CYPRUS COMPANIES Cyprus offers an excellent center for the establishment of corporate entities with advantages unparalleled in offshore jurisdictions. Cyprus has full OECD clearance, is a European country, which will become a full member of the European Union by 1st may 2004.
Taxation Main Benefits: Ø For General trading companies corporate tax is paid at 10% of net profits up to CYP1, 000,000 and 15% on profits over CYP1,000,000 for 2003 and 2004. Ø Shipping Companies operating Cyprus flagged vessels are
exempt from taxation. Ø Dividends from Cyprus companies or companies which are managed and controlled in Cyprus are tax free. Ø Foreign, non-Cypriot, profits from establishments outside Cyprus belonging to the Cypriot Company are tax free. Ø Salaries of non-resident employees are tax free.
Double Tax Treaties Cyprus has an impressive network of double tax treaties with 26 countries, both in the eastern and western world, which are based on the OECD model. As an example, double tax treaty with Russia has been amended in December 1998, as a result of which the following withholding tax rates are currently imposed:
Ø 0% on interest payments (as imposed before the amendment to the treaty) Ø 5% on gross dividends where the investment in the capital of the paying company is not less than US$100,000 or Ø 10% on the gross dividends in all other cases. Under Cyprus domestic law no withholding of tax is made where the shareholder is a foreign company while a 20% is withheld in all other cases. This means that dividends flowing from Russia to Cyprus will be subject to the rates according to the treaty (because the treaty rate is less than the Russian domestic rate) whereas dividends flowing from Cyprus to Russia will be subject to nil withholding tax if the recipient is a company and 5%/10% if the recipient is not a company. Ø 0% on royalties (as imposed before the amendment to the treaty). The above amendments have in substance limited effect on the attractiveness of the treaty as it was before. More detailed information may be given on the provisions and effect of each treaty upon request.
Legal Framework Cyprus, as a former British colony, has based most of its legal system on the English system. It is, therefore, a common law jurisdiction with many of its statutes based on the corresponding English ones. In addition, English Court judgments are followed by the Cypriot Courts as a matter of comity, except where these are based on statutes which are very different to the corresponding Cypriot statutes.
The Cyprus Companies Law Cap. 113, is based on the English Companies Act of 1948. It has been subsequently amended to provide for the abolition of the ultra vires doctrine in 1997 and the abolition of the minimum requirement of two shareholders, allowing companies to have only one shareholder. They may also operate with a single director. This statute has all the main provisions affording protection to its shareholders regarding the administration and management of the company such as the directors’ duties and protection of minority shareholders. In the case of a single director that director cannot act as the secretary of the company so as to maintain some control over his actions.
As under English legislation, minority shareholders are afforded protection against unfair oppression. Article 202 of the Cyprus Companies Law mirrors Section 210 of the English Companies Act of 1948. Copy of the Cypriot section 202 is attached for reference.
It should also be noted that Cypriot companies issue no bearer shares. The whole act is translated into English apart from more recent amendments. Regulatory Framework Cyprus Companies and in particular international business companies are regulated by the Registrar of Companies regarding Company law matters and, partially the Central Bank of Cyprus regarding exchange control issues, taxation and money laundering. As a result, there are strict money laundering procedures imposed both upon accepting foreigners as beneficiaries of Cypriot offshore companies and upon the opening and handling of bank accounts of such companies and the monitoring of such accounts by banks in Cyprus. It is noteworthy that the money laundering law and regulations currently in place have been vetted by the Council of Europe and the Financial Action Task Force, both of which have given their seal of approval.
In brief, the main regulations are as follows:
Where the beneficial owner of the Company is not an EU citizen, the Central Bank requires a passport copy of the intended beneficiary, if it is a natural person, and a bank reference from a bank of international reputation for that person or entity. If the beneficiary is a legal entity, and it is a bearer share company, it cannot open a bank account in Cyprus unless the beneficiary is disclosed. A bank reference is again required from a reputable bank. In the event the proposed beneficiary is a legal entity established in a jurisdiction that is deemed to be of suspect reputation according to the policy of the Central Bank in force from time to time, such person may not obtain a permit to hold shares in a Cypriot offshore company. Banks in Cyprus rarely accept cash under very specific circumstances; it is highly unusual for them to take cash where the source and its legitimacy cannot be verified. They have their internal compliance procedures, which adopt the Central Bank’s guidelines. The current guidelines are attached in the form of a reference booklet. It is of interest to note that in the case of transactions deemed to be of suspect origin, or if there are unduly frequent and unjustified transactions, the banks must notify the Central Bank, which will then check the source of such transmissions and take the relevant action if so required. The Cyprus Registrar of Companies holds details of directors, secretary, registered mortgages and charges and Memorandum and Articles of Association, which are available for public inspection. The only information not available to the public are the details of non-resident beneficiaries who are not registered shareholders. These, where they are non EU citizens or registered companies, are only disclosed to the Central Bank and any bank with which the company may open an account in Cyprus. Annual returns must be filed with the Registrar, which set out all the details regarding the company’s current membership, directors and secretary and share capital as well as registered charges. Changes in these details must be notified to the Registrar within 15 days. Any company that fails to file an annual return in due time may be struck off.
NOTE: The above is only a brief overview of the tax, legal and regulatory framework of Cyprus Offshore Companies and is not intended to constitute any legal advice. If you wish to receive more detailed information and specific advice regarding Cyprus Offshore Company, please contact us at info@cyprus-offshore.com . June 2003 | 
