MAIN FEATURES OF CYPRUS INTERNATIONAL BUSINESS COMPANIES (IBCs)
We would like to point out at the outset, that as you may know, an off-shore company, is a private company limited by shares, governed by the provisions of the Companies Law Cap 113, which is identical to the English Companies Act of 1948.
The activities of IBCs, other than management are confined worldwide.
- The share capital may belong to shareholders of any nationality.
- Any profit made can be derived from activities anywhere in the world
- Minimum capital of a Cyprus IBC is €1,000 or €10,000 in case a fully fledged office is required.
- the tax regime applicable form whatever sources is at the rate of 10% on the net profits of the company.
- Dividends paid out of profits taxed at the reduced rates are not liable to any further tax, neither can a refund be made.
- Cyprus IBCs must have a registered office in Cyprus. They are usually structured with nominee directors, secretary and shareholders. The beneficiaries details are confidential and are not placed on any public file. The beneficiaries could be natural persons or corporate bodies. It is through these confidentiality requirements that Cyprus companies enjoy a greater international reputation amongst business persons than companies in other jurisdictions.
- Foreign employees pay income tax at rates from 0 to 6% if working outside Cyprus and receive the salary through Cyprus, and from 0 to 30% if working in Cyprus. Foreign employees working outside Cyprus are totally exempt from Cyprus income tax as long as they receive their salaries in Cyprus.
- No exchange control restrictions regarding movement or operation of foreign currency accounts.
- Duty free allowances are provided to Cyprus IBCs so as to import duty free vehicles, office equipment and other items necessary for their business.
- Like all other Cyprus companies, Cyprus IBCs , are required to have their accounts audited by auditors authorized by the Minister of Finance. The aforesaid audited accounts should be given out to the Income Tax authorities and to the Central Bank of Cyprus.
- Management services of the company including provision of nominee shareholders, directors, secretarial services, as well as special Banking services including operation of bank accounts, arranging letters of credit, invoicing e.t.c.
(2) EXAMPLES OF THE USE OF CYPRUS AS A BASIS FOR OPERATIONS
(origin of non Cyprus Company)
(provision of services by non-Cyprus company)
(Cyprus IBC’s invoice)
- The provision of different sorts of services or offering of goods to companies or individuals in various countries of the world through Cyprus could most importantly enjoy the very Low Corporate Tax benefit.
The aforesaid benefit occurs because the taxable profits of these companies are only taxed in Cyprus at the rate of 10%. The sales invoices are issued and paid on the name of the Cyprus IBC but the services are rendered by the non-Cypriot company, its profits though aretaxed on the name of the Cyprus company at the minimal rate of 10%.
- International general trading can also enjoy the very Low Corporate Tax Benefit. In such an occasion the engagement of the Cyprus offshore company in international trading does not require for the goods be transported through Cyprus, but can be transported directly from the supplier to the purchaser.
The goods are transported directly from the supplier to the purchaser and the relevant purchase/sales invoices shall be issued on the name of the Cyprus offshore company, and the profits made under the agreement shall be taxed at the rate of 10%.
The money transactions relating to the aforesaid business actions are being made via Bank Accounts belonging to the Cyprus offshore company, held in (interest is not taxable on money deposited and held in Cypriot Banks) or outside Cyprus and can be transferred by
(Cyprus IBC’s invoice)
(origin of non-Cyprus Company)
(supplier/purchaser of the non-Cyprus Company)
(3) FORMS THEY CAN OPERATE
International business companies in Cyprus can operate in the following legal forms:
Under the Companies Law Cap 113 which is almost identical to the United Kingdom s former Companies Act 1948, there are two main types of limited liability companies public and private. Private companies are by far the most popular form of incorporation both for local and international investors basically due to their less onerous disclosure, simplicity regarding its registration as well as to other requirements.
A Private company is one which by its articles:
Memorandum and Articles of Association
A company incorporated outside Cyprus (overseas company) is able according to s.347 of the Companies Law Cap.113 to register in Cyprus under the legal form of a branch
For the registration of a branch according to s.347 of the Companies Law Cap.113, the following documents duly transferred in Greek are required:
Taxation of branches of oversea companies managed and controlled in Cyprus is identical to the same rate as the offshore companies, at 10% on their net profits. In the case that their management and control is conducted outside Cyprus the profits of the branch are exempted from all taxes. The same advantages for offshore companies apply also for the offshore branches.
Partnerships Law Chapter 116 provides for two general types of partnerships
Cyprus offshore Partnerships enjoy full tax exemption in Partnership profits. An investor may enjoy the advantages of the tax exemption position of the Partnership and at the same the limited liability of the Partnership. The minimum number of Partners required for Partnerships (whether general or limited) is two and the maximum is twenty.
Registration of a Partnership
The procedure for registration of a partnership is as follows:
- Limited liability company.
