The Republic of Cyprus is a paradise for entrepreneurs, business owners and corporate activities, who need to do a company formation mainly because of its vibrant interrelation worldwide trade and the beneficial tax rates it offers. The main legislative body governing the rules and policies of corporations in Cyprus is the Companies Law, Cap.113, which adopted almost identical provisions with the English Companies Law of 1948. Depending on the type of company you wish to set up, you need to follow the respective procedures laid out in this article and create the most suitable company to meet your needs.
Types of Companies
Limited Liability companies
There are two types of companies falling into this category, namely the Private Limited Liability (Ltd) and the Public Limited Liability (PLC). The two are distinguished by the size and the number of shares they have.
A Private Limited company does not have a required minimum amount for the capital shares. The shareholders subscribe shares amongst them, either monetary or non-monetary, which are given nominal value and cannot be transferred. The liability to the company’s debts and obligations is appointed to each member to the extent of the nominal value of their respective shares. The maximum number of partners to such company is up to 50.
On the other hand, there is a minimum requirement for share capital for a Public Limited company, which is approximately €25,650. The main characteristics of this type of company are the same as for the Private Limited Shares company, with the difference that there is no limit on the number of partners who can register. Additionally, the shares are freely transferable and the minimum number of shareholders in such a company is 7 people.
Branches, Representative Offices, Subsidiaries
In case any foreign company is interested in entering the Cypriot market, then the owners can create branches, representative offices or subsidiaries, which will operate in the country as an extension of those companies. Depending on the agreement made between the shareholders, this type of a company can either work as an extension of the original company, or can be set up as a distinct entity, when for example the Cypriot company has the foreign company as its shareholder.
Partnerships
There have been several amendments on the law regarding Partnerships; the most recent ones are specified in the Partnerships and Business Law, Cap. 116. After this body of law was introduced, there are three types of Partnerships, namely the General Partnership, the Limited Partnership and the Limited Liability Partnership (LLP).
The first two types of partnerships have a minimum number of 2 participants as a requirement, and a maximum number of 20. On the contrary, there is no restriction on the number of partners who can join a Limited Liability Partnership, although it is also required to commence with at least two.
In an LLP, the limited partners can either be legal or natural persons, or both. It is required to have at least one of them as the general partner, who will hold the unlimited liability for the debts and obligations of the partnership. The rest of the limited partners will have no liability for such debts and obligations, but rather, their liability will be limited to the amount of their contribution within the shares of the partnership.
Sole Proprietorships
For those business people who wish to operate a company on their own, the sole proprietorship is the most suitable choice. This is a company in its simplest form and there is no requirement of share capital for sole traders, while the obligations lay solely on the owner.
Michael Chambers and Co. LLC Corporate and Commercial Law Team of lawyers advises a diverse spectrum of businesses on corporate and commercial matters.
Procedure & Documentation
Private companies limited by shares in Cyprus must have a registered office in the country and must be managed by a management board. It is also necessary to appoint a secretary. Furthermore, it is required to create a business bank account to use for your profits and to register for taxation, obtain VAT numbers and register for social security purposes with the tax authorities, depending on the nature of the services or goods you promote.
After you have decided which type of company serves your business’ purpose and particularities, then you need to select and reserve a unique name for your company with the Companies Register. The application for reserving a name costs around €30.
Several documents must be submitted to the Department of Registrar of Companies for the validation of your company, which include a memorandum, Articles of Association and passport copies of each shareholder (both of which must be notarized first), the approval of the chosen name obtained with the Trade Register, information about the company director(s) and secretary, i.e. their identification papers, a bank statement indicating the deposit of the capital shares and the tenancy agreement or the property title, indicating the legal address of the company in Cyprus.
Taxes
One of the major reasons to set up a company in Cyprus is that it has one of the lowest corporate tax rates in Europe at 12.5% on the profit.
A company created in Cyprus must pay only 2.5% taxes from revenues from intellectual property rights, such as patents, trademarks, books, music, sports rights, films, etc.
The standard VAT rate is 19%, but there are also reduced rates of 8% and 5%, depending on the nature of the company. VAT registration is only compulsory for companies that perform activities which are subjected to the Value Added Tax, such as trading; goods or services falling outside this category are free from VAT. Specifically, for a company to register for VAT, it must reach the minimum annual income of €15,600, or €10,251 for the acquisition of EU goods.
Furthermore, there are no withholding taxes on dividends paid by a Cypriot company to its non-Cypriot resident shareholders, and also no withholding tax applies on dividends received from EU subsidiaries. The tax system benefits especially foreign investors since they can set up a holding company with one of the best tax minimization solutions in the country.
In case you are considering creating your own business, either from scratch or as an extension of an existing one, then you are recommended to host your corporate activities in Cyprus. You will find the procedures straightforward and quick, and the benefits greater than most European countries.
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