Cyprus is one of the most popular jurisdictions for company formation among European investors and businessmen because of the low tax regime in place for companies and resident companies. The Cyprus tax rate is the same for all companies incorporated in the jurisdiction. Companies in Cyprus pay 12.5% corporate tax on their annual profits. There is no withholding tax applied to the payment of dividends in Cyprus and there is no wealth tax.
Cyprus company formation offers important advantages for shareholders privacy. Cyprus law protects the privacy of bank account holders, the owners of Cyprus trusts and Cyprus International Business Companies. Cyprus has also banking secrecy laws in place which protect the integrity of bank accounts in the jurisdiction. It is prohibited and punishable by law to disclose information of any Cyprus bank account.
Company legislation allows for the registration of Cyprus companies using nominee shareholders and directors other that the ultimate beneficial owners. In very rare cases and only when there is a suspicion for illegal activities (such as weapons, drugs, people trafficking) the Cyprus courts can ask the Administrator to reveal the Ultimare Beneficial Owner (UBO). Further than that, the UBOs keep their anonymity.
CYPRUS COMPANY REGISTRATION PROCESS
Cyprus limited companies may be private or public.
Private companies must:
Restrict the right of transfer of their shares,
Limit the number of shareholders to fifty and
Refrain from inviting the public to subscribe for any of their shares.
A public company must:
Have at least two directors
The minimum number of shareholders in a public company is seven
The minimum authorized and issued capital of a public company must not be less than €25.630,00
An international company in Cyprus may perform a wide range of activities the most common of which are set out below:
Trading & re-invoicing companies
Holding and investment companies
Construction and engineering companies
Printing and publishing companies
Real estate companies
Shipping and ship management companies
International Banking Units (IBUs)
A Trust is an equitable obligation, binding a person (the trustee) to administer the property (the trust property) which is transferred to him by (the settlor) for the benefit of a person or persons ( the beneficiaries) based on the oral or written wishes of the settlor which are expressed in the trust deed or will. The assets of a trust may consist of funds, shares, real estate amd other property.
The trustees are appointed by the settlor and can be legal entities or physical persons. The legal entity can be appointed under the condition that it falls into the category “Trust company”. There are no specific rules on how many trustees can be appointed for each trust, even though is recommended to appoint more than one.
According to the Law, the trustees are the owners of the trust property; nevertheless they do not have the right to administer it as absolute owners, but only in accordance to the provisions of the relevant Trust Laws and the rights of the beneficiaries as these are stated in the trust deed.
The duration of an international trust, unless otherwise stated in the contract, is unrevocable and may last up to one hundred years.
The new Law is only applicable in the case of non-residents and for all intended purposes, non- residents are not only individuals are that are not permanent residents in Cyprus but also international companies and international partnerships. The most important provisions of the Law are summarized as follows:
Definition of International Trust
The Law defines the international trust as the trust of which:
The settlor is not a permanent resident of Cyprus
No beneficiary other than a charity is a permanent resident in Cyprus
There must be at least one trustee resident in Cyprus at all times. For this reason a Trust Company is incorporated in Cyprus under the supervision of the Central Bank of Cyprus fulfilling all the requirements of a trustee.
Our firm offers specialized advice in regards of trusts agreement in Cyprus and in other jurisdictions. We deliver a flexible and responsive trust service that meets the needs of a wider range of clients.
The Trust services available include establishing and acting as trustees or co-trustees for the administration of trusts, provision of full accounting services and portofolio administration and reporting.
Trusts have always been important tools for tax planning and until today a significant percentage of tax savings models include the use of trusts
Preservation of family fortune
To benefit and protect handicapped persons
Protection of assets
The Alternative Investments Funds Law of 2014 was enacted by the House of Representatives on 10/7/2014 and came into force on 18/7/2014. The new law replaces the International Collective Investment Schemes Law (ICIS) of 1999.
