Companies that may be established in Cyprus

1.    COMPANY REGISTERED UNDER THE COMPANIES LAW, CAP 113

I.    Cyprus Resident Companies
II.   Cyprus non-resident Companies
III.  Holding Companies
IV.  Investment Companies
V.   Real Estate Companies
VI.  Finance Companies
VII. Trading and re-invoicing Companies
VIII.Trading in Securities Companies
IX.  Royalty Companies
X.   Employment Companies
XI.  Consultancy Services Companies
XII. UK non-resident Companies
 

I) Cyprus Resident Company

A company incorporated in Cyprus is considered to be a tax resident of Cyprus if it is managed and controlled in Cyprus. A company to be managed and controlled in Cyprus is expected to have the majority of directors to reside in Cyprus and to hold Board Meetings in Cyprus. Resident companies are subject to corporation tax at the rate of 10% which is the lowest corporate tax rate in the entire European Union.

Cyprus has concluded tax treaties with 45 countries worldwide. Apart from that, a Cyprus company, being an EU-based entity, is entitled to the benefits of the EU Parent-Subsidiary directive and the EU Interest and Royalty directive, under circumstances providing for withholding tax exemption for interest, dividends and royalty payments made by companies in other EU-member states to a Cyprus company. These are explained below in more detail.

II) Cyprus non-resident Companies

A company incorporated in Cyprus is not considered to be a tax resident of Cyprus if it is not managed and controlled in Cyprus. A Cyprus company not managed and controlled in Cyprus is expected to have the majority of the directors to reside outside Cyprus and to hold Board Meetings outside Cyprus.
Companies incorporated in Cyprus but not tax residents of Cyprus are not subject to taxation in Cyprus unless they have a permanent establishment in Cyprus or they receive rental income from property in Cyprus or they make profits from the sale of Cyprus based real estate.
A Cyprus non-resident company cannot take advantage of the Double Tax Treaties concluded by Cyprus. For more information see ‘International Business Branches’ below.

III) Holding Companies

Cyprus has emerged as one of the most favoured holding company jurisdictions in Europe. The location of the island as well as the tax legislation, which has been developed in accordance with EU and OECD requirements, have contributed to making Cyprus an attractive location for setting up of holding companies.
Holding companies are set up as an efficient means of fusing ownership of investments in operating subsidiaries. Businessmen will usually decide which jurisdiction provides the most tax effective means when establishing a holding company.
A Cyprus Holding Company is a company that holds shares in other companies. It usually refers to a company which does not produce goods or services itself, rather its only purpose is owning shares of other companies. Holding companies enable a reduction of risk for the owners and can allow the ownership and control of a number of different companies.
Cyprus is increasingly becoming one of the most popular holding company jurisdictions in Europe. It has a multitude of tax advantages and due to the island's recent EU membership, this has made it extremely attractive to those wishing to establish a Holding Company.
Why are Cyprus companies used as holding companies?

There are many reasons:

IV) Investment Companies

A Cyprus IBC can be used as an investment company financing various projects internationally belonging to the same group.  For more information see ‘Cypriot Investment Firms (CIF)’ companies below.


V) Real Estate Companies
In certain jurisdictions the use of an IBC owning a real estate will minimize or eliminate capital gains taxes, inheritance taxes and income taxes.
For example, if a Cyprus IBC beneficially owned by a UK non-resident, purchased a property in the UK for investment purposes and the property was then later sold on to a third party, the capital gain arising from the transaction would not be subject to UK capital gains tax.

VI) Finance Companies

An intermediary Cyprus Finance IBC can be placed in between a parent company in a no tax jurisdiction and subsidiary companies operating in countries which signed Tax Treaties with Cyprus. The Cyprus Finance IBC will borrow money from the parent company in a no tax jurisdiction and lend money to the subsidiary companies operating in countries which signed Tax Treaties with Cyprus.

