Guide to Company Structures When Setting up a Company in Cyprus

Cyprus has emerged as one of Europe's most attractive destinations for company formation, offering entrepreneurs and investors a strategic location, a favorable tax regime, and business-friendly policies. If you're considering setting up a company in Cyprus, understanding the different company structures is crucial for making an informed decision that aligns with your business goals. This guide explores the available company structures, key benefits, and critical considerations for investors.

Why Open a Cyprus Company?

Cyprus has quickly become a prime location for company formation, especially for businesses seeking tax efficiency, a stable legal framework, and easy access to European and global markets. Key factors that make Cyprus appealing include its advantageous tax regime, robust legal system, business-friendly environment, and quality of life. For companies in sectors such as software, technology, and intellectual property (IP), opening a Cyprus Ltd offers unique benefits to thrive while minimizing tax and administrative burdens.

Key Benefits of Choosing Cyprus for Company Formation

International companies choosing Cyprus can benefit from:

• Favorable Tax Regime: With a corporate tax rate of 12.5% and attractive IP tax incentives through the Cyprus IP Box, Cyprus offers one of the lowest corporate tax rates in the EU. Companies that develop or exploit intellectual property assets can benefit from an effective tax rate as low as 2.5% on qualifying IP income.
• Strategic Location: Situated at the crossroads of Europe, Asia, and Africa, Cyprus is ideal for businesses looking to expand into various regions. Its geographical location makes it a natural hub for trade, commerce, and logistics.
• EU Membership: As an EU member, Cyprus provides companies with access to the European market and grants the legal advantages of EU Directives. Businesses incorporated in Cyprus can take advantage of the freedom of services, goods, capital, and movement within the EU.
• Strong Legal System: Based on English common law, Cyprus’s legal system is reliable and familiar to international investors. This predictability provides a sense of security for foreign businesses operating in Cyprus.
• High-Quality Professional Services: Cyprus offers a well-developed infrastructure of legal, accounting, and financial services, with experienced professionals who are adept at handling international business needs.
• Business-Friendly Environment: With low operating costs, excellent living conditions, and a favorable regulatory framework, Cyprus is an attractive choice for investors and expatriates.

Popular Company Structures in Cyprus

When setting up a company in Cyprus, it's essential to select the right structure for your business needs. The most common options include:

1. Private Company Limited by Shares (Cyprus Ltd)

The most popular structure when opening a Cyprus Ltd is the Private Company Limited by Shares. This structure offers several advantages, making it the go-to option for many small to medium-sized businesses.

Key Features:

• Limited Liability for Shareholders: Shareholders’ liability is limited to the amount they invested in the company.
• Minimum Shareholder and Director Requirement: A Cyprus Ltd can be established with a minimum of one shareholder and one director. There is no requirement for the shareholder to be a resident of Cyprus.
• Minimum Share Capital: Typically set at €1,000, making it accessible for small businesses.
• Registered Office: The company must maintain a registered office in Cyprus.
• Annual Financial Statements and Audits: Required to submit annual audited financial statements to the Cyprus Registrar of Companies.

Advantages:

• Clear Ownership Structure: Shareholders’ rights and responsibilities are clearly defined.
• Flexible Management and Easy Ownership Transfer: Simple and well-defined processes for transferring shares.
• Attractive to Investors: The clear structure and limited liability make it appealing to external investors.
• Suitable for Various Business Activities: From tech startups to trading and consultancy businesses, the Cyprus Ltd is versatile.

Limitations:

• No Public Share Offerings: Shares cannot be publicly traded.
• Restrictions on Share Transfers: Transfers are subject to certain legal restrictions.
• Higher Compliance Requirements: Compared to sole proprietorships, the Cyprus Ltd requires annual financial audits and reporting.

2. Public Company Limited by Shares

For larger enterprises planning to raise capital or list on stock exchanges, a Public Company Limited by Shares may be the right choice. It allows for increased visibility and credibility in the market.

Key Features:

• Minimum of Seven Shareholders: Required to have at least seven shareholders.
• Minimum Share Capital: A Public Company requires a minimum share capital of €25,625.
• Directors: At least two directors are necessary to manage the company.
• Stringent Reporting Requirements: Public Companies must comply with more comprehensive reporting regulations, including quarterly and annual financial disclosures.
• Stock Exchange Listing: Public Companies can raise capital through public offerings of shares.

Advantages:

• Ability to Raise Capital: Public Companies have access to capital through public share offerings, facilitating expansion and growth.
• Enhanced Credibility: Being publicly listed adds to a company’s prestige and public perception.
• Unlimited Number of Shareholders: No restrictions on the number of shareholders, making it easier to attract large-scale investments.

