DOING BUSINESS IN CYPRUS


PREFACE


THE BOOKLET has been prepared for the benefit of clients and associated firms through...
ABOUT US



Nexia Poyiadjis is a prominent Nicosia partnership of Chartered Accountants and business
advisors with a proud...
CONTENTS
I.     Cyprus at a glance
I.1 Name of Country
I.2 Location and Area
I.3 Climate
I.4 History
I.5 Population
I.6 Of...
II.9 Investment Firms
II.10 Franchising

III.    Investment Climate
III.1  Foreign Investment in Cyprus
III.2  Investment ...
VI.4 Meetings
       Annual General Meetings
       Extraordinary General Meetings
       Conduct at General Meetings
    ...
VIII.3 Special Contribution for Defence
        Rates
        Dividends
        Interest Income
        Deemed Distributio...
VIII.12 Dividends

VIII.13 Foreign Tax Relief

VIII.14 Mergers/Combinations and De-Mergers of Businesses



IX. Labour and...
Chapter 1
I.   Cyprus at a Glance
I.1 Name of Country
Republic of Cyprus.

I.2 Location and Area
Cyprus is an island of 9....
I.10 Legislative Power
 Multi-party House of Representatives.
Voting system: Simple proportional representation.
House mem...
I.18 Natural Resources
The island's natural resources are copper, gypsum, timber, marble, bentonite and earth
pigment, but...
I.27 Health and Social Welfare
Free medical care in government hospitals is available for low-income families, government
...
CHAPTER II
II. Business Environment
II.1 The Dynamism of the Cyprus Economy
Cyprus’ economy is market-oriented, with the p...
II.3 Manufacturing and Industry

Even though the blow inflicted on the manufacturing sector by the Turkish invasion of 197...
II.4 The Stock Exchange
The Cyprus Stock Exchange started its operations as a legal entity in the form of a public
corpora...
Continuing obligations
Companies must observe a number of obligations to maintain a listing. These ensure that the
CSE and...
Domestic Banks
There are currently 14 domestic banks operating in Cyprus, 11 commercial banks and 3
specialised financial ...
Representative Offices of Foreign Banks

       i)       UBS AG
       ii)      HSBC Bank PLC

In recent years banks have ...
Tourism Policy
Cyprus has evolved into a well-developed destination, which operates in a highly competitive
environment an...
CHAPTER III
III   Investment Climate
III.1 Foreign Investment in Cyprus
One of the primary objectives of the Government’s ...
The EU constitutes Cyprus' main trading partner absorbing more than 55% of its domestic
exports and supplying around 50% o...
d)        Subsidisation of Specific Studies and Projects
                       Studies for the implementation of Quality ...
Lowest corporate tax rate in the EU – 10% on net profits.
        A non Cyprus tax resident is taxed only on income earned...
III.7 Regulated Activities
Cypriot banking, insurance and securities activities are subject to special laws that regulate
...
CHAPTER IV
IV Business Entities
IV.1 Types of Business Enterprise
The main business form is the limited liability company....
- the number of persons holding debentures in the company does not exceed 50 and
   - no body corporate is a director of t...
IV.4 Partnerships

Partnerships are formed one two or more self-employed people work together in a business
or profession....
Today, profits of the Co-operative Credit Institutions that result from operations with members
will continue to be exempt...
CHAPTER V
V.      Formation of a Limited Company
V.I Formation Procedure
In or order to register a company in Cyprus it is...
Par Value and Classes of Shares
Par value of a share is its nominal value. Shares must be issued according to the
Memorand...
CHAPTER VI
VI.    Company Administration
VI.1 Shareholders
The company is owned by its shareholders who hold shares therei...
VI.4 Meetings

Company meetings comprise
      Shareholders’ General Meetings and
       Board Meetings.

Shareholders’ me...
There are two types of Voluntary Liquidation:

        Members’ Voluntary Liquidation and
        Creditors’ Voluntary Liq...
CHAPTER VII
VII.    Audit and Statutory Requirements
VII.1 Financial Reporting and Auditing
Cyprus as an ex-colony of Grea...
A further four objectives should be balanced when selecting accounting policies:

          That the financial information...
VII.5 Audit Requirements
Financial statements prepared by companies in Cyprus must be audited unless a company
meets the “...
CHAPTER VIII

VIII. Cyprus Taxes
VIII.1 Personal Income Tax

Who is Liable
Where an individual is a resident in the Republ...
j) Foreign pension                                                      Euro 3.410
         (Special rate of 5% on balance...
g) In the event of cancellation of a life assurance contract within
6 years from the date it was entered into, part of the...
Deductions
Deductible from income are all expenses incurred wholly and exclusively for the
production of income including:...
Loss of a permanent establishment outside the Republic
Losses arising from a permanent establishment maintained outside th...
%