VII) Trading and Re-invoicing Companies

International trading is one of the most commonly used examples where a Cyprus IBC can be used. An intermediary Cyprus IBC can be placed in between a Buyer and a Seller. In this way, taxable profits can be transferred from a high tax jurisdiction to one with low taxes. The trading will continue with the goods moving directly from the seller to the final buyer and the documents through the intermediary Cyprus IBC company.
The addition of a Cyprus IBC in the commercial chain can be suitable for a seller or a buyer. Both the seller and the buyer can use an intermediary IBC to reduce taxes paid on the profits arising from the trading in their home countries.

It must be mentioned that the transactions with the intermediary company should be entered into on terms and conditions which could be obtained on an arm's length basis from independent third parties.
For trading within Europe it is necessary to register the company for VAT purposes. We can assist you to register with the VAT Authorities in Cyprus and we can administer the VAT documentation.
An advantage of a Trading and Re-invoicing Cyprus company is that goods are not necessary to be physically delivered to Cyprus but they are delivered directly to their destination.

VIII) Trading in Securities Companies

Cyprus has a favorable tax regime for IBC's trading in securities worldwide. There are a lot off advantages of a Cyprus IBC used to buy and sell securities such as bonds and shares worldwide, listed in a stock exchange or not.

X) Royalty Companies

Royalties are the payment of license fees or commissions by one individual or entity to another for the use of intellectual property such as:

    * patents
    * trademarks
    * copyright

For many international companies, the development and licensing of intellectual property can be considered as one of their most important activities. Licenses can be granted to third parties or related parties. Adequate structuring of the ownership of the intellectual property and channeling of the license payments can lead to significant tax benefits.

IX) Employment Companies

The use of a Cyprus IBC can be tax advantageous to Individuals who are not tax residents in Cyprus and who receive substantial amounts of income and benefits in kind in respect of employment exercised outside Cyprus.
The right to receive their income and benefits in kind can be assigned to a Cyprus IBC. In other words, the Cyprus IBC would contract with the Employer for the performance of a relevant work and would invoice and receive payment accordingly. The Individual will be an employee of the Cyprus IBC.
The Individual will not be taxed in Cyprus personally for salaries received from his employment contract with the Cyprus IBC, in respect of employment exercised outside Cyprus.


X) Consultancy Service Companies
Professionals and consultants with international business activities can use a Cyprus IBC as a tax planning tool for the management of their operations in Europe or to third countries.
The Cyprus IBC will enter into contracts with other parties for the performance of the relevant work and will invoice and receive payments accordingly. Therefore, the profits will be transferred to a low tax jurisdiction.
Cyprus is a suitable jurisdiction with extensive double tax treaty agreements. For the double taxation treaties please see below.

XI) UK Non-Resident Companies

A company incorporated in a foreign country is considered to be a tax resident of Cyprus if it is managed and controlled in Cyprus. A foreign company to be managed and controlled in Cyprus is expected to have the majority of directors to reside in Cyprus and to hold Board Meetings in Cyprus.
A UK register company managed and controlled from Cyprus and with activities outside UK will not be taxed in the UK but it will be considered a tax resident of Cyprus.
The UK Company will be register in Cyprus with the Registrar of Companies as a foreign company and with the tax authorities as a tax resident of Cyprus.

2. INTERNATIONAL BUSINESS BRANCHES

(Note: see also Companies Non-Resident Cyprus companies )

Companies incorporated outside Cyprus (Overseas Companies) may register a branch in Cyprus under section 347 of the Companies Law. This does not amount to the creation of a new legal entity in Cyprus; the entity incorporated abroad simply has a branch in Cyprus and may operate through it for its international activities.

Overseas Companies may establish a branch in Cyprus by filing with the Registrar the following documents translated into Greek :

• a certified copy of the overseas corporation’s charter, statutes or
• memorandum and articles of association or other instrument containing or defining its constitution;
• particulars of any directors and secretary of the corporation;
• the names and addresses of one or more persons resident in Cyprus authorised to accept on behalf of the corporation any notice required to be served on it.
  

