Articles
How to set up a company in Cyprus?
How to set up a company in Cyprus?
18/03/2024 dr Anna Maria Panasiuk - Wealth Advisor

We have many reasons to do international business. We go abroad, for example, due to an upgrade of our brand, in which case, we choose Switzerland, the UK or Luxembourg. At other times, we focus on security and a stable legal and tax system. In that case, geographic diversification and friendly tax regulations are important. In this situation, the choice is to register the company in Cyprus!

There are also other reasons to start a business in Cyprus. Both the Mediterranean climate and the Greek cuisine are much more affordable than, for example, the climate or cuisine of cold Estonia. In this article, we will explain why this is of significance.

How to choose a location for an operating company?

When we think about setting up a service or trading company, going abroad most often involves transferring sales. In such a case, we must assume that we will either build a new sales team in Cyprus or that we will relocate some sales people or consultants who would certainly prefer to move to Cyprus rather than Estonia to do business. The key is that a company in Cyprus cannot be an artificial creation, whose primary goal is to achieve a tax advantage. A Cypriot company should have a real and credible business purpose, which is different from the desire to pay lower taxes than in Poland.

The attractiveness of Cyprus as a location for companies is a result of several factors. Most importantly, there are the following considerations: the potential to avoid double taxation, corporate income tax (for companies) of 12.5% and the lack of capital gains tax. These tax benefits, together with a friendly business environment, contribute to the fact that a Cypriot company is a popular choice for entrepreneurs who want to optimise taxes while running a real business.

How to choose a location for a holding company?

Where to register a holding company and who should manage it? Employing people is important in the context of building a real business, which is crucial in terms of recognising a given company as the recipient of benefits it is entitled to. These benefits are likely to include dividends as well as profits from the sale of shares or stocks and interest on loans. When hiring managers in such a company or opening an office (which is important for both operating and holding companies), fees for renting an office and expenses related to salaries should be considered. Attention should also be paid to the non-obvious costs of establishing a company. When registering foreign companies, one should look at the cost of living, rent in individual countries or the cost of maintaining the company’s registered office. For instance, Luxembourg, which seems to be an ideal location for holding companies, may turn out to be too expensive to maintain an office and team there.

Establishing a company in Cyprus

In this situation, entrepreneurs see numerous benefits from moving to Cyprus to conduct business. A company in Cyprus can still be an attractive investment opportunity. Its activity then requires adaptation to the current realities on several different levels.

How to set up a company in Cyprus?

Establishing a company is associated with choosing the country and then the city in which we want to register a Cypriot company. For instance, the following consideration should be taken into account: Nicosia, where many law firms are located and where companies have their headquarters in Cyprus, is far from an airport. There is an airport, for example, in Larnaca. Therefore, it may be worth choosing a location that will also include this element. It is also noteworthy that in Larnaca, the office prices are (even) lower at the moment.

What company to set up in Cyprus?

Firstly, in order to establish a company in Cyprus, it is necessary to choose the form of business activity. Secondly, before setting up a company, one must choose a name for it and obtain approval from the companies register in Cyprus. A company in Cyprus is usually registered as a limited liability company (i.e. a Ltd company).

What is the procedure for registering a company in Cyprus?

Private Cypriot companies must include the words “LIMITED” or “LTD” at the end of their company name. Undoubtedly, the most popular legal form of doing business in Cyprus is the equivalent of a Polish limited liability company, i.e. a limited company.

The names of public companies must include the following wording: “PUBLIC COMPANY LIMITED” or “PUBLIC COMPANY LTD” or “PUBLIC CO. LIMITED” or “PUBLIC CO. LTD” or “PLC” or “PUBLIC LIMITED” or “PUBLIC LTD”.

We recommend establishing the simplest limited company. Such a limited company has:

  • share capital
  • at least one partner, but not more than fifty
  • at least one director who acts as a board of directors
  • one secretary – a member of the board who is obliged to supervise statutory formalities, submit financial reports and declarations in a timely manner and sign corporate documents of the company
  • inability to offer its shares for public subscription.

What does a company director do in Cyprus?

The company’s activities are conducted by directors who exercise all powers, except for those powers that must be exercised by the company at shareholders’ meetings – in accordance with company law or the company’s Articles of Association.

The directors of the company are legally responsible for its management and for keeping the accounting books necessary for the preparation of financial statements. At the same time, directors are responsible for filing tax returns and paying taxes due. The company secretary shall be appointed by the directors for such period, remuneration and conditions as they may deem appropriate. It should be noted that the directors and the secretary are responsible for submitting to the companies register the relevant documents and notifications regarding any updates to company data.

Note: The details of the directors and the secretary are published in the electronic companies register.

What does the Articles of Association contain?

