Why to start a business in Cyprus – Advantages of a Cyprus Company
Cyprus, is a small island of less than 1million inhabitants situated in the Mediterranean sea, part of the European Union since 2004. Cyprus is now home to more than 200.000 active companies as many businessmen, entrepreneurs, large organizations and groups chose the island to start their business due to the tax benefits, steady political and economic environment, good climate, good telecommunications and infrastructure. In that respect, below we carefully examine the reasons why someone will start a business in Cyprus as well as take you through the process of a Cyprus Company Formation.
Why to start a business in Cyprus – Tax Benefits
For international business companies and expats the main attractiveness factor to start a business in Cyprus (in addition to the above) are the tax benefits, both in terms of corporations and individuals. This is shown from the corporate income tax of 12.5% which is one of the lowest in Europe, no capital gains tax and no tax on dividends (in most instances) for foreign and nondom individuals (as further explained below). In addition, there is a 50% income tax exemption for individuals who earn more than EUR55.000 provided that they were not tax residents for the past 10 years before their first employment in Cyprus. These tax benefits in combination with the one mentioned below make Cyprus an ideal destination to come and live in and start your own Cyprus business.
Moreover, Cyprus is also a very attractive destination for businesspeople, entrepreneurs, and large organizations to start an International Business Company. Such Companies can achieve tax residency by establishing the management and control in Cyprus (as legislation currently stands). That is all decisions of the Company need to be taken in Cyprus. This can be achieved as a minimum by having the majority of the Directors to be Cyprus Tax Residents (this is a service we can offer).
Tax benefits include but are not limited to dividend income been tax exempt and there is no with-holding tax on dividends paid either (both under certain conditions). There are also significant tax benefits for Companies with Intellectual Property (IP). Through the IP Box Regime a Cyprus registered entity can enjoy an effective tax rate as low as 2.5% (normally 12.5%). Disposal of securities (shares, bonds, options, derivatives etc) are also tax exempt. Cyprus is also a part to more than 60 double tax treaties that provide for nil or reduced withholding tax rates on dividends, interest, royalties and pensions received from abroad. Any lump sum received as a retirement gratuity is also exempt from tax. More information on Why Cyprus, can be found here.
Now that we have established why Cyprus is the ideal destination for a Company formation, its now time to see the process.
Cyprus Company Formation: How to start a Company in Cyprus
Firstly its good to know that the authority which is responsible for Cyprus company formation is the Cyprus Registrar of Companies. That is where all documents and levies for the formation are submitted and paid respectively and its the relevant authority with which we liaise with up until the Company is incorporated.
Below we analyze some of the main decisions you need to take before you proceed with your Cyprus Company Formation.
Type of entities
In terms of types of entities the most frequently used in incorporations is Company Limited by shares. This means that the Company will have share capital split in authorized and issued share capital and the liability of the shareholders is limited to the amount which they invest. Issued share capital needs to be subscribed by the shareholders of the Company on the memorandum and articles of association of the Company (more on this below). There are also other types such as Partnerships, Companies limited by guarantee, associations etc, but in this article we shall focus on limited companies.
In addition to the shareholder(s), the Cyprus Company upon formation will need to have at least one Director, one Corporate Secretary and a Registered office address. The Board of Directors of a Cyprus company have the power to take decisions on behalf of the Company (enter company into agreements, sign financial statements etc) and is basically the administrative body responsible for the day to day management of the company. Any natural person or entity can be appointed as Director of a Cyprus Company.
A corporate secretary ensures that a business complies with legal requirements and makes sure that company records are accurate. This includes reporting changes to a company’s statutory details and books, filing returns and keeping records up to date. Its also worth noting that in case of private companies with a single shareholder, the sole director can also be the secretary of the Company. Corporate secretary does not need to reside in Cyprus but its advisable.
The Company will also need to have a registered office address in Cyprus, which is communicated to the registrar of companies and all other authorities and is general used for communication.
One of the first steps of the Cyprus Company formation is to decide on a Company name. The chosen name is submitted to the Cyprus Registrar of Companies and usually it takes them 1-3 days to revert on whether it is approved or not.
What the registrar examines during the application process, is whether the applied name is the same or similar to one of their existing approved ones, similar or same to an international brand or whether it is a frequently used word.
In that respect in order for the name to be approved there are certain factors that need to be considered, such as the availability of names, whether general words are used, creativity and use of initials. For example the Registrar encourages the use of initials, therefore if initials are added in front (or at the end) of the name, then it stands higher changes to be approved.
In terms of names you can be as creative as you like, but usually generic names are multiuse and highly versatile, and stand more chances to be approved by the Registrar. On their own, generic business names may not signify much, but a suitable slogan, additional keyword, or a fitting logo can turn your generic business name into something meaningful.