Ship launching machinery                                          12.5
New commercial ships                           ...
Doing Business in Cyprus - Download
Doing Business in Cyprus - Download
Doing Business in Cyprus - Download
Doing Business in Cyprus - Download
Doing Business in Cyprus - Download
Doing Business in Cyprus - Download
Doing Business in Cyprus - Download
Doing Business in Cyprus - Download
Doing Business in Cyprus - Download
Doing Business in Cyprus - Download
Doing Business in Cyprus - Download
Doing Business in Cyprus - Download
Doing Business in Cyprus - Download
Doing Business in Cyprus - Download
Doing Business in Cyprus - Download
Doing Business in Cyprus - Download
Doing Business in Cyprus - Download
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  1. 1. DOING BUSINESS IN CYPRUS PREFACE THE BOOKLET has been prepared for the benefit of clients and associated firms throughout the world. The guide describes in broad terms Cyprus in general and the prevailing accounting and auditing practices as well as the various forms of business organisations and provides the framework of the legal, financial, taxation and employment requirements and incentives which we believe will be of particular interest to potential investors contemplating setting up business in Cyprus. It does not however attempt to deal exhaustively with any of the topics covered. Companies and individuals planning to use Cyprus in their future business operations or indeed companies which have already been established in Cyprus are strongly advised to seek professional advice before deciding on the complex issues of foreign operations. The information contained in this booklet is accurate as at the date of its publication. It is designed to increase the reader’s general awareness about Cyprus. For explanations and other clarifications or professional advice, please, contact Nexia Poyiadjis. NEXIA POYIADJIS CHARTERED ACCOUNTANTS The Chanteclair House, 2, Sophouli street, 8 Floor, P O Box 21814, 1513 Nicosia, Cyprus. Tel No +357 22 456111, Fax No +357 22 666276 Email np@nexia,com.cy Website www.nexia.com.cy January, 2008
  2. 2. ABOUT US Nexia Poyiadjis is a prominent Nicosia partnership of Chartered Accountants and business advisors with a proud history dating back to 1969. We are leading providers of business advisory and accounting services to small and large owner-managed businesses, public companies, professional practices and private individuals. A significant number of our clients are international clients using Cyprus as a base or taking advantage of the extensive number of favourable Tax Treaties that Cyprus has signed with other countries. Today we are a dynamic and successful team of professionals offering advice on an experienced understanding of the national and international scenes. Over the last three decades Nexia Poyiadjis has become established as one of Cyprus major national firm's of accountants and business consultants. We attribute this success to our unrivaled quality service and professionalism, integrity and continued commitment to our clients' success. We are proud of our record in advising and assisting international companies and private individuals. We are the exclusive member firm in Cyprus of Nexia International one of the larger and longest established global networks of independent accounting and consulting firms. With over 12,000 people in 96 countries Nexia International is well placed in advising and assisting international clients. Our worldwide network of Nexia International offices is available to clients in any country who require advice on specific issues raised in this booklet. An international director of the offices of Nexia International is available on request from us. NEXIA POYIADJIS Chartered Accountants January, 2008
  3. 3. CONTENTS I. Cyprus at a glance I.1 Name of Country I.2 Location and Area I.3 Climate I.4 History I.5 Population I.6 Official Languages I.7 Religion I.8 Politics I.9 Executive Power I.10 Legislative Power I.11 Judicial Power I.12 The Central Bank of Cyprus I.13 Currency I.14 Local Authorities I.15 International Relations I.16 British Sovereign Areas I.17 Agriculture I.18 Natural Resources I.19 Environment I.20 Manufacturing I.21 Imports I.22 Exports I.23 High Technology Industry I.24 Transhipment I.25 Banking and Shipping I.26 Services I.27 Health and Social Welfare I.28 Education I.29 Culture I.30 Media I.31 Time I.32 Business Hours I.33 The Cyprus Way of Doing Business I.34 Public Holidays II. Business Environment II.1 The Dynamism of the Cyprus Economy II.2 The Cyprus Economy and the European Union II.3 The Stock Exchange Obtaining a Stock Exchange Listing II.4 Manufacturing and Industry II.5 Free Zones II.6 Banking and Sources of Finance Central Bank of Cyprus Domestic Banks International Business Units (IBUs) Other Financial Institutions II.7 Insurance II.8 Tourism All Eyes on Cyprus Tourism Policy
  4. 4. II.9 Investment Firms II.10 Franchising III. Investment Climate III.1 Foreign Investment in Cyprus III.2 Investment from EU Countries III.3 Investment from non EU Countries III.4 Investment Incentives Basic Government Investment Goals Government Investment Incentives and Schemes III.5 Fiscal Incentives III.6 Holding Companies III.7 Regulated Activities III.8 Foreign Exchange Controls III.9 Acquisition of Real Estate III.10 Intellectual Property III.11 Competition Law IV. Business Entities IV.1 Forms of Enterprise IV.2 Companies registered in Cyprus Companies Limited by Shares Companies Limited by Guarantee Unlimited Companies Cyprus International Business Companies IV.3 Branches of Foreign Legal Entities IV.4 Partnerships IV.5 Sole Proprietors / Sole Traders / Business Names IV.6 International Trusts IV.7 Co-operatives iV.8 The European Company SE V. Formation of a Limited Company V.I Formation Procedures V.2 Capital Structure Par Value and Classes of Shares Pre-emptive Rights Debentures Increases and Reductions in Share Capital V.3 Shareholders Agreements VI. Company Administration VI.1 Shareholders VI.2 Directors Appointment Retirement and Removal Types of Directors Duties of Directors VI.3 Company Secretary
  5. 5. VI.4 Meetings Annual General Meetings Extraordinary General Meetings Conduct at General Meetings 1. Ordinary Resolutions 2. Extraordinary Resolutions 3. Special Resolutions Minutes of Resolutions and Single Member Companies Board Meetings VI.5 Registered Office VI.6 Liquidation and Receivership Liquidation 1. Compulsory Liquidation 2. Voluntary Liquidation i) Members’ Voluntary Liquidation ii) Creditors’ Voluntary Liquidation Receivership VII. Audit and Statutory Requirements VII.1 Financial Reporting and Auditing VII.2 Form and Content of Financial Statements Responsibility to Prepare Financial Statements Form and Content VII.3 Public Filing Requirements VII.4 Group Financial Statements Related Party Transactions VII.5 Audit Requirements VII.6 Appointment and Dismissal of Auditors VII.7 Qualifications of an Auditor VII.8 Accounting Records VII.9 The Accounting Profession VIII. Cyprus Taxes VIII.1 Personal Income Tax Who is Liable Exemptions Social Incentives Deductions from Income Non – Deductible Expenses Capital Allowances Losses VIII.2 Corporation Tax Who is Liable Exemptions from Cyprus Tax Deductions Non-Deductible Expenses Losses Group Relief Loss of a Permanent Establishment outside the Republic Insurance Companies International Business Companies Company Re-Organisations Capital Allowances for Annual Wear and Tear
  6. 6. VIII.3 Special Contribution for Defence Rates Dividends Interest Income Deemed Distribution Company Dissolution Reduction of Capital Tax credit for Foreign Tax Paid International Business Companies VIII.4 Capital Gains Tax Imposition Exemptions Deductions VIII.5 Immovable Property Tax Imposition of Tax Rates Exemptions VIII.6 Estate Duty VIII.7 Value Added Tax Imposition of Tax Rates Exemptions Taxable Persons and Registration Taxable Basis Right of Registration VAT Returns and Payment of VAT Cyprus Non-Resident Companies Administration of Intra-Community Trading Penalties and Interest SECURITY CONTRIBUTIONS VIII.8 Social Security Contributions Contributions VIII.9 Social Cohesion Fund Who is Liable Emoluments VIII.10 Special Modes of Taxation Cyprus International Business Companies (IBCs) Profits from Shipping Activities Pension Income from Services Rendered Abroad Intellectual Rights etc Film Royalties Profits of Professionals, Entertainers etc VIII.11 Transfer Fees, Stamp Duties and Other Fees Immovable Property Transfer Fees Stamp Duties Stock Exchange Transactions
  7. 7. VIII.12 Dividends VIII.13 Foreign Tax Relief VIII.14 Mergers/Combinations and De-Mergers of Businesses IX. Labour and Immigration Requirements IX.1 Entry Visas Passports and Visas Issue of Visas Visa Application Procedure and Documents Required IX.2 Work and Residence Permits IX.3 Permanent Residence Permits X. Appendices X.1 Double Tax Treaties X.2 Rates of Taxes a) Personal b) Corporate c) Capital Gains d) Immovable Property X.3 Tax Diary - Dates for Settlement of Taxes and Submission of Tax Forms.
