KNOWLEDGE BASE

Procedure to Incorporate

By submission of the Memorandum and Articles of Association to the Registrar of Companies, together with an affidavit before a Court and the appropriate registration fee. The powers and objects of a Cyprus Company are contained within the Memorandum & Articles of Association and have to be specific.

Restrictions on Trading

Cannot undertake to the business of banking, insurance or the rendering of financial services to the public unless special permission is granted. Companies cannot trade with resident individuals or companies situated in Cyprus other than in relation to the maintenance of premises, banking and professional services, unless they have special permission from the Central Bank of Cyprus.

Language of Legislation and Corporate Documents

English and Greek.

Registered Office Required

Yes, must be maintained in Cyprus.

Time to Incorporate

Approximately five days, subject to name approval.

Name Restrictions

Any word that the Registrar considers undesirable. Any name that is identical or similar to an existing company or sounds similar. Any name that implies illegal activity or implies royal or government patronage, the following words or their derivatives: asset management, asset manager, assurance, bank, banking, broker, brokerage, capital, credit, currency, custodian, custody, dealer, dealing, deposit, derivative, exchange, fiduciary, finance, financial, fund, future, insurance, lending, loan, lender, option, pension, portfolio, reserves, savings, security, stock, trust or trustees. If the word “Group” is to be used in the company name the minimum number of corporate shareholders are two.

Language of Name

Names may be expressed in Greek or any language using the Latin alphabet if the Registrar is in receipt of a Greek or English translation and the name is not considered undesirable.

Names Requiring Consent or Licence

The following names or their derivatives require consent or a licence:

“Asset Management” “Asset Manager”, Assurance”, “Bank”, “Banking”, “Broker (s) / Brokerage”, “Capital”, “Credit”, “Currency (ies)”, “Custodian(s)”, “Custody”, “Dealer(s)” “Dealing”, “Deposit(s)”, “Derivative (s)”, “Exchange”, “Fiduciary (ies)”, “Finance”, “Financial”, “Fund (s)”, “Future (s)”, “Insurance”, “Lending”, “Loan(s)”, “Lender(s)”, “Option(s)”, “Pension(s)”, “Portfolio”, “Reserves”, ‘Savings”, “Security(ies)”, “Stock”, “Trust”, Trustees” their foreign language equivalents or any name that the Registrar considers may have a connection with the aforementioned.

Suffixes to Denote Limited Liability

Limited or Ltd.

Company Seal

No mandatory requirement but is permitted and generally used.

Disclosure of Beneficial Ownership to Government Authorities

The identity of the beneficial owners of a Cyprus Company may remain confidential if corporate shareholders are engaged to act as the shareholder on behalf of the ultimate beneficial owners. This confidentiality is maintained as long as the company and its ultimate beneficial owners are not involved in any criminal activity.

CYPRUS COMPLIANCE

Authorised and Issued Share Capital

The share capital must be expressed in Euros. The usual authorised share capital of a Cyprus IBC company is € 5,000 and the minimum issued capital is € 1,000.

Classes of Shares Permitted

Registered shares of par value, preference shares, redeemable preference shares and shares with no voting rights.

Taxation

By virtue of special provisions in the Cyprus Income Tax Laws, the net chargeable profits of Cyprus IBC Companies are taxed at a rate of 10%.

Fixed Annual Levy

On 26th August 2011 The House of Representatives of Cyprus announced a fixed Annual Levy of €350 per annum on all companies which is payable by the 31st December each year. Non-payment of the levy may result in deregistration by the Cyprus Register of Companies.

Double Taxation Agreements

Cyprus has concluded 34 double tax treaties with: Austria, Bulgaria, Belarus, Belgium, Canada, China, the Czech Republic, Denmark, Egypt, France, Germany, Greece, Hungary, India, Ireland, Italy, Kuwait, Malta, Mauritius, Norway, Poland, Romania, Russia, (including most of the CIS countries, i.e. Azerbaijan, Armenia, Kyrgyzstan, Moldova, Uzbekistan and Ukraine), Singapore, Slovakia, Slovenia, South Africa, Sweden, Syria, Thailand, United Kingdom, USA and the former Yugoslavia.

Licence Fee

Not applicable.

Financial Statements Required

Amendments made in 2003 to the Companies Law as part of the EU accession process included the following changes:

• Every company must prepare a full set of financial statements in accordance with International Financial Reporting Standards, and every parent company that has one or more subsidiaries, other than a company which is itself a wholly owned subsidiary, should present consolidated financial statements
• Under article 120, every company must complete an annual return within a period of 42 days from the date of its Annual General Meeting and must file immediately with the Registrar of Companies, a copy of the annual return, signed by a director and the company secretary. Under article 121, the annual return filed with the Registrar of Companies must be accompanied by the full set of financial statements

Directors

The minimum number of directors is One. They may be natural persons or bodies corporate, be of any nationality and need not be resident in Cyprus.

