Information about the Cypriot Business Environment

Business Organisations

 

Introduction

 

This section outlines the various business organizations that exist in Cyprus and the necessary registration procedures requiredby the government.

 

A business that wants to operate in Cyprus must meet some regulations and requirements set by the government. A major part of these regulations is common to all kinds of business.

 

Types of Organisations

 

A business may be conducted under the following forms:

 

• sole proprietorship - business names

• branch

• company

• partnership

 

Sole proprietorships - Business names

 

Individuals or limited liability companies that carry on a business in their own name or under a business name have to be registered under the Partnership and Business Names Law, Chapter 16.

A business name registered in the Republic is not a legal entity but is registered by individuals or limited liability companies carrying on business in a name other than their own. The adoption of a business name is done by filing with the Registrar of Companies a statement consisting of the following data:

 

• business name

• principal place of business

• general business activities

• name, surname, nationality and other occupations of individual who applies for the name

• name and registered office of the applying company

• date of commencement of operation or adoption of the business name

 

Branches

 

There are two types of branches in Cyprus:

 

• A local company’s branch

• A foreign company’s branch

 

In the case of a local company, no other formalities are required, other than the ones applying to the company itself.

 

A foreign company may establish a branch in Cyprus under the provision of the Companies Law.

 

A branch may also be established by overseas companies provided that they obtain permission from the Central Bank, and file with the Registrar of Companies, the following documents:

 

• Attested copy of the articles of association, memorandum and charter or other supporting document defining the constitution of the company (officially translated into Greek),

• particulars of the company’s secretary and directors,

• the personal data of at least one person resident in Cyprus, who will be authorised to accept on behalf of the company any formal notices to the company.

 

Companies

 

There are two categories of companies that can be established in Cyprus under the provisions of the Cyprus law:

 

• Company limited by guarantee - In the case of these companies, the liability of its members is limited to the amount of their contribution.

• Company limited by shares - In the case of these companies, the liability of its members is limited to the nominal (face) value of their shares.

 

Companies limited by shares are divided into different categories:

 

Public companies

 

The main feature of public companies that differentiates them from other companies is the ability that they have to offer their shares or debentures in public. In addition to this they are required to have a minimum number of seven shareholders.

 

Private companies

 

A private company must comply with the following provisions of the law:

 

• The right of share transfer is restricted. No invitation to the public to subscribe for its shares or debentures is allowed,

• The company should have at least one shareholder with fifty the maximum.

 

Regulations

 

The Companies Law chapter 113 which relates to the companies in Cyprus is based on the Companies Act 1948 of the United Kingdom.

 

A company’s constitution is comprised of the memorandum of association and the articles of association.

 

Partnerships

 

The substance of a partnership is a relationship between at least two individuals with a common goal - profit. The two types of partnership that exist in Cyprus are the following:

 

General partnership

 

The major feature of a general partnership is that all partners are jointly and severally liable with the other partners without any limit. That liability exists only for the time the partner is engaged to the company.

 

Two limited liability companies are allowed to form a general partnership.

 

Limited partnership

 

In the case of a limited partnership, at least one partner faces unlimited liability (see above on general partnerships) while at least one other partner must exist who is liable only for the amount of its contribution on share capital.

 

Financial Reporting and Auditing Requirements

 

Cyprus has adopted International Accounting Standards (IAS) since 1985. Therefore the government authorities, accountants and auditors are well familiarised with IAS.

 

The Companies Law is the framework of the reporting requirements of the companies. The Companies Law in Cyprus is very similar to the British Companies Acts of 1948.

 

All companies registered in Cyprus must prepare financial statements under the provisions of International Accounting Standards (IAS) now renamed as International Financial Reporting Standards (IFRS).

 

Financial Statements are comprised of:

 

• Auditors’ Report

• Income Statement (Profit and Loss Account)

• Statement of Changes in Equity (or Statement of Recognised Gains and Losses)

• Balance sheet

• Cash Flow Statement

• Notes to the Accounts

 

Financial Statements must be audited by an independent auditor, who is qualified to act as such.