  8. 8. Chapter 1 I. Cyprus at a Glance I.1 Name of Country Republic of Cyprus. I.2 Location and Area Cyprus is an island of 9.251 sq kms. It is strategically situated in the far eastern end of the Mediterranean, at the crossroads of Europe, Africa and Asia, and in close proximity to the busy trade routes linking Europe with the Middle East, Russia, Central Asia and the Far East. Its capital is Nicosia (Lefkosia). I.3 Climate Mediterranean, with mild, wet winters (mean daily minimum 5o C, 41o F), and hot, dry summers (mean daily maximum 36o C, 97%F). I.4 History Cyprus according to mythology is the birthplace of the Greek goddess of love and beauty, Aphrodite. The island is both an ancient land, with eleven thousand years of history and a young independent republic since 1960. Its strategic location positioned in the Mediterranean and at the meeting point of great civilizations, has been one of the critical factors influencing the course of the island’s history through the centuries. I.5 Population 775,927.000 (2004) (85,2%)Greek Cypriots (11,6%)Turkish Cypriots 24.000 (3,2%) foreign residents and workers Population density: 82 persons / sq km. The figure of the Greek Cypriot population includes the 8.000 Maronites, Armenians and Latins. I.6 Official Languages Greek and Turkish English is widely spoken I.7 Religion The Greek Cypriots are Christian Orthodox, the Turkish Cypriots are Muslims, while the smaller Cypriot minorities of Maronites, Armenians and Latins belong to other Christian denominations mainly Catholics. I.8 Politics Cyprus gained its independence from British rule in 1960. I.9 Executive Power Presidential system of government. The President is elected by universal suffrage for a five- year term. Executive power is exercised through an 11-member Council of Ministers appointed by the President.
  9. 9. I.10 Legislative Power Multi-party House of Representatives. Voting system: Simple proportional representation. House members are elected by universal suffrage for a five-year term. I.11 Judicial Power Justice is administered by the Supreme Court and by the Assize and District Courts. I.12 The Central Bank of Cyprus The Central Bank of Cyprus was established in 1963. It is responsible for formulating and implementing monetary and credit policy. It also administers the foreign exchange reserves of the Republic, supervises banks and acts as banker and financial agent of the Government. I.13 Currency Until, 31 December, 2007 the Cyprus pound was the currency of Cyprus. As from 1 January, 2008, Cyprus adopted the Euro as the currency of Cyprus. The Euro is divided into 100 cent. There are no exchange control restrictions. The US Dollar is also, widely accepted in Cyprus. I.14 Local Authorities Local government is the responsibility of the Municipal and Community Councils. I.15 International Relations Cyprus is a member of the European Union since May, 2004 and is also a member in many international organisations including: The United Nations (UN) (1960) and its specialized agencies Council of Europe (CoE) (1961) The British Commonwealth (1961) Organisation for Security and Co-operation in Europe (OSCE) (1975) Non-Aligned Movement (NAM) (1960) World Trade Organisation (WTO) (1995) World Bank International Monetary Fund Cyprus is represented through diplomatic missions in over 33 countries. Moreover Cyprus has particularly good relations with the Mediterranean Countries the Middle East Region as well as other developing countries. I.16 British Sovereign Areas There are British military bases at Akrotiri / Episkopi and Dhekelia covering 2,74% of the country's territory. The bases were retained by Britain under the 1960 treaty, which gave Cyprus its independence. I.17 Agriculture Agriculture contributed about 4,1% to GDP in 2007 and gave employment to 9,0% of the working population. Principal crops are potatoes, other vegetables, cereals, citrus, grapes and olives. Livestock farming is mainly in cattle, sheep, goats, pigs and poultry. Fish production is derived from inshore and trawl fishing and marine aquaculture.
  10. 10. I.18 Natural Resources The island's natural resources are copper, gypsum, timber, marble, bentonite and earth pigment, but none exist in significant quantities. Water is a scarce resource in Cyprus. The problem has been met by the construction of dams and desalination plants. I.19 Environment The protection of the environment is an essential element in the country's economic and social development policies. Environmental legislation has been completely harmonised with the relevant EU laws and directives I.20 Manufacturing Manufacturing accounts for 10,8% of GDP and provides employment to 13,3% of the workforce. The main industries are food, beverages, tobacco, textiles, clothing, footwear, leather goods, metal products, chemicals and plastic products. I.21 Imports Chief imports are raw materials, consumer and capital goods, transport equipment and fuels. In 2007, 51% of total imports come from the EU, mainly the UK (11%), Italy (8.8%), Greece (8.6 %), Germany (7%) and France (4.4%). The USA accounted for 10.6% of imports, Japan 5.8 %, and China (15%). I.22 Exports Major exports are manufactured and agricultural products such as clothing, footwear, pharmaceutical products, cement, cigarettes, furniture, paper goods, wines, potatoes and citrus fruit. In 2007, 48% of domestic exports went to EU countries, mainly to the UK (17.2%), Greece (9.5%) and Germany (6.3%). Also 24.3% of exports went to Arab and 7.8% to Eastern European countries. I.23 High Technology Industry The Government is currently promoting the establishment of high technology industry through the creation of incubators and a research and technological development centre. I.24 Transhipment On account of its geographical location Cyprus has developed into an important transhipment centre with a large volume of re-exports going to the emerging markets of the Middle East and Central Europe. I.25 Banking and shipping Cyprus has developed into an international banking and business centre with over 35 foreign banks, two administered banking units and over 1.000 fully-fledged overseas companies operating on the island. It has also become an important shipping centre and currently ranks sixth in the world as a maritime nation. The central geographical location of the island, British modelled legal system, availability of wide-ranging professional services, excellent infra-structural facilities, advanced telecommunications network and widespread knowledge of English are some of the factors that have helped create an ideal business environment for foreign firms. I.26 Services The tertiary or services sector is the fastest growing area and today accounts for about 75.4% of GDP and 69% of the gainfully employed population. The sector includes tourism, transport and communications, trade, banking, insurance, accounting, real estate, catering, public administration and business and legal services.
  11. 11. I.27 Health and Social Welfare Free medical care in government hospitals is available for low-income families, government employees and refugees. There are also over 100 private clinics with some1.500 beds and a large number of practices offering a wide range of medical services. The ratio of persons per doctor is 357:1. A comprehensive social insurance scheme covers every working male and female and their dependants. Benefits and pensions from the scheme cover unemployment, sickness, maternity, widows, injury at work, old age and death. I.28 Education Full time education is compulsory from the age of 5. Primary and secondary education is free. In addition to state schools there are private fee-paying schools in all towns, whose basic language is English. Cyprus offers a distinguished University as well a number of private institutions of higher education. I.29 Culture Cultural life finds expression through the creative arts. Literature, poetry, concerts, opera, dance, painting and sculpture are some of its manifestations. There are also a number of museums and art galleries. I.30 Media Freedom of expression and media pluralism are safeguarded by the Constitution and the relevant press and radio and television station laws. I.31 Time Cyprus is two hours ahead of Greenwich Mean Time (GMT). I.32 Working Hours Normal working hours are 8.30 am to 5.30 pm, Monday to Friday. The normal industrial working week is between 37 and 40 hours a week. I.33 The Cyprus Way of Doing Business Business customs in Cyprus are not very different from the U.S or, indeed, the rest of Europe. Despite the long and hot summer, the conventional business dress code usually calls for a suit and tie for men and conservative attire for women. More casual wear is usually worn when entertaining business guests, depending on the venue. I.34 Public Holidays The following table lists public holidays in Cyprus in 2008: New Year’s Day 1 January Epiphany Day 6 January Green Monday 14 March Greek Independence Day 25 March Cyprus National Day 1 April Easter Monday 24 April International Labour Day 1 May Holy Spirit Day 20 June Assumption Day 15 August Cyprus Independence Day 1 October Greek National Day 28 October Christmas 24-26 December
  12. 12. CHAPTER II II. Business Environment II.1 The Dynamism of the Cyprus Economy Cyprus’ economy is market-oriented, with the private sector playing the dominant role in the production sphere. The government’s role focuses on the creation of a favourable entrepreneurial climate, through the maintenance of conditions of macroeconomic stability, the upgrading of socio-economic and legal infrastructure, and the pursuit of sustainable development. The economy of Cyprus has exhibited dynamism and flexibility throughout the period since the island’s independence. In spite of the 1974 Turkish military invasion and its devastating aftermath, the economy managed to recover and attain some major accomplishments. It is no coincidence that a few years after the invasion, the international Press described the Cypriot economy’s leap forward as a real “economic miracle”. Some of the accomplishments are the following: • An impressive real annual rate of growth of GDP. • The rapid growth of GDP accompanied by the creation of a large number of employment opportunities and the consolidation of conditions of full employment. • The satisfactory growth performance accompanied by conditions of relative internal and external economic stability. • The rapid rate of growth was accompanied by a profound restructuring of the economy from the sectoral point of view. II.2 The Cyprus Economy and the European Union As a full member of the European Union Cyprus is ready to meet successfully 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. In addition, in 2006, Cyprus was ranked 25th in the United Nations Index of Human Development. The Cyprus economy has continued to perform well in 2007, after a solid performance in 2006. GDP growth reached 3.8% in 2006 and is expected to accelerate to 4.2% in 2007. Overall growth performance during the past few years has been robust, thus facilitating real convergence with the European Union. It is noteworthy that this growth was accomplished in an environment of full employment conditions, low inflation and a stable and strong currency. Strong demand for financial and other business services, health and education, as well as, real estate related activities has heightened growth, offsetting the continuous below potential expansion of the tourism sector. At the same time buoyant demand for agricultural exports and dwellings has sustained growth in these key sectors of the economy, resulting in a more balanced growth pattern. Foreign demand for real estate in Cyprus rose fast and the tourism industry which has been operating below potential has staged a recovery with tourist revenues rising by 7% in the first none months of 2007
