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Cyprus offers entrepreneurs across the world several incentives to establish companies in the country, deriving for example from its very favourable tax system as well as its well integrated Company Act and Regulations. As a full member of the European Union, Cyprus has, as from 1.1.2008, adopted the Euro as its official currency and, being party to Double Tax Treaties with more than 30 countries, and with its international Business environment functioning in a favourable corporate tax regime for more than 30 years, it creates attractive opportunities for company tax planning and for benefiting from the high standard of professional services by lawyers, auditors, bankers, managers, fund managers and other professionals in the country.

A company may open and operate bank accounts in any bank in Cyprus or overseas. After registration, the company can run its business through any such account and transfer any amount of money from Cyprus to any other country without any limitation and without any prior permit being required to that effect. Many local and offshore banks operate in Cyprus, offering banking facilities of this kind. The directors of the company may operate these accounts, either personally, if they reside in Cyprus, or through an agent in Cyprus or, by agreement, through a bank in their country of residence using special codes and orders supplied for this purpose by the bank.

Any individual or company can register a company in Cyprus.

DOCUMENTS REQUIRED FOR REGISTRATION

If you are interested in registering a company in Cyprus, you will need to provide to us, in relation to any shareholder and ultimate beneficial owner, the following information and documents

  • A photocopy of the passport of the person or persons who will be the shareholders of the Company and, in the case of a shareholder who is also a company, all the necessary certificates of that company will be needed.
  • Full business and residential address, profession, brief description of business activities
  • A Bank reference for each shareholder of the Company
  • A curriculum vitae (resume) of each shareholder of the Company

COMPANY ACTIVITIES

Our Company Law is a virtual reproduction of the United Kingdom Companies Act 1948 and we have prepared a model Memorandum and Articles of Association on that basis, which we have used on nearly all international business companies we have been registering over the years.

However, we need a brief description of the general activities of the proposed company, present or future, and a specific description of two or three of its main objects, so that we may adjust the text, if necessary, to meet your own needs and requirements.

SHARE CAPITAL

The share capital is in Euro but, of course, it may be expressed in Sterling, Dollars or any other currency. The Authorized or Nominal Capital is the total capital which the company is allowed to issue to its shareholders. Paid up Capital is that part of the Authorized Capital which has been issued to, and paid up by, the shareholders. Both the Authorized and Paid up Capital of the company may be increased at any time as provided by the company's Articles of Association.

SHAREHOLDERS

Every private company limited by shares may have any number of shareholders not exceeding 50. A company may have only one shareholder, who may be either a natural or legal person. Any shareholder may hold the shares in trust for another person. When we register a company in Cyprus, we use, for practical purposes, our own nominee companies. Immediately after registration, these companies either continue holding the shares as nominees for the client, or transfer the shares in the name of the client, according to the client's directions. In the first case the client secures his anonymity and he receives an instrument of trust, the original of the certificate of shares and a blank instrument of transfer.

DIRECTORS

There is no legal requirement that a private company should have more than one director or that the company should have local directors. However, for a number of reasons (such as the safeguarding of the management and control of the company for tax purposes in Cyprus and the smooth running of the company here), local directors or alternates are also appointed. The above is not an obligatory scheme, but it is usually adopted by the clients. In discharge of their duties, the local directors will act under the law of Cyprus but within this framework they will have to take into consideration the wishes of the beneficial owners of the shares and, in this respect, they ask for a normal "indemnity" which must be signed and returned in due course.

COMPANY SECRETARY

Each company has to have a Secretary, who may also be a director, but a sole director shall not also be the secretary, unless the Company has only one shareholder and only one director. The Secretary's duties are to keep and safeguard the records of the company, file Official Returns, etc. The Secretary acts under the control and the instructions of the directors, keeps the company's statutory registers and performs certain administrative functions

REGISTERED OFFICE

Each company must have a registered office, as its business address, in Cyprus, where its name and certificate of incorporation are exhibited. The registered office is the address where writs, notices and other official documents can be served on the Company.

COMPANY'S MEMORANDUM AND ARTICLES OF ASSOCIATION

These form the constitutional charter of the company and are drafted by a local advocate. They are divided into two parts:

The Memorandum of Association, which primarily includes the objects and powers of the company particularly as regards its dealings with the outside world and third parties, its limited liability status and its authorized capital.

The Articles of Association which comprise the regulations under which the company operates as a legal entity and regulates the rights of the shareholders.

NOMINEES

The prevailing method used is for a company to secure its representation by employing Cypriot nominees. Members of our firm can undertake this by registering their names in the articles of association and memorandum. After the incorporation of the company the nominees transfer their subscription shares to the actual shareholders by issuing instruments of transfer or the nominees continue to hold the shares on trust on behalf of the beneficial owner.

A nominee acts on behalf of the beneficial owner. At the same time however, appointed nominees are not actually entitled to manage the company without the approval of the beneficial owner. Holding the shares on for the beneficial owner guarantees a high level of confidentiality.