 

All companies, except the listed ones have to submit their financial statements within twelve months after their year end. The year end for all companies is 31 December but the Commissioner of Income Tax allows companies on application to adopt a different year end if a valid reason is shown.

 

Listed companies in the Cyprus Stock Exchange (CSE) have to submit their financial statements to the authorities by 30th of April of the year following the financial year ended on 31 December.

Accounting and Auditing Profession

 

In the early sixties some qualified accountants in Cyprus formed their own association under the name Institute of Certified Public Accountants in Cyprus (ICPAC). The Institute evolved with the profession and now ICPAC has over 1.600 members.

 

The management and control of the ICPAC is exercised by a twelve member council who is elected from members engaged in the accounting and auditing profession, commerce and industry. The majority of the members of ICPAC are members of The Institute of Chartered Accountants in England and Wales (ICAEW) and of the Association of Chartered Certified Accountants

(ACCA) of the UK.

 

All large international auditing, accounting and consultancy firms are operating in Cyprus, enhancing the quality of the services provided in Cyprus by the profession.

 

The high level of education, combined with the high ethics, standards and the excellent training that exist in Cyprus, are confirmed by the fact that the Institute of Chartered Accountants in England and Wales (ICAEW) and the Chartered Institute of Management Accountants (CIMA) have chosen Cyprus as the first country in the world outside the UK to train ICAEW and CIMA accountants.

 

The Institute has particularly assisted in the efforts to update Cyprus Company Law. It has submitted to the legislative and executive authorities its recommendations for more disclosure requirements in the accounts. At the same time, by demanding full compliance with International all charges on any property of the company with a description of the property charged, the

amount of the charge and all mortgages on the company’s property,

 

• minutes book of directors’ and general meetings,

• register of directors’ shareholdings.

 

Financial Reporting and Auditing Requirements

 

Cyprus has adopted International Accounting Standards (IAS) since 1985. Therefore the government authorities, accountants and auditors are well familiarised with IAS.

 

The Companies Law is the framework of the reporting requirements of the companies. The Companies Law in Cyprus is very similar to the British Companies Acts of 1948. All companies registered in Cyprus must prepare financial statements under the provisions of International Accounting Standards (IAS) now renamed as International Financial Reporting Standards (IFRS).

 

Financial Statements are comprised of:

 

• Auditors’ Report

• Income Statement (Profit and Loss Account)

• Statement of Changes in Equity (or Statement of Recognised Gains and Losses)

• Balance sheet

• Cash Flow Statement

• Notes to the Accounts

 

Financial Statements must be audited by an independent auditor, who is qualified to act as such.

 

All companies, except the listed ones have to submit their financial statements within twelve months after their year end. The year end for all companies is 31 December but the Commissioner of Income Tax allows companies on application to adopt a different year end if a valid reason is shown.

 

Listed companies in the Cyprus Stock Exchange (CSE) have to submit their financial statements to the authorities by 30th of April of the year following the financial year ended on 31 December.

 

Accounting and Auditing Profession

 

In the early sixties some qualified accountants in Cyprus formed their own association under the name Institute of Certified Public Accountants in Cyprus (ICPAC). The Institute evolved with the profession and now ICPAC has over 1.600 members.

 

The management and control of the ICPAC is exercised by a twelve member council who is elected from members engaged in the accounting and auditing profession, commerce and industry. The majority of the members of ICPAC are members of The Institute of Chartered Accountants in England and Wales (ICAEW) and of the Association of Chartered Certified Accountants (ACCA) of the UK.

 

All large international auditing, accounting and consultancy firms are operating in Cyprus, enhancing the quality of the services provided in Cyprus by the profession.

