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CYPRUS COMPANY:
INCORPORATION & ADMINISTRATION
PRACTICAL ISSUES
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 CYPRUS COMPANY:
INCORPORATION & ADMINISTRATION
PRACTICAL ISSUES

Contents Page

• Legal Framework and Historical Background. 2

• Legal Persons Under the Companies’ Law Chapter 113. 3

• The Private Limited Liability Company By Shares. 3

• Main Characteristics of the Cyprus Company. 4

• Procedure of Registration. 6

• Information and Documentation Required to Register A Company. 7

• Time required to Register a Company. 12

• Re-domiciliation 13

• Preparation of Financial Statements – Tax Returns. 14

• Criminal Offences and Liabilities. 15

• Audited Financial Statements. 15

• Registrar of Companies – Filing of Financial Statements. 16

• Consolidated Financial Statements with Subsidiaries. 18

• The Taxation of the Cyprus Company. 20

• Comparative Table on Taxation Rates. 23

• Advantages of the Cyprus Company. 27

• The Future of the Cyprus Company. 30

• Disclaimer 30

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 CYPRUS COMPANY:
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PRACTICAL ISSUES

Legal Framework and Historical Background

The Cyprus Legal System is largely based on the English model. Cyprus was a colony of
England until 1960 when it gained its independence. England introduced to the country
their Legal System based on Common Law and Equity.

Once Cyprus gained its independence in 1960, the Legal System continued on the same
structure. As provided in The Courts’ Law the Courts of the country apply:-

• The Constitution which established the Republic of Cyprus;

• The Statutes until then in force and then enacted by the Parliament since 1960;
• The Common Law – Case precedents;
• The Principles of Equity;
• And since 1/5/2004 The European Law due to our European Union Accession.

The Cyprus Companies’ Law is governed by The Companies’ Law Chapter 113, as
amended.

This Law was enacted on 16.2.1951 and was based on the English Companies Act of

1948. Since then various amendments took place especially after the Cyprus accession

to the European Union, but in substance the Law is very similar to the English

Companies Act of 1948.

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Legal Persons Under the Companies’ Law Chapter 113

Under the Companies’ Law the following Legal Persons - Companies can be registered:-

• Limited liability Company by shares;

• Limited liability Company by guarantee with share capital or without share
capital.

The limited liability companies by shares can be: -

• Public or
• Private

The Private Limited Liability Company By Shares

This is the most popular vehicle for currying out business in and from Cyprus. This is the
type of Company that the majority of foreign investors are using for their International
Tax planning. In this report we shall deal exclusively with this type of company,“ The
Cyprus Company”.

Until Cyprus accession to European Union this type of company was distinguished in two
main categories from the tax point of view: -

• The local companies – Doing business in Cyprus

• The offshore companies – Doing business exclusively outside Cyprus.

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The new Tax Legislation which was enacted in 2002 in view of Cyprus European Union
accession and being applicable since 1.1.2003 eliminated the distinction between Local
and Offshore BUT with this new legislation companies now, with regards to taxation
matters, are distinguished to: -

• Resident Companies;
• Non - resident Companies

The legal consequence of this distinction is that Resident companies are Taxable while
non - resident companies, unless they have activities/income in Cyprus are not taxable
in Cyprus.

Main Characteristics of the Cyprus Company

• The liability of its members is limited to their share participation. The Company
has its own legal personality and this personality is distinct from its shareholders.

• The minimum number of shareholders is one and the maximum number is fifty.

• Shares cannot be issued to the bearer.

• Special classes of shares with preferential rights, may be issued.

• Nominee shareholders can be used where anonymity and confidentiality is

desirable.

• The Company must have a registered office in Cyprus.

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• Each company's file at the Registrar of Companies is available for public

inspection.

• The minimum number of directors is one and there is no maximum number.

Directors may be local or foreign physical or legal persons. Alternate directors
may be appointed.

• Meetings of the Board of Directors can be held either in Cyprus or abroad.

• General meetings of the shareholders of the company may be held either in

Cyprus or abroad.

