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Cyprus Company Formation:

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Cyprus is the third largest Island in the Mediterranean Sea and lies south of Turkey. Cyprus gained its independence from the United Kingdom and established a constitutional republic in 1960. Shortly after the founding of the republic, fundamental differences arose between the indigenous Greek and Turkish communities regarding the implementation and interpretation of the constitution. Hostilities between the two communities in 1974 divided the island into two de facto autonomous areas, a Greek Cypriot area controlled by the internationally recognized Cypriot Government and a Turkish-Cypriot area, separated by a UN buffer zone.

Cypriot Company law is based on that of the United Kingdom with similar company types, i.e. the private company limited by shares, exempt private company, public company limited by shares, company limited by guarantee, branch of overseas company, general partnership, limited partnership, sole proprietor and Trusts.

Offshore Company Formation

Advantages of the Cyprus Offshore Company Formation

Company Formation expertise

Charges
Secrecy
Banking services
Legal system
Political stability
Prestige


offshore company fee schedule

There are more than 55,000 offshore enterprises registered in Cyprus and many international investors choose Cyprus as the location of choice for financial holding and investment companies because of the jurisdiction’s attractive combination of tax treaties and tax regime. Corporate taxation is levied at 10% on business turnover for both resident companies and offshore entities making Cyprus the lowest rate in the European Union, after Ireland (12.5%), with the exception of the Isle of Man, which has just announced a nil rate.

Cyprus has over 30 double taxation treaties with many advantageous provisions. Among emerging markets there are also very advantageous tax treaties with China, India, South Africa and a number of Middle Eastern countries

The jurisdiction has an excellent business infrastructure with sound telecommunications; this coupled with the widespread use of the English language and a legal system largely based on English law makes the island a very convenient and effective business base. The company registration procedures are efficient and should take no more than 2-3 weeks.

There is a thriving to e-commerce service sector for the provision of retail or wholesale distribution of material or non-material goods: There are a number of local banks, but many international banks have formed Offshore Banking Units on the island and provide services to foreign or offshore companies.

Cypriot Company Formation Formalities

Under Cypriot law IBC’s are generally offshore limited liability companies, although they can take the other forms such as general or limited partnerships, International Banking Units or Shipping Companies.

Companies incorporated under the Companies Law Cap 113 whom have sought permission from the Central Bank of Cyprus by lodging a bank reference included on the Central Bank of Cyprus's list of qualifying banks with a copy of the owner's passport, will acquire IBC status provided that they adhere to the following restrictions:


  • The company is entirely foreign owned;
  • There are no trading activities in Cyprus with Cypriot residents or businesses other than in relation to the maintenance of premises, banking or professional services;
  • There is no business in banking, insurance or the provision of financial services unless special permission is granted;
  • Local payments must be recorded and reported;
  • The formalities for the creation of the offshore limited liability company are minimal;
  • The share capital must be expressed in Cyprus pounds the usual authorized share capital is CYP 5,000. The Central Bank recommends a minimum authorized share capital of CYP 10,000;
  • The minimum number of shareholders and Directors are one;
  • A registered office and agent must be maintained in Cyprus;
  • Registered shares of par value, redeemable shares and shares with no voting rights can be issued;
  • Secrecy may be achieved by using nominee shareholders. However disclosure of beneficial ownership is mandatory to the Central Bank but the disclosure by the Bank of this information to any third party is strictly protected by statute;
  • There is no provision under the law for migration or re-domiciliation;
  • Audited annual accounts must be filed with the Central Bank of Cyprus annually in Greek within 42 days from the date of its Annual General Meeting.

However, there are some activities which are allowed within Cyprus but they must be compatible with the exercise of management and control, with the permission of the Central Bank of Cyprus, for example repackaging for re-export within a tariff classification; sales activities, provided these do not result in sales in Cyprus or to Cypriot companies; and storage, repair or maintenance of goods to be used or sold outside Cyprus

Trusts


There are three types of Cypriot Trusts. Local Trusts where the settlor and beneficiaries are normally residents of Cyprus, and the trust and its property are subject to exchange controls. Offshore Trusts are the same as Local Trusts except that their beneficiaries must be non-resident and all the trust's activities must be outside Cyprus.

