A. The Basics Buying or Starting a business in Cyprus Open market for Non-residents: Cyprus is an open and free market. Which means that a non-resident or non-citizen can buy or start a new business (or company) freely and just as easily as any Permanent Resident, Cypriot citizen or EU citizen. Same rules apply to everybody! There are only a few exceptions, especially for closed professions such as Doctors of Medicine, which are restricted to Permanent Residents only. Licenses & Regulation: Depending on the type of business, a license (or several licenses) may be needed while some sectors are subject to strict regulation by the appropriate Authorities. But there is no difference whether you are a Cypriot or a Non-resident. For example, Hotels require a Cyprus Tourism Organization license, Restaurants a Local Authority permit and a Health Ministry Certificate, Private Schools an Education Ministry license, Financial Services companies a license from the Cyprus Securities & Exchange Commission, etc. Again, you need to obtain the advice of a local professional, as each type of business requires different licenses. Residence: The main problem is not whether you can own a company or a business in Cyprus, it s in being able to stay in Cyprus permanently so you can manage your business. Therefore, foreigners who want to live in Cyprus and manage their own business here, need to be Permanent Residents. There are several ways to obtain Permanent Resident status which are outside the scope of this article. But for sure, having a company or business in Cyprus with profits over 40.000 annually or a house worth over 300.000, means that you can obtain Permanent Resident status mich more easily. We highly recommend you retain an experienced Immigration lawyer to advise you and we can recommend suitable professionals upon request. Less Bureaucracy: as long as you prepare properly and your application is within the requirements of the Law, you can get the permits or licenses you need for your business. What licenses or permits are needed depends on the business and it s always wise to get professional advice. Compared to most other countries, the procedures in Cyprus are relatively straightforward, maybe not fast (nobody can make civil servants work fast!) but certainly reliable. Company Registration: It s easy and cheap, relative to other countries, to register a company and then to file statutory reports to the Company Registrar. There is no minimum capital required, no need for physical offices and you can register as many companies as you like. You can change the name of the company or you can register several Trade Names and/or Trade Marks which are the property of
the company. Routine Corporate Administration is big business in Cyprus, so there are plenty of professionals and firms to choose from, to manage the formalities of owning a company in Cyprus, maintain records and file reports with the Company Registrar. Corruption: There is very little or no corruption from officials, especially if you do everything legally and do not need any favours from anyone. Also, there is no problem with organized crime (protection, extortion, etc) with the exception of some sectors such as betting-shops and, in some cases, night-clubs. So, definitely stay away from betting-shops and get expert advice from locals before considering a night-club business. Protection of Property & Shareholder rights: The rights of property owners or business owners (shareholders) are very secure under Cyprus Law. Nobody, not the Government or anyone else, can take away from you what is rightfully yours. Except, of course, in cases of bankruptcy or illegal activities and then again a Court Decision is required. Corporate & Personal Taxes: Company income tax is low (10%) and there is no tax on capital gains if you sell the shares of a company, except in the case that a company owns property. But if you are a Permanent Resident, you will pay personal income tax on your salary and social insurance. Mainly, there is a stable tax environment (no nasty surprises!). For example, the Government suggested last year to increase the company income tax rate from 10% to 11% but there was such a strong reaction from the business community and the Parliament, that they had to cancel even this small tax increase. Friendly: It s important to feel that you are welcome in a foreign country. Nobody wants to go somewhere if he/she feels that they are not wanted or that they will be discriminated against. There is a long tradition of friendship and good relationships between Cypriots and Russians, at a personal level, business level and Government level even at the Church level. There is also a large community of Russian-speaking people, primarily in Limassol but also in all other towns. Which means, that the moment you arrive in Cyprus you feel at home. Competition: It is very difficult to find a business sector in Cyprus in which there is little or no competition. Even if a businessperson discovers a new business opportunity with higher profit margins, very soon others will imitate him and competition will drive profit margins down. Extra care is also needed not to try and start in Cyprus exactly the same type of business you have in your country, at least not without taking expert advice first. The local market and spending