• Accounts must be kept and financial statements duly certified by certified or

chartered accountants practising in Cyprus, must be prepared according to
International Financial Reporting Standards. Financial statements are filed with
the Registrar of Companies and Tax returns are filed with the Income Tax
Authority.

• Bank accounts of any kind may be opened in any currency, either in Cyprus or
abroad. Bank accounts opened in Cyprus are operated without any exchange
control restrictions.

• Annual returns must be filed with the Registrar of Companies once a year,
containing information as to any changes to Directors, Secretary, shareholders,
authorised, issued or paid up capital, registered office, mortgages/charges and
other related matters.

• The Company must appoint one Secretary, who may be local or foreign, physical
or legal person.

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• The company must have a Memorandum and Articles of Association prepared by

an advocate in Cyprus, which must be signed by the subscribers and deposited
with the Registrar of Companies.

• Cypriots, European Union nationals and foreigners (other than Cypriots or

European Union nationals) may establish such a company without obtaining any
licence. As from 01.10.2004 there is complete liberalisation of direct investments
in Cyprus by foreigners.

• Re- domiciliation is possible.

Procedure of Registration

Same procedure applies as to Cypriots, European Union nationals or foreigners,

namely:-

1. Approval of the intended company name by the Registrar of Companies, in those

cases where a shelf company or approved name shall not be used.

2. Preparation of the Memorandum and Articles of Association.

3. Submission of the company documents to the Registrar of Companies and receipt

of Certified memorandum and articles, certificate of incorporation, directors and
secretary, registered office and shareholders.

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Information and Documentation Required to Register a Company

(a) The name of the company which must be approved by the Registrar of
Companies in advance.

(b) The amount of the authorized, issued, and paid up capital of the company.

(c) The main objects and line of business of the company.

(d) Shareholders

Full names, profession, addresses, nationality of each shareholder and their

respective shareholding. Copy of their passport or other identification documents

must be provided.

(e) Directors - Secretary

Full names, profession, nationality and addresses of the directors and the

secretary of the company along with the copy of their passport.

(f) Registered Office address

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Memorandum

This is the document which sets out the capital structure and the objects of a registered
company. It is submitted for filing with the Registrar of Companies and must contain the
following information: -

• The name of the company which must end with the word limited;
• The registered office of the Company;
• The objects of the Company;
• Whether the liability of the members is limited by shares or by guarantee;
• The share capital of the Company and how is divided;
• The subscribers to the Memorandum and the number of shares they are
subscribing for.

the Memorandum can be amended by a court order only.

Articles of Association

This is the document that sets out the internal procedures of a registered company
containing matters such as shareholder’s voting rights, directors’ appointment removal
and duties and general working or management practices.

It can be amended by the decision of the shareholders.

Is a very important document and special attention must be placed if there is more than
one shareholder in the company. In such a case before finalising this document, specific
aspects of the Law in particular areas must be taken into consideration.

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PRACTICAL ISSUES

For Example: -

- According to Article 178 of the Companies’ Law the removal of the directors can be
effected by an ordinary resolution of the majority of the shareholders.

So a shareholder holding 50% plus 1 share can remove all existing directors and
appoint its own directors.

- Further the shareholder holding 25% +1 share can block among others the following
resolutions: -

• For the dissolution of the company;

• Amendment of the Memorandum or Articles of association;
• Change in the name of the Company;
• Reduction of capital;
• Creation of stock capital;
• Rendering the liability of the Directors unlimited;
• Approval to the liquidator to accept shares in consideration for the sale of
property;
• To authorise the liquidator to compromise or make an arrangement with creditors
or contributories in a members’ voluntary winding up.

A shareholder holding less than 25% of the shares must consider accordingly this
provision of the Law.

A minority shareholder holding less than 25% can be protected by creating different
classes of shares and giving particular rights to the different classes. In effect by
creating a building deadlock company.

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Shareholders

Each Cyprus Company must have a minimum of one shareholder. A shareholder may be
a legal or a physical person.

The names of the shareholders along with their details are recorded in the company’s file
kept with the Registrar of companies where the files are open for public inspection.

If clients need anonymity as to their investment in the Company they have the option to
use nominee shareholders who will hold the shares in trust for the owners.