- the liability of its members is limited up to the amount unpaid for their subscribed shares.
- the word “limited” must appear at the end of the name of the company.
- any invitation to the public to subscribe for shares is prohibited.
- companies can be formed by even one shareholder as subscriber. This legal entity can be a legal entity or an individual. If there are more than one shareholders they could be either a legal entity or an individual or both.
- meetings of the board of directors can be held either in Cyprus or abroad.
- The minimum number of directors is one and there is no maximum. Directors may be local or foreign. Alternative directors may be also appointed. It is not necessary for directors or the secretary to be shareholders. The appointment and removal of directors is made by the shareholders. Cyprus IBCs companies must have at least one local director unless the secretary is local.
- The minimum number of shareholders is one. However provision of nominee shareholders can be arranged on request free of charge where anonymity is required.
- Bank accounts of any kind may be opened, in any currency, either in Cyprus or abroad. Those opened in Cyprus may be operated without any exchange control permission.
- The company must have a Memorandum and Articles of Association.
the company s name, the address of the registered office which must be in Cyprus, the main objects for which the company is formed, the amount of the authorized and paid up capital which must be of a minimum CYP 1,000.00 (if no administrative office is required) or CYP10,000,00 (if an office will be required) the names, addresses and description of the subscribers together with the number of shares for which they could describe.
the internal management of the company, provisions as to dividends, debentures, accounts and audit, voting rights, general meetings of the company, appointment-removal of directors, powers and general meetings of directors, winding up of the company.
- The Memorandum of the company is consisted of:
- The Articles of Association consists of the maters regulating:
- A branch of an overseas company.
- A certified copy of the Memorandum and Articles of Association, or the charter.
- Particulars of the directors and the secretary of the company.
- The name and address of at least one person residing in Cyprus authorized to accept on behalf of the company any notices required to be served to the company.
- A Partnership
- General Partnership. In the General Partnership every partner is liable jointly and severally with all the other partners for an unlimited amount for the debts and obligations of the partnership. Partner can also be a company with limited liability or another partnership.
- Limited Partnership. The Limited Partnership is a Partnership in which at least one of the partners must have unlimited liability for all the debts and obligations of the Partnership, whereas the remaining partners may have limited liability.
- Securing the Partnership s name
- Preparing the Partnership contract.
- filing with the Registrar of Companies a special form in which certain information is given as to the names, addresses, description of the Partners, the unlimited or limited liability of each partner, the duration of the partnership, the person authorized to sign and bind the company etc.
- filing a copy of the exchange control approval of the non-resident partners.
(4) ADVANTAGES OF CYPRUS International Business Companies (IBCs)
- a great degree of respectability amongst companies registered in other tax incentive or tax haven countries. (Cyprus is not black listed in any country in the world)
- Cyprus is not considered to be a tax haven or “laissez faire” country but a tax incentive country
- no withholding of tax on dividends
- no capital gains tax (except on sale of immovable property situated in Cyprus)
- freely transferable accounts of any currency may be kept either in Cyprus or anywhere abroad without any exchange control restrictions
- no exchange control restrictions
- all expenses incurred for the earning of income as well as annual allowance on fixed assets are allowed as deductions
- company’s foreign employees working in Cyprus are liable to personal income tax at a rate from 0 to 20% and if working outside Cyprus but receiving their salary through Cyprus at a rate from 0 to 2%
- the foreign employees are exempt from social insurance contributions
- the net profits of the company are subject to a corporate tax at the flat rate of 10% and if such profits are derived from dividends received from another Cyprus IBC, then no further tax is payable other than the flat rate of 10% paid only by the distributing company.
This rate is paid irrespective of whether they are managed and controlled from Cyprus or elsewhere
- shareholders are not liable to an additional tax on dividends over and above the amount of corporate tax paid by the company
- exemption from stamp duty on any contracts entered into by offshore entities
- no estate duty on the inheritance of the shares provided the deceased was not domiciled in Cyprus
A Cyprus IBC is entitled to open any external accounts in any currency with any bank in Cyprus but it should open and operate the so called local disbursement account wherefrom all payments of the company in Cyprus (if any) should be effected. Our Firm can arrange the opening of such A/C (or A/Cs) with ANY Cypriot Bank.
We are also at your service to arrange the opening of bank accounts with any other Offshore Banking Unit operating in Cyprus.
(5) TYPES OF INTERNATIONAL BUSINESS COMPANIES
Offshore Banking Units (O.B.U.S)
Offshore Banking Companies as subsidiaries of foreign banking corporations or offshore branches of such corporations may be registered in Cyprus. International enterprises or their subsidiaries, established in countries where there is good banking supervision, could obtain a license from the Central bank of Cyprus to operate in Cyprus as an OBU.
Today in Cyprus are operating 28 Offshore Banking Units, 2 Administered Banking Units and 2 Cyprus representative offices from oversea Banks.