habits of consumers are very different from your home country, so you need to adapt to local conditions. Cyprus has a long entrepreneurial tradition, which is why in such a small island there are over 70.000 small, private businesses. But it is also a saturated and very competitive market, which means that business risk is high. So, while in Russia the main problem may be how to establish a business and how to keep it going without interference, in Cyprus the main problem is not how to start, but how to be competitive and maintain reasonable profits. You need to prepare very carefully before buying or starting your own business. So, the keywords to remember about starting or buying a business in Cyprus are: Easy to start Safe ownership Be ready for intense competition Get expert advice B. Buy or Start a Business? If you are a Cypriot, or if you have lived in Cyprus for many years, there is always a dilemma whether it s better to buy an existing business, or start one on your own. But if you are a newcomer to Cyprus, there is not much of a dilemma: the best choice is to buy an existing, well-established and profitable business. There are some exceptions, namely: Large companies with a lot of money to invest (e.g. to establish a subsidiary or branch in Cyprus). For example RCB, Rennaisance, Otkritie all have branches in Cyprus Companies which want to have a presence in Cyprus for tax reasons only (e.g. International Holding Companies) needless to say there are thousands of these Experienced businesspersons who want to establish in Cyprus the same or similar business as the one they have in their home country Individuals who cannot find in Cyprus the type of business they want, in which case the only option to start a busines The main reasons why buying a business is preferable to starting a new one are: Less Risk: You know exactly how much you are paying, what you are buying and what the profits are. Provided of course, that before buying a business you negotiate a fair price and check the business in every detail (you will need our advice for that, as well as a lawyer and an accountant). With a new business, nothing is known for certain: we can write business-plans and make estimates, but we can never be sure how much a new business will cost, or how much profit it will generate.
Less Time: In Cyprus we say that starting a new business will take two times longer than you thought and will cost three times more! This may be true or not but, for sure, when you buy a healthy business you start making money immediately. Getting a new business organized, renting premises, buying furniture and office equipment, hiring personnel, finding suppliers, advertising, getting steady clients, etc., will require your full attention and energy for at least one year, most likely around three years. C. Buy a Business in rented premises, or a Business that owns its premises? Many of our Russian clients prefer to buy the property together with the business. The property may be a shop, a factory, an office, a warehouse, etc., any property which is used by the business. Although this is a matter of personal preference, as business and financial consultants, we would advise against buying the business property for two reasons: Security: The laws in Cyprus offer more protection to the tenant of a property than to the landlord/owner of the property! As long as the rent is paid regularly, it is extremely difficult for an owner to evict a tenant. A Court Order is needed and such Order is issued only under very special circumstances. In addition, the maximum rent increase is set at 14% every two years and as long as the tenant agrees to pay the new rent, the owner usually has no option but to renew the rental agreement. Note that 14% every two years is the maximum - in the current economic situation, most tenants renew their rental agreements with a very low increase, or no rent increase at all. Financial Performance: First of all, rents in Cyprus are low when compared to property prices. If you calculate the annual rent as a % of the selling price (called the yield ) you will probably find that in most cases this yield ranges from 2% to 5%. This applies to all property types, big and small, such as offices, shops, factories, hotels. For comparison, in other European countries the yield starts at 5% and may go up to 15% depending on the type of property. The low yield means that, either rents are too low, or property prices too high, or a combination of both. So, it does not make sense to invest most of your money in business-related property, instead of in the business only. Unless the business you want to be in, is owning and renting property. Even if property prices were reasonable compared to rents, it would still make more sense to buy the business only and rent the property. Simply because the amount you pay for buying the property does not produce any income, it only saves you the rent. You are better off investing your money in growing your business, than in land & concrete your Return on Investment will be much
