Cyprus is an attractive location for the setting up of offshore company (IBCs). Here Turner Little look at Cyprus and its rewards.
Offshore Cyprus has traditionally been a reasonably attractive location for the setting up of international business companies (IBCs). Certainly before entry into the EU this was the case. Whether joining the EU made it more or less attractive is debatable. An offshore jurisdiction within Europe and having the benefits of a genuinely offshore jurisdiction in terms of confidentiality and so on, would undoubtedly prove very attractive of itself. However, Cyprus being part of the European Union undoubtedly cancels out any of the benefits, certainly in terms of confidentiality, that one would normally try to attain when setting up “offshore”. The exchange of information resulting simply from Cyprus being a part of the EU has effectively destroyed it as an offshore jurisdiction for most. The more recent events experienced by Cyprus own financial difficulties a couple of years ago and more recently the well-publicised and still current difficulties between Greece and the EU make Cyprus, arguably, even less attractive.
Notwithstanding that Cyprus is an independent state at least as far as any other in the EU, the fact is that it was formerly part of Greece and its banking sector is still to this day, with one or two notable exceptions, inextricably connected to Greek banks. The current solution between Greece and the EU is at best a sticking plaster on a very deep wound and the patient, Greece and, vicariously Cyprus, is unlikely to tend to its dressings in the longer term. Therefore the wound will and must eventually re-open and we shall be back at square one.
Does this mean it is unattractive in terms of incorporating there? That depends upon the person incorporating and what they are trying to achieve. Certainly there can be tax benefits though again in the longer term these are likely to be eroded as the Cypriot Government are forced by pressures from within the EU, to raise taxes. If you did incorporate there, would you put your banking arrangements there? If you don’t have much money there and you trust the government to abide by its own bank guarantee scheme, you might. However, there is huge evidence to suggest that the bank guarantee scheme in Cyprus is not worth a jot (to see why read the article at “FBME v The US Treasury” – well worth a read).
Despite all these caveats, what ifs and cautions, it may still be worth considering Cyprus for both company and banking and, having dealt with the negative aspects here are the plus points:
- Cyprus is a relatively safe jurisdiction for the keeping of assets through IBCs.
- Double Taxation Treaties providing ample opportunities for international tax planning.
- Tax incentives created to attract new foreign investment through IBCs. The corporate tax rate is the lowest in the EU.
- No currency restrictions or exchange control regulations.
- Strategic location of Cyprus and good infrastructure.
- Highly skilled human resources and strong pro-business attitude of the Cyprus people, high level of linguistic skills.
- Cyprus offers stability and security.
- Cyprus abides by the Transparency Initiatives such as Tax Compliance Act (FACTA) and the OECD requirements.
- Regulatory regime for fiduciaries and service providers, licensed under the Cyprus Securities and Exchange Commission.
- Companies tend to be of substance as opposed to mere shells.
- Legal System of Cyprus
The legal system of the Republic of Cyprus is a blend of common law and statute with stemming historically from the fact that that Cyprus was controlled and administered by the British from the late 1870’s through to 1960, before it gained its independence. The Republic of Cyprus acceded to the European Union in 2004; since when EU law is given supremacy over conflicting legislation of Cyprus as with all other member states of the EU.
The Companies Law, Cap. 113, as amended is the legislation which governs and regulates all Cyprus companies. This is mostly a reproduction of the UK 1948 Companies Act, though amended to comply with the requirements of the EU as well as market forces. The Law applies to public and private companies; it contains a set of model articles of association, the so called “Table A” Regulations common for so long in the UK, which can be fully or partially adopted by public or private companies. All newly incorporated companies are required to register with the Cypriot Tax Authorities immediately after their incorporation or at the latest within 60 days from their incorporation. Additionally, Anti Money Laundering legislation imposes Know Your Client requirements in relation to the incorporation of a new corporate entity in the Republic of Cyprus.
Incorporation of a Cyprus Company
Any one or more persons in the case of a private company (or seven or more in the case of a public company) may establish a limited liability company.
A company (with Cyprus interests) or an IBC may be either:
a company whose member’s liability is limited to the nominal value of the shares subscribed for by that member and its articles restrict the right to transfer shares (a “limited liability company by shares)”; or
a company whose member’s liability is limited to the amount that such member has undertaken to contribute to the assets of the company in case of its winding up (a “limited liability company by guarantee”).
