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LOCATION AND POPULATION Cyprus is situated in the eastern part of the Mediterranean Sea lying at the meeting point of Europe, Africa and Asia and close to the busy trade routes linking Europe with the Arab world and the Far East.
The island is about 4 hours from London, 3 hours from Moscow, 1 hour from Cairo, 3 hours from Abu Dhabi and about 12 hours direct from New York by air.
The climate is temperate, Mediterranean with hot, dry summers. There are about 340 days of sunshine the year around. Minimum temperatures in the winter are in the region of 4°C and the maximum in the summer of around 36°C.
Cyprus features sandy beaches, forests and mountains that combined with historic monuments, excellent accommodation and friendly people, have turned the island into a major tourist resort.
With the exception of the capital, all major cities are located on the coast. Nicosia (pop 270,000) is the capital and the island's business centre. Limassol (pop 190,000) on the south coast, is the island's shipping and offshore centre.
About 37% of the Republic's territory is under Turkish army occupation since the summer of 1974.
The population in the Cyprus government controlled area was estimated at 689,500 at the end of 2001.
POLITICAL ENVIRONMENT
The constitution of Cyprus provides for a presidential system of government. The term of office is set for a five-year period. The president appoints the Council of Ministers which is the main executive instrument of the Republic and they are responsible for the initiation of legislation and the administration of all matters that fall within the domain of their ministries.
The House of Representatives is elected by separate elections every four years and has the legislative power in the island.
The Republic is a member in of the UN (1960), the Non-aligned Movement (1960), the Council of Europe (1961), the Commonwealth (1961). It has an EEC Association Agreement (1972), a Customs Union agreement (1987), and an EC membership (1990). The republic is also a full member of the EU (2004).
BUSINESS ENVIRONMENT
The Legal System
The judiciary exercises the judicial power and its members are independent of the government. The legal system is structured on the English legal systems and all statutes relating to the regulation of business matters and procedures are based on English law. Most laws are officially translated into English.
Accounting System
The Minister of Commerce must approve all accountants and auditors who are providing services to the public. Such an approval (license) is given only to qualified people, members of recognised overseas accounting bodies.
The main accounting body in Cyprus is the Institute of Certified Public Accountants whose members are qualified accountants from the United Kingdom, United States and other English speaking countries.
The accounting profession is obliged to follow the international accounting and auditing standards.
Chamber of Commerce and Industry
The main object of this organisation is to promote, defend and enhance the free enterprise system. The Cyprus Chamber of Commerce and Industry is a member of the International Chamber of Commerce, the association of the Mediterranean Chamber of Commerce and Industry, and the permanent conference of the European Union Chamber of Commerce and Industry.
The Chamber provides the following services: information on trade industry and services, information on legislation and government policy of commercial nature, information on other commercial matters and organising trade delegations to visit abroad.
Banking System
The banking system in Cyprus is modelled on the British system. The monetary policy and the policy relating to credit and balance of payments are under the responsibility of the Central Bank of Cyprus.
The commercial banks are very aggressive in providing innovative and competitive services and even though the needs of the business community in Cyprus have been increasing at an accelerated rate during the last 25 years the banks were able not only to cope but also to be one step ahead. Today they provide all the advanced electronic and other modern facilities that the banks overseas are providing.
There is a strong presence of international banks and the development of Cyprus to a regional financial centre should be pointed out. Around 30 international banking units are currently present in Cyprus, a fact attributed, among others, to the transparent legal framework for the operation of foreign banks. International banking units must operate as fully-fledged and fully staffed units and not merely as "brass plate entities". They transact business with non-residents of Cyprus and in currencies other than the Cyprus pound. As a rule, only subsidiaries or branches of banks enjoying a good reputation internationally, established in countries where there is adequate banking supervision, are eligible for an international banking license in Cyprus.
Transportation
Cyprus has two international Airports in Larnaca and Paphos handling a large number of daily flights. There is a wide network of air-routes connecting Cyprus with Europe, Africa and Asia. The geographical position of Cyprus makes it a crossroad of air travel, linking Europe with the Arab World and the Far East. The island is rapidly becoming a major international transit station for commercial air transportation with excellent connections within the entire region.