The following documents are provided by the nominee to protect the security of the beneficial owner:

  • The trust deed
  • Undated Instruments of transfer
  • Directors' resolution approving the transfer of shares to the actual shareholder
  • The original share certificates issued in the names of the nominal shareholders
  • Undated letters of resignation of the nominee directors

TAX

Corporation Tax

A company duly registered in Cyprus either by locals, foreigners or E.U. citizens may operate in Cyprus and carry out any business activity. Companies having their management and control in Cyprus (ie 'resident' in Cyprus) are liable to a 12.5% Corporation Tax on their taxable income. This means 12.5% tax on their 'net' profit after deducting from their income expenses incurred wholly and exclusively for acquiring this income.

Special Defense Contribution Tax

Dividend income received by shareholders is subject to Special Defense Contribution Tax at the rate of 17%, which is withheld at source if received from Cyprus Resident Companies. In this case however, the Special Defense Contribution will not be withheld at source and thus the resident and domiciled person has to declare the dividend in order to be assessed.

Relief for Double Taxation will be given as for any other foreign income.

Non domiciled persons are not subject to defense tax. For natural persons, defense tax was applicable on those who were Cyprus tax residents, and was applied on certain types of worldwide income (e.g. 17% on dividends). Cyprus tax residency for individuals is determined by the number of days each person spends in Cyprus on each calendar year (183 days).

The new amendment to the law introduced in July 2015, introduces the concept of 'non-domiciled' persons and provides that special defense tax contribution is applicable on Cyprus tax resident persons who are also domiciled in Cyprus. This means that individuals who are NOT DOMICILED in Cyprus, and regardless of whether they are Cyprus tax residents, will now NOT BE SUBJECT to special defense tax contribution.

An individual is considered as domiciled in Cyprus by way of domicile of origin or by domicile of choice. It is also noted that an individual who has spent 17 out of the last 20 years as a tax resident of Cyprus will be considered to be domiciled in Cyprus. Furthermore, an individual who has Cyprus as domicile of origin shall NOT be considered as domiciled in Cyprus if he was not a Cyprus tax resident for at least 20 years before the year he becomes tax resident in Cyprus.

Notional Interest Deduction on Equity

Companies resident in Cyprus and companies not resident in Cyprus which maintain a permanent establishment in Cyprus are entitled to a Notional Interest Deduction on 'new equity', which is effectively a tax allowable deduction against the taxable profits of the company.

According to the legislation the 'new equity' includes funds introduced into the share capital of the company after 1 January 2015 and which have actually been paid and used for the operations of the company. It does not include amounts that have been capitalised and which were derived from revaluation of movable or immovable property. It is provided that any new equity that has been introduced in a company on or after 1 January 2015 which directly/indirectly emanates from reserves existing as at 31 December 2014 but does not relate to the financing of new assets used in the business, is not deemed as new equity.

Notional interest was calculated based on the effective interest earned on the 10-year government bonds of the country in which the new equity is invested plus 3% premium, with the minimum rate being the equivalent 10-year bond yield of Cyprus Government plus a 3% premium.

The above is applicable until 31/12/2019.

The Cyprus Parliament has voted into Law on the 16th of June 2020 amendments in respect of the Notional Interest Deduction (NID). These revised provisions aim to enhance the tax benefit provided to Cyprus entities which use new equity for their financing activities.

As per the amended legislation, the definition of new equity applicable as from 01/01/2020 includes equity introduced into the business of the Cyprus entity on or after 1 January 2015 (therefore reserves that existed before 1 January 2015 can no longer be considered new capital if capitalised).

The calculation of the NID is now based on the effective interest earned on the 10- year government bonds of the country in which the entity is invested plus 5% premium and there is no longer a minimum rate. In the event that the state in which the new equity is invested has not issued any government bond by the 31 December of the year preceding the tax year for which a deduction is claimed, the interest rate shall be equal to the 10-year government bond rate of Cyprus plus 5% premium, on the 31st of December of the year preceding the tax year.

The Notional Interest Deduction granted on new equity cannot exceed 80% of the taxable profit of the year, as calculated before allowing the Notional Interest Deduction. Further, clarification has been provided with the amendment that the calculation of the NID cap of 80% on the taxable profits is in respect of the profits arising directly from the use/investment of the new equity and it can be applied to taxable income arising separately from each new equity capitalised. NID cannot be claimed against profits not matched as arising directly from the new equity.

BANK ACCOUNT

A company may open a bank account, in most of the main currencies, anywhere in the world. The signatories of such accounts need not necessarily be directors of the company, but appropriate resolutions must be passed by the company (following the format of the particular bank), to instruct its bankers accordingly

AUDITORS

Each company must have its auditors who will audit the accounts of the company and file the Official Returns. Accounts can be kept elsewhere but must be filed in Cyprus with the relevant Authorities, by local authorized auditors.

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.