Offering tax efficiency and a business-friendly environment – not to mention easy entrance to EU markets – Cyprus is considered the top destination for global businesses.
There’s a lot of things you need to decide before launching your new company in Cyprus. One of the key decisions is what type of businesses you’ll run.
There are a number of entity structures to choose from so you’ll need to do your research.
In this article, we’ve made sure to provide you with a summary of business types, to help you better prepare for your incorporation journey in Cyprus.
Table of Contents
1. How types of businesses in Cyprus affect you
Choosing a business type is one of the primary steps you should take. It determines what taxes you pay and what liabilities you take when your business is at loss.
Many entity structures offer protection for your personal assets. If your business is getting sued or facing lawsuits, your personal properties such as your house, savings, real estate, are all protected from liability.
The types of businesses you choose also give you a sense of control over your goals and purposes. For example, if your business needs significant funds, establishing it as a formal entity structure can give you advantages in funding and capital-raising.
On the flip side, if your business is low-cost and not likely to borrow money for future growth, a less formal structure will give you more freedom and flexibility.
As a new business owner, you may want simple entity types to start with as it involves minimum obligations. But it is always worth considering more complex entity types for liability protection and growth potential.
2. Which type of business in Cyprus is right for you
Although it is possible to change your business structure once you’ve started, it makes more sense to think about it and make your decision as soon as possible.
Read on to find out various entity types in Cyprus that you can register.
What is a company in Cyprus?
A Cyprus company is a legal body registered under Companies Law (Cap. 113). It is considered a separate legal entity from the persons who establish and manage it.
Being the owner of a company in Cyprus, you will not be personally liable for any company’s debts or losses. Moreover, no action can be brought against you by the company’s creditors.
Depending on the business activities you would like to have, you can choose from the following forms of companies:
(1) Private limited liability company by shares
(2) Pubic limited liability company by shares
(3) Limited liability company by guarantee (with or without share capital)
(4) Variable capital investment company
There are other factors of doing business in Cyprus that you might want to consider, so it’s worth taking a look at other articles for more information!
Why should you form a Cyprus company?
You’ve probably wondered whether it is necessary to set up a company for your business.
Although there are several merits associated with this type of structure, the decision to form a company structure should greatly depend on your specific situation.
Let us guide you through some common circumstances where company structure may be beneficial for you.
- Increase business’s credibility
Credibility is critical in business, and a company structure gives the impression of professionalism that emphasizes such credibility.
Some clients – large and prestigious corporations especially – prefer to work with companies over unincorporated businesses. So, forming a company can get you new business opportunities that may not otherwise have existed.
- Increase business borrowing power
As an individual, your borrowing power may be restricted due to a low credit rating. By operating as a company, you don’t have to rely on your personal credit rating to borrow capital anymore.
A company normally has a higher credit rating since it owns plenty of assets, profits, properties, etc. This helps improve your borrowing power through bank loans, shareholders, and investors to grow your business.
- Optimize your tax planning
You’ll pay Corporation Tax (currently at 12.5%) on your Cyprus company profits. If your company is a non tax-resident company, only income arising within Cyprus will be taxed.
Any payments you make to yourself will usually be taken as dividends. For a non-Cyprus resident company, your dividend payment will be exempted from taxes in most cases. This will minimize the amount of tax you pay on your earnings annually.
You can also claim business expenses through your company such as business trips, allowance, stationery, and more. Any money you claim in expenses will be deducted from your company’s profit and thus will not be taxed.
- Protect intellectual properties
One of the merits of forming a company is the ability to shield your assets.
As a separate legal entity, your company is under legal rights to own properties in its name. This means your intellectual properties such as patents and trademarks can be registered and protected under the company’s name.
Specifically, if your business’s main value is IP, you may want to safeguard your core value under layers of the company’s protection.
- What else should you consider?
As well as the key points above, you may also consider these practical factors when establishing a company.
- You must be transparent and share certain information with the public
- You have more obligations and reports to fulfill;
- You need to pay an annual fee of EU€350.
Read our article on how to stay out of trouble in Cyprus now for more comprehensive information or, if you want to start your business today, you can take a look at our Cyprus company formation packages to see which options may suit you best.
What is a partnership in Cyprus?
A partnership is a union of people who willingly do business together with the aim to profit. Cyprus partnership is regulated by the Partnerships and Business Names Law (Cap. 116).
Unlike a company structure, a partnership does not have a distinct legal entity. You can choose to form either a general partnership or a limited partnership.
As part of a general partnership, you are jointly liable for your partner’s action. But in a limited partnership, you are only liable for up to the amount of your investment.
Why should you form a partnership in Cyprus?
