In this guide, we will delve into the procedure for company and bank account registration in Cyprus, along with highlighting the advantages this business destination offers. Let's begin by understanding the unique benefits that make Cyprus an attractive location for running a business.
Advantages of Running a Business from Cyprus
Doing business from Cyprus comes with multiple benefits, which make it a preferred choice for many businesspersons worldwide. The following are some of the main advantages that business owners enjoy:
- The registration and accounting process is straightforward, making it easy for businesses to establish their operations.
- Cyprus is a member of the European Union, providing businesses with access to a vast and diverse market.
- The country offers low income tax rates, currently at 12.5%, which is an attractive prospect for businesses looking to maximize profits.
- Cyprus is a signatory to 67 double taxation treaties, ensuring that businesses don't have to pay tax twice on the same income.
- The requirements for forming a company in Cyprus are minimal, reducing the red tape for new businesses.
Now that we understand the potential benefits, let's delve into choosing the right type of company for your specific needs.
Choosing the Right Type of Business in Cyprus
The legal framework of Cyprus allows for several types of companies, including private limited liability company by shares, public limited liability company by shares, limited liability company by guarantee without share capital, limited liability company by guarantee with a share capital, and a variable capital investment company. Let's examine these types more closely.
Private limited liability company by shares
This type of company is the most popular in Cyprus, and it offers the following features:
- Shareholders' liability is limited to the extent of their contribution to the company's obligations.
- There must be at least one shareholder but not more than fifty.
- No requirement for a minimum share capital.
- The company is prohibited from offering its shares to the public.
- It can serve various functions, including being a holding company, a trading company, a financial company, or a shelf company.
Public limited liability company by shares
This company structure is suitable for larger businesses or those with ambitious growth plans. Its key characteristics are as follows:
- Liability of its members is limited by its memorandum of association, to any unpaid amount, for the shares they hold respectively.
- The company may invite the public to subscribe to its shares and may be listed on the stock exchange.
- A public company must have at least seven members.
- The minimum nominal and issued share capital is EUR25,629.
Limited liability company by guarantee without share capital
This type of company could be a good fit for non-profit organizations, clubs, or societies. Its features include
- The company does not have a share capital and its members act as guarantors rather than shareholders.
- The liability of its members is limited by its memorandum of association up to the amount that the members have undertaken to contribute respectively to the company`s assets in case of dissolution.
Limited liability company by guarantee with a share capital
This model could be suitable for companies looking to combine the features of share capital and guarantee, such as businesses with a social purpose or companies undertaking risky projects. Its key characteristics are:
- This company has a share capital, and the liability of its members is limited by its memorandum of association, on the one hand, up to any unpaid amount for the shares they hold, and on the other, up to the amount that its members have respectively undertaken to contribute to the assets of the company in case of dissolution.
- The company can be either a private or public company. If it is a public company, it can invite the public to subscribe to its shares.
Variable capital investment company
This type of company can be an appealing choice for businesses involved in investment and fund management. The unique attributes of this type of company include:
- It operates as a limited liability company by shares. However, unlike other types, the shares don't have a nominal value but a variable value set out in its memorandum of association and the rules governing the company's operation. This structure allows for greater flexibility in managing the company's capital, catering to the dynamic needs of an investment firm.
- Incorporation of this type of company is contingent upon receiving a relevant license from the Cyprus Securities and Exchange Commission to operate as a Collective Investment Fund (CIF).
- The company can take the form of either a private or a public company, depending on the type of collective investment fund. The number of members of a private company can range from one to fifty members while the number of members of a public company must be at least one.
This form of company structure is particularly suited to businesses in the investment sector that plan to manage collective investment schemes, due to the flexibility it offers in terms of capital management and the operational benefits provided by the CIF status. However, the need for regulatory approval and adherence to specific operational guidelines make this a less suitable option for businesses outside the investment sector.
Partnership
A partnership, a voluntary association of individuals united to conduct a business for profit, isn't seen as a separate legal entity. Hence, profits made by the partnership are taxed as income received by the individual partners. All partnerships must be registered with the Registrar of Partnerships. There are two main types of partnerships in Cyprus: General and Limited.
General partnership
The main characteristics of a general partnership are:
- All partners are jointly and severally liable with all the other partners for the debts and obligations of the partnership.
- A general partnership must have at least two partners and not more than twenty.
Limited Partnership
A limited partnership, while maintaining some features of a general partnership, also provides limited liability for certain partners. Its key characteristics are:
- The partners can be either natural or legal persons, and a limited partnership can have a maximum of one hundred partners.
- The company must comprise one general partner responsible for all the debts and obligations of the partnership, as well as one limited partner liable to the extent of his contribution.
- At least one general partner is authorized to manage the partnership, while a limited partner is prohibited from exercising such management.
- A limited partnership may have a share capital and be limited by shares.
Other types of legal entities
Sole proprietorship is operated by a single member who bears full liability. It is a simple and informal type of business, but it still needs to be registered with the Registrar of Partnerships. The sole proprietorship may choose a business name and conduct trade under it.
