Cyprus: Cyprus Business Headlines

One Stop Shop" For Foreign Investors

A new government service has been established by the Ministry of Commerce, Industry and Tourism to encourage investment and new business ventures by facilitating the completion of registration formalities for new companies.

The new service operates as a "One Stop Shop", hosting services from all the government departments involved in setting up a new business in Cyprus.

Officials from the Department of the Registrar of Companies will be available, with the authority to approve a company name, check all corporate documents and forward them for the immediate registration of the new company within two to five working days.

Representatives of the VAT Department will register the new company for VAT purposes, and provide a registration number and any other necessary information on VAT.

The Labour Department will also have staff on hand to provide assistance with employment of both local and foreign staff, and to effect registration in the Social Insurance Scheme.

The Immigration Department will issue residence permits and work permits for directors, managers and staff from third countries, as well as any permits required by EU citizens.

The Inland Revenue Department will provide Tax Identification Numbers and advice on Cyprus tax.

In addition to the above, officials from the Ministry of Commerce, Industry and Tourism will be on hand to provide general advice and assistance to anyone wishing to invest in Cyprus. They will provide information and advice on grants and incentives, and help to co-coordinate the granting of any necessary permits and licenses.

Continued progress towards eurozone

The Cyprus House of Representatives has approved Cyprus's entry into the Eurozone on 1 January 2008 and has passed the necessary legislation to amend the law on the Central Bank to satisfy EU requirements and to establish the legal framework for the transition to the euro.

The enactment of the Adoption of the Euro Law of 2007 marks a significant step in progress towards the euro. It provides the legislative framework for conversion of Cyprus pounds into euros, including the detailed conversion process, dual pricing, dual circulation and measures to combat profiteering.

The exchange rate (to six significant figures) at which the Cyprus pound will be converted into euro will be set in July 2007. There has been speculation that the rate adopted will represent an effective devaluation of the Cyprus pound, but the government has consistently maintained that there will be no change from the current rate.

From 1 August, in preparation for the changeover date of 1 January 2008, prices will be displayed in Cyprus pounds and euro. Dual display of prices will be mandatory unless an exemption is granted on the grounds that it is technically unfeasible or disproportionately expensive. Exceptions will be made for sums lower that 1 cent; digital price displays; bus tickets and tickets issued electronically including airline and ferry tickets and parking meters. Dual display of prices will continue until six months after the changeover.

The Euro Law provides that all balances with banks and co-op credit societies will be converted into euros without charge. Public and private debt will be re-denominated in euro.

For one month after the changeover date (the parallel circulation period) Cyprus pound notes and coinage will continue to be legal tender but change will be given in euro. Cheques issued in Cyprus pounds issued after 1 January 2008 will be invalid.

The Euro Law sets out the arrangements for exchange of banknotes, coinage, revenue and postage stamps after the changeover date. It also contains detailed provisions amending other laws to reflect the introduction of the euro (for example, to convert fines and penalties and companies’ share capital – see below). Public authorities such as the Land Registry will be obliged to publish tariffs of charges for their services within three months of the conversion rate being set.

A "euro Observatory" will be set up in each district to protect consumers against profiteering in connection with the introduction of the euro. Any person infringing the law faces an administrative fine of up to CYP 100,000 or €170,000.

Cyprus’s application has been unanimously approved by the Eurogroup Finance Ministers and the approval of the relevant Heads of Government is widely expected to be a formality. Barring unforeseen developments Cyprus will therefore adopt the euro as its currency on 1 January 2008.

Cyprus is already familiar with the new currency due to its tourist industry and its ties with Greece, which adopted the euro in 2002. Eurozone entry, and particularly the establishment of a Single European Payment Area in which international transactions in euro can be made as simply as domestic transactions, will bring considerable benefits for business.

