It is no secret that Cyprus is among the top European nations for tax incentives for residents and companies, but establishing a Cyprus Ltd leads to many more advantages for both new and relocating companies.
The Aspen Trust Group goes over the basics for company formation and the ways you can use a Cyprus Ltd. or other structure to do more with your business.
The Business of Doing Business in Cyprus
Cyprus was selected as one of Forbes’s “Best Countries for Business” in 2019. With a thriving business market, companies are finding the jurisdiction a perfect place to conduct business affairs and promote healthy business growth. It is also one of the easiest places to conduct business according to the World Bank Group.
The advantages and ease of setting up a Cyprus Ltd. have also resulted in 12.2% of the population being involved with start-up endeavors, the highest in the EU. Recent 2022 governmental initiatives have sought to make the process of company formation in Cyprus even easier than the previous Fast Track Business Activation Mechanism. In addition to a more streamlined process for new businesses to register and get set up correctly, the government of Cyprus has used the new initiative known as the Business Facilitation Unit to provide long-term support services to foreign businesses and their owners. The promotion of maintenance support systems for business activity has also given rise to the popularity of the jurisdiction for company formation and immigration.
Discover why so many foreign nationals are selecting a Cyprus Ltd. as the right business move for their company.
Types of Company Registration in Cyprus
For entrepreneurs or established business owners looking to form a company in Cyprus, there are three routes they could take in joining the Cyprus market landscape:
- Private limited liability company (Private Cyprus Ltd.) by either shares or guarantee (most popular option)
- Public limited liability company (Public Cyprus Ltd.)
- Sole proprietorship
In more details, these company structures offer a wide range of options:
1. Private Cyprus Ltd.
There is no requirement for the minimum share capital for a private Cyprus Ltd. and only needs one shareholder. They must also have a director and a company secretary but either of the two can coincide with the same individual who is the shareholder.
2. Public Cyprus Ltd.
A public Ltd must have over 25,630 Euros in minimum share capital and also meet the seven shareholders and two directors requirements.
3. Sole Proprietorship
Before the Non-Dom policy change for tax residency, sole proprietorships were a favorite among entrepreneurs and digital nomads as a tax solution. However, the new rules of Non-Dom tax residency status discussed later in the article have often made setting up a Cyprus Ltd. just as easy and financially beneficial. Further, individuals with a sole proprietorship are personally liable whereas under a private and public Ltd. they only have limited liability.
Under a sole proprietorship, individuals are taxed based on income and are allowed to exempt the first 19,500 Euros. After that the rates of income tax rise progressively between 20 and 35%, a range still favorable to tax rates in other European countries. Following certain requirements under the CFC, most business owners can have the freedom to determine their business activities as long as the government and tax office guidelines are met.
Important Presence and Ultimate Beneficial Owner Conditions for Any Cyprus Company
All Cyprus company owners need to be aware that the company must have a physical and registered office space in Cyprus and must be maintained or rented for the entire year, in order to comply with EU substance regulations. P.O. boxes will not be permitted.
In addition, new 2021 governmental policies, aimed at improving transparency, mandate that newly registered companies have 30 days to provide data on the ultimate beneficial owners of the company to the Cyprus Register. Every December forward, they will need to update and confirm this data.
Based on new initiatives to incorporate key EU directives, including the EU Fourth Anti-Money Laundering Directive, into Cyprus domestic law, Cyprus Ltd. and other company structures were required to submit information on the ultimate beneficial owners of companies and other legal entities to authorized authorities.
When forming a Cyprus Ltd. or other company structure, the legal person, Trust, Foundation, or listed entity deemed as the ultimate owner of the company must be disclosed. UBO screening has been one of the newer policies enacted by Cyprus in order to meet transparency and compliancy standards for the EU and combat issues such as financial crime across the region.
Beyond the legal effects of UBO screening for Cyprus companies, there are many worthwhile advantages when ensuring a company structure is registered and compliant. Increasingly, good business practices lead to greater business partners through transparency and open communication. As a Cyprus Ltd. interacts with other business partners, its clients, and its customers, business relationships are strengthened through more knowledge of who is behind these interactions and allows for anti-corruption analysis, risk assessment, and more prominent red flag indicators linked to interests-based endeavors.
