Articles
How about setting up a company in Northern Cyprus?
How about setting up a company in Northern Cyprus?
19/03/2024 dr Anna Maria Panasiuk - Wealth Advisor

You have known Cyprus for many years. Indeed, back in the 90s, Cyprus was already popular because of companies that were an excellent instrument in conducting international business. At the beginning, entrepreneurs were attracted by the income tax (4.25%), then when Cyprus (together with Poland in 2004) joined the European Union, the country became interesting for us not only in terms of tourism. Cyprus has been a serious alternative to European holding companies for 20 years. Now, when we start to look for regions that are still geographically close and at the same time located outside the European Union, questions are asked about Northern Cyprus.

We are here to meet your needs. After a visit to the island, meetings with local lawyers, entrepreneurs, real estate agents, we present the first material.

Northern Cyprus – a unique place to do business

Few of us know or remember the origins of the Turkish Republic of Northern Cyprus. Today, for 50 years, it has been an independent territory located in the northern part of the island, which was created as a result of its division in 1974. The whole uniqueness of Northern Cyprus lies in the fact that it divides its subjectivity between its geographical location near the “European” Southern Cyprus, and its cultural and historical connection with Turkey.

Therefore, Northern Cyprus has a specific hybrid nature, and in terms of international law is a state not recognized by all other states in the world except Turkey. Geographically, it is therefore a territory close to the southern part of the island and thus to the European Union, and on the other hand, beyond the control of the Cypriot government, pursuing an independent economic (including taxation) policy and applying its own, independent incentives in terms of attracting foreign capital.

The diversity of the two parts of Cyprus is visible in all spheres of social life. We are talking not only about culture or mentality, but also about the prices of gasoline or housing. It is common for foreign students of universities located in Southern Cyprus to rent apartments in the northern part of the island, taking advantage of much lower rental fees.

Adding to this cheap flights, great climate, luxury hotels, phenomenal tourist resorts and low cost of living, Northern Cyprus appears to be the perfect place to do business.

What are the specific benefits of relocating your business to Northern Cyprus?

A company in Northern Cyprus – In what form to run a business?

As an internationally unrecognized state, although the European Union (EU) and the European Economic Area (EEA) have granted it observer status, Northern Cyprus is not a separate entity of double taxation treaties. From a technical point of view, it is recognized by other states as the territory of the Republic of Cyprus, however, the lack of actual authority and the ability to determine tax policy prevents it from being subject to agreements concluded by the Republic of Cyprus with other countries.

In what form can you conduct business in Northern Cyprus?

You can establish a company or conduct business in the following forms:

  1. Sole Traders;
  2. Partnerships;
  3. Local Limited Liability Companies;
  4. Branches of Foreign Limited Companies;
  5. Free Zone Companies (Famagusta Free Zone);
  6. International Business Companies.

What conditions do you need to meet in order to conduct business in Northern Cyprus?

The activities of all the above-mentioned entities require the fulfillment of several necessary conditions, namely the possession of:

  • a minimum of 2 shareholders;
  • a minimum of 1 director;
  • secretary;
  • the registration address in Northern Cyprus.

Running a business in Northern Cyprus – Registration of a company in the Famagusta Free Zone

A particularly interesting solution is the incorporation of the company in the Famagusta Free Zone.

The advantages of this solution are presented later in this article.

What formalities need to be fulfilled to establish a company in the Famagusta Free Zone?

The following steps are required to establish a company in the Famagusta Free Zone

  1. proposing 3 company names when filing for registration, in case one is already taken;
  2. determining the scope of the company’s activities, the states in which and with which it performs activities and submitting certificates of good conduct of shareholders and directors of the company;
  3. shaping the share structure assuming the existence of a minimum of 2 shareholders;
  4. appointment of the director(s);
  5. submitting scans of identity documents along with utility bills (bills showing address of residence);
  6. the lack of personal presence in Northern Cyprus does not exclude the possibility of conducting the trial – it is possible to grant a power of attorney certified by a representative of Northern Cyprus in a given state, and in the absence of such a representative, by the Turkish embassy;
  7. signing the articles of association by the shareholders.

