F. FORMATION OF COMPANIES IN THE REPUBLIC OF CYPRUS

The following types of companies can be formed under the Companies Law, Cap 113,

1. A company limited by guarantee with or without share capital
• This type of company is usually adopted when the purpose of setting up such a company is non profit making, i.e. for charitable purposes
• The liability of the members of a company limited by guarantee is limited to the extent agreed upon by the members
• A company limited by guarantee may apply to the Registrar of Companies to have the word ‘Limited’ removed from its name and may obtain charitable status after an application to the Council of Ministers
  
  
2. A public company limited by shares
• The shares of a public company are freely transferable and  there is no restriction as to the number of members such a company may have
• The share capital of a public company limited by shares must be minimum CYP 15,000 (Cyprus pounds fifteen thousand)
  
  
3. A private company with limited liability by shares
• The liability of the members of a private company limited by shares is limited to the nominal value of the shares they have subscribed to
• A private company is a company whose articles of association restrict the right to transfer the company’s shares and limit the number of its members to 50 (fifty)
• The company’s articles of association prohibit an invitation to the public to subscribe to any shares or debentures of the company

The use of a private company limited by shares is the vehicle most used by overseas investors in Cyprus.

The procedure for the registration of a private limited company is the following:

1. NAME OF THE COMPANY
   Before a company can be registered, an application must be made to the Registrar of Companies for the approval of the Company’s name. The name of the company must always contain the word ‘Limited’ or ‘Ltd’, (save only as enunciated in section I hereinabove).
   
   The Registrar of Companies is unlikely to approve a name if it is too similar to that of an existing company; it is considered misleading or too general; it suggests a royal, national or international connection, or it includes certain words such as Co-operative, Insurance, Bank, Financial Services, unless justified by the company’s objects.
   
   
2. THE COMPANY’S MEMORANDUM AND ARTICLES OF ASSOCIATION
   The company’s memorandum and articles of association is the constitutional charter of the company and is drafted by a local advocate in Greek and is translated in English. It is divided into two parts:
   
1. The Memorandum of Association, which includes the objects and powers of the company particularly as regards its dealings with the outside world, its limited liability status, and the company’s authorized capital.
2. The Articles of Association, which comprise the regulations under which the company operates as a legal entity and regulates the rights of the shareholders.
   
   The Memorandum and Articles of Association together with the other prescribed documents which are drafted and prepared by the advocate who undertakes the formation of the Company, are filed with the Registrar of Companies
   
   
3. SHARE CAPITAL
   The Company’s share capital is expressed in Cyprus pounds and is divided into shares of any value. It is to be noted however that, subject to approval, other currencies may be used for the purpose of expressing the company’s share capital.
   
   The company’s memorandum of association enunciates the authorized or nominal capital of the company, which is the total capital which the company is allowed to issue to its shareholders.
   
   The Company’s paid up capital is that part of the authorized capital which has been issued to and has been paid up by the shareholders.
   
   The Companies Law, Cap 113 contains provisions for the increase of a company’s authorized and paid up capital by a resolution of the shareholders of the company. Such resolutions shall be adopted based upon the provisions which are contained in the company’s Articles of Association.
   
   
4. SHAREHOLDERS
   A private company limited by shares may have any number of shareholders not exceeding 50 (fifty) and the minimum number of shareholders may be only one. Any registered shareholder of a company may hold the shares on trust for another person.
   
   It is imperative that the Registrar of Companies is furnished with the following details pertaining to every shareholder: full name, full postal address, nationality, and profession.
   
   A foreign corporation may be a shareholder of a Cyprus company and, in such a case, the foreign corporation’s corporate documents must be submitted to the Registrar of Companies.
   
   
5. DIRECTORS
   The company must have at least one director. The following particulars must be submitted to the Registrar of Companies for every director: full name, full postal address, nationality, profession, curriculum vitae, and certified copy of passport.
   
   Directors of a Cyprus registered company may be Cypriots or non-Cypriots. It should be noted however that if the directors of such a company are residents of Cyprus, this will be a determinate factor upon whether the company is a resident of Cyprus or not for tax purposes.
   
   
6. THE COMPANY SECRETARY
   The company must have a secretary in accordance with the provisions of the Companies Law, Cap 113. The Secretary acts under the control and instructions of the directors, keeps the company’s statutory registers, and performs ministerial functions of a non- executive character.
   
   The secretary of a company with a sole shareholder may also be the sole director of such a company.
   
   
7. REGISTERED OFFICE
   Every company must have a registered office in Cyprus in accordance with the provisions of the Companies Law, Cap 113. The registered office is the address where writs, notices, and other official documents can be served on the company.
   