Directors – Secretary

There must be at least one director and one secretary. All or any of the directors may be
non-Cypriots (corporations or individuals). The same person can be director and
secretary provided that the company has only one shareholder.

The appointment of a director is a very crucial issue and affects the tax planning of the
company as according to the new Tax Laws, the Companies are taxed in Cyprus only if
they are resident in Cyprus. Companies are considered as resident in Cyprus only if
their management and control is exercised in Cyprus.

The management and control of a company is exercised by its board of directors. The
nationality or the residence of the shareholders is irrelevant. It is also irrelevant where
the company was registered, whether in Cyprus or abroad. Incorporation in Cyprus is
not sufficient to qualify the company as a resident of Cyprus.

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There is no definition in the law of the meaning of “management and control”. It is

expected that the Commissioner of Income Tax will adopt the meaning that the court
decisions of Commonwealth countries follow on this matter. As the residence issue is a
factual matter, this is expected to be determined by considering a number of factors
which will point to the central management and control of the company, that is: -

• The place of directors’ meetings, where Board decisions are taken. This factor is
treated as being the most crucial;

• The residence of the directors or at least the majority of them;

• The degree of control exercised by the directors on company decisions. Where

the general policy of the company is formulated. (It is important to point out that
the issuing of a general power of attorney to a non-director, might be considered
as an abdication of control and before issuing such a power of attorney, careful
consideration must be given.);

• Whether on the evidence of the company minutes and other documents the
directors make their own decisions or follow the instructions of a non-director;

• In which country the bank accounts are operated and who manages them (who
the signatories of the account are);

• Where the contracts/invoices are signed and by whom;

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Our comments: -

It is expected that the Commissioner of Income Tax will more easily accept a company
as being resident, rather than non-resident. This is due to the fact that a resident
company is liable to taxation, while a non-resident is not liable to any taxation at all
(except for income derived from within Cyprus). It will be up to the company to submit
evidence proving that the management and control is outside Cyprus.

If the directors of the company are resident in Cyprus, the board meetings are held in
Cyprus, the board decisions are taken in Cyprus and contracts and other company
documents are signed in Cyprus, then the “management and control” of the company
will, most probably be considered as being in Cyprus.

If non-resident director is used then the Cyprus Company does not have any tax liability
in Cyprus.

Resident companies can use the DTT Cyprus has signed while non-resident companies

cannot.

Time Required to Register a Company

There are shelf companies and approved names available for immediate use. When the
company name is available and acceleration fees are paid, registration may be
concluded in a relatively short time but this depends on the overload of the Registrar. It
might take from 7 to 30 working days.

If a shelf company is purchased, the procedure for dispatching the legalised documents
may be concluded in 2 to 3 days.

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Re-domiciliation

Foreign companies can be re-domiciled in Cyprus and Cyprus registered companies can
be re-domiciled abroad.

Re-domiciliation of a foreign company in Cyprus

A foreign company may be re-domiciled in Cyprus provided that the laws of its country
of current domicile allows such step. An application must be filed with the Registrar of
Companies to obtain the necessary consent. Supporting documentation must be filed
with the Registrar.

Once the necessary documents are submitted, the Cyprus Registrar certifies that the
foreign company is temporarily registered as continuing entity and within 6 months from
temporary registration, the foreign company must present to the Registrar evidence that
it has ceased from being a company registered in the company of initial incorporation.

As soon as the Registrar receives proof that the company has ceased to be registered in
the country of jurisdiction of origin, he will issue a certificate of continuity confirming
that the company has been registered as a company continuing its domicile in Cyprus.

Re-domiciliation of Cypriot company to a foreign jurisdiction

A Cyprus company may be re-domiciled in another country or jurisdiction provided that

the laws of that other country of jurisdiction allows such step. The re-domiciliation can
only take place with the prior permission by the Registrar of Companies. To this effect,
an application must be filed with the Registrar to obtain the necessary consent.
Supporting documentation must be filed with the Registrar.

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The Registrar will give its permission provided that the company, among others,
provides:-
• a duly signed solvency declaration confirming the solvency of the company and
confirming that the directors are not aware of any circumstances that would
negatively influence the company’s solvency within the next three years,
• special resolution and
• interim financial statements to the Registrar.

