Your Single Professional Contact in South East Europe CYPRUS COMPANIES LEGAL FRAMEWORK 17 th June, 2010 Prague

Your Single Professional

Contact in South East Europe

CYPRUS COMPANIESLEGAL FRAMEWORK

17th June, 2010

Prague

• Incorporation, duties and maintenance– Directors / Secretary obligations

• Tax regime – corporate and personal

• Accounting and audit requirements



Agenda

The Cyprus Legal System and Companies Legal Framework

• Cyprus Legal System

– Modeled after English Legal System

– Principles of common law

• Cyprus Companies Law based on UK’s Companies Act 1948

– Adjusted with Cypriot reality / EU Law;



Regulatory framework for the Incorporation of Cyprus Companies

• Pre-approval of name by the Registrar of Companies required

• Director/s and Secretary – obligatory– Private Limited Liability Company

• At least 1 Director and 1 Secretary– Public Limited Liability Company

• At least 2 Directors and 1 Secretary

• Registered address in Cyprus



Regulatory framework for the Incorporation of Cyprus Companies

• Share capital– No min requirement– Shares issued and paid upon incorporation

• Memorandum and Articles of Association– Memorandum

• Specifies the objects of the Company

– Articles• Specify the domestic regulations and administration of the

Company



Redomiciliation of a foreign company to Cyprus

• Foreign companies may transfer their seat in Cyprus– Condition: should be permissible under the

jurisdiction of incorporation of the foreign co

• Cost efficiency! No liquidation and re-registration costs

• Tax benefits– Migrating company NOT deemed to be

liquidated, hence no taxable disclosure of its hidden reserves where applicable.



Directors duties & powersFiduciary duty:

• Not enter into contracts with the Co unless allowed by the articles or if approved by General meeting or when disclosed

• Act in good faith for the benefit of the Co • Use powers and issue shares for a proper purpose• Avoid conflicts of interests with their company

Duty of care and skill:• Does not have to demonstrate greater degree of skills than

expected• Not obliged to give continues attention to co’s affair• Entitled to leave running of the co to the officials



Secretary • Mandatory for all Companies

• Can be a legal or physical person

• Appointed by the Directors

• Duties – no specific duties– Generally responsible for the

administrative affairs of the company



Compliance requirements• Keeping proper accounting books and records and

preparation of financial statements

• Tax Compliance

• Preparation of audited financial statements

• Submission of Annual Return (Registrar of Companies)

• Submission of Tax Returns

• Submission of VAT Returns



Cyprus Tax Regime

• Simple and efficient tax regime attracting more and more foreign investments

• Cyprus is treated as a most favorable destination for:

• Holding Companies; • Financing Companies; • Royalty Companies; • SPV



Cyprus Tax Regime• Cyprus tax resident companies are subject to

tax on their worldwide income

– Corporate Income tax (CIT) is rated @ 10%

– The effective CIT rate is reduced even further considering the exemptions on:

• Gains on disposal of securities• Dividend income• Interest income (not in the ordinary course of business)

– Deductibility of expenses if incurred wholly and exclusively for the production of income



Tax Briefing on Cyprus

• Lowest corporation tax in the EU (10%)

• Inbound dividends are generally tax free (limited requirements apply)

• No WHTs on payments to non-residents

• No capital gains tax on disposal of shares or non-Cyprus situated property



Tax Briefing on Cyprus• Immediate implementation of all EU

Directives, including:• Parent – Subsidiary Directive• Interest & Royalty Directive• Merger Directive

• No thin capitalization rules

• No inheritance tax

• Extensive network of Double tax treaties concluded



Tax Residency• A Company obtains the status of a Cyprus

tax resident if:

– Managed and controlled in Cyprus

• Management is generally exercised by the board of directors of a Company

• Majority of local directors and meetings held in Cyprus advisable for tax purposes

• Registration is not sufficient for residency.

• Non-resident companies are taxed only on income derived from Cyprus



Personal tax regime• Resident individuals subject to tax on worldwide

income

• Residency established where:– An individual resides in Cyprus +183 days in a year

• Applicable tax rates

Taxable Income in EUR Tax rate0 – 19,500 0%19,501 – 28,000 20%28,001 – 36,300 25%36,301 + 30%

• Exemptions include:– Dividend income– Gains from the sale of securities– Interest income (outside the ordinary course of business)



Companies (Fees & Duties Payable) Regulations

• On the registration of a company:

• Flat fee of €102,52 plus 0,6% on the authorized share capital of the Company.

