-approval of name by the Registrar of
Companies required
• Director/s and Secretary – obligatory
– Private Limited Liability Company
• At least 1 Director and 1 Secretary
– Public Limited Liability Company
• At least 2 Directors and 1 Secretary
• Registered address in Cyprus
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Regulatory framework for the Incorporation of
Cyprus Companies
• Share capital
– No min requirement
– Shares issued and paid upon incorporation
• Memorandum and Articles of Association
– Memorandum
• Specifies the objects of the Company
– Articles
• Specify the domestic regulations and administration of the
Company
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Redomiciliation of a foreign company to Cyprus
• Foreign companies may transfer their seat in
Cyprus
– Condition: should be permissible under the
jurisdiction of incorporation of the foreign co
• Cost efficiency! No liquidation and reregistration costs
• Tax benefits
– Migrating company NOT deemed to be
liquidated, hence no taxable disclosure of its
hidden reserves where applicable.
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Directors duties & powers
Fiduciary duty:
• Not enter into contracts with the Co unless allowed by the
articles or if approved by General meeting or when disclosed
• Act in good faith for the benefit of the Co
• Use powers and issue shares for a proper purpose
• Avoid conflicts of interests with their company
Duty of care and skill:
• Does not have to demonstrate greater degree of skills than
expected
• Not obliged to give continues attention to co’s affair
• Entitled to leave running of the co to the officials
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Secretary
• Mandatory for all Companies
• Can be a legal or physical person
• Appointed by the Directors
• Duties – no specific duties
– Generally responsible for the
administrative affairs of the company
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Compliance requirements
• Keeping proper accounting books and records and
preparation of financial statements
• Tax Compliance
• Preparation of audited financial statements
• Submission of Annual Return (Registrar of
Companies)
• Submission of Tax Returns
• Submission of VAT Returns
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Cyprus Tax Regime
• Simple and efficient tax regime attracting
more and more foreign investments
• Cyprus is treated as a most favorable
destination for:
• Holding Companies;
• Financing Companies;
• Royalty Companies;
• SPV
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Cyprus Tax Regime
• Cyprus tax resident companies are subject to
tax on their worldwide income
– Corporate Income tax (CIT) is rated @ 10%
– The effective CIT rate is reduced even further
considering the exemptions on:
• Gains on disposal of securities
• Dividend income
• Interest income (not in the ordinary course of business)
– Deductibility of expenses if incurred wholly and
exclusively for the production of income
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Tax Briefing on Cyprus
• Lowest corporation tax in the EU (10%)
• Inbound dividends are generally tax free
(limited requirements apply)
• No WHTs on payments to non-residents
• No capital gains tax on disposal of shares
or non-Cyprus situated property
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Tax Briefing on Cyprus
• Immediate implementation of all EU
Directives, including:
• Parent – Subsidiary Directive
• Interest & Royalty Directive
• Merger Directive
• No thin capitalization rules
• No inheritance tax
• Extensive network of Double tax treaties
concluded
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Tax Residency
• A Company obtains the status of a Cyprus
tax resident if:
– Managed and controlled in Cyprus
• Management is generally exercised by the board of directors
of a Company
• Majority of local directors and meetings held in Cyprus
advisable for tax purposes
• Registration is not sufficient for residency.
• Non-resident companies are taxed only on
income derived from Cyprus
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Personal tax regime
• Resident individuals subject to tax on worldwide
income
• Residency established where:
– An individual resides in Cyprus +183 days in a year
• Applicable tax rates
Taxable Income in EUR
0
– 19,500
19,501 – 28,000
28,001 – 36,300
36,301 +
Tax rate
0%
20%
25%
30%
• Exemptions include:
– Dividend income
– Gains from the sale of securities
– Interest income (outside the ordinary course of business)
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Companies (Fees & Duties Payable) Regulations
• On the registration of a company:
• Flat fee of €102,52 plus 0,6% on the authorized
share capital of the Company.
• On the increase of authorised share
capital of a company:
• 0.6% on the amount of the increase
• Fees for the submission of documents
at the Registrar of Companies
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Special Contribution to the Defence
• Dividends received from overseas subsidiaries
– 15% unless:
• not more than 50% of the paying company’s activities result
in investment income; and
• the foreign tax is not significantly lower than the Cyprus tax.