You can find more information on how to choose a name for your Cyprus Company in our article here.
Memorandum and Articles of Association
One of the most important documents of a Company upon formation of your Cyprus Company is its Memorandum and Articles of Association. The memorandum states the Company’s name (it needs to be approved by the Registrar as stated above) and the Company’s objects, i.e. what activities the Company can be performing and usually our standard memorandum includes a wide range of objects to cover any sort of activities in case you decide to change or take on additional activities of your Company after incorporation.
Memorandum also states the authorized share capital of the Company which we usually set it at 5.000 ordinary shares of €1 each and we then issue 1.000 shares to the first subscribers of the Company.
Last page of the Memorandum includes the first subscribers of the Company who will need to sign the Memorandum (wet-ink scanned copies suffice) alongside a witness of their signature.
The Articles of Association of the Company specify rules about the governance of the internal management of the company and regulations about the rights of the members (appointment and powers of directors, transfer of shares, quorum for board of directors meetings etc).
For the Company to be incorporated by the Registrar the Memorandum and Articles of Association will need to be signed by a lawyer in front of the court, which is a process we take care of for you.
Submissions to the Registrar of Companies
At this stage we have already ‘decided’ on the name of our Cyprus Company, share capital & shareholders, Directors, Corporate Secretary and Registered Office Address so the next step is to submit all information to the Registrar of Companies for the Company to be able to be incorporated and you to be able to start your business in Cyprus.
This is where we step in, as we will complete all forms informing the Registrar on the above decisions, as well as arrange for the memorandum and articles of association to be signed by one of our lawyers. We will also order all corporate certificates of the Company which when issued are: Incorporation certificate, Directors & Corporate Secretary, Registered Office address and a signed copy of the Memorandum and Articles of Association. These corporate certificates are given in original and shall be kept as they will be needed in a variety of cases such as bank account opening, registrations with Tax and VAT Authorities etc.
After the submissions are made it usually takes 4-6 business days for the Company to be incorporation. After the Company is incorporated it has its own unique Registration Number with the Registrar, therefore you can now start your business in Cyprus.
After the Company is incorporated it has 60 days to be registered with the Cyprus Tax Authorities to obtain a Tax Identification Code. This is a process we can ofcourse take care of for you.
In addition to the above the Company depending on activities may need to be Registered with the VAT Authorities and obtain a VAT number. This again is a process we can assist with.
Moreover, Cyprus Companies (certain exceptions apply) have an obligation to submit their information to the Cyprus Register of Ultimate Beneficial Owners. Information needs to be submitted for any individual holding directly or indirectly 25% plus one share (although there are other parameters to consider). This obligation needs to be concluded within 30 days from the incorporation of the Cyprus Company. In case of change of the beneficial owner or their information, the national centralised register should be updated with the relevant information within a period of 14 days. Please note that this is not publicly available information.
A Cyprus Company may also need other registrations depending of its activities, such as registration to the Social Insurance and Tax Authorities as an employer if it will have employees in Cyprus, but additional registrations depend on the activities of the Cyprus Company.
Bank Account Opening
After incorporation a step most of our clients take and is reasonable to do so is to open a bank account with a Cyprus Financial Institution (can be opened also with a foreign bank but with a Cyprus bank it also strengthens the case of tax residency of the Company).
In order to open a bank account with a Cyprus Company you will need to choose the financial institution(s) you wish to proceed with. Thereafter the process of providing them with the documents they require to satisfy their compliance procedures. In particular, the bank will need to know and identify the actual beneficial owner(s) of the company. All such persons, as well as everyone who will be granted account signatory rights, will have to provide a number of documents – such as certified passport copy, proof of address (utility bill or bank account statement), bankers and/or professional reference and detailed business description/plan.
Please note that bank opening procedures became quite strict in Cyprus (and globally we believe), so the process can take 1-2 months.
Accounting, Audit & Tax Requirements
After the above are completed the Cyprus Company is ready to start operations. You need to also bear in mind that the Cyprus Co will need to prepare accounting records and audited financial statements or audit review and submit its Annual Company Return (HE32) to the Cyprus Registrar of Companies maximum 18 months after incorporation. Tax Return needs to be also submitted currently 15 months after the tax year end, which is at 31.12. More information on these requirements can be found here.
As described above, you can start your company in Cyprus quite easily and straightforward as evidenced in the above. Decisions need to be taken from your side on some key components such as the name, officers, share capital etc, however, the process can be quite straightforward with the involvement of our professionals who can assist you with the whole process from start to finish.
This article is provided for general information purposes only and is not intended to cover every aspect of the topic with which it deals. It is not intended to amount to advice on which you should rely and we recommend you to take advise from professionals before proceeding.