Seaborne traffic is served by a fully renewed port system comprising the multi-purpose ports of Limassol and Larnaca, the industrial port of Vassiliko and three specialised oil terminals. One hundred shipping lines include Cyprus in their regular schedules to and from five continents. About 5,000 ships totalling 17 million net registered tons call at Cypriot ports each year.
Telecommunications
Cyprus recognises the importance of telecommunications and has invested heavily in the development of this sector. As a result, the island may claim, in this respect, to be among the most developed countries in the world.
Apart from conventional telecommunications services such as telephony, telex, telefax and telegraphy, the Cyprus Telecommunications Authority (CYTA) offers services such as the packet switched data network, mobile telephony, voicemail, paging, maritime, TV transmission/reception, private leased circuits, audiotex (900/909), videoconferencing, access to the Internet and the X400 message handling system. Furthermore, the Integrated Services Digital Network (ISDN) operates on a full commercial basis. The national network utilises state-of-the-art technology such as digital switching and transmission systems and fibre optic cables, videotext, Virtual Private Networks, (IP-VPN’s), the Paneuropean Paging System, as well as broadband services.
Conference Facilities
A very extensive number of conference rooms are available in Cyprus providing the latest equipment and all modern facilities to make the conference a success. The Cyprus conference centre and all major hotels provide such rooms at reasonable rates.
BUSINESS IN CYPRUS
Clear policies adopted in connection with international banking and financial services as well as modern legislation enacted by the Republic of Cyprus on international trusts give Cyprus major advantages and total flexibility as an international business and financial centre.
The international banking and financial services sector in Cyprus is a thriving industry, offering considerable advantages to its members in terms of fiscal and other incentives as well as adequate regulation, thereby, contributing to the recognition of Cyprus as a reputable regional and international financial centre.
A careful look at the business environment in Cyprus would reveal certain things that provide an overall picture of the environment. The main characteristic can be summarised as follows:
• Cyprus is not listed by foreign tax authorities as a tax heaven but is considered to be a low tax country.
• A long list of generous tax incentives is provided for the international companies and their
expatriate employees. Cyprus has a double tax agreement with over 40 countries.
• Friendly international relations.
• Excellent infrastructure.
• Excellent professional service.
• Good schools are available that provide high quality education in foreign languages especially in
English. These schools provide education from primary to university levels.
• The foreigner in Cyprus will enjoy a high standard of living at low cost, in a crime free environment.
CYPRUS DOUBLE TAX TREATIES
Cyprus is probably the only country in the world that is considered a tax incentive country and at the same time offers important international tax planning opportunities and advantages through its wide double tax treaty network. There are treaties with 42 countries now in force and some other are pending for ratification.
Most of the Cyprus tax treaties follow the OECD model. The treaties aim to avoid double taxation of income earned in these countries. This is achieved usually by either exempting the income from tax, by providing a tax credit for the amount of tax paid in the other contracting country or by a reduced withholding tax.
THE NATIONAL ECONOMY
Cyprus has an open free market economy. The role of government is limited to regulation and the provision of public utilities. Per capita GNP is over USD13,600, one of the highest in the Mediterranean. Considering other socio-economic indicators such as the excellent housing conditions, the pollution free environment and the low crime rate, one may conclude that the quality of life is better than that reflected by per capita income alone. Furthermore, the cost of living is substantially lower than in most countries offering a comparable standard and quality of life. Nicosia ranks as seventh least expensive of the leading 53 international business centres surveyed in Prices and Earnings Around the Globe, published by the Union Bank of Switzerland in August 1994.
Thriving tourist and service sectors and a fast growing export-orientated industry drives the economy. In terms of their contribution to GNP the three most important sectors of the economy are: trade, restaurants and hotels; finance, insurance and business services; and manufacturing. The performance of the economy has been such that it has combined high real growth with low inflation and low unemployment. Moreover, the economy is characterised by a low external debt service to exports ratio and a high international reserves to imports ratio.
As a member of the European Union and the Euro area, Cyprus is successfully meeting the challenge of being part of the enlarged European family. The island’s economy is characterised by robustness and macroeconomic stability, which is evidenced by the favourable evaluations and comments of the European Commission, the International Monetary Fund and other international organisations.
ENJOY CYPRUS
Cyprus enjoys a pleasant climate. The coldest month is January with a mean temperature ranging from 6oC to 13oC, while the hottest month is August with a mean temperature ranging from 21oC to 36oC. The island of Aphrodite enjoys 340 sunny days during the year. It combines wide sandy beaches and sea resorts for the summer with snow covered mountains during the winter.
