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CYPRUS COMPANIESLEGAL FRAMEWORK
17th June, 2010
Prague
• Incorporation, duties and maintenance– Directors / Secretary obligations
• Tax regime – corporate and personal
• Accounting and audit requirements
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Agenda
The Cyprus Legal System and Companies Legal Framework
• Cyprus Legal System
– Modeled after English Legal System
– Principles of common law
• Cyprus Companies Law based on UK’s Companies Act 1948
– Adjusted with Cypriot reality / EU Law;
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Regulatory framework for the Incorporation of Cyprus Companies
• Pre-approval of name by the Registrar of Companies required
• Director/s and Secretary – obligatory– Private Limited Liability Company
• At least 1 Director and 1 Secretary– Public Limited Liability Company
• At least 2 Directors and 1 Secretary
• Registered address in Cyprus
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Regulatory framework for the Incorporation of Cyprus Companies
• Share capital– No min requirement– Shares issued and paid upon incorporation
• Memorandum and Articles of Association– Memorandum
• Specifies the objects of the Company
– Articles• Specify the domestic regulations and administration of the
Company
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Redomiciliation of a foreign company to Cyprus
• Foreign companies may transfer their seat in Cyprus– Condition: should be permissible under the
jurisdiction of incorporation of the foreign co
• Cost efficiency! No liquidation and re-registration costs
• Tax benefits– Migrating company NOT deemed to be
liquidated, hence no taxable disclosure of its hidden reserves where applicable.
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Directors duties & powersFiduciary duty:
• Not enter into contracts with the Co unless allowed by the articles or if approved by General meeting or when disclosed
• Act in good faith for the benefit of the Co • Use powers and issue shares for a proper purpose• Avoid conflicts of interests with their company
Duty of care and skill:• Does not have to demonstrate greater degree of skills than
expected• Not obliged to give continues attention to co’s affair• Entitled to leave running of the co to the officials
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Secretary • Mandatory for all Companies
• Can be a legal or physical person
• Appointed by the Directors
• Duties – no specific duties– Generally responsible for the
administrative affairs of the company
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Compliance requirements• Keeping proper accounting books and records and
preparation of financial statements
• Tax Compliance
• Preparation of audited financial statements
• Submission of Annual Return (Registrar of Companies)
• Submission of Tax Returns
• Submission of VAT Returns
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Cyprus Tax Regime
• Simple and efficient tax regime attracting more and more foreign investments
• Cyprus is treated as a most favorable destination for:
• Holding Companies; • Financing Companies; • Royalty Companies; • SPV
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Cyprus Tax Regime• Cyprus tax resident companies are subject to
tax on their worldwide income
– Corporate Income tax (CIT) is rated @ 10%
– The effective CIT rate is reduced even further considering the exemptions on:
• Gains on disposal of securities• Dividend income• Interest income (not in the ordinary course of business)
– Deductibility of expenses if incurred wholly and exclusively for the production of income
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Tax Briefing on Cyprus
• Lowest corporation tax in the EU (10%)
• Inbound dividends are generally tax free (limited requirements apply)
• No WHTs on payments to non-residents
• No capital gains tax on disposal of shares or non-Cyprus situated property
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Tax Briefing on Cyprus• Immediate implementation of all EU
Directives, including:• Parent – Subsidiary Directive• Interest & Royalty Directive• Merger Directive
• No thin capitalization rules
• No inheritance tax
• Extensive network of Double tax treaties concluded
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Tax Residency• A Company obtains the status of a Cyprus
tax resident if:
– Managed and controlled in Cyprus
• Management is generally exercised by the board of directors of a Company
• Majority of local directors and meetings held in Cyprus advisable for tax purposes
• Registration is not sufficient for residency.
• Non-resident companies are taxed only on income derived from Cyprus
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Personal tax regime• Resident individuals subject to tax on worldwide
income
• Residency established where:– An individual resides in Cyprus +183 days in a year
• Applicable tax rates
Taxable Income in EUR Tax rate0 – 19,500 0%19,501 – 28,000 20%28,001 – 36,300 25%36,301 + 30%
• Exemptions include:– Dividend income– Gains from the sale of securities– Interest income (outside the ordinary course of business)
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Companies (Fees & Duties Payable) Regulations
• On the registration of a company:
• Flat fee of €102,52 plus 0,6% on the authorized share capital of the Company.