A captive Insurance Company is a wholly owned or controlled subsidiary company formed by a non-insurance parent (or association of companies or individuals) for the purpose of participating in the risks of the parent enterprise or its group (subsidiary or associate). The risks assured can be those that can be insured in the normal way, or those for which insurance coverage is difficult to obtain or highly costly.
Captive Insurance Companies
They are regulated by the provisions of the Insurance Companies Law, and may be registered in Cyprus as offshore companies under certain provisions and requirements imposed by the Central Bask. In addition to the usual conditions imposed by the Central Bank to offshore companies the Captive Insurance Companies must also comply with the Insurance Companies Law and in particular with the following:
- The minimum paid up share capital must be CYP 10,000.00
- Full compliance with the provisions of the Insurance Law as to the filing of the accounts and other relevant documents (the Council of Ministers may allow certain modification of this requirement)
- Proof no financing from local sources
- Adequate cover to the satisfaction of the Super-intendent of Insurance, regarding claims from third parties, that these claims shall rank in priority to the claims of any other company in the group.
- All local expenses incurred must be covered by funds to be imported from abroad. The captive insurance company shall advise the Central Bank annually of all funds imported into Cyprus from abroad.
Besides the usual benefits and advantages available to offshore companies, Captive Insurance Companies may gain the benefit of obtaining insurance at lesser net cost and have a flexibility which can be related to all aspects of the sponsor s risk management programme.
Shipping Management Companies
Cyprus has been for years now a very attractive destination for the registration and management of Shipping and Maritime operations Companies .Since 1963 Cyprus created the legal infrastructure for the establishment of Cyprus as a maritime center aiming at the registration of vessels under Cypriot flag. Now Cyprus ranks 6th in the world regarding the number of ships registered under the Cypriot flag with over 2.600 ships and exceeding 26 million Gross Tonnage (GT). For more information o Shipping Companies click Hyperlink on Shipping Companies
Construction and Engineering Companies
They are particularly advisable for operations anywhere in the world, and especially for operations in the Middle East countries, and have been already conducting enterprises for American, British, Dutch, and Greek Interests. Cyprus as the country which offering a high degree of stability amongst the neighboring countries could be used as a set up for minimum taxation on potentially maximum operations especially derived from the establishment of the benefit of double tax- treatie.
Proved to be very attractive as they have been extensively used for American, Dutch, Austrian and British employment of expatriate staff, and by paying a low Cyprus tax will avoid the higher taxation in their home country, providing recruitment of labor for contract or other work undertaken outside Cyprus.
They can be also very beneficial in the occasions of countries whose national tax law allow, in the event of payment of tax in another country, to remit their salaries to their home countries without payment of any further local income tax, like in the case of Australian, Austrian, and French residents. Quite advisable of the above advantages a fully justified commercial justification could be applied in the case of provision of foreign labour in the South Mediterranean and Middle-Eastern countries.
Particularly advisable as they can be actively involved in the dealing and managing investments, providing investment advice or establishing and operating collective incentive schemes and financing of joint ventures or other attainments in countries with which Cyprus has a double tax treaty, in which withholding tax is either nil or very low.
In addition to that the benefit of an offshore finance company could be used in decreasing the taxable profits made by the subsidiaries by way of interest charges made on loans obtained or to on-lend funds to entities which belong to the same group as well as to non related parties.
Holding and Investment Companies
They can be used in conjunction with Cyprus treaties and could provide extremely advantageous results by centralizing group s investments through a central non-Cypriot company used as a basis for holding and managing their own investments worldwide. They could be also advantageously used with effective tax planning in conjunction or not with the use of treaty countries.
Companies of this kind are mostly used for holding participation in jointures or other acquisitions in countries of Eastern and Western Europe and the Middle East as well as to countries in Africa India and China reducing to the minimum level the dividend withholding taxes as well as avoiding any tax credits imposed on the group the company belongs. In addition to that the dividends derived from the non-Cypriot (offshore) company could be well used for reinvestment in other subsidiaries avoiding in this way any tax liabilities arising for the parent company according to the domestic taxation system, especially for services such as invoice factoring, staff recruitment, construction contracts, joint ventures, patent exploitation, e.t.c.
These account by far the greatest amount of Cyprus offshore companies. This kind of companies could be utilized for transit trade via the Cyprus seaports, as well as for activities in connection with trading in the geographical area of Cyprus or anywhere else in the world. They may also store maintain, break bulk or repackage their own transit goods in rented private or public warehouses. Trading companies are also allowed to derive income from portofolio investments in shares traded on the Cyprus Stock Exchange.
Moreover another advantage of trading companies is offered by extracting untaxed profits form countries which Cyprus has a double tax-treaty. In some cases they are used (especially by European-based companies) for undertaking the whole overseas trading and marketing activities entrusted to a Cyprus subsidiary. (company-branch) In general a very wide scope of for companies of this kind can be secured and serve interests for countries in any part of the world.