Cyprus history runs as far back as the 6th millennium BC In the 2nd millennium BC the Achanean-Greeks established city-kingdoms and introduced the Greek language. Because of its strategic position the island was occupied and ruled by many of the great powers of the past. Although the conquerors did not effect the Greek character of the island the many tangible evidences that they left behind make Cyprus today an attractive place to see and live history.
Apart from the archaeological places there are many other attractive and picturesque places to see and many places where you can enjoy all kind of sports.
For the foreigner who is looking for a more permanent establishment in Cyprus there are plenty of properties available at reasonable prices.
During the night Cyprus does not sleep. The large number and variety of restaurants, taverns, pubs, discos, and night clubs cater for a wide range of preferences and offer all kinds of international food, the famous local/traditional food, and a variety of local wine.
CYPRUS AND ITS INTERNATIONAL BUSINESS
The government began offering incentives in 1975, aiming to encourage the establishment of legal entities by foreigners in order to manage their overseas affairs or to render services abroad from the island. Since then Cyprus has experienced a staggering increase for the demand of those entities, most commonly known as international companies. At the moment there are tens of thousands of international entities registered in Cyprus.
CYPRUS INTERNATIONAL BUSINESS COMPANIES
We offer all-round services to companies and individuals that are relocating to Cyprus or do business through or in Cyprus:
• Selecting the appropriate legal structure
• Incorporation and management of IBC’s in Cyprus and other jurisdictions
• Tax Planning
• Registered address
• Opening of bank accounts, securing financing
• Nominee/director/secretary facilities
• Trading & Banking back up for IBC’s
• Accounting - Auditing - VAT - payroll/PAYE
• Auditing & preparation of Financial Statements
• Taxation, International tax planning
• Securing residence and work permits
• Legal services
• Company management
THE LAW IN GENERAL The legal system in Cyprus follows in general lines English Law, the Common law and the law of Equity with the exception of the Administrative and Constitutional law for which the Continental law is also followed in some lines. The law governing companies is the Companies Law Chapter 113 (based on the United Kingdom’s Companies Act 1948) and the law governing partnerships is the Partnerships and Business Names Law Chapter 116 (which again is almost identical to that of the United Kingdom).
Types of Legal Identities
For someone who intends to do business in Cyprus, or through Cyprus, there are only four ways of doing it i.e. through:
• A company
• A partnership
• A branch
• Sole proprietorship (business name)
COMPANIES LAW - PRIVATE LIMITED COMPANY
General Characteristics
• The liability of its members is limited up to the amount unpaid for their subscribed shares.
• The right to transfer the shares is restricted
• The word “limited” must appear at the end of the name of the company.
• The minimum number of members of the company is one and the maximum number is limited to fifty.
• Shares cannot be issued to the bearer. In case anonymity is required this can be achieved
through local nominees who sign in favour of the beneficial owner of the shares a declaration of trust
as well as an instrument of transfer of shares in blank.
• Prohibition as to the invitation to the public to subscribe for any shares or debentures.
• The minimum number for directors is one and there is no maximum. Directors may be local or
foreign. Alternate directors may also be appointed. It is not necessary for the directors or the secretary
to be shareholders. The appointment and removal of directors is made by the shareholders. Local
nominee directors may also be used. Corporate bodies may act as directors and secretary.
• Meetings of the board of directors can be held either in Cyprus or abroad.
• Statutory and reporting requirement are very similar to those of the Companies Act 1948 of the United
Kingdom. The statutory books required are:
- The Register of Members: containing details as to their full names, addresses etc, the number of shares held
by each one, when they became shareholders etc.
- The Register of Directors and Secretary
- The Minute Book for all the meetings of directors and shareholders and
- The Register of Charges affecting the property of the company.
• Charges, debentures, floating charges and mortgages must be registered with the Registrar of
Companies.
• Bank accounts of any kind may be opened, in any currency, either in Cyprus or abroad. Those opened in
Cyprus may be operated without any exchange control permission.
• The Secretary must keep the seal of the company under safe custody.
• Special kinds of shares with preferential or other rights may be issued.
• Annual returns must be filed with the Registrar of Companies at the end of each financial year of the
company. Such returns contain information as to any transfer or issue of new shares, changes to
directors/secretary/registered office, registration or cancellation of any charges/mortgages etc.
