Doing Business in Cyprus www.bakertillyinternational.com
Contents 1 Fact Sheet 2 2 Business Entities and Accounting 4 2.1 Companies 4 2.2 Partnerships 5 2.3 Sole Proprietorship 6 2.4 Trusts 6 2.5 Branches 6 2.6 Joint Ventures 6 2.7 Audit and Accounting Requirements 7 2.8 Filing Requirements 7 3 Finance and Investment 8 3.1 Exchange Control 8 3.2 Banking and Sources of Finance 8 3.3 Investment Incentives and Restrictions 9 4 Employment Regulations 10 4.1 General Employment Matters 10 4.2 Visas 11 5 Taxation 12 5.1 Corporate Income Taxes 12 5.2 Personal Taxes 13 5.3 Employment Related Costs and Taxes 14 5.4 Withholding Taxes on Payments Abroad 14 5.5 Value Added Tax (VAT) 15 5.6 Other Taxes 15 5.7 Tax Incentives for Businesses 16
2 1 Fact Sheet Facts and figures as presented in sections 1 through 4 are correct as at 17 July 2014. Geography Location: Area: Land boundaries: Coastline: Climate: Terrain: Time zone: An island country in the Mediterranean Sea 9,251km² None, but the island is partitioned since 1974 and the north part of Cyprus is under Turkish occupation Mediterranean Sea Mediterranean climate; hot and dry summers with mild winters Mountainous in the south and north with central fertile plain GMT +2 (GMT +3 during daylight saving time) People Population: 865,878 (2012) Religion: Language: Greek Orthodox 78%, Muslim 18%, other (including Armenian Apostolic and Maronites) 4% Greek and Turkish. English is widely spoken on the island and often used in business, government and courts Government Country name: Government type: Capital: Administrative divisions: Republic of Cyprus Presidential Republic Nicosia Six districts: Famagusta, Kyrenia, Larnaca, Limassol, Nicosia, Paphos. Note: Administrative divisions under Turkish occupation include Kyrenia, all but a small part of Famagusta, and small parts of Nicosia
Doing Business in Cyprus 3 Political situation Under the 1960 Constitution, executive power is vested in a President elected for a five-year term of office by universal suffrage and exercised through a council of Ministers appointed by the President. The House of Representatives is the legislative organ of the Republic. The administration of justice is exercised by the Judiciary which is a separate and independent body. Economy GDP per capita: US$18,635 (2013 preliminary) GDP real growth rate: -7.3% (2013 preliminary) Labour force: 431,100 (Q1 2014) Unemployment: 16.9% (Q1 2014) Currency (code): Euro (EUR)
4 2 Business Entities and Accounting The most common type of business entity in Cyprus is the limited liability company. Other types of business forms include partnerships, branches, sole proprietorships and joint ventures. 2.1 Companies A limited liability company may be public or private and is incorporated through a memorandum of association. A limited liability company may be limited by shares, in which case the liability of members is limited to the unpaid amount of shares held, or limited by guarantee, where liability is limited to the amount that members have agreed to contribute to the company s assets in the event of the company being wound up. A public limited liability company must have at least seven members. Shares may be transferred and shares and debentures may be offered to the public. The minimum capital requirement for a public limited liability company whose shared are offered for subscription is EUR25,629. A private limited liability company must have between one and 50 members. The right to transfer shares must be restricted and shares or debentures cannot be subscribed to the public. There is no minimum share capital requirement for a private limited liability company. A private company may commence business immediately upon incorporation while a public company must comply with certain provisions of the Companies Law before commencing business (s.104 of the Companies Law). Limited liability companies are administered by the annual general meeting. Public limited liability companies must have at least two directors and one secretary. A private limited liability company must have at least one director and one secretary. If there is only one member, that member may act as the director and the secretary. There are no nationality requirements for directors. The memorandum of association may specify that directors have unlimited liability for the debts/obligations of the company. A company must apply to the Registrar of Companies and Official Receiver (Registrar of Companies) or the One Stop Shop (for expedited applications) to have its company name approved before incorporation. The company name must not be considered undesirable by the Registrar. Once the company s name has been approved, the company may be registered by submitting the relevant documentation to the Registrar of Companies or the One Stop Shop (for expedited applications). The registration process is generally completed within one month, or within three working days under the expedited service. Off-the-shelf companies are also available.