Key Points on Defining a UBO for a Cyprus Ltd.
- A UBO is defined as the person or entity that has control, directly or indirectly, by holding more that 25% of a company’s shares
- In situations in which the UBO cannot be established, the individual in a senior management position will be deemed the UBO
- UBO information to be submitted: name; surname; birth date; nationality; residential address; interest and participation method in activities of the company; identification documents; date or entry or changes as UBO
- Relevant information must be submitted to authorities for each UBO
- Companies on a stock exchange and fulfill requirements for EU disclosure laws are exempt
- Newly formed Cyprus Ltd. and other company structures have 30 days following the registration date of the company to disclose relevant information
More information can be found on this article pertaining to new UBO legislation
Rewards of Forming a Cyprus Company
Whether you form a Cyprus Ltd. or other legal entity, Cyprus offers European standards in compliance, networks, and infrastructure to make it an affordable, yet profitable destination to do business. Some of the benefits of company formation in Cyprus include:
Straightforward, Quick Company Formation
Forming a company in Cyprus is hassle-free and has a short process, which can be done in a few short weeks. With the help of financial experts, a company can not only begin doing business with the confidence that all domestic and international regulation is met but also with a company structure that maximizes benefits.
A Welcoming Online Business and Entrepreneur Environment
One of the leading new hubs for digital nomads and startups in Europe, Cyprus provides technological and business support for new businesses and their employees. Many foreign nationals are relocating to Cyprus in order to take advantage of the rich IT and business environment while finding it valuable for taxes and other company logistics.
Strong Foreign Investment Growth
Aside from company formation, foreign investment growth in Cyprus continue to show strong indicators despite global setbacks due to the Covid-19 pandemic. Many investors are finding the increasing real estate and technological markets of Cyprus meaningful investment opportunities as well as unique sectors such energy, film production, and shipping. What this means for a Cyprus Ltd. is a healthier business environment with both networking and support infrastructure to help new businesses succeed in their primary years.
Technological and Financial Support
Financial service providers such as TIME Magazine’s Influencer, The Aspen Trust Group, are paving the way for all types of business and investment entities to thrive within Cyprus, Europe, and the global economy. Highly-educated and internationally-experienced, the financial service industry is one of the top in the world and maintains professional standards for today’s changing business climate. The support services of these financial service providers not only help with the formation of Cyprus Ltd. or investment fund but also its maintenance, risk analysis, and compliance needs, to name a few.
Access to Key Markets and International Networks
Ideally situated between four key regions of international business and with a world-class shipping industry, Cyprus makes it easy to travel and conduct daily business activities with the EU and with Africa, the Middle East, and Asia.
Domestically, Cyprus has affordable and luxury real estate opportunities for new businesses to establish a company headquarters and comply with new economic substance mandates to be included within the EU. The international location of Cyprus along with the growing interest or foreign investors and residents creates a language-friendly environment that operates in English as well as other major global languages.
Tax Residency Factors for Individuals Considering Cyprus Company Formation
Many European residents, especially as a result of Brexit, have already opted to relocate their businesses to Cyprus to further their business ventures. Cyprus provides a high quality of life and an affordable lifestyle compared to many other European jurisdictions. Establishing a limited liability company and setting up the necessary bank accounts can be done swiftly. The registrar of companies makes it stress-free for Europeans to relocate or start new business endeavors in Cyprus.
Non-European residents are also choosing Cyprus as the perfect place for company formation as tax policies for individuals and the EU member status opens the door for increased business growth and expansion. As the nationality of individuals registering a business is irrelevant, Cyprus Ltd companies present equal opportunity in business establishment and incentives. Moreover, industries all across Cyprus are experiencing a major upward trend and the cross-over between sectors is helping create a unique, modern business environment, from the financial service sector to shipping and start-ups.
