Establishing a business in Cyprus by Foreign Nationals

After decades of being an established international business hub, Cyprus is now increasingly becoming a place where foreign businesspersons find attractive to actually relocate with their families and establish local or international businesses. The trend may be a result of domestic problems, especially in the Middle East, prompting considerations of migration; or it can be on account of the many benefits Cyprus has to offer such as tax incentives, legal system, location, safety, stability, leisure and most importantly the sun. Below is a brief but quite comprehensive guide on establishing a business in Cyprus :  

1. The incorporation of a Cyprus private limited liability company is a fairly simple and quick process, and takes approximately 10-15 days, altogether with the name approval. The company must have a registered address in Cyprus, at least one director, one secretary and one shareholder (legal or physical person(s)). Local providers can offer all these requirements as a service. Documents can be submitted electronically thus there is no need to be present for incorporation purposes.  

2. There are no minimum capital requirements, but standard practice is to set the initial capital as at least EUR 1000, which in any event is deemed as paid for incorporation fees. There is no residency or other restriction as to who can be a shareholder or director. It is strongly advised for tax purposes that majority of the board (or at least the board meetings) are in Cyprus. If a sole director is appointed outside Cyprus, then the tax authorities may infer that the company should be taxed abroad and not in Cyprus as the management and control is outside Cyprus. A local director is also convenient in terms of signing documents.  

3. Once incorporated the company needs to be registered with the tax authorities to obtain a tax identification number. 

4. The company will most likely need a local bank account to operate namely to receive finance, revenue and pay suppliers, expenses, dividends etc. The account opening process has become extremely difficult on account of anti-money laundering requirements.  It will likely take 2-4 weeks depending on the profile of the company and its shareholders. If designated as “high risk” as per prevailing regulations and bank policies, you will need special approval from the bank’s compliance function. After opening the account, there is a requirement to produce supporting documents for all incoming and outgoing payments.  

5. For most types of business activities, a licence is not required to operate however, there are certain types of activities which are regulated and for which you need to apply and obtain a licence. These include the business of: real estate brokers, bank or financial services, lawyers, auditors, insurance, construction company etc. Each case must be examined on its merits preferably before incorporation.    

6.Foreign nationals cannot be employed in Cyprus. If you wish to hire foreign nationals (e.g. Lebanese) in Cyprus, they will need a work permit. Towards that effect, the Company can either hire them as high-skilled workers (if applicable), under a process whereby, inter alia, the job must be offered in Cyprus and the EU and permit will be given if you cannot find a Cypriot or EU candidate; Alternatively, you can apply and secure a status of ‘’foreign interest company’’. Briefly explained a foreign interest company must be majority owned by foreign national, where, in cases where the percentage of the foreign participation in the company's share capital is equal to or less than 50% of the total share capital, then the foreign participation should represent an amount equal to or greater than the amount of EUR 200,000. Minimum salaries and other restrictions apply too.

7. In connection to annual requirements, there is a payment of annual levy to the Registrar for the price of EUR 350 and you also need to file annual returns, namely a report with your audited accounts. For this reason, the company will be obligated to prepare audited accounts within 18 months of its incorporation and every year thereafter to be submitted with the annual return. The cost to prepare accounts will be payable to independent auditors. There is now also a requirement to file with the ultimate beneficial owner registry, designating who is the ultimate owner of the Company and confirm this annually. 

8. If and when this company has employees, it needs to register them with social insurance and pay social insurance contributions monthly (around 8.3% each the employer and employee) and general health system contributions ( around 2.6/2.9%).  

9. If the company’s activities exceed EUR 15,600 there is a requirement that the company registers with VAT and periodically (normally quarterly) submit VAT returns. The rate of VAT for services is 19%. 

10. If through the activities you have profit, there is corporate tax of 12.5%. This is payable in 2 tranches, namely as a provision in the projected profit in the middle of the year and the rest is paid at the end of the year. 

11. The fact that you own a Cyprus company does not in any way create an obligation to pay personal taxes in Cyprus. Whether or not you need to pay tax on dividends from the Cyprus company, and how much, is a matter to be determined by the place of your current tax residence.  If you wish to become a Cyprus tax resident this may be possible, if you fulfill the minimum conditions and in this case you may be able to benefit from a “non-domiciled” status, which will entitle you to, inter alia, zero tax on worldwide dividends and interest income for 17 years!  Briefly explained, to qualify you must be at least 60 days (not necessarily consecutive) in Cyprus, not 181 days in any one other place, and you must have business in Cyprus.   

For more information feel free to contact us at [email protected] .  

 

The above is merely for information purposes and does not constitute advice.