Business Entitities

 

The most common forms of business entity used by foreign investors to conduct business in Cyprus are a limited liability company, a branch of an overseas company, a partnership and a sole proprietorship. We examine each one in depth:

 

Limited liability company

 

The governing statute is the Companies Law (Cap.113) as amended. Under the Companies Law, a company may be limited by shares or by guarantee and may be private or public.

 

Private company

 

A private company is one which by its articles of association specifically:

 

•  restricts the right to transfer its shares;

 

•  limits the number of its members to 50, not including persons who are in the employment of the company and persons who, having been formerly in the employment of the company were, while in that employment and have continued after the determination of that employment to be, members of the company;

 

•  prohibits any invitation to the public to subscribe for its shares or debentures; and;

 

•  prohibits the issue of bearer shares.

 

 

Public company

 

The Companies Law defines a public company as one that is not private. It must fulfil the following criteria.

 

•  It has at least seven members, with no maximum.

 

•  It has at least two directors.

 

•  Its articles of association must specify the number and the mode of appointment of directors.

 

•  If directors are appointed by the company's articles, the consent of these directors must be filed on incorporation.

 

•  It must obtain a trading certificate from the Registrar of Companies before it can commence business.

 

•  It must have a statutory meeting and its directors must make a statutory report to its members.

 

•  It must issue a prospectus or statement in lieu of prospectus before issuing any of its shares or debentures to the public.

 

•  Only public companies may issue share warrants.

 

 

European Public Limited Company or Societas Europaea (SE)

 

Cyprus enacted legislation in 2006 to allow the formation of European Public Limited Companies (SEs).

 

For a company to re-form as an SE in Cyprus , it must be permitted to do so under the law of its existing registration, and must provide the Cyprus Registrar of Companies with documents similar to those required for re-registration within Cyprus . The legal framework within which business must be carried on in the Community will be based on Cyprus law. Furthermore, an SE that markets its securities to the public and to the investment market must comply with national regulations.

 

Because of the greater degree of separation between their management and their membership, which may number many thousands, public companies are subject to stricter governance, capital maintenance and reporting requirements than private companies.

 

 

Registration formalities

 

After approval of the company's name, a Memorandum and Articles of Association must be submitted to the Registrar of Companies, with details of the share capital, directors, secretary and registered office. A certificate of incorporation is usually issued within a month, unless expedited.

 

 

Share capital

 

There is no minimum share capital for a private company. For a public company the minimum is €25.630. There is a capital duty of €103 plus 0.6% of the authorised share capital.

 

 

Capital duty

 

On incorporation of a Cyprus registered company, capital duty of €103 plus 0.6% of the authorised capital is payable to the Registrar of Companies. Any subsequent increase in authorised share capital is liable to capital duty at 0.6%. No capital duty is payable on share premium and capital duty can be minimised by issuing a reduced nominal value of shares at a premium.

 

 

Directors' liability

 

A director's duties are owed to the company. Common law duties include fiduciary duties (to exercise powers for the benefit of the company, retain freedom of action and avoid conflicts of interest) and a duty of skill and care, not to act negligently in managing the company's affairs. There are also statutory duties, some imposing criminal penalties, and duties owed to creditors.

 

 

 

Reporting requirements

 

Company directors are responsible for maintaining appropriate books and records to present a true and fair view of the company's affairs, to explain its transactions and to allow the preparation of financial statements. The directors must present a full set of financial statements to the annual general meeting of the company; if a company has subsidiaries, consolidated financial statements are required. Under the Companies Law all limited liability companies must have their financial statements audited by an authorised independent auditor unless they satisfy at least two of the following criteria:

 

•  total assets, before deducting liabilities, do not exceed €3.417.200;

 

•  annual turnover does not exceed €6.834.400; and

 

•  average number of employees for the year does not exceed 50.

 

Notwithstanding this "small companies" exemption under the Companies Law, the Income Tax Law requires all companies to submit an annual tax return based on financial statements audited by authorised auditors. This effectively means that all companies are required to prepare audited financial statements.

