Cyprus is generally well-known for its strong and open global trade environment for doing business. Apart from its advanced infrastructure and high quality of life, Cyprus is also considered one of the fastest-growing economies globally, making it an ideal business hub for foreign investors.
This article represents a rich source of information about doing business in Cyprus, including benefits of Cyprus business nature, types of legal entities, and obligations for setting up a business in Cyprus.
Table of Contents
1. Reasons for doing business in Cyprus
There are many reasons for entrepreneurs to register businesses in The Republic of Cyprus. Below are eight of the top benefits that are worth mentioning:
European Union & Eurozone: Cyprus has been an EU member since 2004 and adopted the euro in 2008. As a member of the Eurozone community, Cyprus ensures safety and stability for business practices. The country also acts as an ideal gateway to the EU market for foreign investors, offering market access to more than 500 million EU citizens.
Strategic location: The country’s geographic position is at the crossroad of three continents – Europe, Africa, and Asia. This makes Cyprus a portal for investment outside the EU, particularly into the Middle East, India, and China.
Ease of doing business: The World Bank’s Doing Business Report in 2020 ranked Cyprus 54th for the ease of doing business based on 5 criteria: opening a business, getting location, accessing finance, dealing with day-to-day affairs, and operating in a secure business environment.
A welcoming environment: Cyprus provides a combination of a great business environment and advanced infrastructure. The country encourages startup formation by building a favorable system for innovation, research, and development.
Human talents: Cyprus has the highest percentage of university graduates per capita in Europe. Its labor force is typically well-trained and highly competent with fluency in English and other languages.
Pro-business legal framework: Cyprus’s legal system, which is based on the UK Common Law principles, is widely recognized as a business-friendly and effective system for investors. It is also aligned with the EU laws and regulations, offering foreign businesses a familiar and reliable framework to operate within.
Attractive tax system: Cyprus maintains an attractive tax regime in Europe with a corporate tax rate of 12.5% for residents (residency of companies is based on the control and management of that company in Cyprus). Tax exemption can be applied for non-resident companies with no local permanent establishments (PEs). The country provides a growing and extensive double tax treaty with 65 countries worldwide.
Simplified incorporation process: Businesses will find it easy to deal with the incorporation process in Cyprus, due to straightforward procedures that can be completed in several working days.
In recent years, these competitive traits of Cyprus have been recognized even more. As a result, investors and startups have significantly increased their presence and operations in Cyprus.
2. Types of business entities in Cyprus
A business entity can be selected depending on its objectives and activities. In Cyprus, each type of entity will determine the liability level of its members.
Business entities in Cyprus can operate under two main forms: company and partnership.
Cyprus offers a diversity of companies types that brings many opportunities for development, including:
Private limited liability company by shares (LTD): A Cyprus LTD can have a maximum of 50 shareholders and is responsible for its own finances and debts. The company restricts the right to transfer shares to others and prohibits public subscription to its shares.
Public limited liability company by shares: A Cyprus public limited company needs 7 or more shareholders, and at least 2 directors. The company is eligible for inviting the public to subscribe to its shares and may be listed on the stock exchange.
Limited liability company by guarantee: A company limited by guarantee has a separate legal entity from its owner. Its members are referred to as guarantors rather than shareholders, who agree to pay a nominal amount in case the company goes into liquidation.
Guarantee companies in Cyprus are categorized into two types: with or without share capital, which indicates the difference in their initial capital structure.
Variable capital investment company (VCIC): A VCIC is a limited liability company by shares. However, its shares do not have a nominal value but rather a variable value. The VCIC can take the form of either a private or a public company, with similar characteristics.
Partnerships in Cyprus can be either ‘general’ or ‘limited’.
General partnership means every partner is jointly and severally liable with the other partners for all the debts and obligations of the partnership. A general partnership is allowed to have from 2 to 20 individual members.
Limited partnership must comprise one or more general partners who have to hold unlimited liability, as well as one or more limited partners who will contribute a certain amount of property.
The limited partner shall not be liable for any debts and/or obligations of the partnership beyond the contributed amount. A limited partnership is not considered as a legal entity with independent legal personality, whether it has a share capital or not.
3. Procedure of setting up a business in Cyprus
It is generally unchallenging to set up a business in Cyprus, and by following a proper procedure, overseas entrepreneurs can set up their business in several days. The procedure of a business’s incorporation in Cyprus has, in summary, as follows:
Step 1: Information preparation
The first step in opening a business in Cyprus is to put together a set of the required information, including:
(1) Company’s type – a legal entity that suits the business operations and purposes.
(2) Company’s objects – a list of the intended activities and/or scope of business.
(3) Registered office – a company should have a registered office, where it maintains its register of members and where all official notices are served.
(4) Directors and secretary – a company in Cyprus must have at least one director and one Cyprus-resident secretary, who are responsible for updating the company’s documents to the Registrar of Companies.