Trusts offer a legal avenue to protect and manage a person's assets and rights to those assets. Establishing a trust can be an effective strategy for reducing tax liabilities, particularly for high-net-worth individuals.
European Company (SE) also known as a Societas Europaea (SE), is established under the Council Regulation (EC) no 2157/2001 of 8 October 2001. It's specifically designed to facilitate cross-border business activities within the European Union by providing a standardized legal framework for companies operating across multiple EU member states.
Establishing a Business in Cyprus: Options for Overseas Companies
International corporations considering expansion into Cyprus have several choices at their disposal: they can establish subsidiaries, branches, or representative offices. Each of these business structures is considered a resident entity in Cyprus and is obligated to comply with local regulations, which include submitting financial statements and income tax returns to the Cypriot tax authorities. The decision on the most suitable type depends on the company's strategic goals and the nature of the activities they intend to conduct in Cyprus.
Subsidiaries
Commonly set up as limited liability companies, subsidiaries operate as distinct entities separate from the foreign parent company. This allows a subsidiary to engage in a broader range of activities, not necessarily confined to the scope of the parent company's business. By establishing a subsidiary, an overseas company can enjoy considerable autonomy and flexibility in its operations within Cyprus, while still maintaining a close relationship with the parent company.
Branches
Branches operate as extensions of the parent company, carrying the same name and engaging in similar activities. Since branches are not separate legal entities, their parent company assumes full responsibility for all debts and obligations that may arise from the branch's operations. This structure can be advantageous for overseas companies seeking to maintain direct control over their activities in Cyprus.
Representative offices
For overseas companies seeking a lighter footprint in Cyprus, setting up a representative office could be the ideal solution. While they are not permitted to engage in commercial activities, representative offices can carry out marketing initiatives and act as communication hubs between the parent company and prospective clients or business partners in Cyprus. Their role is to establish a local presence and build relationships in the Cypriot market, thereby promoting the parent company's interests.
Understanding Tax Obligations in Cyprus
In Cyprus, all registered legal entities are required to pay corporate income tax, currently set at 12.5%. Beyond this, there are other taxes which may be applicable depending on the nature of the business activities, the assets owned, and various other factors.
Value-added tax (VAT)
Businesses engaged in the provision of goods or services are subject to value-added tax (VAT) if their turnover exceeds EUR15,600 over the past 12 months or if they anticipate their turnover subject to VAT to surpass EUR15,600 within the next 30 days. Businesses falling under these categories must register for VAT. However, even if these turnover thresholds are not met, a business can still voluntarily register for VAT, unless in certain exceptional circumstances.
Moreover, businesses that purchase goods from other EU Member States exceeding EUR10,251.61 during any calendar year are also required to register for VAT.
The standard VAT rate in Cyprus is 19%. However, certain products and services enjoy reduced rates. A 9% rate applies to air and road passenger transport, restaurants, cafes, and hotel accommodations. The rate is further lowered to 5% for certain goods such as foodstuffs, pharmaceutical products, books, newspapers, and new buildings. In some cases, a zero VAT rate applies, particularly for exports, international transport, and flights.
Other Taxes
In addition to corporate income tax and VAT, companies in Cyprus may be subject to other tax obligations. These include social insurance contributions, capital gains tax, stamp duty, special defence contributions on dividends, interest, and royalties, and municipal taxes. The applicability of these taxes is contingent on the company's specific activities, assets, and other relevant factors. As tax obligations can be complex, businesses are advised to seek professional tax advice to ensure full compliance with Cyprus tax laws.
Opening a Bank Account in Cyprus
This section outlines the key documents needed for opening a corporate bank account in Cyprus and gives insight into some of the banks in Cyprus that offer remote banking services.
Key Documents for Opening a Corporate Bank Account
The following documents are typically required to open a bank account for a company in Cyprus:
- Certificates for the company including Incorporation, Share, Registered office, and Directors and Secretary certificates.
- The company's Memorandum and Articles of Association.
- A certificate of good standing for foreign companies that have been operational for over two years.
- Identification documents of the beneficiary person, including ID, Passport, and proof of permanent address.
For opening a bank account for a partnership, the required documents include:
- The Partnership Agreement.
- Partnership certificates, including Incorporation and Partners certificates.
- Proof of the registered office.
- A certificate of good standing for foreign partnerships registered for over two years..
Remote Banking and Power of Attorney (POA)
Several banks in Cyprus, including the Bank of Cyprus, Eurobank Cyprus, and Hellenic Bank, offer the convenience of opening a bank account remotely. Alternatively, companies can grant a Power of Attorney (POA) to Cypriot lawyers, who can then handle the process of opening a bank account on their behalf.
The above is not intended to constitute legal advice. Should you require additional information or guidance on company registration, opening a bank account, or navigating the taxation system in Cyprus, don't hesitate to reach out. You may contact Evripides Hadjinestoros at [email protected], Danil Hristich at [email protected], or connect with your existing contact at Fortior.