The International Trust is a vehicle commonly used by foreign settlors because of the tax and legal advantages. The income and assets of the Trust are exempt from local taxes and Trust instruments only subject to stamp duty. Moreover secrecy is protected by law, and foreign judgments cannot be enforced against Trust assets. To secure the benefit of such a Trust the settlor and the beneficiaries must be non resident, but one of the Trustees must be a Cypriot. There are no registration requirements and the trust period may be up to 100 years, this can be longer for charitable trusts.

Taxation

Cyprus levies taxes on Income, capital gains, and property. Employees and self employed residents contribute to a mandatory earnings related social security scheme. The main tax for companies is corporate tax on income. Prior to 2003 all offshore companies and branches of foreign companies with management and control in Cyprus were at taxed 4.25% on business profits. However, a new corporation tax regime based on residence was introduced with effect from 1st January 2003 to apply universally to all companies incorporated or registered under Cyprus law and any foreign company carrying on business or with an office in Cyprus. There is now a uniform 10 % corporate tax that is levied on worldwide income on all resident companies. Offshore companies incorporated before 2002 are allowed to opt to continue the 4.5% 'offshore' taxation until 2006.

Profits from activities of a permanent establishment situated outside Cyprus are completely exempt. This exemption will not apply to a Cyprus company if: its foreign permanent establishment directly or indirectly engages in more than fifty per cent of its activities in producing investment income; and the foreign tax burden is substantially lower than that in Cyprus.

Dividends, royalties from assets abroad will be exempted from withholding tax; profits from buying and selling shares are also exempt. Estate duty is not charged on inheritance of shares in offshore companies, and the sale of or transfer of their assets (other than Cyprus real estate) is exempt from capital gains and other taxes.

Cyprus has the highest number of double tax treaties compared to other jurisdictions and most have the effect of reducing the applicability of withholding taxes on dividends and royalties.

Offshore companies can also purchase many items for their own needs exempt from duty charges.

Banking

Non-Cypriot banks are restricted to banking operations with non-residents in foreign currencies, and with Cyprus-registered non-resident companies and their expatriate staff. Such International Banking Units take the form of branches or subsidiaries of foreign banks or representative offices.

All Offshore entities must disclose details of beneficial ownership to the Central Bank of Cyprus on formation, but the bank is bound by statute from nondisclosure to third parties.

Employment Law

There is minimal employment law and much pay bargaining is carried out directly between employers and employees. Bargaining between trade unions and employers' organizations and the Government takes part in tri-partite resolution of disputes.

Work permits are normally issued to foreigners only when no suitably qualified local staff are available. For workers outside the EU it is notoriously difficult to obtain a five-year work permit in Cyprus. However, EU nationals and those employed in certain sectors (such as workers in offshore companies, journalists, and accountants in large firms, business people who invest more than £100, 000 and lecturers/teachers) are able to obtain five year permits with relative ease.

Geography, People & Culture

Cyprus is approximately 9,251 sq. km. (3,572 sq. mi.); the terrain is mountainous to the south and the north and the climate Mediterranean with hot, dry summers and cool, wet winters. The capital is Nicosia with other principal cities being Limassol, Larnaca, Famagusta, Paphos, Kyrenia, Morphou. The population was recorded in July 2004 at 775,927 with the ethnic breakdown comprised of Greek (77%) Turkish (18%) Armenian and others (4%).

Greek and Turkish Cypriots share many customs but maintain distinct identities based on religion, language, and close ties with their respective "motherlands." Greek is predominantly spoken in the south, Turkish in the north. English is widely used. Cyprus has a well-developed system of primary and secondary education. The majority of Cypriots earn their higher education at Greek, Turkish, British, and other European or American universities. Both the Turkish and Greek communities have developed private colleges and state-supported universities.

Immigration and Residency

A visa is not required for most members of the EU, the Council of Europe, the USA and the Commonwealth, to enter Cyprus. If a visa is required it is easily purchased on arrival at the airport or port

Residence Employment permits and other work permits are issued to foreigners only if there are no other suitably qualified local staff available. Non-EU foreigners, whether or not resident, require permits to acquire real estate in Cyprus, which should normally be for temporary or permanent residence.

Foreigners in Cyprus must either have a five-year work permit or have worked on the island for five years or have a combination of worked time and work permit totalling a minimum of five years before their spouses can join them.