Doing Business in Cyprus 5 Businesses in certain industries may require a licence to operate in Cyprus; for example, banks are required to obtain a banking business licence from the Central Bank of Cyprus. Limited liability companies have a separate legal identity for legal and tax purposes. They are taxed at the corporate level and are subject to corporate income tax. 2.2 Partnerships There are two types of partnership in Cyprus, the general partnership and the limited partnership. Partnerships are not separate legal entities. A partnership may have between two and 20 members (a maximum of 10 members for partnerships carrying on the business of banking). Under a general partnership, all of the partners are liable jointly and severally for the debts/obligations of the partnership and, after the death of a partner, the estate is also severally liable for such debts and obligations. Under a limited partnership, there must be at least one general partner and at least one limited partner. General partners are liable for all of the debts/obligations of the partnership. Limited partners are liable up to the extent of their contribution. Limited partners may not take part in the management of the partnership, but may inspect the books and records and examine the state and prospects of the partnership business. A partnership must apply to the Registrar of Companies or the One Stop Shop (for expedited applications) to have the partnership name approved before registration. The partnership name must not be considered undesirable by the Registrar. Once the partnership s name has been approved, the partnership may be registered by submitting the relevant documentation to the Registrar of Companies or the One Stop Shop (for expedited applications). Registration is generally complete within one month, or within one week under the expedited service. Partnerships are not taxed at the partnership level; each partner is assessed on the partnership s profits or losses according to their status: individual partners are subject to personal income tax and legal entity partners are subject to corporate income tax.
6 2.3 Sole Proprietorship A sole proprietorship is a business entity owned by an individual. A sole proprietorship is not a separate legal entity and the owner has unlimited liability for the debts/obligations of the business. The profits of a sole proprietorship are subject to personal income tax. A sole proprietorship must apply to the Registrar of Companies or the One Stop Shop (for expedited applications) to have its business/trade name approved before registration. The business/trade name must not be considered undesirable by the Registrar. Once the name has been approved, the business may be registered by submitting the relevant documentation to the Registrar of Companies or the One Stop Shop (for expedited applications). The registration process is generally completed within one month, or within one week under the expedited service. 2.4 Trusts The Cyprus international trust is common in international tax planning, but is not generally used for business purposes. 2.5 Branches A foreign company may establish a branch in Cyprus. A branch is not a separate legal entity and the parent company is liable for the branch s debts and liabilities. A Cyprus resident must be appointed who is authorised to accept notices etc that need to be served on the company. A branch must apply for registration with the Registrar of Companies or the One Stop Shop (for expedited applications) within 30 days of being established in Cyprus. Registration is generally complete within one month, or within one week under the expedited service. Branches are taxed at the corporate level and are subject to corporate income tax. Foreign companies may also establish a representative office in Cyprus. A representative office is not a separate legal entity and is not permitted to carry out economic activity in Cyprus. Representative offices may conduct activities, including research, liaison and promotion. Registration with the tax authority and other agencies may be required. 2.6 Joint Ventures A joint venture may be formed by individuals and/or legal entities. The terms of a joint venture are determined by an agreement between the participants. Joint ventures can take on different forms, such as a partnership or corporation, but in one particular type of joint venture, the contractual joint venture, each participant is generally subject to tax on their portion of the taxable income derived from the output of the venture.