In addition, the company must publish a notice for the intention to re-domicile in two
newspapers in Cyprus. Copy of this notice must be sent to the Registrar of Companies
within fourteen days. Once the above conditions are satisfied, the Registrar may consent
for the re-domiciliation.

Full details on this subject can be found in our brochure “Re-domiciliation of

Companies”.

Preparation of Financial Statements – Tax returns

General

Annual financial statements must be prepared and filed with the

Registrar of Companies presenting a true and fair picture of the affairs of a company and
explaining its transactions. The financial statements must be prepared according to
International Accounting Standards and must be filed either in Greek or Turkish
languages which are the official languages of the Republic of Cyprus.

Annual tax returns based on the results of the financial statements must also be
prepared and filed with the income tax authorities.

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Full disclosure of the operations/activities of the company for the year under
consideration must be submitted to the accountants/auditors of the company in time, in
order the meet the time limits as to the preparation and filing of the relevant financial
statements and tax returns.

Each company which has subsidiaries must consolidate its financial statements with the
financial statements of its subsidiaries according to International Financial Reporting
Standards. As to the meaning of subsidiaries and the need to prepare consolidated
accounts see further below.

Criminal Offences and Liabilities

If the company does not comply with its legal obligations to prepare and file financial
statements and annual returns in time, then it can be convicted of a criminal offence and
the company and the directors are liable to criminal prosecution accordingly.

Audited Financial Statements

The following companies must submit their financial statements to be audited by

auditors licensed by the Cyprus Government: -

• Public companies;
• Any company which is obliged to prepare consolidated accounts;
• Any company which is not considered as a small company.

A small company is considered that one of which at least two of the following items do
not exceed the following values: -

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• Net assets in balance sheet: Euro 3.4 million;

• Turnover per year: Euro 7 million;
• Average Number of employees: 50

If any company exceeds two of the above numbers then is considered not a small
company. Despite that for small companies the financial statements may not be audited,
these must be prepared according to International Accounting Standards and reflect the
true and fair picture of the company. In effect accountants and auditors practicing
International Accounting Standards must be used for this work.

No – activity - Financial Statements “Dormant accounts”

Even if the company had no operations for a particular year it is obliged to prepare and
file financial statements / tax returns as above specified.

Registrar of Companies – Filing of Financial Statements

Annual General Meeting

The companies each year must hold an Annual General Meeting. It cannot pass more
than 15 months between one Annual General Meeting and the next one.

The first Annual General Meeting may be held within a time limit of 18 months from the
incorporation of the company. If a company holds its first Annual General Meeting within
18 months from its incorporation then, there is no need to hold this first annual General
Meeting during the year of its incorporation or the subsequent year.

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Annual Report

Every company once a year must prepare and file with the Registrar of Companies an
Annual Report (HE. 32) which includes among others, information as to the: -

• Registered office of the company;

• Shareholders;
• Debentures;
• Liabilities;
• Directors;
• Secretary;

The company must prepare its Annual Report (HE.32) within 14 days after the Annual
General Meting and within a time limit of 28 days from that date must submit it to the
Registrar of Companies. In effect, the Annual Report must be completed and filed with
the Registrar of Companies within a time limit of 42 days from the Annual General
Meeting of the company.

Financial Statements filed with Annual Reports

As from the year 2004, a copy of the financial statements of the previous year must be
filed with the Registrar of Companies together with the Annual Report of the current
year. For example, the Annual Report for the year 2004 must be accompanied with the
financial statements of the company for the year 2003 otherwise the Annual Report will
not be accepted by the Registrar of Companies and the company will be in default.

In this way the financial statements for the year 2003 onwards must be filed with the
Registrar of Companies and will be open to public inspection. In effect, the financial
statements of companies become public documents as from 2003.

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Companies must be up to date with their legal obligation of preparation of financial

statements and annual tax returns. In the contrary, the Registrar of Companies will
refuse to issue certificates connected with the Annual Reports of the company and
information listed therein, as the Annual Reports will not be accepted for filing without
the financial statements.