  13. 13. II.3 Manufacturing and Industry Even though the blow inflicted on the manufacturing sector by the Turkish invasion of 1974 was severe, recovery during the 1975-83 period was remarkable. In the post invasion period in particular during 1975 -1983 the sector has been growing at an average annual rate of 9,1% and has become increasingly important for the economy, especially when emphasis was geared to supplying the foreign markets. By 2006 the sector accounted for about 10% of Gross Domestic Product (GDP) and 12% of employment. Exports of manufactured products in 2006, compared to 1973 figures (£15 million), recorded a large increase and reached about £191,6 million. The most important sectors in terms of value added are food and beverages, clothing, furniture and metal products. Other industrial sectors, which continue to expand, include printing and publishing, plastics, chemical and pharmaceutical products. The manufacturing industry of Cyprus has been going through difficult times in the past decade, experiencing a fall in the growth of production, exports and employment. This development has been the result of an erosion in our competitiveness, both abroad and in the local market, at a time of increasingly intensified, international competition. At the root of these problems lie the structural weaknesses of the sector, the drastic reduction of tariff protection due to the participation of Cyprus in the World Trade Organization, the rising labor costs and low productivity. As a result the share of the manufacturing sector in the Gross Domestic Product and in employment remained stagnant. International competition is increasingly intensified mainly from two directions: on the one hand, the high-wage producers, who have combined design, quality and new forms of flexible production to cut working and capital costs and improve response times and on the other, the low-wage mass producers of South-East Asia. Faced with this situation the Government having thoroughly considered ways and means for the reconstruction and development of the sector, has reformulated government policy to facilitate the process of modernization and technological upgrading of the productive fabric of the economy within the framework of harmonization with EU Regulations and the Acquis – Communautaire in general. More specifically, the Government has set amongst its priorities the following basic goals: - Attraction and development of new high-tech industries - Assistance and reconstruction of Cyprus traditional industry - Productivity improvement - Attraction of capital intensive foreign investment Foreign capital would also play a major role in these efforts, as it contributes substantially to the introduction of high technology, know-how and expertise. Further, the full liberalization of the capital markets, within the context of harmonization with the European Union will add impetus to the inflow of foreign investment capital and the creation of joint ventures. The accession of Cyprus to the European Union provides Cypriot small and medium sized enterprises with the opportunity of participating in the various community programmes concerning industrial technology, professional training, product development, marketing etc. thus further enhancing the process of restructuring. Cypriot firms will also be presented with the challenge of penetrating the European market of 450 million consumers.
  14. 14. II.4 The Stock Exchange The Cyprus Stock Exchange started its operations as a legal entity in the form of a public corporation body on the 29th of March of 1996, by virtue of The Cyprus Stock Exchange Laws and Regulations which had been passed by the House of Representatives in 1993 and 1995 respectively. The Cyprus Stock Exchange is a regulated Exchange where all transactions concerning corporate and public securities are carried out. Such securities include stocks, bonds and warrants. The main participants in the market are the Members of the Stock Exchange (stock brokerage firms), the listed issuers and the investors. The Council of the Cyprus Stock Exchange (CSE) in September 2002 issued the Code of Corporate Governance for the Cyprus Stock Exchange. The aim of the Code is to strengthen the monitoring role of the Board of Directors, to protect small shareholders, to adopt greater transparency and to provide timely information, as well as to sufficiently safeguard the independence of the Board of Directors in its decision - making. The Code is voluntary for the listed companies. Trading of shares by foreigners on the Stock Exchange is as easy as on any modern stock market. Foreign investors are subject to the same rules and regulations of the CSE as Cypriots or other EU nationals, regarding capital distribution. Provided that the investment is in line with the CSE’s laws and procedures, investors may acquire up to 100% of the share capital of all Cypriot companies, listed on the CSE, except companies operating in specific sectors, such as the banking sector. Obtaining a Stock Exchange Listing Basic Requirements Each company that seeks a listing a listing must some basic requirements the most important of which are: 1. The issuer must have the right to issue the proposed category of titles in accordance with the company’s Memorandum and Articles of Association 2. The expected market value of the proposed issue must be in excess of CYP600.000 3. There must be no restrictions in the transferability of the titles 4. The issuer must have published audited accounts for at least the three years preceding the application 5. Companies that have been established with the sole purpose of financing a large project, investment companies and newly established companies are exempted from this provision provided that they satisfy the Council of the Cyprus Stock Exchange that potential shareholders will be given sufficient information to enable them to access properly the value of the titles. 6. It is not allowed for any shareholder to control either directly or indirectly more than seventy per cent of the share capital and a percentage of at least twenty five per cent of the share capital must be satisfactorily dispersed to the public at large. 7. The issuer must safeguard that existing shareholders will enjoy pre-emption rights in every subsequent issue 8. The issuer must make a commitment to list all the titles of the same category that have already been issued or will be subsequently issued. Applying for listing In order for a company to obtain a listing it is necessary to submit to the Council of the CSE for approval a signed application and a number of other documents. The most important of these other documents are the Prospectus and the Listing Particulars. Professional advice must be sought in preparing a Prospectus or Listing Particulars.
  15. 15. Continuing obligations Companies must observe a number of obligations to maintain a listing. These ensure that the CSE and investors are informed immediately of financial and other information including: 1. Financial statements 2. Capital changes 3. Dividends, 4. Changes in the position of Chairman, Member of the Board of Directors, Senior Management, the Auditor or any other executive. 