The new regulator of AIF is the Cyprus Securities and Exchange Commission (CySec) replacing the former regulator of ICIS, the Central Bank of Cyprus. As of 18/7/2014 all ICIs will be transferred to AIFs keeping the same structure with limited number of investors or can be converted to AIFs.
The AIF law aims to promote the funds establishment in Cyprus thus enriching the law with new possibilities to asset managers. It is worth mentioning that the changes introduced are in line with the EU directives on asset management and at the same time they give the possibility of the issuance of an EU passport.
Main characteristics of the AIF Law:
It offers umbrella structures with multiple investment components that can operate individually thus allowing the structures to have different investments policies and different assets and liabilities
Investors can participate as co-owners in the common contractual funds. These types of funds are particularly used for pension purposes
Possibility to make public offering of shares/units of AIFs
Possibility of listing in stock exchange in the EU or in a third country
In certain cases the depositary function may be undertaken by an entity other than a banking institution offering the possibility the AIFs not to operate only in financial markets but also to private equities such as real estate funds.
AIFs can be set up into the following two types:
With unlimited number of investors and refers to retail or well informed and/or professional investors
With limited number of investors (up to 75 investors) and refers to well informed and/or professional investors
An AIF can take the following legal forms:
Fixed or Variable Capital Company
The main characteristics of the type are as follows:
The Management of the AIF can be self-managed or appoint a management company. An Alternative Investment Fund Manager may be needed to be appointed for depending on the value of asset of each AIF.
A Custodian is required for safekeeping and cash monitor. In cases where the assets do not require safekeeping, such as real estates, a custodian may be not required.
An AIF with unlimited number of investors hold the right to be marketed to well informed/professional investors.
It offers umbrella structures with multiple investment components that can operate individually thus allowing the structures to have different investments policies and different assets and liabilities.
An AIF with unlimited investors can be listed but not traded on a recognized stock exchange of EU or other third country. Whereas an AIF marketed to retail investors may be listed and traded.
Minimum share capital requirement is set to €125.000 or €300.000 in case of self-managed fees.
CySec holds the right to impose investment restrictions for risk spreading and liquidity.
The AIF with unlimited investors needs to prepare two reports yearly. The first report will include the first half year report and the second will be the annual report, both to be submitted to CySec. These reports should be notified to the investors.
The Licensing process includes a procedure where a number of papers should be submitted for approval to CySec.
An AIF can take the following legal forms:
Fixed or Variable Capital Company
Limited Liability Partnership
The main characteristics of the type are as follows:
The Management of the AIF with limited number of investors can be self-managed or appoint a management company.
An AIF with limited number of investors hold the right to be marketed to well informed/professional investors.
It offers umbrella structures with multiple investment components that can operate individually thus allowing the structures to have different investments policies and different assets and liabilities, however the limitation on the number of investors is applicable to all investment components.
A Custodian is not a requirement when: the total assets of the fund are less than €5 mln or the fund has up to 5 investors or not eligible assets for safekeeping.
There is no investment policy restrictions
The AIF with limited investors needs to prepare an annual report and needs to be submitted to CySec and to be available to the investors. Additionally, the AIF with limited number of investors should submit on a quarterly basis a report to the investors with information concerning their investment.
New and accelerated procedure for granting Immigration Permit to applicants who are third Country nationals and intent to invest in the Republic of Cyprus
1. According to the provisions of Regulation 6(2) of the Aliens and Immigration Regulations, the Minister of the Interior decided to issue Immigration Permit to applicants, who are third country nationals, provided that they fulfill the following criteria:
(a) The applicant must prove that he has at his disposal a secured minimum annual income of €30.000, from sources other than employment in Cyprus. The required income of €30.000 could derive from salaries of employment abroad and not in Cyprus, pensions, stock shares, rents, etc. The necessary minimum annual income is increased by €5.000 for each dependent person.