Consolidated Financial Statements with Subsidiaries

General

Consolidation is a new requirement of the Companies’ Law. Art. 142(I) (b). It imposes
an obligation on Cyprus companies which have subsidiaries, according to the meaning of
subsidiaries provided in the Law, to consolidate their financial statements with the
financial statements of their subsidiaries according to International Accounting
Standards so as these consolidated financial statements appear before the general
meeting of the parent company for approval.

A definition is given by Art. 148 of the Companies’ Law cap 113 as to the meaning of the
subsidiary and holding companies as follows: -

A company is deemed to be a subsidiary of another if, but only if,

a) that either –

i. is a member of it and controls the composition of its board of directors; or

ii. holds the majority of the voting shares (rights); or
iii. is its member and controls the majority of the voting shares (rights) by
agreement which has been signed with other members.

b) the first mentioned company is a subsidiary of any company which is that other’s
subsidiary.

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A company controls the composition of the board of directors if, but only if, that other
company can appoint or remove the holders of all or the majority of the directorships
without the consent or concurrence of any other person.

For the purposes of the Companies’ Law a company shall be deemed to be another’s
holding company if, but only if, that other is its subsidiary.

Exemptions to Consolidation

A company whose parent or ultimate holding company prepares consolidated financial

statements in accordance with Generally Accepted Accounting Principles is itself relieved
from the obligation to prepare consolidated financial statements. Another relevant
amendment provides that a company need not prepare consolidated financial statements
if it qualifies as a small group.

Small group is a group of companies, of which the companies that are being
consolidated:

1. Are not public companies;

2. The preparation of consolidated financial statements is not governed by any other

legislation and

3. On a consolidated basis, at the closing balance sheet date of the parent

company, fulfil at least two of the following three criteria:

a. Turnover not exceeding € 29.2m

b. Total gross assets do not exceed € 14.6m

c. Total number of employees in a reporting period does not exceeds 250.

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The Taxation of the Cyprus Company

• The Law is in force as from 01.01.2003.

• There will no longer be a distinction between local companies and offshore

companies. Companies for tax purposes will be identified as resident and non –
resident companies.

• A Company, irrespective of where it is registered, is taxed only if it is a resident

of Cyprus. A Company is considered as resident of Cyprus if its management and
control is in Cyprus.

• A non-resident company is not subject to any tax in Cyprus on any income

derived from sources outside Cyprus (0%), but is taxed on its profits arising from
within Cyprus.

• The taxable net profits of all resident companies (i.e. having their management
and control in Cyprus) whether incorporated in Cyprus or not, will be liable to
corporation tax at the rate of 10% irrespective of whether the shareholders are
residents in Cyprus or not.

• There is no tax (0%) on profits from the sale of titles i.e. shares, bonds,
debentures, founders’ shares and other titles of companies or other legal
persons, incorporated in Cyprus or abroad and options therein.

• There is no corporation tax (0%) on dividends received from resident or non –

resident companies. There is no Special Defence Contribution on dividends
received from another resident Cyprus company. There is no Special Defence
Contribution on dividends received from a non-resident company (under certain
conditions).

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• There is no tax (0%) on profits from a permanent establishment abroad (under

certain conditions).

• Passive Interest Income: -

50% of the interest income received, is free of corporation tax. The other 50% is
taxable with corporation tax at the rate of 10% on net profits, if any. There will
also be 10% tax as a Special Defence Contribution, on any interest received by
the company.

Trading Interest Income: -

Trading interest income is subject only to corporation tax and not to Special
Defence Contribution.

• There will be tax credit either by the operation of the Double Taxation Treaties or
by the unilateral tax relief granted by the new Law.

• There is no withholding tax (0%) on payments to its non-resident shareholders in

respect of dividends, or interest or royalties arising from sources outside Cyprus.
Royalties from the use of an asset in Cyprus are subject to 10% withholding tax.

• Losses can be carried forward and set-off against future profits indefinitely.

• Group relief is allowed. Losses of one company in the same group are set-off
against the profits of another company of the group.