This is the document on the basis of which the company is established. It defines the objectives of the company and confirms the involvement of its members in its creation. A company that has not been formed for specific purposes may register as a trading company with general objectives of business. Such a company is a private company with share capital, and its activities include actions in which general trading companies are involved and which do not require any type of license from an authorised body or regulatory body in order to provide services and/or products. The Articles of Association contain at least the following elements: (i) the company’s name; (ii) its objectives; (iii) a statement that the liability of its members is limited; (iv) the amount of the share capital (if any) with which the company intends to register and its division into shares. It also includes the details of persons who established the company, their signatures and, assuming that the company has share capital, the number of shares that the persons in question receive, stated next to their names. It is also signed by a witness who confirms the signatures of the persons who established the company and by the lawyer who prepared the Articles of Association.

What does the process of registering a company look like?

Once the proposed name has been approved by the Registrar of Cyprus and the relevant decisions regarding registering a company have been obtained, one may proceed to submit an application by email, in person or by post. Importantly, a notary does not participate in the establishment of a company in Cyprus; therefore, the establishment of a company on your behalf can be conducted by a local law firm or agent.

Attention! All companies registered in the Registrar of Companies must pay an annual fee of three hundred and fifty euros (EUR 350) by 30 June of each year.

What taxes does the company pay in Cyprus?

Cyprus has a favourable tax system for business that offers many benefits to companies registered in the country. A key benefit is the uniform corporate tax rate of 12.5% (on any taxable income [net profit]), which is considered one of the lowest tax rates in the European Union.

A company registered in Cyprus is considered a tax resident if its activities are managed and controlled within the boundaries of Cyprus. However, the owner of the company is not required to be a resident of Cyprus, nor does the business of the company need to be limited to Cyprus. 

The numerous tax benefits include:

  • Tax exemption for dividend income and broadly understood profits from the sale of securities (capital gains), such as shares (bonds or debentures).
  • No reorganisation tax, such as the division, transfer or exchange of shares, except for capital gains related to real estate in Cyprus.

Agreements on the avoidance of double taxation

  • Cyprus also benefits from agreements on the avoidance of double taxation with 45 countries.
  • Investors do not have to pay additional tax in their home country.

Is there a tax on dividends paid by companies in Cyprus?

Cyprus does not levy tax on dividends paid to shareholders.

What is SDC and why is it not liked?

In Cyprus, SDC stands for Special Defence Contribution and is levied on income earned or deemed to have been earned by any person living in the country or on companies considered to be tax residents in Cyprus. The SDC may in some cases reach 17% (until 31 December 2023, the SDC for interest earned was 30%).

What are the requirements related to registering a company for tax in Cyprus?

Any company registered in the Republic of Cyprus is required to register for income tax purposes.

VAT registration is mandatory for each company as long as one of the following conditions is met:

  • the value of taxable supplies exceeds a total of EUR 15,600 in the preceding 12 months;
  • at any time, for a period of thirty days, the anticipated turnover exceeds EUR 15,600;
  • the entity provides services to a natural person registered as a VAT payer in the EU with a zero registration threshold.

Does a company in Cyprus need a VAT number?

Note: companies in Cyprus with an annual turnover of less than EUR 15,600 are not required to register for VAT; however, they can register voluntarily.

Delays in filing returns and/or paying taxes are associated with interest, fines and other fees; therefore, it is a good idea to carefully review any obligations.

What is the Tax Identification Number (TIN)?

Once registered in the companies register, it is crucial to obtain a Tax Identification Number (TIN) from the Cyprus Tax Department. This number is required for all tax transactions in Cyprus.

To register with the tax department, you must submit Form T.D. 2001 (application for a tax number) and, if necessary, Form T.D. 1101 (additional application for VAT registration). Form(s) may be submitted at the same time to the nearest tax office, in person or by post.

Registration with the Department of Social Insurance Services

If we plan to employ people in Cyprus, the company must register with the Department of Social Insurance Services. This will allow social security and other security contributions to be paid.

Establishment of a company in Cyprus and opening a bank account 

The last step is to open a bank account in Cyprus. This way, business transactions can be conducted and taxes can be paid.

There are different types of banks in Cyprus, including private domestic banks. Foreign banks also operate through branches and representative offices. Opening an account is not easy and sometimes takes several months. Therefore, it is worth using the help of a local advisor.

Summary

Establishing a company in Cyprus is not difficult. Certainly, many offices, agents or law firms that have established dozens or hundreds of Cypriot companies will be happy to do this also for you. For a local agent, this is very profitable, because even if you receive a cheap product, i.e. the creation of a company, you will still be a long-term customer who will pay a fee for the function of a professional secretary, or for accounting and auditing of the company, which is obligatory.So far, investors have been outdoing each other in reducing the cost of maintaining a Cypriot company by looking for cheaper service locally on the market. Times have changed. Currently, the dynamics of tax changes and regulations such as the CFC tax, automatic exchange of information, or, finally, the expectations of ATAD3, are the reasons why it is worth establishing such a company in cooperation with a good partner. A good partner will properly operate it for you from the beginning. Let’s remember that we are going abroad because we are looking for security in diversification, so let it be safe!

Anna Maria Panasiuk ×