Doing Business in Cyprus 7 2.7 Audit and Accounting Requirements Companies are required to prepare financial statements in accordance with the International Financial Reporting Standards (IFRS). Group companies are generally required to submit consolidated financial statements. Company director(s) are required to keep books and records for preparing financial statements that allow for a true and fair representation of the company s affairs. Financial reports must generally be accompanied by a directors report detailing the status and foreseeable development of the company s affairs. The directors report should include (amongst others) details of any changes in the nature of the business, changes in share capital and significant changes to the company structure. The following companies are required to have their financial statements and directors report audited: Companies that are required to prepare consolidated financial statements Public limited liability companies, and Private limited liability companies (excluding small sized companies, as defined). Account books and records must be kept at the company s registered office, or at another location deemed fit by the director(s) (which may be outside of Cyprus). Wherever the account books and records are kept, they must be open to inspection by the director(s) at all times. Financial statements and accounting books and records must be kept for a period of six years from the end of the relevant financial year. Financial statements must be drawn up in the Greek language, or certifiably translated into the Greek language. 2.8 Filing Requirements Companies are generally required to prepare an annual return, which must be completed within 42 days after the annual general meeting. A copy of the annual return, and the company s financial statements, must be submitted to the Registrar of Companies.
8 3 Finance and Investment 3.1 Exchange Control There are no exchange controls in Cyprus. Anti-money laundering legislation applies to certain individual and entities, including banking institutions, insurance companies, accountants, lawyers, estate agents, providers of trustee and corporate services, and trading companies. The legislation requires these companies and individuals to report suspicious transactions to the Unit for Combating Money Laundering (MOKAS). 3.2 Banking and Sources of Finance The Central Bank of Cyprus implements decisions on monetary policy, ensures the stability of the financial system, manages international reserves, supervises banks and regulates foreign exchange. Commercial banks operating in Cyprus (both local and foreign) offer a full range of financial services, including short and medium-term loans/financing, portfolio management, investment advisory services, foreign exchange services, underwriting and placing of financial instruments and underwriting services. There are generally no restrictions on foreigners opening bank accounts in Cyprus, or on accounts containing foreign currency. The Cyprus Stock Exchange (CSE) provides an international marketplace for listing and exchanging Cypriot securities. To become a member of the CSE, investment firms need to meet the qualifying criteria and submit an application to the Council of the CSE.
Doing Business in Cyprus 9 3.3 Investment Incentives and Restrictions For business related incentives, see 5.7. There are generally no restrictions on foreign business investment in Cyprus.
10 4 Employment Regulations For employment tax considerations, see 5.3. 4.1 General Employment Matters 4.1.1 National employment standards Employment legislation ensures minimum workplace entitlements, including maximum weekly working hours (with exceptions), minimum salaries for specified occupations (including shop assistants, child minders and security guards), minimum notice periods for the termination of employment and minimum annual leave, maternity and parental leave rights. Terms and conditions of employment may also be agreed by collective bargaining between the employer and trade unions. Employment contracts may be oral or in writing. However, the employee must be provided with a written statement of terms within one month of commencing employment. The written statement must include: Place of work Job title and scope Commencement date of employment (and expected duration for fixed term contracts) Annual leave entitlement Notice periods for termination of the contract by the employer or the employee Remuneration and payment schedule Daily or weekly working hours, and Any applicable collective agreements. Legislation sets out minimum notice periods that employers and employees must give in order to terminate a contract of employment. Notice periods must be provided in writing. The length of notice required depends on the employee s length of employment. An employee may also be dismissed without notice for justifiable reasons, including gross misconduct by the employee. Employees that are unlawfully dismissed are generally entitled to compensation. There are generally no restrictions on hiring individuals from EU/EEA jurisdictions or Switzerland over foreign individuals. Foreigners from third countries are generally only granted a permit to work in Cyprus if required by the needs of the labour market (see 4.2).
