Touching on the basics of Cyprus private companies

By Nick Tsilimidos, L Papaphilippou & Co
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ACypriot private company limited by shares is frequently used in corporate structures as an ultimate or intermediary holding company. The rationale behind its use is to minimise, or eliminate as the case may be, tax liabilities arising from dividend, interest or royalty income, as well as gains from the disposal of shares.

Nick Tsilimidos L. Papaphilippou & Co 律师事务所 律师 塞浦路斯 Associate L. Papaphilippou & Co Cyprus
Nick Tsilimidos
L. Papaphilippou & Co
律师事务所
律师
塞浦路斯
Associate
L. Papaphilippou & Co
Cyprus

Cyprus benefits from one of the lowest tax regimes in the EU, as a uniform corporation tax rate of 12.5% on profits is applicable for all Cyprus companies. Due to its extensive double tax agreement (DTA) network, Cyprus is an ideal jurisdiction for investments to and from Asia and Central/Eastern Europe. The main purpose of a DTA is the avoidance of double taxation of income earned in any of these countries. Under a DTA, a credit is usually allowed against the tax levied by the country in which the taxpayer resides for taxes levied in the other treaty country.

Getting started

A shelf company is a company that has had no corporate activity. It was registered by a practising solicitor and was left with no activity at all on an office “shelf”, ready to be sold on to any interested person who desires the use of a Cyprus company without going through all the procedures of creating a new Cyprus company. The prime reason for buying a shelf company is to save on the time involved in creating a new Cyprus company from scratch. Where the incorporation of a Cyprus company starts anew, the completion of the procedure may take up to two weeks, in contrast to shelf companies that are readily available for near immediate use. A Cyprus company incorporated afresh and a shelf company are the same in all material respects.

The memorandum of association of the Cyprus company is the document that defines the powers of the Cyprus company, namely what the company can do. The Cyprus company cannot act as a legal person outside the powers defined in the objects of its memorandum. Therefore its legal personality exists only for the particular purposes of its incorporation, which are defined in the objects of the memorandum. As the memorandum restricts what a Cyprus company is permitted to do, it is standard market practice for the memorandum to be carefully drafted in such wide terms and contain such objects as may be necessary to enable the company to do pretty much everything, save for regulated or licensed activities.

The share capital of the company is a term used to describe the number and type of shares that make up the share structure of the company. The plethora of Cyprus companies are incorporated with a share capital of 1,000 (US$1,360), which is in turn divided into 1,000 shares of nominal value of 1 per share, though this may be altered by special resolution of the shareholders at any time. One important feature to note is that the share capital of the Cyprus company may be personalised to the national currency of the prospective buyer. Therefore the Cyprus company may have share capital and shares issued in renminbi, US dollars, British pounds or any other major denomination of choice instead of the euro.

The articles of association are the internal rules and regulations of the Cyprus company. Along with the Cyprus Companies Law, the articles of association define how the management of the business of the Cyprus company and its affairs will be carried out, as well as the rights/duties/powers of the shareholders and directors of the Cyprus company. The articles of association may be amended in whole or in part by special resolution of the shareholders. The memorandum and the articles of association of the company together form the constitution of the Cyprus company.

The number of shareholders of a Cyprus company may be one or more. There are no limitations as to the amount of shares that each shareholder may subscribe to. The shareholders of a Cyprus company do not need to be Cypriot residents; they may be of any nationality. Cyprus law does not permit the issuance of bearer shares. This means that every share issued by a Cyprus company to any person will need to be registered in the name of a named person, frequently called the registered shareholder. The full name, address, occupation and passport number of each registered shareholder must be notified to the Registrar of Companies.

The directors

The board of directors of a Cyprus company is a body of elected or appointed persons who are jointly responsible for the day-to-day management and activities of the company. The members of the board of directors of the company are elected or appointed by the shareholders of the Cyprus company. A Cyprus company must have, by law, at least one director. The full name, address, occupation and passport number of each director of the company must be notified to the Registrar of Companies.

A director of a Cyprus company doesn’t need to be of Cypriot nationality. However, in order for the Cyprus company to qualify and be considered as having Cyprus as its tax residence, the effective management and control of the company must take place in Cyprus. The current practice of the income tax authorities is to deem this requirement satisfied where, among other points, the majority of the members of the board of directors are Cypriot residents (i.e., persons that reside for at least 184 days a year in the Republic of Cyprus).

The secretary

A Cyprus company is also required to have a company secretary. The company secretary is considered by law as an official of the company, however, unlike the directors this role doesn’t have any decision making abilities. The role of the company secretary is, as the name implies, purely of a secretarial nature confined to the keeping of the statutory records and internal books of the company, and the filing of the statutory notifications to the Registrar of Companies of the Republic of Cyprus when necessary.

It is not necessary for the company secretary to be a Cypriot or even be resident in the Republic of Cyprus. However, as the company secretary is the messenger of the Cyprus company to the Registrar of Companies, it is highly advisable that it is a person/firm based in Cyprus for practical reasons, namely to be able to make in time all the necessary company filings required from time to time to the Registrar of Companies.

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