 

The high level of education, combined with the high ethics, standards and the excellent training that exist in Cyprus, are confirmed by the fact that the Institute of Chartered Accountants in England and Wales (ICAEW) and the Chartered Institute of Management Accountants (CIMA) have chosen Cyprus as the first country in the world outside the UK to train ICAEW and CIMA accountants.

 

The Institute has particularly assisted in the efforts to update Cyprus Company Law. It has submitted to the legislative and executive authorities its recommendations for more disclosure requirements in the accounts. At the same time, by demanding full compliance with International Auditing Guidelines, the Institute ensures that common professional practice goes beyond the minimum requirements of the law.

 

The role of the ICPAC has been enforced since its appointment to co-ordinate the profession in Cyprus. As from June 2001, the Institute signed a five year agreement with ACCA. Under this agreement, membership with both ACCA and ICPAC will be decided through exams jointly organised. Practicing certificates for the audit profession in Cyprus will also be decided through exams jointly organised by ACCA and ICPAC.

 

The Institute is a member of the Federation Des Comptables Europeans (FEE), of the European Body of Professional Accountants and of the International Federation of Accountants (IFAC).

 

Taxation

 

In the summer of 2002, the House of Representatives of the Republic enacted a series of new laws amending the existing legislation. The objective of these amendments was the streamlining of the taxation system in order to comply with Acquis Communataire.

 

Following these significant changes in legislation the image of Cyprus as a reputable international business centre has been enhanced with an increasing number of international companies choosing Cyprus as the stepping stone for investing in E.U. and Eastern Europe.

 

A summary of the tax rates of the country effective from 1 January 2003 is shown below and it deals with the following taxes:

 

1. Personal Income Tax

2. Corporation Tax

3. Special Contribution for Defence

4. Capital Gains Tax

5. Value Added Tax

6. Immovable Property Tax

7. Immovable Property Transfer Fees

8. Social Insurance Contributions

9. Stamp Duty

 

Personal Income Tax

 

An individual is considered as resident of Cyprus, if he/she lives in Cyprus for one or more periods, which exceed the total of 183 days per fiscal year. All individuals that are resident in Cyprus are taxed at the following rates:

 

For the year 2003:

Chargeable Income (CY£) Tax rate (%)

Up to 9.000 Nil

9.001 - 12.000 20

12.001 - 15.000 25

15.001 and above 30

 

For the year 2004:

Chargeable Income (CY£) Tax rate (%)

Up to 10.000 Nil

10.001 - 15.000 20

15.001 - 20.000 25

20.001 and above 30

 

The following are fully exempt from Income Tax:

 

• Interest income

• Dividend income from Cyprus and abroad

• Profit from disposal of shares, debentures, bonds and other securities of companies or other legal entities, incorporated in Cyprus or abroad Tax Deductions

 

The following are deducted from the taxable income:

 

Loan interest for private residence: Up to CY£500 (only for 2003)

 

Social insurance, provident, medical and pension fund contributions and life insurance premiums: Up to 1/6 of the taxable income

 

Corporation Tax

 

All companies that are managed and controlled in Cyprus are liable to corporation tax (incorporation in Cyprus is not a criterion for taxability). As from 1 January 2003 the distinction in the taxation rates, between local and International Business Companies (IBCs), ceases to exist. The taxable profits of all Cypriot companies will be taxed at a flat rate of 10%. Existing IBCs are allowed to retain the existing tax rate of 4,25%, until the end of fiscal year 2005 (transitional period), only if they had income from their activities during the fiscal year ending 31 December 2001. It must be noted that IBCs that choose to retain the existing tax rate of 4,25% (under the transitional period) will not be able to gain advantage from certain allowances as

imposed by the new tax legislation.

 

For the fiscal years 2003 and 2004 an additional tax of 5% will be charged to companies and government institutions, on their chargeable income that exceeds CY£1.000.000. IBCs that will retain the 4,25% under the transitional period are not subject to this additional tax.

