Business Formation in Cyprus: Understanding Different Entity Types for Success

Business Formation in Cyprus: Understanding Different Entity Types for Success

Welcome to our expert insights on business formation in Cyprus. Many of our esteemed clients often seek guidance on the most suitable type of business entity for their unique needs. Recognizing the significance of this decision, we have prepared a detailed comparison of the various business structures available in Cyprus. This guide covers the essentials of limited companies, partnerships, alternative investment funds, and Cyprus international trusts, highlighting each type’s features and benefits. Tailored for both non-Cypriot investors and high-net-worth individuals, our goal is to empower you with the knowledge to choose the entity that best aligns with your business vision and objectives.

Cyprus is an EU member state and a common law jurisdiction with a legal system similar to that of the UK. It is located at the eastern end of Europe linking 3 continents, Europe, Africa and Asia and it has a long and strong reputation as an international business center.

Cyprus offers diverse company structures catering to various business needs, making it an attractive destination for entrepreneurs. Whether you’re planning to operate locally or internationally, understanding the types of Business Entities in Cyprus is crucial. Here’s a breakdown of the most common types:

Exploring Business Entity Options in Cyprus

Business Entity TypePrivate Company Limited by SharesPublic Company Limited by SharesPartnershipAlternative Investment Fund (AIF)Cyprus International Trust (CIT)
SuitabilityCommon for small to medium businesses.Suitable for larger businesses.Suitable for businesses of various sizes, provided partners understand the liability implications associated with the type of partnership they choose.Suited for investment purposes.Designed for asset protection & estate planning.
Common Use The most commonly used type of business entity.Less common, used for larger scale.Common for smaller, informal businesses, Professional Services, Business Ventures and Family Businesses.Common for investment management.Used for managing high-value assets.
Number of Shareholders 1 to 50; may be non-Cypriots.At least 7 may be non-Cypriots. Depends on partnership agreement.Varies based on structure, may be non-Cypriots. Not applicable.
Number of Directors and Secretary At least one Director who may be non-Cypriot. The secretary of the company must be in Cyprus.Depending on the company’s structure.Not applicable/ Minimum:1 managing partner and 1 limited partner.Dependent on the fund’s structure.Not applicable/ At least 1 Cyprus resident trustee.
Regulatory Framework Governed by Companies Law.Governed by Companies Law.Governed by Partnerships Law.Governed by AIF Law.Governed by International Trusts Law
Reporting Requirements Cyprus companies must in each year hold annual general meetings, prepare audited financial statements, submit an annual return, and pay an annual levy of EUR 350.Public companies filing and reporting obligations, which can be monthly, quarterly, or annual, are contingent on its specific category or type.Partners (except LLP partners) must keep proper accounts Audited accounts are required when a partner’s taxable income surpasses €70,000.An AIF’s filing and reporting obligations, which can be monthly, quarterly, or annual, are contingent on its specific category or type.No legal requirement for audited accounts exists for the trust. However, the trustee must maintain accurate accounting records.
Taxation12,5% corporate tax, various exemptions.12,5% corporate tax, various exemptions.Taxed as income received by partners.Most income tax-free, specific exceptions.Generally transparent for tax purposes.
Other Key Features Separate legal personality, no minimum capital requirement .Can make public offerings, listed on the stock exchange.Unlimited liability for general partners, limited for others.Various legal forms, modern regulatory framework. Full transparency through annual audited and half-yearly reports to CySEC and investors.At least one trustee must be a Cyprus resident
The settlor and beneficiaries cannot be Cyprus tax residents the year before creating the CIT (they can become residents later).

Process of Company Formation in Cyprus- Step-by-Step Guide

  1. Choose a Suitable Corporate Entity: Determine the appropriate company structure for your business, such as a private limited company or a public company limited by shares.
  2. Name Reservation: Apply for the reservation of your company’s unique name to ensure its availability.
  3. Prepare Supporting Documents: Gather the required documents, including the Memorandum and Articles of Association, and any other necessary paperwork based on your company’s type.
  4. Registered Office and Director Appointment: Establish a registered office for your company in Cyprus and appoint company directors and a secretary.
  5. Share Capital and Bank Account: Determine your company’s share capital structure, issue shares if necessary
  6. Filing with the Registrar and Payment of Fees: Submit the necessary documents, complete the required forms, and pay the relevant registration fees to the Cyprus Companies Registrar.
  7. Tax Identification Number (TIN): Obtain Tax Identification Numbers (TINs) from the Cyprus Tax Department.
  8. VAT Registration: If your business involves taxable activities, register for Value Added Tax (VAT).
  9. Bank Account: Open a bank account in the name of the company and deposit the required share capital.
  10. Compliance with Local Regulations: Ensure compliance with local regulations, including labour and employment laws, if you plan to hire employees.
  11. Annual Compliance: After incorporation, fulfil ongoing filing and reporting obligations, including the submission of annual financial statements and tax returns.

Budget-Friendly Start-Up and Operational Expenses in Cyprus

Starting a business in Cyprus is cost-effective, with low initial and ongoing expenses. This economic environment supports business growth and development.

Maximizing Savings with Cyprus’ Cost-Effective Labor and Office Solutions Labor Costs:

Cyprus offers lower labour costs compared to other major European countries, with an average hourly rate of approximately €15.80. This is significantly less than rates in countries like the UK (€26.70) and the Netherlands (€33.30).

  • Non-wage Costs: The employer’s non-wage costs, including government and social contributions, are around 17% of the total employment cost, lower than the EU average of 26%.
  • Affordable Office Spaces: Despite recent price increases, Cyprus remains one of Europe’s most cost-effective locations for office rentals. Cities like Nicosia and Limassol offer budget-friendly offices and co-working spaces, particularly beneficial for startups.

Benefiting from Cyprus’ Attractive Tax Incentives Corporate Tax:

The corporate tax rate in Cyprus stands at 12.5%, one of the EU’s lowest. Tech companies with intellectual property can qualify for an 80% tax exemption.

Personal Tax: Individuals enjoy several tax benefits, including no income tax on the first €19,500 of personal income. Other benefits include tax exemptions on dividends, interest, and rental income earned abroad for non-domiciled tax residents.

Double Tax Avoidance Agreements

Cyprus has established 62 tax treaties with various countries, aiding in the prevention of double taxation and facilitating efficient business structuring.

CX FINANCIA: Your Partner in Navigating Cyprus Business Setup

C.X.Financia has an expert team of business consultants equipped with an arsenal of tools to offer support to businesses seeking to develop and operate their start-up in Cyprus, from company formation to matters relating to immigration and migration, compliance and tax. Contact us today to find out how we can help you with your set up your headquarters, in Cyprus.

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