   
8. AUDITORS
   Each company must appoint auditors who are authorized to practice the profession under the Laws of the Republic of Cyprus.
   
   
9. CONTINUING REPORTING REQUIREMENTS
   The Companies Law, Cap 113 imposes reporting requirements on companies and these are as follows:
• Annual Audited Accounts should be prepared by accountants authorized to practice the profession in the Republic of Cyprus, and copies should be filed with the Department of Inland Revenue. The first audited accounts may cover the first eighteen months of the company’s life
• An Annual Return in statutory form must be filed with the Registrar of Companies. Such annual return pronounces the share capital, registered shareholders, directors, secretary and registered office address and the address of the register of members of the Company, for the year for which the annual return refers to. The annual return must be accompanied by the Company’s audited accounts for the year for which the annual return is concerned
• Any increase of share capital, allotment of shares, changes to the Company’s structure, or the Company’s officers, and changes in the Company’s assets, must also be filed and registered with the Registrar of Companies

A. GENERAL

B. SETTING UP A CYPRUS HOLDING COMPANY

C. TAXATION OF CYPRUS HOLDING COMPANIES

D. CEASING OPERATIONS IN CYPRUS

A. GENERAL

The Republic of Cyprus has long been established as one of the most progressive and efficient business locations of Europe, and has long been offered as an ideal location for holding companies. The tax reforms, which came into place in the year 2003, have further enhanced the island’s attractiveness as a holding company location.

B. SETTING UP A CYPRUS HOLDING COMPANY

The most commonly used form of a holding company is that of a private limited liability company. There are no legal requirements for the minimum share capital of a holding company but it is recommended that it should have minimum CYP 10,000 (Cyprus pounds ten thousand).

A holding company must have at least one shareholder and one director. The holding company’s management and control is a determinate factor for the holding company’s tax status and hence the place where the holding company’s board meets is significant.

Under the Companies Law Cap. 113, financial statements of companies, which are registered and existing under the laws of the Republic of Cyprus, must be prepared in accordance with the International Financial Reporting Standards (IFRS’s). These standards stipulate that Cyprus holding companies must prepare annual consolidated financial statements. Consolidation is not required, however, when the Cyprus holding company is an intermediary holding company and a holding company further up the ownership chain prepares consolidated financial statements.

C. TAXATION OF CYPRUS HOLDING COMPANIES

(a) Corporation Tax

1. Taxation of Trading Income: Trading income is taxed at 10%
2. Taxation of Dividend Income: Dividends and other profit distributions received by a Cyprus tax resident company from another Cyprus tax resident company are exempt from corporation tax. Dividends and other tax profit distributions received by a Cyprus tax resident company from a foreign subsidiary are exempt from corporation tax and from the Special Contribution for Defense (15%), provided that the company receiving the dividends is the owner of at least 1% of the company which is paying the dividends. The exemption does not apply where (a) more than 50% of the paying company’s activities result directly or indirectly in investment income and (b) the foreign tax is significantly lower than the tax rate payable in Cyprus.
3. Foreign tax credit on income received by a Cyprus company: If income which has been received by a Cyprus company from abroad has been subject to a withholding tax at the country of origin and this income is subject to tax in Cyprus, any tax which has been paid abroad can be credited against the tax payable in Cyprus.
4. Repatriation of Dividends: There is no withholding tax on dividends and other profit distribution paid by a Cyprus company to non-tax resident shareholders, whether individuals or companies.
5. Tax Exemption on the Disposal of Shares: The profits of a Cyprus tax resident company, realized by the disposition of shares, are exempt from tax provided that the shares disposed qualify as “Titles” as this term is defined under the Cyprus Tax Laws.
6. Deduction of Costs: Under Cyprus law, all expenses which were incurred for the production of the income are deducted before arriving at the taxable income.

(b) Capital Duty

Capital contribution is subject to capital duty under the laws of Cyprus. Such capital duty is payable upon incorporation of a company and on subsequent increases of the share capital of a company.

(c) Value Added Tax (VAT)

If the holding company’s activities are limited to the holding of shares, such a company will not be a taxable person under the relevant VAT laws. If, however, such a company in addition to the holding of shares is involved in activities such as the provision of management services or the granting of loans, it will both be obliged and entitled to register for VAT purposes.
 

D. CEASING OPERATIONS IN CYPRUS

A Cyprus holding company held by non-resident shareholders can cease its operations in Cyprus and distribute its assets to its shareholders without any tax cost to its shareholders.

If the holding company owns immovable property in Cyprus, and it proceeds with the disposal of such immovable property at the time of ceasing of operations, such disposal may result in capital gains tax.