• The company’s file at the Registrar of Companies is available for inspection by the public and therefore it
anonymity is required, nominees must be used from the beginning.
• The company must have Memorandum and Articles of Association, both of which must be signed by their
subscribers (the first copy must be deposited, together with the other statutory documents, with the
Registrar of Companies). Both documents must be printed in the Greek language but provision is also
made for printing them in English.
Memorandum of Association
The Memorandum must contain the following:
• The name of the company.
• The address of the registered office which must be in Cyprus.
• The main objects for which the company is formed.
• The amount of the authorised and paid up share capital which can be in any currency. The authorised
and paid up capital must be a minimum of C£1,000.00 (or equivalent amount in any other currency). For
special types of Companies such as insurance companies, IBU’s etc the authorised and paid up capital
is higher (there is no maximum capital). The authorised and paid up share capital can be increased at
any time by special resolution of its members.
• Special provision as to the liability of the Members of the company, which is limited up to the amounts,
they have paid for their subscribed shares.
• Provisions as to the various classes of shares.
• The names, addresses and description of the subscribers together with the number of shares for which
they subscribe.
Articles of Association
The Articles of Association contain the regulations for the internal management of the company. In the Companies Law Chapter 113 under the heading “Table A” a specimen of certain statutory provisions regarding the regulations and the functioning of the company is provided. The Articles of Association may adopt this specimen fully or partly.
The Articles of Association may be amended at any time by special resolution of the members (majority vote of over 75%).
The Articles of Association may include provisions as to the – dividends – accounts and audit – right of transfer and procedure to transfer the shares – voting rights – debentures – general meetings of the company – the appointment, removal and meetings of the directors – annual general meetings – extraordinary meetings and meetings for special resolutions – winding up of the company – loans to directors etc.
Formation Procedure
According to Cyprus Law an application for the formation and registration of a company must be carried out through a Cyprus law office.
The formation procedure of a company is, in general lines, as follow:
• Approval of the name of the company.
• Preparation and printing of the Memorandum and Articles of Association of the company in Greek and
English languages.
• Filing with the Registrar of Companies the Memorandum and Articles of Association of the company in
Greek language (duly signed by the subscribers), together with forms HE1, HE2, HE3, (duly signed by
one director or the secretary) and the receipt for the payment of the registration duty. Form HE1 is an
affidavit by the lawyer of the company as to the legitimacy of its’ formation. HE2 provides for the
registered address of the company. HE3 provides for the appointment of the first directors and
secretary.
• As soon as registration of the company is effected the Registrar of Companies furnishes the secretary
with; the Certificate of Registration together with certified copies of the list of directors and secretary,
shareholders, registered address, Memorandum and Articles of Association, a copy of the Certificate of
Registration and a certificate of good standing of the company. Certified copies of the Memorandum and
Articles of Association and registration of the company are given in Greek or English. As soon as the
certificate of the registration of the company is issued, the company can arrange for the first meeting of
the directors for statutory matters such as appointment of auditors, appointment of legal adviser,
opening bank accounts, approval of the seal of the company and of the Memorandum and Articles of
Association and appointment of the secretary etc.
• The whole application, formation and registration procedure can be completed within three to seven
days.
• There are certain registration fees, which must be paid upon the application for the registration of any
company. The registration fees vary, depending on the nominal capital of the company, between
C£ 125.00 up to capital of C£5,000.00 and C£175,00 up to C£10,000.00 capital.
For higher authorised share capital the fees payable are £0.06 of the capital.
Information needed for registration
Information needed for registration of an international business company is detailed below:
• The names, addresses, occupations and nationality of at least one person or legal entity who is to be
the shareholder or the beneficial owner of the shares of the company, irrespective of whether
anonymity is required to be kept and nominees shall be used. Since the Memorandum and Articles of
Association of the company must be signed by the subscribers, and in order to save time, the first
subscribers of the company are usually employees or nominee companies of a law office who, upon the
registration of the company, transfer their respective shares to the real shareholders. (In cases of
anonymity the nominees sign a blank instrument of transfer of shares together with a trust deed, and
the Share Certificates which they pass over to the beneficiaries who keep these to safeguard their
interests).