Schedule for the registration of the company in the Famagusta Free Zone

Here’s how the company’s registration schedule looks like in the Famagusta Free Zone:

  1. commencement of the registration procedure;
  2. submitting an application for entry of the company name in the register;
  3. filing an application for permission to start the company’s operations;
  4. monitoring the registration process (takes about 2 months);
  5. making a payment of the share capital of the company to an account in a domestic bank (minimum EUR 25,000);
  6. registration of the company.

Advantages of running a business in Northern Cyprus

The Famagusta Free Zone, with an area of 103,000 m2, can be considered a gateway between Europe, Asia and Africa due to its location. Due to the attractive taxation model, it is a great offer for any entrepreneur who wants to take advantage of a friendly tax system.

For whom is it profitable to establish a company in the Famagusta Free Zone?

Establishing a company in the Famagusta Free Zone can be particularly profitable for entrepreneurs who:
– generate revenue outside Northern Cyprus;
– are interested in choosing an attractive jurisdiction outside the European Union;
– an important factor for them is the time flexibility in terms of being subject to a given tax jurisdiction.

What are the advantages of establishing a company in the Famagusta Free Zone?

The main advantages of taxation include:

– exclusion from income tax of any income resulting from the activities of companies in the Famagusta Free Zone;
– no capital gains taxes;
– the possibility of unlimited, untaxed transfer of the above income abroad (there is, therefore, an option to transfer profits from Northern Cyprus to a jurisdiction that does not tax profits from foreign sources and to construct an international vehicle for the distribution of these profits);
– activities carried out by the company in the Famagusta Free Zone are exempt from VAT, excise duty and other indirect taxes.

In addition, it should be mentioned that an owner of a company in Northern Cyprus may apply for a one-year residence in this territory, which allows for a legal stay in the northern part of the island’s territory. Business goals can, therefore, be combined with everyday functioning in this beautiful part of the world.

Running a business in Northern Cyprus – Who is this solution for?

Northern Cyprus is an interesting tax jurisdiction for all those who value the combination of a friendly climate, beautiful landscapes, sandy beaches, low prices with an extremely pro-business legal and tax environment, characterized by low taxes, flexibility and a dynamic approach of the authorities of Northern Cyprus to encourage entrepreneurs to relocate their business activities and assets on its territory.

Running a business in Northern Cyprus – What should you watch out for?

So, is there a catch in all this beautiful story?

As with any structuring of running a business activity, the precision and professionalism of the specialists accompanying it are indispensable. The fact that this state is unrecognized adds to the additional difficulty in the above-mentioned process, and therefore knowledge of the functioning of the entire process by advisors is even more necessary. It is good, for example, to check whether after establishing a company you will be able to open a bank account for it and whether payments from the account will be accepted by the banks of your contractors.

In the face of so many questions on your part about regions outside the European Union but well connected to the world, this island can freely take its place next to other jurisdictions. Especially given the changes that are currently taking place in Dubai. Wouldn’t it be beautiful to combine the benefits of a perfect climate, cuisine and business? Northern Cyprus occupies 36% of the island’s area and thus offers a stunning mountainous landscape. Imagine that from the windows of your home you can see the mountains and the sea at the same time.

Interesting facts about Northern Cyprus

  • In addition to the favourable taxation of companies, Northern Cyprus also provides extremely favourable taxation on real estate, the rate of which, however, depends on whether there are olive or carob trees on the land;
  • This taxation also depends on the size of the land, which must not exceed 1 dunam, i.e. the old Turkish unit of measure. It is interesting to note that while in most countries where the dunam unit is used, it equals 1000 m2, but in Cyprus, it is equal to 1337.8 m2;
  • The interpenetration of Greek-Turkish influences, caused, among others, by the events of 1974, i.e. the Turkish invasion of Cyprus and the division of the island, led to many geopolitical peculiarities. An example is the football club Anorthosis Famagusta, where several Polish players have played, including multiple Polish national team member, Wojciech Kowalczyk. Since the events of 1974, the club has moved its headquarters to Larnaca and has remained in the city until today. Despite having in its name the city where the Famagusta Free Zone is located, the club plays its matches in a completely different place, in the southern part of the island.
Anna Maria Panasiuk ×