For tax purposes, residence is defined as presence in the country for more than six months of a year.

Legal and Political System

The 1960 Cypriot Constitution provided for a presidential system of government with independent executive, legislative, and judicial branches, as well as a complex system of checks and balances, including a weighted power-sharing ratio designed to protect the interests of the Turkish Cypriots.

However, following the hostilities in 1974 between the Greek and Turkish communities, Cyprus has been divided de facto into the government-controlled two-thirds of the island and the Turkish Cypriot one-third. The Government of the Republic of Cyprus has continued as the internationally recognized authority; in practice, its authority extends only to the government-controlled areas. The Turkish Cypriots established their own institutions with an elected president and a prime minister responsible to the National Assembly exercising joint executive powers. In 1983, the Turkish Cypriots declared an independent Turkish Republic of Northern Cyprus ("TRNC"). Only Turkey recognizes the “TRNC”.

The executive arm of the Government is vested in the Council of Ministers to which the President, who is elected to a five year term, makes the appointments; the Legislative arm is vested in the unicameral House of Representatives and members are elected to a five year term. The electoral system is based on proportional representation with right wing, centralist and Socialist parties. The legal system is based on English common law with a Supreme Court and six District Courts.

The political parties for the Greek Cypriot Community- are Democratic Rally (right); Democratic Party (center-right); AKEL (communist); KISOS (socialist); United Democrats (center-left)

Turkish Cypriot Community political parities are --National Unity (right); Democratic party (center-right); Republican Turkish (left); Communal Liberation (center-left); National Revival (center-right); Patriotic Unity Movement (left); National Justice Party (ultra-nationalist).

Economy

The currency is the Cyprus Pound, divided into 100 cents. The currency is managed by the Central Bank using the Exchange Control Law Cap 199; the Bank targets stability against the Euro, but its plan to join the euro zone in the next few years will be hindend if public expenditure continues to run out of control.

The Greek Cypriot economy is prosperous but highly susceptible to external shocks. Erratic growth rates over the past decade reflect the economy's vulnerability to swings in tourist arrivals, caused by political instability in the region and fluctuations in economic conditions in Western Europe. Economic policy is focused on meeting the criteria for admission to the EU.

The Turkish Cypriot economy has roughly one-third of the per capita GDP of the south. Because it is recognized only by Turkey, it has had much difficulty arranging foreign financing and investment. It remains heavily dependent on agriculture and government service, which together employ about half of the work force. To compensate for the economy's weakness, Turkey provides grants and loans to support economic development. Ankara provided $200 million in 2002 and pledged $450 million for the 2003-05 period. Future events throughout the island will be highly influenced by the outcome of negotiations on the UN-sponsored agreement to unite the Greek and Turkish areas.

Legislation affecting offshore and non resident business

If you require more information on any particular statute please contact us.

Banking Business (Temporary Restrictions) Law of 1939 (banking licences)
Banking Law 1997 (secrecy, confidentiality, offshore banking)
Capital Gains Tax (Amendment) Law No. N119(I) of 2002
Central Bank of Cyprus Law 37 of 1975 (secrecy)
Companies Law Chapter 113 (types of company)
Companies (Amendment) Law of 2000 (Law 2(I)/2000)
Companies (Amendment) (No. 3) Law of 2000 (151(I)/2000)
Companies (Amendment) Law of 2001, Law 76(I) of 2001
Customs and Excise Duties Law 34 of 1975
Cyprus Trustee Law Chapter 193
Exchange Control Law Chapter 199
Income Tax (Amendment) Law 15 of 1977 (set up offshore regime)
Income Tax Law No. 118(I) of 2002
Insurance Companies Laws 1984-1990 (deals with captives)
Insurance Regulation 1995 (deals with captives)
International Collective Investment Schemes Law No. 47 (1)/99
International Trusts Law 69(I) of 1992
Liberalisation of Investment Laws 1997
Merchant Shipping (Registration of Ships, Sales and Mortgages) Law 45 of 1963
Merchant Shipping (Fees and Taxing Provisions) Law 38(I) of 1992
Partnership and Business Names Law Chapter 116
Prevention and Suppression of Money Laundering Law 1996


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