Any changes to the above particulars should be notified to the Registrar of Companies.
The overseas corporation’s charter should be certified by:

• a public notary or governmental official in whose custody the original is committed, or
• an officer of the company before a person having authority to administer an oath.
  

The certificates of the above persons should be authenticated by a diplomatic or consular representative of the Republic of Cyprus. Upon registration of the branch, its management should be provided with a full set of documents, properly legalised and translated into English or any other language. Such documents normally comprise of:

• the certificate of registration
• the charter of the overseas corporation or other instrument defining its constitution
• a list of directors and name of the person authorized to accept notices
• letter headings, invoices and other branch stationery
• any other information and documentation pertaining to the branch’s activities up to the date of its establishment.
  

A branch is required to file annual accounts.

3. INTERNATIONAL BUSINESS PARTNERSHIP

A Partnership is based on an agreement between two or more natural or legal persons to carry on a business in common with the view to profit. Partnerships are registered in Cyprus under the Partnerships and Business Names Law which is also based on English Law.

There are two types of Partnerships:

General Partnership in which every partner is jointly and severally liable with the other partners (without limit) for all debts and obligations of the partnership. After a partner’s death his estate is also severally liable for such debts and obligations in the due course of an administration, insofar as they remain unsatisfied subject to the prior payment of his separate debts.

Limited Partnership in which there is at least one general partner liable (without limit) for all debts and obligations of the partnership and one or more limited partners who are not liable beyond the fixed amount that they have contributed to the partnership. A limited partner may neither take part in the management of the partnership nor bind it.

For the registration of a partnership, a prescribed form is submitted to the Registrar of Partnerships containing the name, address, nationality, profession of each partner, the name, object and duration of the partnership and the partners’ authority to bind the partnership.

4. INTERNATIONAL COLLECTIVE INVESTMENT SCHEMES (ICIS

Cyprus introduced in May 1999, a legislation enabling the establishment and regulation of International Collective Investment Schemes ("ICIS").

The International Collective Investment Schemes Law has established the required legal framework for the establishment, regulation of operations and supervision of ICIS. ICIS can be established and operated by non-residents. The object of such schemes is the collective investment of funds of unit holders. Unit holders may be other international collective investment schemes, Cyprus international business companies or individuals who are not residents of Cyprus.

An ICIS can take the following legal forms:

• International fixed capital company
• International variable capital company
• International unit trust scheme, and
• International investment limited partnership
  

All the ICIS, must be approved as such by the Central Bank of Cyprus, which is the regulatory and supervisory body of the Schemes. The managers and the trustees whom the Scheme must appoint (unless the Central Bank of Cyprus gives its written approval for exemption), must also be approved.
The legislation includes, inter alia, provisions for appointment and removal of managers and trustees, the definition of the schemes (as a scheme marketed to the public, a scheme marketed solely to professional investors or a private international collective investment scheme), the method by which a scheme can have a limited duration (if required) and the method of repurchase of shares. In addition the legislation gives the Central Bank the authority to issue regulations by which the investment restrictions that the schemes have to adhere to, depending on their investment goals and policy, are set.

None of the managers, trustees, employees or any other person who has any information relating to the Scheme or the unit holders may disclose or use for own benefit any such information. Also, the Central Bank of Cyprus may not disclose any information unless required to do so by court order.

5. OPEN – ENDED UNDERTAKINGS FOR COLLECTIVE INVESTMENTS IN TRANSFERABLE SECURITIES (UCITS

The Open –Ended Undertakings for Collective Investments in Transferable Securities Law 200(I)/2004 provides the legal framework for the registration, regulation and marketing of local and foreign funds in Cyprus.