5. Share dealings by the directors, the Secretary, the Auditors, the Employees Provident Fund and any other person connected with them. 6. Transactions pertaining to titles of the issuer carried out by shareholders who hold more than 5% of the company’s share capital or by persons related to them. 7. Other price sensitive information, if appropriate There are also minimum standards of corporate governance to be observed. II.5 Free Zones Cyprus has three Free Zones (FZs). The first two, located in the two main ports of Limassol and Larnaca, are used only for transit trade, while the third, located near the international airport in Larnaca, can also be used for repacking and reprocessing. These areas are treated as being outside normal EU customs territory. Consequently, non-EU goods placed in FZs are not subject to any import duties, VAT or excise tax. FZs are governed under the provisions of relevant EU and Cypriot legislation. The Department of Customs has jurisdiction over all three areas and can impose restrictions or prohibitions on certain activities, depending on the nature of the goods. Additionally, the Ministry of Commerce, Industry and Tourism has management oversight over the Larnaca FZ. Companies given permission to locate in the Larnaca FZ take advantage of the fact that the FZ operates outside the normal jurisdiction of Cyprus Customs. This allows the company to import raw materials or goods for transhipment without paying the normal import duty and VAT. The only limitation is that the goods must be sold or re-exported strictly outside the EU. If the company wants to do business with the local market, it must obtain permission from Customs and pay the appropriate duties. The procedure for applying is straightforward. Interested companies apply to the Ministry of Commerce, Industry, and Tourism, laying out their investment plans. The Ministry reviews the application and makes a recommendation. An inter-agency Council, with participation from the Central Bank of Cyprus and the Ministry of Finance, reviews the application and the Ministry of Commerce, Industry andTourism issues approval. II.6 Banking and Sources of Finance The banking system comprises the Central Bank of Cyprus Domestic Banks International Banking Units (IBUs) Co-operative Credit Institutions, which are supervised by the Co-Operative Societies’ Supervision and Development Authority. Central Bank of Cyprus The Central Bank of Cyprus, by virtue of the powers conferred upon it by the Central Bank of Cyprus Law, is the licensing authority for the conduct of banking business and for the supervision of banks. In the exercise of its supervisory role, the Central Bank is guided by the recommendations of the Basel Committee on Banking Supervision and the regulatory framework of the European Union. In July 2003, the Banking (Amendment) Law 2003 was enacted by the House of Representatives for purposes of full compliance and harmonisation of the regulatory and supervisory framework within which banking business may be carried out with the acquis.
  16. 16. Domestic Banks There are currently 14 domestic banks operating in Cyprus, 11 commercial banks and 3 specialised financial institutions. All banks are incorporated in Cyprus with the exception of Arab Bank plc and National Bank of Greece S.A. which operate as branches of foreign banks. The commercial banks incorporated in Cyprus are: i) Bank of Cyprus Public Company Ltd, ii) Marfin Popular Bank Public Ltd, iii) Hellenic Bank Public Company Limited, iv) Co-operative Central Bank Ltd, v) Universal Bank Public Ltd, vi) Alpha Bank Cyprus Ltd, vii) National Bank of Greece (Cyprus) Ltd, viii) Emporiki Bank - Cyprus Ltd, ix) Societe Generale Cyprus Ltd. x) Eurobank EFG Cyprus Ltd xi) Bank of Piraeus (Cyprus) Ltd xii) Russian Commercial Bank (Cyprus) Ltd xiii) Kommunalkredit International Bank Ltd The latter eight are subsidiaries of foreign banks. Branches of Banks from EU Member States i) Barclays Bank PLC ii) Banque SBA SA iii) First Investment Bank Ltd iv) Joint Stock Company “Trasta Kommercbanka” v) National Bank of Greece A.E. vi) Central Cooperative Bank PLC vii) Banca Transilvania S.A. Branches of Banks from Non-EU Countries i) BankMed s.a.l. ii) Arab Jordan Investment Bank SA iii) Banque Bemo SAL iv) Bank of Beirut SAL v) BBAC SAL vi) BLOM Bank SAL vii) Byblos Bank SAL viii) Credit Libanais SAL ix) FBME Bank Ltd x) Industrial Commercial AvtoVAZbank xi) Jordan Kuwait Bank PLC xii) Jordan Ahli Bank plc xiii) Lebanon and Gulf Bank SAL xiv) Lloyds TSB Offshore Limited xv) Privatbank Commercial Bank
  17. 17. Representative Offices of Foreign Banks i) UBS AG ii) HSBC Bank PLC In recent years banks have expanded their activities beyond traditional banking and their services include insurance, leasing, hire purchase finance, factoring, mutual fund management, investment and consulting as well as custody and asset management services. They have also developed new products and services through electronic means or electronic access, using alternative distribution channels such as the internet etc. International Business Units (IBUs) In addition to the domestic banks, there are currently 29 IBUs, which have been authorised by the Central Bank of Cyprus to operate from within Cyprus. They are required, however, to confine their activities primarily with non-residents and in currencies other than the Cyprus pound. As from 1 January 2001, these institutions have been permitted to grant medium and long-term loans in foreign currencies to residents. Other Financial Institutions The specialised financial institutions are the: i) Cyprus Development Bank Ltd, ii) Housing Finance Corporation and iii) Mortgage Bank of Cyprus Ltd. The Cyprus Development Bank Ltd specialises in the provision of medium and long-term finance for development purposes, carries out investment banking operations and provides consulting services to companies. The Housing Finance Corporation provides long-term housing loans mainly to low and middle-income families. Mortgage Bank of Cyprus Ltd specialises in granting medium and long-term loans for the development of the tourism and manufacturing industries. As far as the banking sector is concerned no person either resident or non resident may own directly or indirectly 10% or more of a banking company’s share capital or voting stock without the Central Bank’s approval. Banking companies are also required to obtain the Central Bank’s approval before registering more than 50% of their share capital in the name of non residents. II.7 Insurance The activities of Insurance Companies are governed by the Insurance Companies Laws and the Superintendent of Insurance monitors regulations and their operations. The major insurance companies are subsidiaries or affiliates of banks. There are also a number of captive insurance companies. II.8 Tourism All Eyes on Cyprus Tourism is one of the most important sectors of the Cyprus economy. The Cyprus mystique is as much a product of its legendary beauty as it is of millennia of competing empires, all unable to resist the island’s strategic allure of the island. The perfect location, nestled into the eastern Mediterranean Sea and the crossroads of three continents, Cyprus is the third largest island in the Mediterranean and an ideal starting point for the discovery of other exotic locales such as the Greek Islands, Egypt and the Middle East.
  18. 18. Tourism Policy Cyprus has evolved into a well-developed destination, which operates in a highly competitive environment and deals with the impacts of globalization and tourism market maturity. The EU accession has created a wide range of opportunities and challenges for Cyprus as a tourism destination which have to be timely and effectively addressed. Hence, a long-term strategy until 2013 has been drafted and tourism policies, measures and incentive schemes are being adopted in order to qualitatively upgrade the tourism product and secure the sustainable development of tourism in Cyprus. II.9 Investment Firms The activities of Cyprus Investment Firms (CIFs) are governed by the Investment Firms Act of 2002 and the Cyrus Securities and Exchange Commission monitor their operations. Investment Firms that are incorporated in Cyprus and granted authorisation from the Cyprus Securities and Exchange Commission. European Investment Firms incorporated in a Member State and granted authorisation by the respective supervisory authority. II.10 Franchising U.S. franchises, particularly in the food business, have been extremely successful in Cyprus in recent years. The following companies have opened franchise outlets in Cyprus since 1990: McDonald’s, Pizza Inn, Pizza Hut, Kentucky Fried Chicken, Kenny Rogers Roasters, and TGI Friday’s. The most recent franchises that opened outlets on the island are Starbucks coffee and Burger King. Bennigan’s has also opened its first restaurant on the island last summer. Bonanza Steakhouse is scheduled to open in 2005 as well. Such non-food U.S. franchises as Athlete’s Foot and Gold’s Gym are also present and successful in Cyprus. Operation of these ventures results in a substantial outflow of capital in the form of licensing fees and royalty payments, estimated at around USDollars 20.0 million a year for U.S. and other foreign franchises. Present trends suggest that the franchising sector has great prospects for growth in Cyprus.
  19. 19. CHAPTER III III Investment Climate III.1 Foreign Investment in Cyprus One of the primary objectives of the Government’s development policy is to foster the infusion of foreign investment in all economic sectors, with an emphasis οn the fields of high- technology, tourism and industry. In order to attract foreign investments and enhance economic prosperity in Cyprus, the government has liberalised the Foreign Direct Investment (FDI) policy for both EU and non- EU nationals. Administrative procedures have been simplified and no limitations apply in most sectors of the economy, as per the minimum level of investment and the foreigners΄ participation percentage. Moreover, bureaucratic intervention has been reduced, fostering investment opportunities by non-residents. Consequently, foreign companies now have the opportunity of investing and establishing business in Cyprus on equal terms with local investors; no distinction is being made between foreign and Cypriot companies. Among the significant advantages that Cyprus has to offer as an international business centre are: Member of the European Union Strategic location at the crossroads of three continents, serving as Europe's Middle Eastern outpost Favourable tax regime including 10% corporation tax Liberal Foreign Direct Investment regime Simplified administrative procedures for acquiring necessary permits Bilateral investment agreements with 17 countries Low set up and operating costs Highly qualified, well-educated and multilingual labour force Double tax treaties with 44 countries Freedom of movement of foreign currency Availability of Free Zone Area Efficient legal, accounting and banking services European standard of living Pleasant climate and agreeable topography Excellent telecommunications Democratic country with a free market economy Political stability Low crime rate: one of the lowest in Europe III.2 Investment from EU Countries As of 1 May 2004, Cyprus is a full member state of the European Union. There are no exchange control restrictions applicable to direct investments in Cyprus by natural or legal persons from EU member states. Investors from the EU wishing to register a company in Cyprus apply directly to the Registrar of Companies without any Central Bank involvement.