Doing Business in Cyprus 11 4.1.2 Pensions and other benefits Employers and employees are required to make contributions to the Social Insurance Department (see 5.3.2). These contributions provide benefits, including sickness benefits, unemployment benefits, employment injury benefits and state pensions. 4.2 Visas There are a number of factors determining whether or not a visa is required to enter Cyprus. Citizens of EU/EEA jurisdictions and Switzerland do not require a visa for visits of up to 90 days. Citizens of other countries generally require either a short stay or multiple entry visa (permitting visits of up to three months in a half year period) or an airport transit visa (which permits travel through international transit areas only, ie transfer flights). Citizens of EU/EAA jurisdictions and Switzerland do not require a permit in order to work in Cyprus; however a residence permit is generally required. The duration of a residence permit is generally one year if the applicant is unemployed, or up to five years if the applicant is employed. A residence permit may also be restricted to the length of employment in certain circumstances. Citizens of non-eu/eea jurisdictions or Switzerland require entry, residence and work permits in order to enter Cyprus for employment purposes. A work permit will only be granted if it has been determined that there are no suitably qualified or available Cypriot/EU/EEA/Swiss nationals to fill the vacancy. An application for this type of permit is generally submitted by the prospective employer, with a certified contract of employment, to the Civil Registry and Migration Department through the relevant agency. The permit is generally granted for a maximum of four years, subject to exceptions. Non-Cypriot/EU citizens generally require permission to purchase immovable property in Cyprus and are limited to the purchase of one property or plot of land.
12 5 Taxation 5.1 Corporate Income Taxes Facts and figures as presented in section 5 are correct as at 17 July 2014. Resident companies, defined as those whose management and control is exercised in Cyprus, are subject to tax on their worldwide income. Non-resident companies are subject to tax on their Cyprus source income. The standard corporate income tax rate is 12.5%. Capital gains are not generally subject to tax in Cyprus. However, tax is generally imposed at the rate of 20% in respect of gains arising from the disposal of immovable property situated in Cyprus, including gains from the sale of shares in a company which owns immovable property situated in Cyprus and is not listed on any recognised stock exchange. Losses that would be taxable if they were a profit may generally be carried forward for up to five years (restrictions may apply in certain circumstances, such as if there has been a change in the ownership of the company and a substantial change in the nature of the business). Losses cannot be carried back. Group tax consolidation is not available in Cyprus; each company in the group must submit their own corporate tax return. However, the losses of one company in the group (as defined) may be offset against the profits of another, provided both companies are resident in Cyprus. The tax year ends on 31 December. Companies may use a different accounting year, in which case the taxable profit must be apportioned between the two tax years. Corporate tax returns are generally due for filing by 31 March of the second year following the tax year and must be submitted electronically (ie for year ending 31 December 2014 the tax return is due for filing by 31 March 2016). Advance payments of tax are due during the tax year by 31 July and 31 December. Any outstanding tax must be paid by 1 August of the following year.
Doing Business in Cyprus 13 5.2 Personal Taxes Resident individuals are subject to tax on their worldwide income. Non-resident individuals are subject to tax on their Cyprus source income. Resident and non-resident individuals are taxed at the following rates (subject to deductions and allowances): Income (EUR) Tax Rate (%) Cumulative Tax (EUR) 0 19,500 0 0 19,501 28,000 20 1,700 28,001 36,300 25 3,775 36,301 60,000 30 10,885 60,001 and above 35 Previously non-resident individuals taking up residence as employees in Cyprus are entitled to a 20% income tax exemption on their employment income (subject to a maximum of EUR8,550) for the first three full tax years following the commencement of employment. Previously non-resident individuals taking up residence as employees in Cyprus with an annual income exceeding EUR100,000 are entitled to a 50% income tax exemption on their employment income for five years from the commencement of employment. Individuals receiving income in respect of a foreign pension may elect to be taxed at the above personal income tax rates, or at a special rate of 5%, on the portion of income exceeding EUR3,420. Employees, self-employed individuals and pensioners whose income is derived from private sector sources are required to pay a special contribution on their gross earnings, subject to exemptions. The special contribution rates for 2014 are: Gross Monthly Income (EUR) Special Contribution Rate (%) 0 1,500 0 1,501 2,500 2.5 2,501 3,500 3 3,501 and above 3.5 In the case of employees, 50% of the contribution is payable by the employee and 50% by the employer. In addition, resident individuals are generally subject to a special contribution for defence in respect of dividends, interest and rents received at varying rates.