• The name of the proposed company to be registered. It is advisable that several alternative names are
given in order to save time and unnecessary correspondence. In cases where the name of the company
is not an important element law firms have available a list of approved names ready for immediate use.
• The main objects of the company.
• The proposed authorised and issued share capital and the participation of each shareholder or
beneficial owner in the company. As previously stated the minimum authorised share and paid up
capital is C£1,000.00.
• The name, address, occupation and nationality of at least one person to be appointed as a director,
and the same particulars for the secretary. It is advisable, however, to appoint more than two
directors, so that a decision may be easily obtained. It is also advisable to appoint local directors if the
management and control of the company must be in Cyprus. In case of appointment of local nominee
directors, they only act upon the instructions received from the beneficiaries of the company.
SHIPPING
Cyprus has proved to be an ideal centre for the establishment of shipping companies. A distinction however needs to be made between shipowning and shipmanagement companies. The first restricts the objects to the ownership, bareboat chartering and operation of ships in international waters. The second category restricts the activities to the rendering of a wide range of shipping related services outside Cyprus, such as shipbreaking, payroll and bookkeeping services, marine insurance etc.
The term shipping refers to shipowning (not shipmanagement).
A large number of shipping companies has been registered in Cyprus and currently the total number of ships registered is over 2600 ships with a gross tonnage over 26m tonnes, making Cyprus the 4th country in the world in ship registrations.
• The advantages of shipping companies registered in Cyprus can be summarised as follows:
• No tax is payable on all profits and dividends arising from shipping operations
• No capital gains tax on the sale or transfer of a ship or shares in a shipping company
• No estate duty on the inheritance of shares is a shipping company
• No stamp duty on bills of sale and mortgages on ships and related documents
• There are low registration fees.
The Cyprus merchant shipping legislation allows for the provisional registration of a vessel in the case where the vessel has not been previously registered in Cyprus. The provisional registration is for a period of 9 months renewable for a further 3 months. This is to give time to the shipowners to prepare the application for a permanent registration.
The Cyprus legislation also allows for a parallel (bareboat) registration. This means that a ship can obtain approval for registration under the Cyprus flag for a period of two years without the need to delete the registration in the foreign country (parallel-in registration). Alternatively the ship can have a parallel-out registration which means that the ship can hoist the flag of the foreign country but such things as the financing of the ship, mortgaging, transfer of ownership, etc are exclusively governed by the Cyprus legislation and no action in relation to these matters may be made in the foreign registry. Cyprus has signed many maritime conventions.
INTERNATIONAL CAPTIVE INSURANCE
International captive insurance companies are those which restrict their operations to insuring risk of the parent, holding or associated in the group of companies to which they belong. In addition a non-insurance foreign company must own them.
Application to establish an international captive insurance company must be made to the minister of finance and the Central Bank of Cyprus, which can exempt these companies from the application of any of the provision of the Insurance Companies Laws 1984.
The minimum share capital of these companies is CY£10,000 and they must have their audited accounts submitted to the Registrar of Companies and the Central Bank of Cyprus each year.
Presently in Cyprus there are 16 captive insurance companies and 8 international insurance companies.
INTERNATIONAL TRUSTS LAW 1992
The international trust is one with the following characteristics:
1. The settlor must not be a permanent resident of Cyprus.
2. The beneficiary(ies) must not be permanent resident of Cyprus (except charitable institutions).
3. The trust property must not include immovable property in Cyprus.
4. At least one trustee is resident in Cyprus. (A Cyprus international company or partnership is considered as a resident trustee).
An international trust shall not be void or voidable in the event of the settlors' bankruptcy or liquidation or proceedings against the settlor not withstanding any provision of the law of Cyprus or of any other country. An international trust may be set aside only if it’s proven that the trust is made by the settlor with the intent to defraud creditors. The onus of proof of intent to defraud shall be on the creditors.
The law governing the international trust may be changed from the Cyprus law to a foreign law (and visa versa) provided that the foreign law recognises such a change.
Confidentiality is of paramount importance. No government or Central Bank official may disclose to anybody any information or documents in connection with the settlor, beneficiary, trustee, accounts or properties of the trust. However a beneficiary is entitled to request from the trustees information about the accounts of the trust.
Other characteristics of the international trust:
• the duration of the trust may be up to 100 years
• the trust is not subject to any taxes
• no exchange control
• no registration required
• Stamp duty CY£250 (about US$500)
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