  20. 20. The EU constitutes Cyprus' main trading partner absorbing more than 55% of its domestic exports and supplying around 50% of the total imports to Cyprus. Furthermore, around 70% of tourists visiting the island originate from EU member states. III.3 Investment from non EU Countries As of 1 October, 2004 there are no exchange control restrictions applicable to direct investments in Cyprus by natural or legal persons from non EU member states. Investors from non EU wishing to register a company in Cyprus apply directly to the Registrar of Companies without any Central Bank involvement. Cyprus maintains close political and trading ties with the countries of the Middle East region, both the Arab world and Israel, as well as with the former socialist countries of Central and Eastern Europe. Profits, dividends and the proceeds from the liquidation of investments are transferable abroad without restrictions and are routinely handled by commercial banks. III.4 Investment Incentives At a time of increasingly intensified international competition, the Government has taken several measures to enhance Cyprus competitiveness, both in the international and local market, to achieve steady and self sustained growth, and to maximise the Gross Domestic Product. Specifically the Government having extensively considered ways for the development and reconstruction of the economy, with an emphasis on the industrial sector, has introduced a framework of incentives within the EU harmonisation process and the Acqui- Communautaire in general. Basic Government Investment Goals The basic goals which form the central core of the government incentives framework are: a) Attraction and development of new high-tech industries and skill intensive products b) Assistance and reconstruction of Cyprus traditional economic sectors c) Productivity and labour skills improvement d) Attraction of capital – intensive foreign investment e) Industrial Development Government Investment Incentives and Schemes The main incentives and schemes are: a) High Technology Business Incubators - The Technology Incubating Programme seeks to effectively link talent, technology capital and know how Research & Development b) Testing and Laboratories for Quality Assurance Grants for products’ testing abroad Strengthening the laboratory infrastructure in Cyprus The HACCP system in the food and beverage industry c) Government Guarantee Scheme for Loans Granted to SMEs of the Manufacturing Sector
  21. 21. d) Subsidisation of Specific Studies and Projects Studies for the implementation of Quality Control Standards Scheme for the subsidisation of purchase / development of specialized software Scheme for the subsidisation of market research studies on foreign markets Scheme for promoting the utilisation of the Internet e) State Grants for Upgrading the Manufacturing Sector State grant for technological upgrading Supplementary grant scheme for the manufacturing of agricultural products State grant for the relocation of small enterprises to authorized areas State grant for the protection of the environment fro industrial pollution Grant scheme for the establishment / expansion of manufacturing units in rural areas f) Grant Scheme for Energy Conservation and the Promotion of Renewable Energy Sources (RES) Utilisation Scheme for Energy Conservation Schemes for the promotion of Renewable Energy sources (RES) utilisation g) Incentives for the Export Promotion of Industrial Products Scheme for granting aid for exploring export potentials in foreign markets – “De Minimis Rule” Schemes for entrepreneurs/manufacturers of Cypriot products participating in Trade Fairs abroad at their own expenses Schemes for entrepreneurs/manufacturers of Cypriot products, participating if Foreign Trade Fairs / Trade Missions abroad / Cyprus Week Trade Fairs abroad, organized by the Ministry of Commerce, Industry and Commerce h) Grant Scheme for the Encouragement, Strengthening, and Reinforcement of Entrepreneurship Scheme for the encouragement of Women Entrepreneurship Scheme for the encouragement of youth Entrepreneurship i) Programme for the Enhancement of Manufacturing and Trading Agricultural Products j) Investment Incentives for the Services Sector State Grant for the export promotion of services and penetration of foreign markets State Grant for the export promotion of services through participation in trade fairs and exhibitions abroad III.5 Fiscal Incentives The main objective of the fiscal reform applicable as from 1 April, 2004 were to conform to the European Union and OECD requirements and at the same time to maintain the competitiveness of Cyprus as an international business centre and enhance its attractiveness as a suitable jurisdiction for holding companies. The many fiscal incentives available to foreign investors, provided certain conditions are met, include, but are not limited to:
  22. 22. Lowest corporate tax rate in the EU – 10% on net profits. A non Cyprus tax resident is taxed only on income earned in Cyprus. Dividends are totally exempt from Cyprus tax. No “deemed” distribution of profits for IBUs. Interest income is taxed at the corporate rate of 10%. 50% of interest income earned by a company is exempt from tax. 100% of interest income earned by a non resident individual is tax free. Tax losses can be carried forward and set off against future profits indefinitely Losses of a Cyprus tax resident company can be set off against the profit of another Cyprus tax resident company in case they belong to the same group of companies. Profits of permanent establishments abroad are not taxable in Cyprus given that less than 50% of their activities result in investment income, and that the foreign tax suffered is not significantly lower than the tax payable in Cyprus. Cyprus has over 44 Double Tax Treaties covering more than 44 countries. Profits gained from the disposal of securities are exempt from tax for all companies. Transfers of assets and liabilities between companies in the course of reorganisation such as mergers, de-mergers, transfer of activities or exchange of shares are not subject to tax Tax relief of foreign tax paid is granted in Cyprus even in the absence of a double tax treaty. A more detailed description of the fiscal regime prevailing in Cyprus is given in other parts of this booklet. III.6 Holding Companies A Cyprus holding company can be effectively utilized for international tax planning purposes, and at the same time it may enjoy the status of being located at a reputable business centre within the EU. In summary a Cyprus holding company offers the following advantages in relation to the major tax considerations: No withholding tax on dividend income received from subsidiary companies abroad, provided the direct holding is at least 1% of the share capital of the overseas company; the exemption does not apply if the subsidiary company engages in more than 50% of its activities in producing investment income and the foreign tax burden on its income is substantially lower than that in Cyprus Double Tax Treaties with over 40 countries enabling lower withholding tax rates on dividend or other income received from the subsidiaries Being an EU member state, holding companies registered in Cyprus may also enjoy no withholding tax on dividends received from EU subsidiaries as a result of the utilization of the EU Parent Subsidiary Directive No withholding tax on capital gains and income on the disposal of neither the shares of the subsidiary’s share capital nor the shares of the Cyprus holding company a) No tax on capital gains or income on the liquidation of the Cyprus holding company b) No withholding tax on distribution of profits c) Outward dividends by the Cyprus holding company to its non resident d) shareholders are exempt from any withholding taxes e) Profits earned from a permanent establishment abroad are fully exempt from f) Cyprus tax subject to certain conditions g) A diversified group of Cyprus companies belonging to a Cyprus holding h) company can be set off Group relief for the utilization of tax losses f) No minimum holding period of the shares.