• Dividends paid
– 15% on dividends distributed to shareholders who are residents
of Cyprus (physical persons);
– no tax on dividends paid to non-resident shareholders.
– Deemed dividend distribution provisions apply (applicable on tax
residents)
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Special Contribution to the Defence
• Interest received
– 10% tax on interest earned by an individual or
company resident in Cyprus (outside the
ordinary course of business).
• Rental income
– 3% on rental income of a Cyprus resident
(after deduction of 25%).
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Capital Gains Tax
• Imposed on gains from:
– the disposal of immovable property in Cyprus
– the disposal of shares in companies the assets of which consist of
immovable property in Cyprus
• Unless shares are listed in a recognised stock exchange.
• Exemptions:
– the sale of shares listed in any recognised stock exchange
– transfer of immovable property due to death;
– gifts among relatives up to the third degree, to companies by members
of the family of the shareholders, by a family owned company to its
members
– donation for charity to charitable organisations or to the Republic
– exchange of properties of equal value
– expropriation of property;
– sale or exchange of property consistent with the provisions of the
Agricultural Land (Consolidation) Laws;
– Gains realised from transfers arising due to re-organisation
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Capital Gains Tax
• Non-residents also liable
• Deductions extended to individuals
– sale of private residence
– sale of land used by a farmer
for agricultural purpose
– other sales
€85,430.07
€25,629.02
€17,086.01
VALUE ADDED TAX
• Obligation to register with the VAT
department
– Annual turnover exceeding €15,600
– Intra-community services imposes an
obligation to register irrespective of turnover
• Maximum level not giving rise to VAT
registration obligation €13,668.81 (lower T/O
can be registered voluntarily).
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VALUE ADDED TAX
• VAT rates
–Standard 15%
–Reduced 8 / 5%
–Zero rate
• Exemptions include medical services, postal
services, financial services, insurance
services, education, rent and disposal of
immovable property (licensed before
05/2004), services to mutual funds, etc.
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Other Fees & Taxes
• Immovable property tax
– Progressive rates of 0 – 0.4% depending on the value of the
property
– Specific exemptions apply under the law
• Transfer fees for immovable property
– Progressive rates of 3 – 8% depending on the value of the
property
– Exemption applies in cases of qualifying reorganisations
• Stamp duty
– Imposed on contracts relating to things or matters to be done in
Cyprus
– Rates: 0.15 – 0.20% depending on the consideration amount
– Capped at €17,086
– Exemption applies in cases of qualifying reorganisations
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Other Fees & Taxes
• Social Security contributions
Employer
Social Insurance
Redundancy fund
Industrial training
Social Cohesion Fund
%
6.8
1.2
0.5
2.0
Employee
%
6.8
0
Self-employed
%
12.6
0
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Accounting & Audit Requirements
• Companies Law, Cap. 113
– requirement to keep proper accounting books &
records
• Representing a true & fair view of the company’s affairs
• Enabling the preparation of financial statements
• Preserved in the registered office of the company
– Holding companies with 1 or more subsidiaries
should prepare consolidated financial statements
according with IAS
• Small sized groups – exempt from the obligation to prepare
consolidated financial statements
– The financial statements, directors’ report &
auditor’s report (where applicable) should be
presented by the directors at the general meeting
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Accounting & Audit Requirements
• Companies Law, Cap. 113
– Obligation to prepare Audited Financial Statements in
cases of:
• Companies under an obligation to prepare consolidated
financial statements
• Public Companies
• Private companies other that small sized companies
– Small sized company (2 out of 3 requirements to coexist):
• Overall assets under approx. €3.5m; and/or
• Net turnover under approx. €7m; and/or
• Number of employees under 50
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Accounting & Audit Requirements
• Income Tax Law
– Accounts either presented to the Commissioner of
inland Revenue or accompanying a tax return to be
submitted to the Commissioner of Inland Revenue
must be certified by a qualified auditor
• Audited financial statements should follow:
– The International Standards of Auditing;
– The International Financial Reporting Standards
(IFRS)
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