Limitations:

• Higher Setup and Maintenance Costs: More complex regulatory and compliance requirements, leading to higher costs.
• Increased Public Scrutiny: Publicly listed companies are subject to increased scrutiny by regulatory authorities, investors, and the public.
• Higher Minimum Capital Requirements: This may limit its suitability for smaller businesses or startups.

3. Branch of Overseas Company

For international businesses looking to set up a company in Cyprus, establishing a branch office is a viable option, especially when they wish to maintain a direct connection to their parent company.

Key Features:

• Acts as an Extension of the Parent Company: A branch office operates under the umbrella of the parent company and does not have a separate legal identity.
• No Requirement for a New Legal Entity: This simplifies the setup process for businesses that already have a well-established legal presence abroad.
• Local Representative: The branch must appoint a local representative in Cyprus for compliance and regulatory matters.
• Registration with the Cyprus Registrar of Companies: A branch office must register its presence in Cyprus and provide the necessary documents, including details of the parent company.

Advantages:

• Lower Capital Requirements: Setting up a branch generally involves lower capital requirements compared to a fully incorporated company.
• Simpler Setup Process: The setup process for a branch is generally quicker and less complicated.
• Direct Control by Parent Company: The branch operates as an extension of the parent company, providing greater control over local operations.

Limitations:

• Full Liability for Parent Company: The parent company bears full legal and financial liability for the branch's actions.
• Limited Operational Independence: A branch has less autonomy compared to a locally incorporated company.
• Complex Tax Implications: The tax treatment of branches can vary based on the jurisdiction of the parent company.

4. Partnership Structures

Cyprus recognizes both General and Limited Partnerships as viable business structures, making them attractive for professional services firms and joint ventures.

General Partnership:

• All partners share unlimited liability.
• Simple formation process with minimum requirements.
• Partners share profits, losses, and liabilities equally.

Limited Partnership:

• At least one general partner with unlimited liability.
• Limited partners’ liability is restricted to their investment in the partnership.
• Allows for a clear distinction between management partners and investment partners.

Tax Implications for Each Company Structure

One of the key reasons to open a Cyprus company is the country’s tax advantages. Let’s explore the tax implications of each company structure:

A. Tax Benefits for Private Limited Company (Ltd) and PLCs

• Corporate Tax: Cyprus Ltds and Public Companies benefit from a corporate tax rate of 12.5%, one of the lowest in the EU.
• IP Box Regime: Companies involved in the development or exploitation of intellectual property can benefit from an effective tax rate as low as 2.5% on qualifying IP income.
• Dividend Exemption: Dividends received by a Cyprus tax-resident company are exempt from tax if the source is from another Cyprus company or meets certain criteria under double taxation treaties.

B. Tax Considerations for Branches of Foreign Companies (H3)

While a branch does not benefit from the same tax incentives as a Cyprus-incorporated company, it can still enjoy low corporate tax rates on Cyprus-sourced income.

Key Tax Benefits:

• Corporate Tax on Local Profits: Branches are subject to a 12.5% corporate tax on profits earned in Cyprus.
• No Withholding Tax: Branches are exempt from withholding taxes on dividends, interest, and royalties paid to non-residents.

C. Tax Requirements for Partnerships and Sole Proprietorships

Key Tax Considerations:

• Personal Income Tax: Partners in a partnership and sole proprietors are taxed individually on profits, subject to Cyprus’s progressive personal income tax rates.
• Social Insurance Contributions: Self-employed individuals and partners are subject to social insurance contributions, which can impact overall take-home pay.

Compliance and Reporting Requirements in Cyprus

Setting up a Cyprus Ltd or any other structure involves compliance with reporting and regulatory requirements:

Annual Returns and Financial Audits for Cyprus Ltds and PLCs

Both structures must comply with filing annual returns, submitting audited financial statements, and maintaining a registered office in Cyprus.

Reporting Obligations for Branch Offices

While branches are subject to annual reporting, the requirements are generally lighter than those for fully incorporated entities.

Minimal Formalities for Partnerships

These structures have the least formalities, with no requirement for audited financial statements, though annual tax returns are mandatory.

Steps to Set Up a Company in Cyprus

To open a Cyprus company, follow these essential steps:

Name Approval and Reservation

• Check and reserve the company name.

Documentation and Registration Process

• Prepare the Memorandum and Articles of Association, and gather shareholder information.
• Submit documents to the Registrar, pay fees, and obtain incorporation documents.

Post-Registration Requirements

• Register for tax and VAT (if applicable) and open a bank account.

Conclusion: Choosing the Right Company Structure

Choosing the right company structure is vital when setting up a company in Cyprus. Each structure offers distinct advantages and limitations, and selecting the one that aligns with your business objectives, operational requirements, and long-term strategy is crucial.

At Meridian Trust, we specialize in guiding businesses through this process efficiently. Book a free consultation today and discover how we can help you establish your business effectively in Cyprus.

Photos byKhwanchai Phanthong