Article by Kyriacos Georgiades

Conversion of share capital following adoption of the euro

The Euro Law does not include any provision for the share capital of existing companies, which is generally expressed in Cyprus pounds, to be automatically converted to euro. Instead, all companies whose share capital is denominated in Cyprus pounds will be required to pass a resolution in a general meeting to change their share capital and amend their memorandum and articles of association. Notice of

the change must be filed with the Registrar of Companies, who will not charge any fee for registration.

Although this ought to be no more than a formality, care will have to be taken to comply with the detailed provisions of the Cyprus Companies Law which, for example, requires a special resolution for such purposes.

Until companies have filed the necessary documents to amend their share capital the Registrar of Companies will not accept any other documents from them for registration. Furthermore, if the conversion has not taken place within one year from the adoption date, the Registrar will accept the resolution only with a court order authorising late registration of the conversion of capital.

We shall be writing to clients of our companies management service with detailed recommendations for action but if you are likely to be affected and require separate advice, please contact us.

The markets in financial instruments directive ("mifid")

Cyprus has introduced draft legislation to implement Directive 2004/39/EC of the European Parliament and of the Council on Markets in Financial Instruments and Directive 2000/12/EC of the European Parliament. Together, these establish a comprehensive regulatory framework for the execution of transactions on behalf of investors by stock markets, alternative trading systems and investment firms, with the objective of protecting investors, developing a single market in investment services across the EU, and promoting fair and transparent integrated financial markets.

As part of the process, a "single passport" for investment firms, banks and stock markets has been created which enables such institutions to offer their services on a cross-border basis throughout Europe on the basis of home-country authorisations, granted on the basis of uniform prerequisites in all Member States.

The draft law, which also incorporates other relevant EC Directives, will replace the existing Investment Firms Law of 2002 (Law 148(I)/2002). It is expected to be adopted by 1 November 2007.

Implementation of the takeover bids directive

Cyprus has enacted legislation transposing the European Takeover Bids Directive (Directive 2004/25/EC) into domestic law.

This newsletter is provided to clients and friends of Andreas Neocleous & Co as a periodic update on business developments in Cyprus. It is not intended to give a definitive statement of the law and readers should take appropriate professional advice before taking any action.

The new Law on Public Takeovers applies to public takeover bids for companies whose registered office is in the Republic of Cyprus and which are admitted to trading on a locally regulated market. Some of its provisions will also apply to companies whose registered office is outside Cyprus, provided certain conditions are met.

A key feature of the new law is the provision of a set of general principles governing public takeover bids, such as equal treatment of shareholders and shareholder protection. In addition, the law sets out the procedures to be followed before and after the announcement of the public takeover bid, the mechanics of a public takeover bid (such as the way in which information will be disseminated), restrictions on the offeror company after the announcement of the bid and the circumstances under which the initial public takeover bid can be revoked. The law also includes new "squeeze out" and "sell out" provisions.

Social insurance contributions for third country (non-eu) nationals employed by international business companies

Liability for payment of social insurance contributions in Cyprus is governed by the Social Insurance Laws, which require everyone who is in employment in Cyprus (including the self-employed) to pay a percentage of their gross income to the Department of Social Insurance.

The Law sets out certain exempt categories of employment. These include persons who are not habitually resident in Cyprus and whose employer is not habitually resident in Cyprus and has no place of business there. Liability depends on whether or not the relevant employee and the relevant employer are habitually resident in Cyprus. International companies that have no activities in Cyprus are not habitually resident, but if they have employees who are habitually resident in Cyprus there may be a liability to Social Insurance.

Since the beginning of 2007 the Civil Registry and Migration Department of the Ministry of Interior, which is responsible for the issue of residence permits, has required third country nationals to produce evidence of payment of Social Insurance Fund contributions in order to renew their residence permit. It had not previously required any such proof of payment.

Following representations from the international business community, the government is reviewing its

policy and has given assurances that, at least until the review is complete, residence permits will continue to be renewed without evidence of payment of social insurance contributions

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.