Cyprus as Member State of the European Union has developed into an ideal destination for doing business for foreign enterprises and individual investors who wish to take advantage of the suitability of the Cyprus legal entities.
When it comes to business through Cyprus, investors and businessmen have the option of using one of the following legal entities:
• a limited liability Company
• a partnership
• a branch of a foreign Company
A Cyprus Company is one of the most popular and effective method of tax planning. A Cyprus company can either be resident in Cyprus (provided its management and control is in Cyprus) or it can be non-resident (if its management and control is outside Cyprus).
The key condition of incorporating a Cyprus Company by a non-resident is the presence of the treaties for the avoidance of double taxation between the country of registration and the countries where the Cyprus Company or its subsidiaries will have activities.
The existence of these treaties, combined with the low tax paid by a Cyprus company offer the possibilities for effective international tax planning.
Tax Advantages of a Cyprus Company
A uniform 12.5% corporate tax rate, applicable to the worldwide income, is now levied on all resident companies
- Dividend income from abroad to Cyprus is wholly exempt from corporation tax provided the direct holding is at least one per cent (1%) of the share capital of the overseas company. This exemption will not apply if the company paying the dividend engages in more than fifty per cent (50%) of its activities in producing investment income and the foreign tax burden on the income of the company paying the dividends is substantially lower than that in Cyprus.
- There is no withholding tax on the payment of dividends, interest and royalties (provided the intellectual property rights are not used in Cyprus) to non-residents of Cyprus.
- The new tax legislation adopts the appropriate European Union directive which enables reorganizations, mergers, acquisitions and amalgamations of companies without tax implications.
- Dividend income and profits from the sale of securities are exempt from corporation tax.
- With 2 exceptions, profits from a permanent establishment abroad are exempt from corporation tax.
- There are no time restrictions on the carrying forward of tax losses.
- There is group relief for the utilization of tax losses.
The registration procedure of a Cyprus Company:
1. Name of the Company
The first step in the process is to obtain approval of the proposed name of the company from the Registrar of Companies. The Registrar is unlikely to accept a name if: it is too similar to that of an existing company, it is considered misleading, too general or pompous, it suggests a royal, national or international connection or it includes certain words such as “Co-operative”, “Insurance”, “Bank”, “Financial Services. The name must include the word “Limited” or its abbreviation “Ltd” to signify limited liability status.
2. Company’s Memorandum and Articles of Association
This is the constitutional charter of the Company and is drafted by a local advocate. It is divided into two parts:
Once approval for the company name is obtained, the Memorandum and Articles of Association of the company are prepared and submitted for registration to the Registrar of Companies.
The Memorandum of Association primarily includes the objects and powers of the Company particularly as regards its dealings with the outside world, its limited liability character and its authorised capital.
The Articles of Association comprises the Regulations under which the Company operates as a legal entity and regulates the rights of the shareholders amongst themselves.
3. Share Capital
The share capital can be expressed in any currency and there is no minimum paid up capital. Authorised or Nominal Capital is the total capital, which the Company is allowed to issue to shareholders. Both Authorised and Paid up Capital may be increased very easily at any time by a Resolution of the Shareholders and as provided in the Company’s Articles of Association.
The minimum number of directors is one, who can be either an individual or a legal entity. The same requirement is provided for the shareholders. The difference is that the nationality of the directors is crucial, while the nationality of shareholders is immaterial.
The appointment of the secretary is made by the directors and the articles of association should normally contain an appropriate provision to this effect. The existence of a secretary is a requirement of the law. For practical purposes a body corporate (i.e. a company) may be appointed secretary. A number of secretarial companies which can act as secretaries to Cyprus companies are available and operate satisfactorily.
6. Registered office
Every company must have a registered office from the day it commences business or from the fourteenth day after its incorporation, whichever is earlier. The registered office is the place where writs, summonses, notices, orders and other official documents can be served upon the company. The registered office is usually the place where the company’s Register of Members is kept, unless the company informs the Registrar of Companies of another place.
For more information about Cyprus Companies you may visit the site of the Registrar of Companies and Official Receiver of the Republic of Cyprus here .
Our law firm may assist you with the incorporation of a Cyprus Company and advice on structure of cross-border operations in a tax efficient manner. You can read more for our corporate and fiduciary legal services here .