14 Capital gains are not generally subject to tax in Cyprus. However, tax is generally imposed at the rate of 20% in respect of gains arising from the disposal of immovable property situated in Cyprus, including gains from the sale of shares in a company which owns immovable property situated in Cyprus and is not listed on any recognised stock exchange, subject to certain deductions and exemptions. There are no inheritance, estate or gift taxes in Cyprus; however, stamp duty may apply (see 5.6.2). There is no wealth tax in Cyprus. 5.3 Employment Related Costs and Taxes 5.3.1 Fringe benefits tax There is no separate fringe benefits tax in Cyprus. The value of any taxable benefits-in-kind are generally treated as part of the employee s salary and taxed accordingly. 5.3.2 Social insurance contributions Employers and employees must each make monthly contributions to the Social Insurance Department at the rate of 7.8%, up to certain salary ceilings. Employers must also make contributions in respect of other funds, including the redundancy fund (1.2%) and the training development fund (0.5%), for which there are certain salary ceilings, and the cohesion fund (2%), for which there is no salary ceiling. 5.4 Withholding Taxes on Payments Abroad There is no withholding tax on dividends, interests and royalties paid to nonresidents of Cyprus. However, royalties pertaining to rights that are used in Cyprus are subject to withholding tax at rates of 5% for film rights, and 10% for all other rights, subject to reduction or exemption under a double tax agreement or under the EU Interest and Royalties Directive.
Doing Business in Cyprus 15 5.5 Value Added Tax (VAT) VAT is levied on the supply of goods and services in Cyprus, the intra-eu acquisition of goods, and on the importation of goods. Trading entities which are required to be registered for VAT must generally charge their customers VAT of 19% on the value of their supplies. Reduced VAT rates of 0%, 5% and 9% apply to certain categories of goods and services. Certain supplies are VAT exempt, including medical care, educational services and most financial services. A business is required to register for VAT purposes at the end of any month if the value of its taxable supplies during the previous 12 months exceeds EUR15,600, or at any time if it is believed that taxable supplies will exceed EUR15,600 in the following 30-day period. Businesses may also be required to register for VAT purposes in other circumstances. Businesses may register for VAT voluntarily if compulsory registration does not apply. Registered businesses can generally recover the VAT with which they themselves are charged. This does not generally apply to VAT exempt supplies. 5.6 Other Taxes 5.6.1 Immovable property tax Immovable property tax (IPT) is imposed on immovable property located in Cyprus and held by individuals and legal entities at 1 January each year. The tax base is the value of the property as at 1 January 1980, as determined by legislation. The tax rates are as follows: Value of Immovable Property (EUR) IPT Rate (%) Cumulative Tax (EUR) Up to 12,500 0 0 12,501 40,000 0.6* 240 40,001 120,000 0.8 880 120,001 170,000 0.9 1,330 170,001 300,000 1.1 2,760 300,001 500,000 1.3 5,360 500,001 800,000 1.5 9,860 800,001 3,000,000 1.7 47,260 Over 3,000,000 1.9 * Applies to the whole amount, not just that over EUR12,500. Exemptions from IPT may apply, such as for buildings owned by charities and schools.
16 5.6.2 Stamp duty Stamp duty is payable on certain documents, such as those relating to certain assets in Cyprus. Stamp duty rates vary according to certain factors, including the type of document and the stipulated value. The maximum stamp duty payable is capped at EUR20,000. 5.6.3 Immovable property transfer fee Transfers of immovable property located in Cyprus are subject to fees at varying rates, which are generally based on the market value of the property, subject to exemptions. 5.6.4 Excise duties Excise duties are imposed on certain goods, including alcohol, tobacco and petroleum products. 5.7 Tax Incentives for Businesses 5.7.1 Research and development (R&D) There are no specific tax incentives for R&D activities. 5.7.2 Intellectual property A corporate income tax exemption of 80% (amongst other incentives) applies to net income received in respect of intellectual property. 5.7.3 Tonnage tax A tonnage tax scheme generally applies to qualifying ship owners, charterers, or managers of a qualifying Cyprus or foreign ship in respect of qualifying shipping/ chartering activities.