 

The following types of income are not subject to taxation:

 

• Profit from the disposal of shares, debentures, bonds and other securities of companies or other legal entities, incorporated in Cyprus or abroad

• Dividends received in Cyprus and abroad

• 50% of the interest income is exempt. However, this exemption does not apply if the interest income was derived from the ordinary trading activities of the company i.e. banks

• Profits received in Cyprus from permanent establishment abroad.

 

This exception does not apply if:

 

I. More than 50% of the permanent establishment activities result in investment income and

II. The foreign tax suffered on the permanent establishment profits is significantly lower than the tax payable in Cyprus.

 

Companies tax losses

 

Tax losses are allowed to be carried forward so as to be settled with future years’ taxable profits, without any time restrictions. Under certain circumstances, losses of a company can be set off against profits of another group related controlled company.

Special Contribution for Defence

 

This contribution relates to the funds collected to cover the country’s defence expenditure.

The following table shows analytically the rates that are charged to each category of income, which are valid for the fiscal year 2003:

Dividend income is subject to special contribution for defence at the rate of 15% (at source), if the shareholder is resident of Cyprus. If a company that is registered in Cyprus does not distribute any dividends for two years after the end of the fiscal year in which profits have been earned, 70% of its profits are considered as distributable and are subject to 15% contribution

for defence.

 

Any interest income earned by companies from normal trading activities is not subject to any contribution for defence.

 

It must also be noted that International Business Companies under the transitional period (refer to Corporation Tax above) are not subject to this defence contribution.

 

Semi - government organizations are subject to a 3% defence contribution on their profits.

 

Capitals Gains Tax

 

Capital Gains Tax is imposed at the rate of 20% on gains from the disposal of immovable property, including gains from the disposal of shares in companies that own investment property. The disposal of shares listed in recognized Stock Exchanges is exempt from Capital Gains Tax. Residents of Cyprus are liable to Capital Gains Tax on all disposals of property which is situated either in Cyprus or abroad. Disposal of property held abroad by a Cypriot who acquired the property when residing abroad, and an expatriate residing in Cyprus who has property abroad, is exempt from Capital Gains Tax. Non residents are liable to Capital Gains Tax only on disposals of property situated in Cyprus. Property that was acquired between 1 August 1960 and 13 July 1990 with foreign exchange imported in Cyprus is exempt from Capital Gains Tax.

 

Below, is a list of disposals of immovable property that are not subject to Capital Gains Tax:

 

• Gifts (transfer of property) made between husband and wife, parent to child and between up to third degree relatives

• Transfer arising on death

• Gifts to charities and the state

• Exchange or disposal of property under the Agricultural Land (Consolidation) Laws

• Gift to a company where the company’s shareholders are members of the donors’ family and the shareholders continue to be members of the family for at least 5 years after the date of the transfer.

• Gifts by a family company to its shareholders provided the property was originally acquired by the company by way of donation. The property must be kept by the donor for at least 3 years

• Exchange of properties, provided that the whole of the gain made on the exchange has been used to acquire the other property (rollover relief). The gain that is not taxable is deducted from the cost of the new property.

 

Exemptions

 

Individuals have the following exemptions from the amount taxable under capital gains:

The Immovable Property Tax is charged on the immovable property held by the taxpayer as at 1 January each year. The tax is calculated on the market values of the immovable property as at 1 January 1980 and is payable on 30 September each year. Both legal entities and individuals are liable to Immovable Property Tax.

Immovable Property Tax 

VAT returns must be submitted quarterly. Payment of VAT must be made within 40 days from the end of each quarter. In the case where input VAT is higher than output VAT, the difference is refundable. 