• On the increase of authorised share capital of a company:

• 0.6% on the amount of the increase

• Fees for the submission of documents at the Registrar of Companies



Special Contribution to the Defence

• Dividends received from overseas subsidiaries– 15% unless:

• not more than 50% of the paying company’s activities result in investment income; and

• the foreign tax is not significantly lower than the Cyprus tax.

• Dividends paid– 15% on dividends distributed to shareholders who are residents

of Cyprus (physical persons);– no tax on dividends paid to non-resident shareholders. – Deemed dividend distribution provisions apply (applicable on tax

residents)



Special Contribution to the Defence

• Interest received– 10% tax on interest earned by an individual or

company resident in Cyprus (outside the ordinary course of business).

• Rental income– 3% on rental income of a Cyprus resident

(after deduction of 25%).



Capital Gains Tax• Imposed on gains from:

– the disposal of immovable property in Cyprus – the disposal of shares in companies the assets of which consist of

immovable property in Cyprus• Unless shares are listed in a recognised stock exchange.

• Exemptions:

– the sale of shares listed in any recognised stock exchange – transfer of immovable property due to death;– gifts among relatives up to the third degree, to companies by members

of the family of the shareholders, by a family owned company to its members

– donation for charity to charitable organisations or to the Republic– exchange of properties of equal value– expropriation of property;– sale or exchange of property consistent with the provisions of the

Agricultural Land (Consolidation) Laws;– Gains realised from transfers arising due to re-organisation



Capital Gains Tax

• Non-residents also liable

• Deductions extended to individuals

– sale of private residence €85,430.07 – sale of land used by a farmer €25,629.02

for agricultural purpose – other sales €17,086.01

VALUE ADDED TAX• Obligation to register with the VAT

department

– Annual turnover exceeding €15,600 – Intra-community services imposes an

obligation to register irrespective of turnover

• Maximum level not giving rise to VAT registration obligation €13,668.81 (lower T/O can be registered voluntarily).



VALUE ADDED TAX• VAT rates

–Standard 15%–Reduced 8 / 5%–Zero rate

• Exemptions include medical services, postal services, financial services, insurance services, education, rent and disposal of immovable property (licensed before 05/2004), services to mutual funds, etc.



Other Fees & Taxes• Immovable property tax

– Progressive rates of 0 – 0.4% depending on the value of the property

– Specific exemptions apply under the law

• Transfer fees for immovable property– Progressive rates of 3 – 8% depending on the value of the

property– Exemption applies in cases of qualifying reorganisations

• Stamp duty– Imposed on contracts relating to things or matters to be done in

Cyprus– Rates: 0.15 – 0.20% depending on the consideration amount– Capped at €17,086– Exemption applies in cases of qualifying reorganisations



Other Fees & Taxes

• Social Security contributions Employer Employee Self-

employed

% % %

Social Insurance 6.8 6.8 12.6

Redundancy fund 1.2 - -

Industrial training 0.5 - -

Social Cohesion Fund 2.0 0 0



Accounting & Audit Requirements• Companies Law, Cap. 113

– requirement to keep proper accounting books & records

• Representing a true & fair view of the company’s affairs• Enabling the preparation of financial statements• Preserved in the registered office of the company

– Holding companies with 1 or more subsidiaries should prepare consolidated financial statements according with IAS

• Small sized groups – exempt from the obligation to prepare consolidated financial statements

– The financial statements, directors’ report & auditor’s report (where applicable) should be presented by the directors at the general meeting



• Companies Law, Cap. 113– Obligation to prepare Audited Financial Statements in

cases of:• Companies under an obligation to prepare consolidated

financial statements• Public Companies• Private companies other that small sized companies

– Small sized company (2 out of 3 requirements to co-exist):

• Overall assets under approx. €3.5m; and/or• Net turnover under approx. €7m; and/or• Number of employees under 50



Accounting & Audit Requirements

Accounting & Audit Requirements

• Income Tax Law– Accounts either presented to the Commissioner of

inland Revenue or accompanying a tax return to be submitted to the Commissioner of Inland Revenue must be certified by a qualified auditor

• Audited financial statements should follow:– The International Standards of Auditing; – The International Financial Reporting Standards

(IFRS)



Thank you!



Your Professional Contact in South East Europe

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Your Single Professional Contact in South East Europe CYPRUS COMPANIES LEGAL FRAMEWORK 17 th June, 2010 Prague