The summary below has been prepared as a simple outline for clients considering incorporating a company in the Republic of Cyprus. It is not intended to be a comprehensive legal guide on how to set up a company in the Republic of Cyprus. Clients should seek professional legal advice prior to taking any steps to implement any of the matters discussed below.
The Republic of Cyprus is well known as one of the most attractive countries in which to set up a company. Its strategic location at the hub of Europe, Africa and Asia and close to the trade routes linking these continents together with its sophisticated infrastructure, fast telecommunications, modern banking network, an easy to understand legal system based on English law, and most favourable of all, its favourable tax regime makes Cyprus an excellent choice in which to set up your company. Cyprus continues to maintain its competitiveness as an international financial centre and is a well placed choice for transactional activity to and from Russia and Central and Eastern Europe. Company documents are also readily available in the English language. Furthermore, there are over forty double tax treaties in force that continue to offer excellent opportunities for effective tax planning and thereby effectively reducing overall taxation for individuals and their businesses. Therefore, a Cyprus company is often used by overseas businesses as a holding company for any type of business regardless of where the business is actually located.
The taxable profits of all Cypriot companies are taxed at 10%. If income is derived from ship management activities a company may be eligible to pay a preferential income tax rate of 4.25% or even a lower special tonnage tax rate where certain conditions apply. Dividend and other profit distributions received by Cyprus tax resident companies from foreign subsidiaries are exempt from tax. Another tax benefit is that Cyprus does not impose any withholding tax on dividends paid by a Cypriot company to non-tax resident shareholders. Capital gains arising from the sale of immovable property outside Cyprus is within the scope of capital gains tax. Capital gains tax is only applicable for immovable property located in Cyprus. With respect to VAT, the VAT rate was increased to 18% on 14th January 2013 and shall be further increased to 19% on 13th January 2014. However, most often the activities of companies ultimately owned by foreign individuals conduct activities that fall outside of the scope of VAT and they can, if they wish register for VAT on a voluntary basis and recover any input VAT on Cyprus expenses.
There are several different types of business set ups that may be established in Cyprus and specific legal advice must be obtained prior to any one of these being formed in order that it is specific to your particular business needs. These include a limited liability company (discussed below), public limited liability companies, international business branches, international collective schemes, Cypriot Investment Firms,
A company may be created in Cyprus as a legal entity in accordance with the provisions of the Companies Law Cap 113. The Companies Law in Cyprus is based on the English Companies Act of 1948 but several amendments were enacted after the island’s accession to the EU in 2004. Two types of companies may be currently registered (not established) in Cyprus.
(i) a company with limited liability by shares; or
(ii) a company with limited liability by guarantee (this can be set up with or without shares) although this type of company is only used for non-profit making activities.
The main advantage of the limited liability company with shares is that the shareholders liability is limited to the nominal value of the shares subscribed to the shareholder and is generally most often used by overseas investors who interested in using a Cyprus company as a holding, property or general trading and commercial company.
The registration of a company in Cyprus, particularly a private company limited by shares takes approximately ten working days although this can be expedited if required. The following is required for the registration:
(i) Company name – we would need to require approval from the Company Registrar for any proposed names. The Registrar will not accept a name if it is very similar to that of an existing company or it is considered misleading or too general. So, if you would like the words “Financial Services” in your name, you generally need to ensure that you are intending to provide financial services.
(ii) Directors and Secretary – the law provides that at least one director is appointed but we would generally advise that at least two directors are appointed. Directors may be Cypriot or overseas citizens; the company must also have a secretary and performs the administrative duties of the company. Quite often, the secretary is usually the law firm setting up the company.
(iii) Share capital – the company’s share capital is generally expressed in Euros and is divided into shares of any value, again expressed in Euros, although the company’s share capital may be expressed in another foreign currency. The authorized or nominal capital is the total amount of capital which is issued to the shareholders. The paid up capital is the part of the authorized capital which has been issued to and paid up by the shareholders. Both authorized and paid up capital can be increased at any time by a resolution of the shareholders as set out in the Company’s Articles of Association. The denomination of the shares is not restricted in any way but it is often easier if the capital to be divided into shares of Euro 1 each.
(iv) Registered office – every company must have a registered office in Cyprus and companies are free to operate from the offices of lawyers or accountants or from their own offices if they do indeed decide to set up their own physical office in Cyprus.
(v) Company’s objects, memorandum and articles of association shall be drafted by your Cypriot lawyer– a summary of the company’s proposed main business will be required; the memorandum of association shall set out the powers of the company with regard to its business dealings, its limited liability and its authorized capital; the articles of association sets out the charter of the company and how it operates and regulates amongst other things, the rights of the shareholders directors.
Cyprus uses a combination of both an electronic system and a paper filing method in order to set up a company. However, our offices are actually across the road from the Companies Registry in Nicosia which means we can file all types of documents with the Company Registrar in accordance with your needs extremely quickly.
Don't hesitate to contact us for a free consultation to discuss your particular company needs.
Setting up a company in Cyprus
by Andrea Pavlou - January 2013