• Reorganisations (merger, division, partial division, transfer of assets, exchange of

shares and transfer of the registered office) are exempt from income tax (0%).

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• Cyprus ship owning companies do not pay any tax (0%) on profits received by
the operation of ships flying the Cyprus flag.

• Ship management companies are taxed at the rate of 4,25% on their taxable
income deriving from ship management services. They may however, elect to pay
tonnage tax instead, on the ships they manage.

• Double tax treaties signed, continue to apply to resident companies which may
invoke their provisions and be benefited accordingly.

• Unilateral tax credit relief is granted. Any amount of tax paid for any income
taxable in Cyprus, in any foreign country, irrespective of whether it has signed a
double taxation treaty with it or not, is given as a tax credit in Cyprus and the tax
due in Cyprus is reduced accordingly.

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COMPARATIVE TABLE ON TAXATION RATES AND OTHER RELEVANT

MATTERS RELATING TO COMPANIES

Type of income and Resident Companies Non-Resident Companies

type of taxation (Management and Control (Management and
in Cyprus) Control outside Cyprus)
As from 01/01/03 as from 01/01/03

Corporation tax 10%. 0%

On net profits For profits over 1 million for the (unless they have income from
years 2003 and 2004, within Cyprus are taxed only
5% additionally for that income with normal
rates)

Profits of a permanent 0%. 0%

establishment abroad
The exemption is not granted if
the income of the permanent
establishment abroad is more
than 50% as investment income
AND the tax rate payable for
this income in the foreign
country is substantially lower
than 10%

Profits from sales of 0% 0%

shares (titles)

Corporation tax on 0% 0%
Dividends received from
a resident/Cyprus
company

Corporation tax on 0% 0%
Dividends received from
a non-resident/foreign
company

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Type of income and Resident Companies Non-Resident Companies

type of taxation (Management and Control (Management and
in Cyprus) as from Control outside Cyprus)
01/01/03 as from 01/01/03

Special defence 0% 0%
Contribution on
dividends paid from one
resident Cyprus
company to another
resident Cyprus
company

Special defence 0% 0%
contribution on dividends provided the Cyprus company
paid from non - resident holds at least 1% of the share
company to Cyprus capital of the non - resident
resident company company which pays the
dividend. The exemption is not
granted if the income of the non
-resident company paying the
dividend is more than 50% as
investment income AND the
foreign tax rate payable for the
income of the company paying
the dividend is substantially
lower than 10%. If the
exemption is not granted then
the dividend income is taxed at
the rate of 15%

Interest Income Passive Interest: - 50% is 0%

subject to 10% Corporation Tax.
The whole is subject to 10%
Special Defence Contribution
Tax.
Trading Interest: - 10%
Corporation Tax. There is no
Special Defence Contribution Tax
on trading interest income

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Type of income and Resident Companies Non-Resident Companies

type of taxation (Management and Control (Management and
in Cyprus) as from Control outside Cyprus)
01/01/03 as from 01/01/03

Withholding taxes on 0% 0%
dividends or interests
payable to non-resident
persons or companies

Withholding Taxes on 0% 0%
Royalties if arising from sources outside
Cyprus – if arising from the use
of assets situated in Cyprus then
there is10% withholding tax

Ship owning companies 0% 0%

Ship management 4,25% 0%

companies

International Trusts. 0% Not applicable

Cyprus resident (Not possible to set up an
Companies or resident International Trust without a
individuals acting as resident Cypriot trustee)
trustees

International Collective Once these schemes are mainly 0%

investment Schemes engaged in trading of titles i.e.
shares etc. or receive dividends
from holding of shares then for
these operations there is no
taxation (0%) as explained
above

Partnerships 0%. 0%
Partners are taxed

Reorganisations
(mergers, de-mergers, 0% 0%
transfer of assets and
exchange of shares)

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Type of income Resident Companies Non-Resident Companies

and type of taxation (Management and Control (Management and
in Cyprus) as from Control outside Cyprus)
01/01/03 as from 01/01/03

Losses indefinitely carried forward and Not applicable

are set off against future profits

Yes Not applicable

Group relief Group relief is possible, i.e. the
loss of one company is set off
against the profits of another in
the same group.