VAT returns 

Registration of companies with turnover lower than CY£9.000 is optional. 
(ii) their turnover is expected to exceed CY£9.000 in a period of 30 days(i) their turnover exceeds CY£9.000 during the 12 preceding months, or All companies must register for VAT when: 

Registration limits for VAT 
• When a company makes only exempt supplies relating to business purposes)
• Acquisition costs and expenses relating to saloon cars (other than those expenses directly)
• Directors’ housing expenses• Entertainment and hospitality expenses (other than those relating to employees)

VAT legislation does not allow the VAT on the following cases to be recovered: 
• insurance and financial services 
• medical services 
• rental income
• disposal of immovable property

The following categories of goods and services are exempt from VAT: 

Reduced rated goods and services mainly include the following: hotel accommodation charges and services of authors, composers, artists and inspectors of works of art. 

Zero rated goods and services mainly include the following: exports, food, books, newspapers and magazines, medicines, children’s clothing and footwear and international air and sea transport and related services. 

(iii) Standard rate 15% (ii) Reduced rate 5% (i) Zero rate 0%

Cyprus tax legislation provides for the following three tax rates: 

Value Added Tax (VAT)

The maximum exemption that can be taken by an individual, when a claim is made under any combination of the above is CY£50.000. The above exemptions are given only once and they do not apply to each exemption.

Transfers of immovable property are subject to the following tax rates:

Immovable Property Tax

 

The Immovable Property Tax is charged on the immovable property held by the taxpayer as at 1 January each year. The tax is calculated on the market values of the immovable property as at 1 January 1980 and is payable on 30 September each year. Both legal entities and individuals are liable to Immovable Property Tax.

The following are exempt from the Immovable Property Tax:

 

• Schools

• Public hospitals

• Property under the Turkish occupation

• Public cemeteries

• Churches and other religious buildings

• Immovable property owned by the Republic

• Foreign embassies

• Public places

• Buildings of charitable organisations

• Agricultural land

 

Immovable Property Transfer Fees

 

Transfers of immovable property are subject to the following tax rates:

Social Insurance Contributions

 

Contributions to social insurance are as follows:

The upper limit of annual income on which contributions are paid for employees is as follows:

Upper limits are adjusted according to inflation rates yearly. It must also be noted that there are lower limits of annual income based on which self-employed individuals pay social insurance contributions

 

Stamp Duty

 

Stamp duty is payable on certain documents as follows:

Registration of limited companies:

Failure of payment of taxes will result in an interest on tax liabilities of 9% annually.

 

Treaties for the avoidance of Double Taxation

 

Cyprus has managed throughout the years to establish a wide network of double tax treaties enabling businesses to avoid being taxed twice on income earned from dividends, interest and royalties. Double tax treaties apply both to amounts paid to or from Cyprus.

 

Please find below a list of the counties Cyprus has signed a Double Tax Treaty:

 

1. Austria

2. Belarus

3. Belgium

4. Bulgaria

5. Canada

6. China

7. CIS***

8. Czech Rep

9. Denmark

10.Egypt

11. France

12. Germany

13. Greece

14. Hungary

15. India

16. Ireland

17.Italy

18. Kuwait

19. Malta

20. Mauritius

21. Norway

22. Poland

23. Romania

24. Russia

25. Singapore

26. Slovakia

27. Slovenia

28. S. Africa

29. Sweden

30. Syria

31. UK

32. USA

 

*All the treaties refer to those, which have been ratified. There are 32 treaties covering 40 countries. The numbers in the brackets refer to the explanatory notes here below.

 

**Under Cyprus tax law, dividends paid to non-resident companies are not subject to

withholding tax.

 

***Includes Armenia, Azerbaijan, Kyrgyzstan, Moldova, Tajikistan, Ukraine, Uzbekistan but excludes Belarus, Kazakhstan, Russia and Turkmenistan.

Events

Joint Meeting of Chambers of Commerce On January 24th, 2012, the meeting of chairpersons and management representatives of European Chambers of Commerce took place at the... Learn more
Tax Challenges for Multinational Companies Marriott Hotel, “Galati” room 25 November 2011, 14:00 – 17:00 Introduction – Aim   The Conference aims to present the... Learn more