Under this law, local UCITS may take the following legal forms:

• Mutual Funds or
• Variable Capital Investment companies
  

To set up and operate a Mutual Fund in Cyprus the permission of the Cyprus Securities and Exchange Commission (CySEC) is required. In summary, the application needs to fulfill the following criteria:

• Both the fund manager and the custodian (one must be independent of the other) of the mutual fund need to meet the criteria set out by the CySEC;
• Fund rules need to be approved by the CySEC;
• The name and information memorandum of the fund needs to be approved by the CySEC
• The minimum capital is EURO 1,700,000, which must be deposited within three months of the granting of the license
  

For a Variable Capital Investment Company to be set up and operated the permission of the CySEC is required. As such the application needs to meet criteria similar to those required for a Mutual Fund and in addition:

• there are special rules to be implemented in the constitutional documents of the company.
• custody of the assets is normally assigned to an approved custodian.
• the management of the assets is normally assigned to a CySEC licensed fund manager.
  

In case that foreign UCITS qualify under the EU Directive 85/611/EEC and which are based in another EU Member State and wish to market their units/shares in Cyprus need to apply to the CySEC for registration.

In this respect a written notification to the CySEC must be submitted by the foreign UCITS along with backing documents, such as attestation by the competent authority in the state of domicile, fund rules, latest prospectus and accounts etc.
It is important to know that UCITS are subject to tax like any other entity as described above.

6. CYPRIOT INVESTMENT FIRMS (CIFs

(Note: see also Investment Companies)

The Law which provides for the provision of investment services, the exercise of investment activities, the operation of Regulated Markets and other Related Matters (implementing MiFID) (Law 144(I)/2007) (the "Act") provides the legal framework for the provision of investment services (including noncore services) as well as for the registration, regulation of operations and supervision of CIFs.

Investment services include any of the following services:

• Reception and transmission, on behalf of investors, of orders
• Execution of such orders
• Dealing for own account.
• Managing of investment portfolios
• Underwriting
  

Non-core services include any of the following services:

• Safekeeping services.
• Safe custody services.
• Granting of credits or loans to clients.
• Financial advice.
• Services connected to underwriting.
• Investment advice.
• Foreign-exchange services.
  

CIFs must be licensed by the CySEC, which is the relevant regulatory and supervisory authority. In this respect, a written application to the CySEC must be submitted and accompanied by a number of documents. Some key documents that should accompany the application include:

• Business plan.
• Articles of Association.
• An excerpt of the criminal record, certificates of non-bankruptcy and resumes of the members of the Board of Directors, the executives and shareholders possessing a qualifying holding, as well as their answers to a questionnaire issued by CySEC.
• Internal regulation (operations manual)
• Organizational structure.
• Description of the computer network and electronic infrastructure.
• Draft regulation, for the prevention of the legalization of the proceeds of criminal activities.
  

After the granting of the authorization, the CIF must comply with the ongoing obligations provided in the law and the relevant CySEC Directives.

In case that a banking institution (defined as such under the Banking Law) wishes to provide investment services in Cyprus then a relevant authorization is also granted by the Central Bank of Cyprus provided that the additional criteria laid by the Central Bank of Cyprus are fulfilled.

7. FORMATION OF SOCIETAS EUROAEA (SE>

A European Company (SE) is a public limited-liability company, which is governed by Community law directly applicable in all member states. Cyprus has recently implemented the EC Regulation for the Societas Europaea (SE) (European Company). As a result the way is now clear for the registration of Cypriot registered SEs. An SE company can be formed in any Member State of the EU. It can be formed in any of the following ways:

• The formation of a holding company by public or private limited companies from two different Member States.
• The merger of two or more existing public limited companies from at least two different Member States.
• The formation of a subsidiary from at least two different Member States.
• The conversion of a public limited company, incorporated under national law, having had a subsidiary at least for two years in another Member State.
• The formation of a European Company by existing European Company
• The European Company must be registered in the country where it maintains its administrative office. It can transfer its registered office within EU without winding up and without any registration requirements in the different Member States. The incorporated company must be registered with the Registrar of the Member State and its name published in the European Companies Official Journal.
  

Regardless of the currency the European Company is required to have a minimum amount of share capital of the equivalent of at least €120.000.For tax purposes the European Companies are treated according to the national tax legislation. Cyprus low tax rate of 10% and the presence of an extensive range of double taxation treaties make Cyprus the best choice for the formation of European Companies.

Please contact us for further information on any of the above.