(5) Statement of capital – details of the company’s initial share capital and the rights attached to them.
(6) Memorandum and Articles of Association (MAA) – the agreement of all the initial shareholders, the number of shares each wishes to subscribe for, as well as written rules about how the company works.
Step 2: Company’s name submission
Once the above information has been prepared, business owners can proceed with the company’s name application.
A company’s name should be unique and not similar to registered trademarks. It must not contain words that cause misleading or confusing, such as democracy, national, imperial, etc.
The proposed company’s name must be applied and approved for by the Registrar of Companies, via e-filing, by hand, or by post.
Step 3: Registration documents submission
Provided that the name is approved, the registration documents must be submitted within six months, a period during which the approved name is reserved.
Regardless of the type of business entity, the submission of a Cyprus company’s incorporation is as follows:
(1) A signed statutory declaration (form HE1);
(2) The MAA, duly signed in the Greek language together with forms H.E.2 and H.E.3 (containing information as to company’s registered office, directors, and secretary) to the Registrar of Companies; and
(3) The solemn declaration of the witness of signatures.
Step 4: Incorporation complete
Upon examination of the aforementioned documents and assuming that legal requirements have been met, the Registrar will proceed with the publication of the Company’s registration.
The company’s information will be published in the Official Gazette, and a set of certificates will be issued, including
(1) Certificate of Incorporation;
(2) Certificate of Registered Address;
(3) Certificate of Directors and Secretary;
(4) Certificate of Shareholders; and
(5) Certified copy of the MAA.
Wish to get a hassle-free registration? See our Cyprus business formation service.
4. Tax regime for business in Cyprus
This section provides valuable information about the Cyprus tax regime that enables international investors to consider tax planning and compliance obligations towards the Tax Department.
Cyprus is considered one of the most favorable jurisdictions within the EU on taxation, offering foreign investors confidence to invest, grow, and prosper.
Some of the main tax regimes for business in Cyprus include:
Corporate income tax: A non-Cyprus tax resident company is only taxed on certain income arising from permanent establishments (PEs) within Cyprus.
Personal income tax: A non-Cyprus tax resident individual is subject to income tax only on certain income accruing from sources within Cyprus.
Dividend income tax: Exemptions for non-Cyprus resident individuals in most cases.
Value-added tax: VAT is levied at the standard rate of 19%. Reduced VAT rates of 5% and 9%, and 0% apply to some goods and services.
Social insurance tax: Employees and employers are subject to social insurance contributions at the rate of 8.3%.
Capital gain tax: Profits arising from the disposal of immovable property located in Cyprus are subject to capital gain tax, at the rates of 20% or 50% and higher depending on types of disposals.
5. Additional obligations for doing business in Cyprus
There are multiple compliance obligations that investors should cautiously follow in order to safeguard the business’s interests.
5.1. Bank account opening
As part of the statutory obligations, opening of a business bank account is mandatory when registering a company in Cyprus.
Opening of a bank account in Cyprus involves the presentation of a set of documents, which may vary from bank to bank, including:
(1) Proof of ID and address (only for an individual);
(2) Corporate documents (Articles of Association written in Greek/English; Registration certificate);
(3) Signed and notarized board resolution;
(4) Banking resolution; and
(5) Proof of assets origination.
If you plan to set up a corporate bank account in Cyprus, do not hesitate to contact BBCIncorp for support.
5.2. Annual filings
Annual return: All companies in Cyprus must file an annual return written in Greek (or Turkish) to the Registrar of Companies.
The annual return should confirm the company’s particulars up to reporting date, in relation to:
- Capital structure;
- Registered office address;
- Address of the place where registers are kept;
- Registered shareholders;
- Directors and secretary.
Financial statement: must be prepared once a year and presented at the shareholders’ annual general meeting.
The financial statements must include:
- Profit and loss account;
- Balance sheet signed by directors;
- Notes; and
- Director’s & auditor’s reports (depending on circumstances)
Failing to comply with annual filing requirements may result in a penalty, imprisonment, and involuntary strike off from the Registrar of Companies.
5.3. Books and records
Companies in Cyprus are required to keep proper books of accounts either at the company’s registered office or at any place designated by the directors.
These books and records must provide a fair view of the financial affairs and financial position of the company, with reasonable accuracy, at any specific point in time.
5.4. Annual fee
Companies in Cyprus that are registered in the Registrar of Companies, are obliged to pay an annual fee of 350 euro (420 USD) by 30th of June annually.
Companies failing to timely pay the annual fee will be subject to a late charge equal to an additional 10% and 30% on the original fee, depending on the date from the deadline.
Incorporate your business with BBCIncorp
Doing business in Cyprus is a significant undertaking, but when handled properly it will bring countless rewards.
If you have chosen Cyprus as your ideal business location, but still unsure of the incorporation process, contact BBCIncorp for support via firstname.lastname@example.org. We would be delighted to learn more about your concerns and queries.