  23. 23. III.7 Regulated Activities Cypriot banking, insurance and securities activities are subject to special laws that regulate the terms of conducting their business operations, authorising the operators on the market and establishing the capital limits for carrying out these types of activities. III.8 Foreign Exchange Controls As of 1 May, 2004 the Exchange Control Law has been abolished; hence residents and non residents may hold and manage assets and liabilities in any foreign currency and in any foreign country, including freely convertible and transferable balances with banks on the island. III.9 Acquisition of Real Estate According to the “Acquisition of Real Estate (Amendment) Law” of 2003, which is in force as from 1st of May 2004: No restrictions are imposed on EU nationals and EU registered companies for the acquisition of real estate linked to primary residence and Foreign Direct Investment, or the acquisition of real estate by EU real estate agents and land developers. The acquisition of residence for secondary use is prohibited without prior authorisation by the Council of Ministers, for a period of five years following Cyprus´ accession to EU, to EU nationals not permanently residing in Cyprus and EU registered companies not having their registered office, central administration or principal place of business in Cyprus. As regards non-EU nationals, legal entities registered in non-EU countries, and legal entities registered in Cyprus with share capital controlled by non-EU nationals, real estate may be acquired subject to the approval of the Council of Ministers. In case the real estate concerned exceeds 2 donums, approval may be granted only for the purposes of primary or secondary residence not exceeding an area of 3 donums, professional or commercial premises, and industrial sectors deemed beneficial for the Cypriot economy. III.10 Intellectual Property The law on the registration of patents is similar to the relevant UK legislation. Patents are registered with the Registrar of Companies. Only patents registered in the United Kingdom can be registered and application should be made within three years from the granting of the original patent in the UK. Registration of the patent remains in force as long as the patent is registered in the UK. Trade marks can be registered in Cyprus both by Cypriot nationals and Cyprus companies as well as foreign nationals and companies,. The initial registration is for seven years sand is renewable on application for a period of 14 years at a time. All approved applications for trademarks are published in the Official Gazette and if no objections are received within two moths of publication an official certificate s issued. III.11 Competition Law The Commission for the Protection of Competition aims in maintaining an environment of free and healthy competition in the market, by ensuring that any anti-competitive practices by companies do not distort competition. Collusive behaviour or anti-competitive agreements between competitors are forbidden, but mergers and acquisitions are authorised provided that free competition is not affected. The Commissioner is committed to safeguarding greater competition in the economy in the interest of consumers, business and Cypriot economy in general. Cypriot competition regulations have been harmonised with similar EU rules.
  24. 24. CHAPTER IV IV Business Entities IV.1 Types of Business Enterprise The main business form is the limited liability company. The single member company has been permitted since 2000. The main categories of business enterprise in Cyprus are: Companies incorporated in Cyprus Branch of a foreign company Partnership Sole proprietor/Sole trader / Business Names Cyprus International Trusts Cooperatives European Company (SE) IV.2 Companies Incorporated in Cyprus Companies are entities whose existence, rights and duties are distinct from the shareholders (members) who own the business. A company can be formed by registration under the Companies Act Cap 113 as amended. The Companies Act Cap 113 provides for three different types of company: a) Companies limited by shares b) Companies limited by guarantee (where the members give a guarantee to pay a stated sum in the event of winding up c) Unlimited companies (where the liability of members in the event of winding up is unlimited. Companies limited by shares The vast majority of business organisations in Cyprus are limited liability companies. Limited liability companies are either private, exempt private or public. Their names end in “Limited” or “Ltd” unless it is a public company when it must end in “Public Limited” or “Public Ltd”. A private company is a company which: - Restricts the right to transfer its shares - Prohibits any invitation to the public to subscribe for any of its shares or debentures - Limited the number of its shareholders, excluding employees, to 50 An exempt private company is a company in which: - no body corporate holds any of its shares or debentures unless that body corporate is its an exempt private company - no person other than the holder has any interest in the shares or debentures of the company
  25. 25. - the number of persons holding debentures in the company does not exceed 50 and - no body corporate is a director of the company A public company is a company which is not a private company. Private companies need only have one director; public companies must have a minimum of two. Companies Limited by Guarantee Companies limited by guarantee are often used by charities, where profits cannot be distributed to members. Unlimited Companies Unlimited companies are rarely used but are intended for organisations that cannot limit liability as part of their constitution or for regulatory reasons. Cyprus International Business Companies A Cyprus International Business Company (IBC) is a Cyprus limited liability company, as described above, but enjoying additional tax advantages provided certain criteria are met. In July 2002, Cyprus enacted new tax legislation aimed at satisfying the European Union’s Code of Conduct for Business Taxation as well as meeting its commitments to the OECD in their efforts to eliminate harmful tax competition. The introduction of the new legislation has enhanced Cyprus’s attraction as a location for foreign investors. Prior to the tax reforms IBCs were confined to activities outside Cyprus. However, provided they convert their status from an IBC to a local company, IBCs can now engage in local activities without being taxed at a higher rate. By doing so they can avail themselves of the opportunities that the Cypriot market provides whilst at the same time being taxed at a much lower rate than in many other countries. IV.3 Branches of Foreign Legal Entities Foreign investors tend to use either subsidiary companies incorporated in Cyprus or branches in order to do business in Cyprus. Subsidiary companies are treated as separate entities in company law. Branches are considered to be extensions of their foreign company. The foreign company is therefore liable for all debts of the branch. To establish a branch in Cyprus without forming a subsidiary the foreign company must deliver the following documents to the Registrar of Companies within one month of establishment in Cyprus: a) a copy of its Charter or Constitution certified by a notary in the country of its incorporation together with a Greek translation thereof b) a return showing the names and addresses of the foreign company’s directors an secretary c) a return containing a list of the name and address of one (or more) person resident in Cyprus authorised to accept any notices to be served on the company. The Registrar must be notified of any changes in the names or addresses of the authorised person, directors or Secretary d) a Statutory Declaration by a director or secretary of the company or any person listed in (b) stating the date on which the foreign company’s place of business in Cyprus was established.
  26. 26. IV.4 Partnerships Partnerships are formed one two or more self-employed people work together in a business or profession. Partnerships are governed by the Partnership Act 1890 but it is usual to have a formal agreement which set out the necessary rules by which the partnership operates e.g. profit share agreements, partners’ salaries, new partners retirement of partners etc. A partnership has no legal personality distinct from its members. A partnership may be either general or limited. Under a general partnership the partners are all personally liable for the firm’s business debts. This liability is without limit. Under a limited partnership one or more partners are only liable to the extent of their capital contribution as long as those partners take no part in the management of the firm and there is at least one general partner whose liability is unlimited. IV.5 Sole Proprietor / Sole Trader / Business Names Sole proprietors, or sole traders, are individuals who own and run a business on their own account with or without employees. They may trade under a chosen business name, if they so wish, but they are personally for all the debts of the business. There are no statutory requirements governing the format of sole proprietors’ accounting records. No audit of their annual accounts is required nor do they have to be filed at Companies House. Sole traders’ profits are eligible to income tax, whether the profits are actually distributed to the proprietor or left in business. IV.6 Cyprus International Trusts The use of Cyprus International Trusts is constantly becoming popular as vehicle for International Tax planning and business structuring income and gains of a Cyprus International Trust derived from sources outside Cyprus are exempt fro any tax imposed in Cyprus. Under the International Trusts Law of 1992 a Trust qualifies for a Cyprus Trust on condition that: The Settlor is not a permanent resident in Cyprus At least one Trustee is a permanent resident in Cyprus for the whole duration of the Trust’s life No Beneficiaries with the sole exception of charitable institution are permanent residents of Cyprus The Trust property does not include any immovable property in Cyprus Trusts are not legal entities as limited companies are. IV.7 The Cyprus Co-Operatives The Co-operative Movement was introduced in Cyprus at the beginning of the 20th century. During the period 1936-1974 the Co-operative Movement experienced a significant growth in Cyprus. However, the Turkish invasion in 1974 had devastating consequences on the Co-operative Societies and the economy of Cyprus in general. Despite those consequences, the Cyprus Co-operative Movement survived and today it is considered as one of the strongest and well-organized Co-operative Movements worldwide.