Tax Resident Status and Non-Dom Incentive
There are two ways to achieve tax resident status in Cyprus for non-domiciled individuals (Non-Dom):
- 183-Day Rule: Spend a minimum of 183 days out of the tax year in the country
- 60-Day Rule: Spend a minimum of 60 days out of the tax year in the country but do not spend more than 183 days in another jurisdiction; do not meet the requirements of tax resident for another jurisdiction; maintain a permanent residence in the country; engage in business in Cyprus
Under these regulations, Non-Dom tax residents receive tax benefits for 17 years before being considered domiciled. All tax residents are granted an exemption of 19,500 Euros from personal income tax and then progressive rates from 20-35%. Beyond this, all individuals are also expected to contribute 2.65% of salaries and income, including dividends and interest, to GeSY while employers pay 2.9% on the salaries of their employees. Similar to corporate tax for companies, there are no taxes imposed on dividend and interest income, disposal of shares, capital gains with the exception of a tax rate of 20% on real estate, estate duty, wealth, inheritance, or gifts.
Tax Incentives of a Cyprus Ltd.
The most commonly sought and possibly one of the biggest selling points of the jurisdiction is its favorable tax climate. The corporate tax rate is only 12.5% which is among the lowest in the EU and comes with an IP tax rate of 2.5% for those that qualify, nearly half of the next lowest rate in Europe. In addition, Non-Dom shareholders and directors are exempt from the Special Defence Contribution tax (SDC) for the 17 years they are deemed non-domiciled and may pay out dividends from the company tax-free. Any registered Cyprus Ltd. is considered a tax resident company and is taxed on dividend income (17%), interest income (30%), and rental income after a 25% deduction (3%, effectively 2.25% after deductions). Under new resident tax company law, all tax residents under a Cyprus Ltd. will also need to pay a contribution fee of 2.65% on dividends, interests, and salaries to GeSY, the national healthcare system.
While at first glance, the tax rates may seem less than ideal, the jurisdiction does not impose a tax on withholdings, dividend income, disposal of securities, capital gains, inheritance, reorganizations, or entry or exits. The 0% withholding tax provides an attractive environment for establishing holding structures within the jurisdiction. A Notional Interest Deduction for new capital may apply and reduce the effective tax rate by 80% alongside the large reduction applied under the IP Box scheme.
An extensive network of double tax treaties provides tax solutions for both resident companies and individuals.
Read more about how restructuring foreign companies in Cyprus have added up to better business and finance solutions.
What to Expect for the Process and Costs
The process to open any type of company structure in Cyprus is not very difficult, however, working with a professional advisor can make the process smoother and more accurate.
The steps for company formation include:
- Decide the company type and register the company name under the reservation system of the Trade Register (name registration subject to a fee of roughly 30 Euros).
- Select a registered address in Cyprus for office location and appoint necessary company officers.
- Appoint a local agent, required for filing company registration.
- Prepare the relevant forms including the company’s Memorandum and Article and get them signed by the Shareholder and/or secretary
- File with the Cyprus Companies Registrar (company registration subject to a fee of 165 Euros OR a fee of 235 Euros without share capital).
- Work with a financial service provider to establish and submit documents on the ultimate beneficial owner.
- Complete tax registration and obtain a VAT number; social security; insurance; and pensions as the employer (no fee required).
- Apply for required licenses and permits through the local authorities, dependent on business activity.
The entire process takes approximately 2 to 3 weeks, although there may be delays from local authorities when approving pertinent licenses and permits.
Getting the Best Assistance with Set-Up of a Cyprus Ltd.
Cyprus limited liability companies offer a lot of flexibility for business owners without the additional burden of regulations, risks, and high taxation. Further, they are painless to set up and provide excellent expansion opportunities into other key markets around the world. The best part is that the formation of a Cyprus Ltd. means that you never have to go at it alone with the robust financial services industry in Cyprus. Quality financial services, such as those offered by The Aspen Trust Group, are a major component of the business landscape in Cyprus. The Aspen Trust Group offers services related to business set-up, accounting, immigration, and tax optimization, making it convenient to get all your business needs taken care of by one quality service provider.
Achieve the type of business you deserve and start earning the rewards of a Cyprus Ltd. with the professionals at The Aspen Trust Group. Consult with our experts for company formation and management services that will establish your successful business foundation!