Double Tax Treaties Apply Do not apply. Benefits can not

be claimed

Tax Credit As provided in Double Taxation Not applicable.

Treaties. Benefits of Double Tax Treaties
can not be claimed
Also: Unilateral Tax credit for
non-treaty countries is granted.
Any Tax paid to the foreign
country is applied as Tax Credit.

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Advantages of the Cyprus Company

The tax reform has been designed to balance the future competitiveness of Cyprus as an
International Business Centre and its commitments towards the European Union pending
its accession.

The result has created a European jurisdiction where advantageous tax

planning structures can be achieved.

The Cyprus Company has one of the lowest taxation in Europe and at the same time has
acquired the European “stamp of respectability”. Compared to other offshore
jurisdictions which have an unstable future, that are or will be under attack unless they
affect structural changes in their systems, Cyprus has made the move, the final result is
here, known and now in practice.

The Cyprus Company, with its European diversion and acceptability opens the
gates to Europe.

In effect: -

• Holding companies satisfying minimum requirements, can be established with

0% tax rate on dividends, making Cyprus the most competitive jurisdiction for
holding companies.

• Trading companies engaged in global international trading, may be established

with 0% taxation in all respects, provided their management and control is
outside Cyprus. Trading companies which are now looking for respectable
jurisdictions with the EU ‘’stamp ’’ have the possibility to use such a structure on
their trading tax planning.

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• Companies engaged in the trading of titles i.e. shares etc. may be formed
with 0% taxation on profits.

• Resident companies pay one of the lowest taxation in Europe (10%) on their net
profits.

• A resident company: -

- is not taxed on profits from overseas establishment, subject to certain

conditions,

- there are no withholding taxes on payments of dividends, interest and

royalties to non – residents,

- losses can be carried forward indefinitely and set off against future profits,

- re-organisations, mergers, de-mergers, exchange of shares, transfer of

assets are made without any taxation.

• Group relief is granted.

• Unilateral tax credits are granted on any tax paid abroad to any foreign country,
irrespective of whether Cyprus has a Double Taxation Treaty or not.

• Nominee shareholders
Full secrecy may be achieved by using nominee shareholders.

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• No capital gains tax is payable on the sale or transfer of shares. No estate

duty is payable on the inheritance of shares, in case of the death of a
shareholder. No capital gains tax is paid on the transfer of immovable property
owned abroad (outside Cyprus).

• International Tax planning

Cyprus has signed a number of Double Taxation Treaties with countries, to avoid
the double taxation of income earned in any of the two contracting states. Thirty-
five countries have entered into such agreements with Cyprus. For the time
being the countries are:

Austria Belarus Belgium Bulgaria

Canada China Czech Republic* Denmark
Egypt France Germany Greece
Hungary India Ireland Italy
Kuwait Lebanon Malta Mauritius
Norway Poland Romania Russia
Seychelles Singapore Slovakia* South Africa
Syria Sweden Thailand United Kingdom
USA USSR Yugoslavia

* Slovakia and the Czech Republic apply the treaty that was signed with the ex -
Czechoslovakia.

Negotiations are in process with Armenia, Algeria, Iran, Ukraine, Sri Lanka, Lithuania,
Estonia, Latvia to enter into such Double Taxation Treaties. The Czech Republic is also in
negotiations to sign a separate Double Taxation Treaty, to the one that currently applies.

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The Future of the Cyprus Company

The tax reform has been designed to balance the future competitiveness of Cyprus as an
International Business Centre and its commitments towards the European Union pending
its accession.

The result created a European jurisdiction where advantageous tax planning structures
can be achieved.

The Cyprus Company has one of the lowest taxation in Europe and at the same time has
acquired the European “stamp of respectability”.

The Cyprus Company, with its European diversion and acceptability opens the gates to
Europe. In effect, it is The Gate to Europe for non-EU nationals or even the gate to move
outside EU for EU and non EU Nationals.

Disclaimer

This article is not intended to be legal or tax advice or opinion. Affected or interested
companies and individuals are recommended to receive further professional advice
based on their own particular case and special facts of their own case.

January 2008

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