In case that a foreign company wishes to sell or manufacture its products in the Cypriot market must do so through a wholly or partially owned local company.
Particularly attractive for multinational as well as national companies aiming at centralized management control as well as for companies incorporated in distant tax heaven countries. The entrepreneurial environment, the developed infrastructure of Cyprus and the considerable tax advantages serve interests for Eastern and Western European as well as Middle and far Eastern regions. Moreover the growing management of overseas affairs of business or the rendering of services abroad from Cyprus, by expatriate executive gave Cyprus the reputation of an international business centre with more than 2,000 International Business Companies maintain fully fledged offices.
This type of companies could be utilized for re-invoicing of goods, fabric and services from any region in the world for any intention and to any destination enjoying the low taxation status. They can be also very easily managed since all that is required for their maintenance is a registered office and capable personnel or accountants to organize invoices and transactions.
The Cyprus national tax systems in accordance with the laws relating to the operation of double tax treaties, create opportunities for efficient tax planning rendering Royalty companies (concerning the income received from the transfer of exploitation of intellectual and industrial property rights) extremely attractive. There is a variety of schemes and arrangements applicable so as to widen the number of countries from which royalties may be received untaxed or reduced tax. I addition to those operating from fully fledged offices in Cyprus, there are many Royalty Companies which maintain only a register ed address in Cyprus, and Cypriot or foreign directors.
Real Estate Companies
These companies may be very advantageously used both for investment and for dealing in land, especially from the effective application of the network double tax treaties. In the case of European countries exceptionally interesting arrangements may be made as there are already quite a number of companies related to real estate, representing a wide variety of interests, however Asian real estate companies have been incorporated in a quite large scale, recently.
Trust Companies may be used especially in conjunction with other tax advantages for managing trust funds or pension funds outside Cyprus, or Cyprus trusts on a professional level. There is no minimum capital requirement, and for the operation of such company prior authorization from the Central Bank of Cyprus must be obtained.
Internet and E-Commerce Companies
The beneficial tax regime applicable for IBCs can be also applied in the case of internet and e-commerce companies. The developed infrastructure of Cyprus and telecommunications are also important reasons for the attraction of a fat growing number of companies being incorporated with intention to host their e-commerce sites or ventures. The advantage of Cyprus double tax treaties can be also applied on the income derived from the activities of these companies which may finally achieve total avoidance of tax in both countries.
They usually operate both in the form of corporate entities as well as participating by forming a subsidiary in manufacturing activities, particularly in the Cyprus region, where a variety of tax and other important incentives are offered to companies of this kind, as well the benefit applied under the relevant double tax treaties.
Printing and Publishing Companies
Printing of books and journals in Cyprus by IBCs for sale and distribution above is considered to be an onshore business and apart from the usual tax advantages of an onshore company the low cost of local printing as well as the excellent infrastructure and good telecommunications make Cyprus an ideal place for the incorporation of a company of this kind. However Printing and Publishing companies incorporated and operating abroad may always use the benefits of the very low Cyprus taxation and double tax treaties by forming a subsidiary in Cyprus.
(6) REGISTRATION PROCEDURE
The registration procedure commences with the submission to the Registrar of Companies of a proposed business name fro approval. takes approximately from 2-4 days. In this respect we have already “off the shelve” a number of names, which you may select one, unless you have in mind a particular name you may wish to use.
Soon after the approval of the name, the Memorandum & Articles of Association of the company are being drafted.
After this the memorandum and Articles of Association are filed with the Registrar of Companies together with forms H.E.1., H.E.2., H.E.3. ., H.E.1. is an affidavit prepared and duly signed by the lawyer of the company. H.E.2 provides for the registered office of the company and H.E.3. provides for the appointment of the directors as well as for the secretary of the company.
As soon as registration of the company is effected the Registrar of Companies he issues a Certificate of Registration together with certified copies of the list of directors and secretary, shareholders, registered office address, Memorandum and Articles of Association, a copy of the Certificate of Registration and Incorporation in Greek, and English will be required as well as in any other language requested on payment of a translation fee.
The relevant procedure for registration of the company can be completed within a period of 10 days whereupon the company can start operating immediately .
In the occasion that a company is urgently required we have ready made registered companies the whole procedure could be completed within a period of 48 hours.
Relevant Documents needed for registration
At the same time we submit various other documents and information including:
- Secondly a copy of the shareholders passport shall be also sent to us as proof of who these persons are.
- If they require us to act as their nominee shareholders and register the company and hold their shares on behalf of the beneficial shareholders without them having to come to Cyprus a Special Power of Attorney prepared by us would have to be signed so as to allow us to carry on the aforesaid actions.