A company limited by shares is the most common form of a Cyprus company, whether of local or foreign interests (IBC); there is no distinction between them as there used to be at a time when the companies were called ‘offshore’ and ‘local’.
The proposed name of any company must be approved by the Registrar of Companies whose examination and approval or rejection of the name takes approximately three to six business days from the day of filing of the relevant application.
Objects and Articles of the Company
Each company must have a Memorandum of Association setting out the objects of the company, and Articles of Association, that is to say, the regulations by which the company will be managed in relation to decision making, administration, transfers of shares etc. A company can operate and be active in any legal form of trade or business provided that it does not act outside the scope of its objects; Once the name is approved by the Registrar, a hard copy of the Memorandum and Articles of Association, satisfying the relevant legal provisions, signed by the first shareholders of the company along with forms indicating the company’s registered office address, directors and secretary, is filed with the Registrar.
There are no minimum or maximum share capital requirements for a Cyprus private company. A Public Company however must have a minimum share capital of €25,630; the share capital may be denominated in any currency.
A private limited liability company must have at least one and a maximum of fifty shareholders. A public company must have at least seven shareholders. Shares can be held by trustees/nominees in trust for the beneficial owners, thus safeguarding anonymity. However, the identity of the owners is made known to the lawyers or service providers administering the company for the purposes of the anti-money laundering legislation.
The directors are responsible for the day to day running of the business and operations of the company. The minimum requirement for private companies is one director, whereas for public companies it is two. There is no restriction as to the nationality of the directors and both physical and legal persons can be directors of a Cyprus company. It should be noted that the residency of the directors is one of the key factors determining the residency of the Cyprus company. For this reason, it is recommended that the majority of the directors of the company are Cyprus residents.
Directors are obliged to ensure the proper keeping of books of account necessary for the preparation of financial statements according to the Law. The accounts must be audited by qualified auditors and submitted to the Income Tax Authorities attaching a copy thereof to the Annual Return filed with the Registrar. Consolidated financial statements on the basis of International Accounting Standards must be presented in the case of a group of companies with subsidiary companies.
The Cyprus corporate regime allows transparency for all company members, entitling them to inspect the corporate registers of the company. Any interested party may also inspect the company public records kept by the Registrar, upon payment of a prescribed fee.
Registrar of Companies
The completion of the registration procedure normally takes up to ten business days from the day of submission of the appropriate documentation. The procedure of incorporation of a Cyprus company is then considered to be concluded and the Registrar issues the relevant corporate certificates, i.e. Certificate of Incorporation, registered office, directors and secretary, share capital, certificate of shareholders and a certified original copy of the company’s Memorandum and Articles of Association.
The Department of the Registrar of Companies has recently launched an electronic system through which any filings or registrations may be made electronically in order to avoid unauthorised changes in the structure of companies. Further, the filing of Annual Returns can now only be done electronically.
A Cyprus tax resident company is taxed on its worldwide income and although net profits are taxed at company level with a 12.5% corporate tax rate, as mentioned above, dividends, interest income, royalty income and profits, from a permanent establishment abroad, are taxed under special rules.
The profits, which the tax resident Cyprus Company may have from a permanent establishment outside Cyprus, are fully exempt from any taxation, subject to some wide anti-abuse rules.
Any profits or gains made by reason of re-organisations, or the transfer of property and the transfer of shares in exchange for shares in another company are exempt from income tax.
There are no withholding taxes on payments to non-residents in respect of dividends and interest. There are also no withholding taxes on royalties arising from sources outside Cyprus. Royalties arising from the use of an asset in Cyprus are subject to 10% withholding tax.
Cyprus’ status as an international business centre is regaining its reputation and trust after having been severely wounded by the banking crisis of 2013. The country is recovering at a surprisingly fast pace following major restructuring in the banking sector, the creation of new tax incentives attracting foreign investment and other reform which is underway. The Cyprus companies are gaining greater popularity over other jurisdictions and will be preferred by international serious organisations and foreign investors.
Turner Little can assist with the formation of a Cyprus Company and the arrangement of Banking in Cyprus. Contact us for further assistance on +44 1904 783101 or via www.turnerlittle.com.