(b) The applicant must submit the application form accompanied with a Title of ownership or contract of sale, of a property in Cyprus, a house, apartment or other building, of a minimum market value of €300.000 and proof of payment for at least €200,000. The contract of sale should already have been submitted to the Department of Lands and Surveys.
(c) The applicant must submit a confirmation letter from a Cypriot Bank stating that he has deposited a minimum capital of €30.000 in an account, which will be pledged at least for a three year period.
It is noted that the amounts mentioned in paragraphs (b) and (c) should be proven to have been transferred to Cyprus from abroad.
(d)The applicant must submit a Criminal Record Certificate (if the applicant resides abroad), which must be issued by the Authorities in his country of origin, and he should not constitute in general any threat against public order or security in Cyprus.
(e) The applicant should submit a Statement that he does not intent to work or be engaged in any form of business in Cyprus.
(f) The applicants should visit Cyprus at least once every two years.
2. Procedure for the submission and examination of an application
(a) The application should be submitted on Form (M.67) to the Civil Registry and Migration Department or to the District Offices personally or through post or through a representative. It is noted that the applications submitted to District Offices shall be transferred to the Civil Registry and Migration Department directly, without any processing.
(b) Applications which are submitted in Cyprus, personally or through a representative or by post, shall be filed in an ordinary file (the applicant should ensure that each relevant document of the application must be numbered with blue ink, from the first page to the last).Inside the file there shall be included a check list of all necessary documents, which must be submitted with the application form, which must be completed by the applicant or by a representative of the applicant.
(c) The application shall be examined by the Civil Registry and Migration Department and shall be submitted to the Minister of the Interior, through the Permanent Secretary of the Ministry, for a decision. For the purposes of the specific type of immigration permit, no personal interviews are necessary, except when the Permanent Secretary decides that an interview is necessary.
(d) The Ministry of the Interior shall inform the applicant or the representative of the applicant and the Civil Registry and Migration Department, about the decision of the Minister of the Interior.
(e) The Immigration Permit shall not be cancelled, provided that the applicant will visit Cyprus one time at least, every two years period.
3. After the publication of this Announcement, any third country national who has applied for an Immigration Permit for Category F, may submit additional documents to the Civil Registry and Migration Department, in order to meet the criteria of paragraph 1 and have the application examined according to the provisions of Regulation 6(2) of the Aliens and Immigration Regulations, regarding the above mentioned criteria and the relevant procedure.
4. Provided that the criteria described in paragraph 1 are fulfilled and no further questions arise with respect to the Criminal Record of the applicant, or Public Order, the application shall be examined by the Minister of the Interior in a positive spirit and the Immigration Permit shall be granted.
5. It is estimated that when applying the procedure described above, the period for the examination of the application, shall not exceed a period of 1-2 months.
On the 13th of September 2016, the Council of Ministers revised the “Scheme for Naturalization of non-Cypriot investors by exception”, as a part of its policies aiming to further encourage Foreign Direct Investment and to attract high net worth individuals to settle and do business in Cyprus.
Scheme for Naturalization of Investors in Cyprus By Exception
On the basis of subsection (2) of section 111A of the Civil Registry Laws of 2002-2015
The new scheme is based on the following financial criteria:
Investment in real estate (acquisition or construction), land development and infrastructure projects (residential or commercial) of at least €2 million. The investor should have an investment plan and any purchase of land should be in non-zero growth zones, or
Investment (acquisition, incorporation or participation) in financial assets of companies or organizations established and operating in the Republic of Cyprus of at least €2 million. The funds that will be invested will be utilized in the financing of the company’s/organization’s investment objectives. The aforementioned companies should employ at least five Cypriot or EU citizens and should carry out significant activity (turnover), or
Investment in Alternative Investment Funds (AIFs) or financial assets of Cypriot companies/organizations that are licensed by the Cyprus Securities and Exchange Commission, of at least €2 million. The investment should be maintained for at least three years.