• On the increase of authorised share capital of a company:
• 0.6% on the amount of the increase
• Fees for the submission of documents at the Registrar of Companies
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Special Contribution to the Defence
• Dividends received from overseas subsidiaries– 15% unless:
• not more than 50% of the paying company’s activities result in investment income; and
• the foreign tax is not significantly lower than the Cyprus tax.
• Dividends paid– 15% on dividends distributed to shareholders who are residents
of Cyprus (physical persons);– no tax on dividends paid to non-resident shareholders. – Deemed dividend distribution provisions apply (applicable on tax
residents)
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Special Contribution to the Defence
• Interest received– 10% tax on interest earned by an individual or
company resident in Cyprus (outside the ordinary course of business).
• Rental income– 3% on rental income of a Cyprus resident
(after deduction of 25%).
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Capital Gains Tax• Imposed on gains from:
– the disposal of immovable property in Cyprus – the disposal of shares in companies the assets of which consist of
immovable property in Cyprus• Unless shares are listed in a recognised stock exchange.
• Exemptions:
– the sale of shares listed in any recognised stock exchange – transfer of immovable property due to death;– gifts among relatives up to the third degree, to companies by members
of the family of the shareholders, by a family owned company to its members
– donation for charity to charitable organisations or to the Republic– exchange of properties of equal value– expropriation of property;– sale or exchange of property consistent with the provisions of the
Agricultural Land (Consolidation) Laws;– Gains realised from transfers arising due to re-organisation
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Capital Gains Tax
• Non-residents also liable
• Deductions extended to individuals
– sale of private residence €85,430.07 – sale of land used by a farmer €25,629.02
for agricultural purpose – other sales €17,086.01
VALUE ADDED TAX• Obligation to register with the VAT
department
– Annual turnover exceeding €15,600 – Intra-community services imposes an
obligation to register irrespective of turnover
• Maximum level not giving rise to VAT registration obligation €13,668.81 (lower T/O can be registered voluntarily).
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VALUE ADDED TAX• VAT rates
–Standard 15%–Reduced 8 / 5%–Zero rate
• Exemptions include medical services, postal services, financial services, insurance services, education, rent and disposal of immovable property (licensed before 05/2004), services to mutual funds, etc.
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Other Fees & Taxes• Immovable property tax
– Progressive rates of 0 – 0.4% depending on the value of the property
– Specific exemptions apply under the law
• Transfer fees for immovable property– Progressive rates of 3 – 8% depending on the value of the
property– Exemption applies in cases of qualifying reorganisations
• Stamp duty– Imposed on contracts relating to things or matters to be done in
Cyprus– Rates: 0.15 – 0.20% depending on the consideration amount– Capped at €17,086– Exemption applies in cases of qualifying reorganisations
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Other Fees & Taxes
• Social Security contributions Employer Employee Self-
employed
% % %
Social Insurance 6.8 6.8 12.6
Redundancy fund 1.2 - -
Industrial training 0.5 - -
Social Cohesion Fund 2.0 0 0
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Accounting & Audit Requirements• Companies Law, Cap. 113
– requirement to keep proper accounting books & records
• Representing a true & fair view of the company’s affairs• Enabling the preparation of financial statements• Preserved in the registered office of the company
– Holding companies with 1 or more subsidiaries should prepare consolidated financial statements according with IAS
• Small sized groups – exempt from the obligation to prepare consolidated financial statements
– The financial statements, directors’ report & auditor’s report (where applicable) should be presented by the directors at the general meeting
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• Companies Law, Cap. 113– Obligation to prepare Audited Financial Statements in
cases of:• Companies under an obligation to prepare consolidated
financial statements• Public Companies• Private companies other that small sized companies
– Small sized company (2 out of 3 requirements to co-exist):
• Overall assets under approx. €3.5m; and/or• Net turnover under approx. €7m; and/or• Number of employees under 50
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Accounting & Audit Requirements
Accounting & Audit Requirements
• Income Tax Law– Accounts either presented to the Commissioner of
inland Revenue or accompanying a tax return to be submitted to the Commissioner of Inland Revenue must be certified by a qualified auditor
• Audited financial statements should follow:– The International Standards of Auditing; – The International Financial Reporting Standards
(IFRS)
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Thank you!
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