Company Secretary

All Cypriot companies must appoint a company secretary, who may be a natural person or body corporate. It is advisable to appoint a resident company secretary.

Shareholders

The minimum number of shareholders is One.

Holding Companies

Cyprus' a well established international centre, has been critically assessed as constituting an attractive location for holding companies from a tax perspective, among others. This is due to the accession of Cyprus to the European Union (EU) and the enactment of the new Cyprus tax legislation, which is now compatible with the acquis communautaire. Cyprus laws and practices are now harmonised with the EU Laws and Directives, the Code of Conduct and the Organization for Economic Cooperation and Development's recommendation on Harmful Tax Corporation.

Tax Regime

Unlike other countries in Europe, a Cyprus Holding Company must only hold a minimum 1% of the share capital of a foreign subsidiary in order to receive the tax benefits awarded by the new tax reform.

New Tax Legislation

A uniform 10% corporate tax rate, applicable to the worldwide income, is now levied on all resident companies. This is the lowest corporate tax rate in the European Union and thus the most advantageous standard rate of corporation tax for Cyprus.

The new taxation status on Company is residence-based. A company is only 'resident in the Republic' if its business is centrally managed and controlled in Cyprus. Therefore, under the new rules, a resident corporation is taxable on its worldwide income accrued or arising from sources both within and outside Cyprus if it is managed and controlled from Cyprus.

In view of the new tax legislation, the Holding International Business Companies operating from Cyprus are now in a much more beneficial position because they can enjoy the benefits deriving from the tax exceptions as well as the corporate tax benefits by virtue of the new tax legislation.

Tax Exemptions

In view of the new tax legislation 50% of interest received by a corporation is tax exempt, excluding interest received from the recipient's ordinary course of business or closely connected with the recipient's ordinary business.

Dividends received

Dividends received from abroad are now totally exempt from corporation tax by virtue of the new tax legislation. Furthermore, they are also exempt from the 15% defence contribution provided that the direct holding is at least 1% of the share capital of the overseas company.

Restructuring provisions

In view of the incorporation of the EC Merger Directive 90/434/EEC into the new tax law, there are tax exemptions on the transfer of assets (including shares) under a reorganisation (merger / de-merger / transfer of assets).

Gains on shares and Capital Gains Tax

Profits from buying and selling shares are exempt from tax. Furthermore, there is no capital gains tax except for the 20% capital gains tax applying on gains accruing from disposal of immovable property held in Cyprus and shares in non-listed companies, which own immovable property in Cyprus.

Profits from activities of Permanent Establishment abroad

The profits from a permanent establishment abroad are exempt from taxation. The exemption does not apply if (i) the Permanent establishment directly or indirectly engages in more than fifty per cent (50%) in activities that produce investment income, and (ii) the foreign tax burden is substantially lower than that in Cyprus.

Cyprus Branches of Companies

With the accession of Cyprus in the EU, double taxation relief will be available to all Cyprus branches, of companies resident in other member states in the European Union, since there is no discrimination between the companies' resident in a Member state and the branches of such companies' residence in another member state.

Distributions by Cyprus Holding Companies

Dividends paid to non-resident shareholders are exempt from withholding tax. In fact, Cyprus does not impose withholding taxes on payments of dividend, interest and royalties (provided the intellectual property rights are not used in Cyprus) to non-resident recipients.

Corporate Tax Benefits

Carry forward of Losses

Tax losses for the year 2000 onwards may be carried forward indefinitely. Losses incurred abroad by a permanent establishment of a Cyprus company can be offset against profits of the Cyprus Company.

Group relief

The Group relief rules are now enacted, providing for group relief of tax losses between a holding Company and its subsidiaries in the event where the Holding Company owns at least 75% of the Subsidiary directly or indirectly and/or otherwise among companies of the same group for the whole year. However, losses brought forward will not be available for Group Relief.

By virtue of the said rules a company is considered as a member of a group if it is at least a 75% subsidiary of the other, or both companies are at least the 75% subsidiaries of a third company.

Network of Double Tax Treaties

Cyprus combines a low-tax regime with a network of double tax treaties. It has concluded the highest number of double tax treaties compared to any other offshore jurisdiction, particularly with Central and Eastern European Countries and a number of Middle Eastern countries. Most of the Treaties follow the OECD model and all of them have the impact of reducing or eliminating the normal withholding taxes imposed by the Contracting states on dividends, interest and royalty payments. This is beneficial for trade with certain Eastern European Countries and Russia because foreign investors investing in Eastern Europe have the opportunity to channel their investments through a country, such as Cyprus, which has a treaty with the investment recipient country allowing for a reduction and in some cases elimination of the withholding taxes.

Conclusions

Cyprus, one of the smallest European low tax jurisdictions, is a suitable place for locating an intermediary company due to the island's combination of tax treaties and low-tax regime. Dividends can flow through the Cyprus company totally tax free and the company can be used to take advantage of the extensive network of double tax treaties.