higher. There is an old saying When in Rome do as the Romans do when in Cyprus follow the example of 90% of businesses here: buy the business, rent the property! D. Types of Business Buyers We regularly advise locals and foreigners who want to buy a business. Our first priority is to understand the Buyer s motives and business objectives or, in most cases, to help them crystallize their own motives and objectives. We classify business buyers into four main types: 1. Lifestyle Business The most important consideration for the buyer in this case is the lifestyle that goes with the business. It may be a sea-sports business, a night-club, an adventure holidays business, a ladies fashion shop, a dancing school, a restaurant, etc. Basically, the client wants the business to revolve around his/her hobbies, personal interests and social life. He/She will want to have a source of personal income as owner/manager while satisfying, at the same time, lifestyle expectations. The decision to buy is not based exclusively on financial criteria. 2. Owner/Manager Most small business buyers belong to this category. In this case, the business buyer mainly wants to make a living from the business and, if things go well, also make a profit (i.e. more money than he/she needs as a salary). Main considerations in this case are business size, experience and skills needed to operate the business (so that the owner and his family can manage the business on their own) and the risk of the business. Location will also be important to reduce the travelling time to and from the business or to childrens schools. 3. Absentee Owner In this case the Buyer does not want to manage the business personally, at least not on a daily basis. He/She may spend a lot of time abroad, have other businesses or just not want to work on a regular basis. Therefore, professional Management will need to be hired, plus there must be sufficient control and reporting mechanisms to ensure that Management does their job properly. The main criteria in this case, are (a) the size of the business and (b) the ability to maintain sufficient control. The business has to be of a size that can pay professional Management and still make a profit. Also, it cannot be a cash business (e.g. night-club, cafeteria, bar) as it is very difficult to control the financial aspects of such businesses. Provided the above two criteria are met, an Absentee Owner type of buyer has a much wider range of businesses to choose from, than a Lifestyle or Owner/Manager type of buyer. 4. Passive Investors Wealthy individuals may invest in private businesses the same way they would invest in listed shares, bonds or property. When properly planned, executed and
monitored, such investments can generate much higher profits than any other investment. They may also be less risky than conventional investments, now that the financial system globally is in a state of crisis. The percentage of shares bought in such cases may range from 5% to 100%. Each case is different, so there are no fixed rules. It may be an investment in a high-growth, high-risk business start-up or in a low-risk business such as a Photovoltaic energy project. As in all cases, the cardinal rules are (1) appraise the quality of Management, business risk and potential profits in detail (2) negotiate a good deal, both in terms of profit participation and in terms of control (3) monitor the investment continuously. As part of our job, we can assist in all three of the above rules and also provide Board of Directors representation. Having established the style or type of business or investment suitable for the Buyer, we then need to narrow down our choices. At a minimum, we should define specific Business Sectors, preferred Locations and the maximum Amount of Investment. Business Sector: The choice of business sector depends on many criteria, the main ones being: o The suitability of the business sector in relation to the type of Buyer o The Buyer s own experience in a specific business sector o The risk/profit profile of the sector (theoretically, the higher the risk the higher the profits should be) o The growth of the Business sector (some sectors, such as video clubs or internet cafes are at the end of their lifecycle, others, such as discount shops, education and renewable energy projects are still growing) o The availability of businesses for sale in each sector, or Passive Investments offered in the case of Passive Investors Location: Location is relevant only to the Lifestyle and Owner/Manager type of business buyers. For Absentee Owners and Passive Investors it is irrelevant. The main criteria for business location are: o The type of business: for some businesses, such as retail shops, restaurants, cafeterias or bars, location is critical. For others, such as wholesale trade or services, location is of secondary importance. o Personal/Family considerations: Proximity to your home, schools, shopping areas, etc. Also, in some towns there are large communities of Russian expatriates, social life, beaches all of which may paly a role. Amount to invest: Needless to say, this is a critical consideration. There is no need to waste time looking for a business to buy (or to start) if our clients cannot afford it.
o Efficiency: Finding a suitable business and negotiating a sale are very time-consuming processes, so we must limit our search to what is feasible. o Keep a Reserve: Always keep in mind that a prudent business investor should maintain some reserves to cover unexpected business needs in the future. In other words, you cannot spend all your money to buy (or start) a business and then have no more money to invest in the business, if something goes wrong. o Loans: It is very difficult for a new Resident (and almost impossible for a Non-resident) to get a loan from a local Bank. But it is possible to get your Bank in Russia (or in any other part of the world) to provide a guarantee to a Cypriot Bank, so you can get your loan in Cyprus. Unless you can make such loan arrangements, all of your investment must come from your own funds.