 

An exemption from the obligation to prepare consolidated financial statements is available for "small sized groups" of companies, of which the companies that are being consolidated:

 

•  are not public companies;

 

•  are not required to prepare consolidated financial statements under any other legislation; and

 

•  together fulfil at least two of the following criteria at the date of closure of the balance sheet of the holding company:

 

•  total assets (without deducting liabilities) no greater than € 14.6 million;

 

•  net turnover no greater than € 29.2 million;

 

•  average number of employees no greater than 250.

 

Companies are also required to notify the Registrar of Companies within specified time limits of any charges over their assets, changes in their Memorandum and Articles, registered office, directors, secretary, members and share capital.

 

 

Annual levy on companies

 

For 2011 and subsequent years an annual levy of €350 will be payable to the Registrar of Companies by all companies incorporated in Cyprus . Dormant companies, companies which do not own any assets and companies owning property in the occupied areas of Cyprus are exempt. For groups of companies there is a ceiling of €20.000.

 

The levy for 2011 is payable by the end of the year; for subsequent years the levy is payable by 30 June.

 

Penalties will be imposed in the event of late payment. If the levy is paid no later than two months after the due date a penalty of 10% will be charged. If the levy is paid between two and five months after the due date, a penalty of 30% will be charged. Companies which have not paid after five months from the due date may be struck off the register. They can be restored to the register only by paying an increased levy of €500 per year if they are restored within two years or €750 per year if they are restored to the register after more than two years.

 

 

 

Branch of an overseas company

 

A branch of an overseas company may be registered under the Companies Law provided that satisfactory bank references are supplied and the following documents (translated into Greek) are filed with the Registrar of Companies within one month:

 

•  certified copy of the charter, Memorandum and Articles or other instrument defining the constitution of the company;

 

•  particulars of the directors and secretary of the company;

 

•  name and address of at least one person resident in Cyprus authorised to accept service of any notice on behalf of the company.

 

 

 

 

Partnership

 

Partnerships in Cyprus are governed by the Partnership and Business Names Law (Cap.116). They may be either general (in which every partner is liable jointly and severally with the other partners for all the debts and obligations of the partnership incurred while a partner) or limited (in which a limited partner contributes a stated amount to the capital and is not liable for the debts and obligations of the partnership beyond the amount stipulated). Partnerships may not exceed 20 members. A company may be a general or limited partner.

 

Non-residents may become members of a Cyprus-registered partnership. Non-EU nationals require work permits, which are usually granted if the business of the partnership is export-orientated or is breaking new ground in terms of technical or commercial development.

 

Partnerships are required to keep proper books of account and make them available for inspection by the partners. Under the Assessment and Collection of Taxes Law, if annual turnover exceeds €70.000 per partner audited accounts must be produced.

 

Joint ventures are treated as a form of partnership.

 

 

 

 

 

Sole proprietorship

 

Cypriots and non-Cypriots may carry on business in their own name or under a business name registered under the Partnership and Business Names Law (Cap.116). Non-EU nationals must secure prior permission under the Aliens and Immigration Regulations. Under the Assessment and Collection of Taxes Law, if annual turnover exceeds €70,000 audited accounts must be produced.

 

 

 

 

Incentives

 

Incentives for locating a business in Cyprus include:

 

•  a favourable business environment, with well-educated human capital available at reasonable rates of pay and world-class infrastructure and services;

 

•  a low-tax environment;

 

•  freedom from exchange controls, allowing profits, interest and dividends from approved investments, capital invested and any capital gains from the disposal of shares in such investments to be freely remitted overseas;

 

•  EU membership, providing a base for the production and export of goods to the large EU market;

 

•  industrial estates, bonded factories and warehouses and the Larnaca Free Zone ("LFZ"), close to the port and international airport, to which equipment and raw materials may be imported free of customs duty. Products manufactured in the LFZ may enter the domestic market on payment of the lowest preferential tariff; a framework of grants and other financial incentives.

 

 

For more information please refer to www.neocleous.com