Combination of the above criteria provided the total amount of funds invested comes to €2 million. Under this option the investment can also include government bonds of up to €500.000 in value which will be issued specifically for this purpose and which should be maintained for at least three years.
In addition to the above requirements, the following terms and conditions should also apply:
The investor must possess a permanent privately-owned residence in Cyprus of at least €500.000(+VAT). If the investor proceeds with the investment in residential properties as per criterion 1, the purchase of another permanent residence will not be required if at least one of these units worth at least €500.000(+VAT), provided that he will keep it in his possession for life.
The investor/applicant must have a clean criminal record
The investor/applicant should hold a residency permit in the Republic of Cyprus before his/her naturalization as a Cypriot resident. In case he/she is not already a holder, an application for an immigration permit can be made at the same time as the application for citizenship is submitted.
Who is eligible to apply for acquiring Cyprus citizenship?
On the basis of the Scheme, a non-Cypriot citizen, who meets one of the aforementioned criteria, either personally or through a company/companies in which he/ she participates as a shareholder – in proportion to his holding percentage, or through investments carried out by his/her spouse or jointly with the spouse or even as a high-ranking senior manager of a company/companies that meets one of the economic criteria described before, may apply for the acquisition of Cyprus citizenship through naturalization by exception.
On 14 July 2017, the Parliament of Cyprus approved a bill granting tax resident status to individuals that spend at least 60 days in Cyprus per year, provided that certain conditions are met. This incentive applies retroactively as from 1 January 2017.
Specifically, the Income Tax Law has been amended so that an individual who does not remain in any other state for one or more periods, which altogether exceed 183 days and at the same time, is not a tax resident in any other state for the same tax year, to be considered a Cyprus tax resident, provided that:
1) He remains in Cyprus for at least 60 days during the tax year
2) He carries out business activities in Cyprus and/or works in Cyprus and/or is a director in a company tax resident in Cyprus at any time during the tax year
3) He maintains a permanent residence in Cyprus which is either owned or rented
It shall be noted that an individual is not considered tax resident in Cyprus in the tax year, if in that year the exercise of any business activities and/or employment in Cyprus and/or the holding of a post to a taxable person of Cyprus, have terminated.
How are the 60 days calculated?
1) The day of departure from Cyprus is considered as a day outside Cyprus
2) The day of arrival in Cyprus is considered as a day in Cyprus
3) Arrival in and departure from Cyprus within the same day is counted as one day in Cyprus
4) Departure from and return to Cyprus within the same day is counted as one day outside Cyprus
What are the applicable tax benefits?
An individual employed in Cyprus with income that exceeds €100.000 per year, provided that he had not been tax resident of Cyprus prior to the commencement of his employment in Cyprus, he is allowed for 50% exemption on his remuneration for a period of 10 years, which significantly reduces his income tax liability.
At the same time, an individual is granted exception from income tax or defense tax on dividends or interest received either in Cyprus or abroad, provided that such individual is considered a non-dom in Cyprus.
Transfer of the tax residency of an individual from an EU country to Cyprus
The application for the issue of a Registration Certificate (MEU1A) is submitted by a European Union citizen and family members who are also citizens of a member state, within four months from the date of entry into Cyprus.
For the issue of a Registration Certificate the EU citizen must submit the following documents, in case that the purpose of residing in Cyprus is employment activity:
1) Valid Passport or identity card and copies of the same
2) Confirmation of Engagement by the employer or certificate of employment
3) Two passport-sized photographs
4) Rental agreement
5) Bank Account
The above documents will be needed to file the MEU1A to obtain the yellow slip from the Migration Office.
The physical presence in Cyprus for one morning is needed for the purpose to complete the above procedure.
Having received the yellow slip from the Migration Office the individual should proceed to register the company as an employer and the individual as an employee with the National Insurance in Cyprus.
Having received the yellow slip from the Migration Office the individual should proceed to register with the Income Tax Office in Cyprus and obtain a Tax Identification Code (TIC).