Take your time to consider the following circumstances to determine whether a partnership is right for you.
- Lack of experience in running a business
Imagine you are a skillful accountant who wants to start an accounting company in Cyprus. But you have no idea how to launch a business or manage your operation. Do you have to give up on your business idea?
Starting a business with no experience is possible with the help of a partnership structure. You can partner up with people who specialize in areas you’re lacking – in this case, someone who is good at running a business.
- Reduce your operational burden
All partners have equal duties and responsibilities in running a business. Being part of the partnership, you can share day-to-day tasks and major business decisions with other partners. This helps boost your business efficiency and productivity.
Moreover, partnership in Cyprus requires minimal formalities and cost in operation, which can lower your stress over operational burden.
- Keep your information private
As part of the partnership, you are not required to file Constitutional Documents which include your full name and address of residence. Most of your personal information can’t be disclosed publicly.
If you want to maintain a certain level of privacy for your business and yourself, a partnership could be the right choice.
- What else should you consider?
To get the clearest view of partnership structure, you may need to consider the following elements.
- Conflict – any conflicts or disputes can terminate your partnership.
- Cost – partnership registration can cost you EU€120.
- Time – partnership arrangements and agreements can take lots of time to set up.
2.3. Branch of an overseas company
What is a branch of an overseas company?
If you are running an overseas company – a company incorporated outside of Cyprus, you can conduct your activities in Cyprus through a place of business or “branch” as most commonly called.
A Cyprus branch is under the provision of Companies Law, Cap. 113 and is commonly adopted for commercial and marketing purposes.
To operate as a branch of an overseas company in Cyprus, you have to appoint an authorized person. This person will take care of legal documents and notices on behalf of your company, as well as representing your company before courts and authorities.
A Cyprus branch is subject to 12.5% Corporation Tax, but only on the income arising from within Cyprus, activities conducted outside of Cyprus will not be taxed.
Why should you form an overseas company in Cyprus?
We’ve listed down some benefits so you can see exactly whether this business structure could be a good fit for you.
- Access new market opportunities
Entering a new market is much simpler for a branch – there are fewer risks and expenses to account for, and often fewer capital requirements. As such, if you want to incorporate Cyprus and expand to sophisticated markets like the EU, it’s ideal to go with a branch structure.
A branch can also boost your brand recognition and presence and acts as an excellent base for your global expansion plan.
- Test your business ideas
A branch in Cyprus is a great tool to experiment with your business ideas and determine whether they have potential.
You can form a branch to do product/service testing before official launching. Better yet, you can collect market insights and use them for your business strategy or plan in the future.
- Utilize Cyprus Double Tax Treaties network
Your branch will be entitled to claim the benefits of the Cyprus Double Tax treaty with 60 countries worldwide. This means your branch will be protected against the risk of double taxation in Cyprus. You’ll also receive certain treatments for cross-border trade and investment.
- What else should you consider?
A lot of these factors will depend on your circumstances but there are several core considerations that you will need to bear in mind:
- You need to pay EU€380 to register your branch in Cyprus and EU€350 of annual fee;
- Your parent company is fully liable for the liabilities of the branch;
- You need a Cyprus resident to be your authorized person.
2.4. Other business structures in Cyprus
- Sole trader
Sole trader, also called sole proprietorship, is a simple and informal business structure. If you’re a sole trader, you run a business on your own and are self-employed.
You can keep all the profits after you’ve paid income tax on them. You’re also personally responsible for any losses your business makes.
Your tax rate will depend on the amount of income you earn. For instance, for income up to EU€60,000, you’ll be taxed at the rate of 30%. If your earned income is above EU€60,000, a 35% tax rate will be imposed.
- European company
A European company, also known as “Societas Europae” (SE) is an independent legal entity under Council Regulation (EC) no 2157/2001.
Forming a European company in Cyprus helps you conduct business in EU member states without having to set up a network of subsidiary companies in each state.
You can also transfer your European company registered office anywhere within the EU without winding up and re-registration in the different Member States.
For tax purposes, your European company is subject to Cyprus tax legislation. The low tax rate of 12.5% and a large number of double tax treaties make Cyprus the best choice for the formation of the European Company.
3. What’s next?
The above information has provided you with solid foundations for different types of companies in Cyprus. This will act as the blueprint for your business going forward.
If you have evaluated your options, considered various factors, and worked out your specific circumstances, then you’re ready to incorporate a new business in Cyprus.
If you’d like BBCIncorp to help you with your incorporation in Cyprus, drop us a message or chat with one of our friendly, expert consultants.
In the meantime, why not head over to our FAQs page for a full breakdown of the most common queries we receive!