Anyone that wishes to set up a business in Cyprus must first of all decide the business vehicle he will use. There are plenty of options:
- sole proprietorship
- branch and
- private limited company.
The latter is the most commonly used business vehicle.
Following the 2003 tax reforms and the reform of the Exchange Control Law all citizens of the European Union (EU) can register a company in Cyprus as any other Cypriot. The permit from the Central Bank that was previously a precondition for owning shares in a Cyprus company, is no longer required. In addition all companies are the same and are taxed at the same rate i.e. 12.5%.
It is no exaggeration to say that the accession of Cyprus to the European Union (EU) – as of the 1st of May 2004, and the enactment of the new Cyprus tax legislation, which is now compatible with the acquis communautaire – have made Cyprus one of the most attractive locations for the incorporation of International Business Companies (IBCs).
Following the recent tax reform a company is taxed in Cyprus if it is “resident in the Republic”. 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. The IBCs incorporated in Cyprus can perform many functions e.g. that of a holding company, and give to its shareholders valuable tax advantages.
Under Cyprus Company Law we have two general types of company:
- Company Limited by Guarantee. The liability of its members is limited to the extend to which they have agreed to contribute in the event of winding-up. Such a Company is usually formed for non-profit making concerns.
- Company Limited by Shares. The liability of its members is limited to the nominal value of the shares subscribed by them. If the shares are fully paid, they are not liable to contribute more.
Companies limited by shares are subdivided into (a) Public Companies and (b) Private Companies. The latter are further subdivided into (i) Exempt private Companies and (ii) Private Limited Companies.
The key characteristics of private limited companies are:
- They must have at least one shareholder, one director and one secretary.
- Shares cannot be issued to the bearer (In case anonymity is required this can be achieved through local nominees who sign in favour of the beneficial owner of the shares, a declaration of trust as well as an instrument of transfer of shares in blank),
- It is not necessary for directors or secretary to be shareholders,
- The appointment or removal of directors is made by the shareholders, meetings of the board of directors can be held either in Cyprus or abroad.
- The statutory books required are: the register of members, of directors and secretary, the minute book for all directors and members meetings and the register of charges affecting the Company’s property.
- Bank accounts of any kind may be opened in any currency either in Cyprus or abroad, The Company must have Memorandum and Articles of Association, both of which must be signed by their subscribers