The majority of companies incorporated in Cyprus are limited liability where the liability of the shareholders is limited to the amount unpaid on their shares. Companies must have at least one director and a company secretary. Directors are considered employees of the company and are paid salaries. In some cases directors may be shareholders as well thus can choose to some extent to be remunerated by salary or by a way of dividend. The constitution of a registered limited company consists of two documents the Memorandum of Association and the Articles of Association.
In order to establish a company in Cyprus the shareholders must file with the Registrar of Companies the documents listed in “Documents for company registration”.
Limited Liability Companies which are public or which prepare consolidated financial statements must file their accounts with the registrar of companies within 12 months of their year end. Also all Limited Liability Companies have to file the special form “IR4” which includes information on the financials and tax computations to the Inland Revenue within 6 months from their year end.
Limited Liability Companies will prepare accounts usually for 12 months with a year end at 31 December.
Limited Liability Companies which are public also have to conform to Stock Exchange regulations.
General Partnership The definition of a partnership is the relationship between two or more persons carrying on a business in common with a view to profit.
The members of the partnership are jointly and severally liable for all debts and obligations, without limitation.
Partnership profits are shared by the partners as income and taxation is paid on this income in exactly the same way as a sole proprietor.
Limited Liability Partnership A limited partnership consists of one or more partners called general partners who shall be liable for all debts and obligations of the partnership and one or more persons called limited partners, who are not liable for the debts or obligations of the partnership beyond their fixed contribution.
Branch/Representative Office The registration formalities of registering a branch are the same as the company registration. Overseas companies may also establish a branch in Cyprus provided that they file the necessary documents with the registrar of companies. Sole Proprietorship The owner has unlimited liability for all debts. Cypriots are allowed to carry on business in their name or under a trade name which must be registered as a business name.
All business profits are treated as income of the sole proprietor who then pays income tax according to the applicable rates in force.
Foreign investors are also allowed to carry on the same business if they comply with the relevant exchange control regulations and the immigration law and regulations.
Offshore Legal Entities The Offshore legal entities in Cyprus ceased to exist on 1st January 2003. International Business Companies (IBCs) in Cyprus are essentially Cyprus registered entities owned by non-Cypriots and operating outside Cyprus. They are taxed at the same rates as local companies which is 10%.
Establishment of an IBC is made in the same way as a local limited company.
Joint Venture Joint Ventures can be set up in Cyprus and registered with the Registrar of Companies. Their operation and treatment is similar to partnerships.
Public Limited Company A Public Limited Company is a limited company which is listed on the Cyprus stock exchange.
In addition to the legislation applicable to limited liability companies, they have to conform to the provisions of the Cyprus Stock Exchange and Cyprus Securities and Exchange Commission regulations.
Trust/Foundation
The concept of Trust The Trust is one of the most important and flexible institutions of English law and finds no parallel in any legal system not influenced by English law. The Cyprus legal system is modelled on the English legal system and the concept of Trust in Cyprus is routed in the English law.
The legal framework in Cyprus allows also the establishment and operation of International Trusts which are created by non-residents for the benefit of non-residents.
The nature of a Trust A Trust, or a Settlement as it is often called, is established by an individual "the Settlor" and is a means whereby property "the Trust Property" is held by one or more persons "the Trustees" for the benefit of another or others "the Beneficiaries" or for specified purposes. The Settlor can be a Trustee and the Settlor and the Trustees or any of them can be Beneficiaries. A Settlor can not be a Trustee and a Beneficiary at the same time.
In law the Trustees are the owners of the Trust Property, although, they may not deal with it as absolute owners, but rather in accordance with the provisions of the law relating to Trusts and the rights of the Beneficiaries as set out in the Trust document. In other words, the Trustees are under a binding obligation to deal with the Trust document. The beneficial owners of the Trust Property are the Beneficiaries.
The Trust Property can include all kinds of assets situated anywhere in the world provided the Trustees have legal control and ownership of the assets according to the law governing the particular Trust.
Trusts can be established: § By lifetime gift § On a death pursuant to Will § By operation of law § By accident
Creation of Trusts A Trust may be created by the owner of property during his lifetime, by Deed, or upon his death by Will. Trusts created by operation of law and by accident are outside the scope of this publication.
A Trust arrangement should not be entered into without first having obtained expert professional advice and ensuring that this advice is fully understood. It is also important that the Trust instrument provides exactly the degree of flexibility or otherwise that is required.
Reasons for making a TrustThere are many reasons for which the Settlor may wish to create a Trust but some of the principal reasons are:
§ To avoid or mitigate taxation liabilities. Trusts have traditionally been a very important tax planning device and even today a very high proportion of tax saving schemes involve Trusts.
§ To preserve property in the family, by ensuring that an individual is well provided for, without giving that individual the opportunity of exhausting the family assets because of mismanagement of unsuitable marriage.
§ To benefit disabled or mentally handicapped persons by making them Beneficiaries without passing control of the property to them.
§ To keep control as Trustee over the enjoyment and ultimate destination, despite giving the assets away.
§ To provide flexibility over the identity of the donors and the extent of the interest taken by them in order to take account of future developments.
§ To make gifts for charitable and religious purpose to be held by Trustees for such purposes.