  27. 27. Today, profits of the Co-operative Credit Institutions that result from operations with members will continue to be exempted from corporate income tax but profits resulting from operations with non-members will be subjected to corporate income tax and the replacement of the current scheme regarding mortgage fees with a new one that will exempt all clients of credit institutions including commercial banks for housing loans up to £60.000 Cooperatives are not a usual form of doing business as regards foreign investors and its usage is mainly confined for usage but rural societies. iV. 8 European Company The European Company ('SE') is a legal entity offering a European perspective for businesses. Its purpose is to allow businesses that wish to extend their activities beyond their home Member State to operate throughout the EU on the basis of one set of rules and a unified management system.
  28. 28. CHAPTER V V. Formation of a Limited Company V.I Formation Procedure In or order to register a company in Cyprus it is necessary to file with the Registrar of Companies prescribed documents in accordance with the provisions of the Companies Act Cap 113, as amended. The documents required to be filed are the following: The Memorandum of Association The Articles of Association A statement of the first Directors and Secretary A statement of the registered address of the company A statutory declaration as to the compliance with the requirements of the Companies Act Cap 113, as amended. In addition a public company’s Memorandum of Association must contain the following: A statement that is a public company An authorised share capital of at least CYP50.000 A name ending with the words “Public Limited” The Memorandum of Association sets out the basis of the company’s constitution including its name objects the fact that the liability of its members is limited share capital The Articles of Association contain the regulations for the internal management of the company i.e. the fact that the company is private or public appointment of directors and their powers conduct of shareholders’ and directors’ meetings changes in share capital arrangements Once the Registrar of Companies has issued the Certificate of Incorporation the company becomes a distinct legal entity. Limited companied say be registered in Cyprus fairly quickly – usually within seven days, once the company’s name has been approved by the Registrar of Companies. “Off the shelf” companies may be purchased but the cost is usually higher depending on the alterations required. V.2 Capital Structure Private companies may be registered having any level of authorised share capital. Private companies need have at least one shareholder but shareholders may not exceed 50 excluding employees; public companies need have two shareholders and there is no maximum number of shareholders.
  29. 29. Par Value and Classes of Shares Par value of a share is its nominal value. Shares must be issued according to the Memorandum of Association taking into consideration the par value of the shares. Partly paid shares may be issued. The directors may call up the unpaid part of the shares at any time. Shareholders liability is limited to the total amount unpaid on the shares. Most companies issue only one class of share, usually called ordinary shares. Such shares usually have voting rights and no restriction on dividend. Different classes of shares may be issued carrying different rights and obligations such as voting shares, non-voting shares, right to a dividend before other class of shares, right to elect a director etc. Preference shares have a right to receive a dividend or interest up to a specified amount but may have restricted voting rights. Pre-emptive Rights Pre-emptive rights give shareholders fist refusal on shares another shareholder wishes to sell, although they have no pre-emptive right to acquire them unless specified otherwise in the companies Articles of Association. Debentures Debentures are documents issued by the company setting out the terms of indebtedness. A debenture therefore represents a loan made to a company and may include debenture stock, bonds, and other securities of a company usually with a charge on the company’s assets (floating charge). Such a charger must be registered with the Registrar of Companies. Share Certificates and Transfers of Shares. Shareholders are issued with Share Certificates which Certificates are prima facie proof that the shareholders named therein own the shares stated. Transfers of shares in private companies are often restricted by pre-emptive clauses or by the directors’ right to refuse a transfer. Share Premium Where shares are issued at a premium the surplus must be set aside in a non-distributable capital reserve. The share premium account ma only be used to: Issue fully paid up bonus shares to shareholders Write off preliminary expenses Write off issue expenses of the company’s shares or debentures. Increases and Reductions in Share Capital A company may increase its share capital by special resolution of its members an provided the Articles of Association permit such an increase. A company may reduce its share capital provided its Articles of Association permit such a reduction and the members pass a special resolution which court confirms. V.3 Shareholders Agreements Although It is advisable that shareholders do enter into a shareholders agreement dealing with such issues as disposal of shares, disagreements and disputes this is not very usual as all such matters are agreed through shareholders’ and directors’ meetings.
  30. 30. CHAPTER VI VI. Company Administration VI.1 Shareholders The company is owned by its shareholders who hold shares therein. Matter of major importance as new shareholders, major investments, purchase of real property, decision to liquidate the company etc are normally dealt at Shareholders’ Extraordinary Meetings where decisions are taken. A private company must have at least one shareholder and public company must have at least five shareholders. VI.2 Directors The day-to-day management of a company is delegated by the shareholders to the board of directors. Every public company must have at least two directors and every private company must have at least one. A shareholder may also be a director. Appointment The first directors of a company are named in the relevant form submitted to the Registrar of Companies together with the Memorandum of Association and other documents. Subsequent appointments of directors are usually made by the shareholders at general meetings in accordance with the company’s Articles of Association. Existing directors are usually permitted to appoint additional directors to fill casual vacancies subject to a maximum specified in the articles. Retirement and removal Directors may retire at any time. A notice becomes effective as soon as it is given and cannot be withdrawn. Shareholders may remove directors from office at any time by passing an ordinary resolution and giving proper notice. Types of directors Various types of directors make up a board. Cyprus Companies Law does not distinguish between various types directors but considers all directors to have the same responsibilities. Duties of directors The duties of a director are determined by law and case law. There are three main types of duty: Fiduciary – a director must always act in a company’s best interests. Duty of skill and care – directors must act with reasonable degree of skill and care Statutory – company legislation imposes extensive duties on company directors VI.3 Company Secretary According to Cyprus company law all companies must have a Secretary responsible for the administration of and in particular compliance with statutory legal requirements. Company secretaries can be limited companies. The first Secretary of the company is named in the form filed with the memorandum and other documents. Subsequent appointments and removals are made by the board of directors.
  31. 31. VI.4 Meetings Company meetings comprise Shareholders’ General Meetings and Board Meetings. Shareholders’ meeting include Annual General Meetings and Extraordinary General Meetings. Annual General Meetings Companies must have an initial annual general meeting within 18 months of incorporation. Subsequent annual general meetings must take place within 15 months from the end of each annual general meeting. Extraordinary General Meetings The directors can call an extraordinary general meeting ant any time and for any purpose, Shareholders with 10% or more of the voting capital can require the directors to call an Extraordinary General Meeting. Conduct at General Meetings General meetings are governed by company articles and by company law generally. There are three types of resolution: Ordinary Resolutions require 14 days’ notice to be given to shareholders and a simple majority(50% plus one) to be passed Extraordinary Resolutions require 14 days’ notice and 75% majority Special Resolutions require 21 days’ notice and 75% majority Minutes of Resolutions and Single Member Companies Companies must record their resolutions in a minute book open for inspection by any shareholder. A company with a single member, that member has the same duty, like a private company with more than one member, to record resolutions and major decisions in a minute book. Board Meetings Board meetings take place at the board’s discretion. Such meetings address board management issues such as strategic planning and record important policy decisions. VI.5 Registered Office Every company must have a registered office. Such registered office need not be an office from where the company conducts business. Usually a company’s registered office is the address of the company’s accountants or lawyers. A company’s registered office is the address to which all official notices should be sent for legal purposes. It also where the statutory books are normally kept. VI.6 Liquidation and Receivership Liquidation Liquidation is a means of winding up the affairs of a company. There are two types of liquidation Compulsory Liquidation and Voluntary Liquidation
  32. 32. There are two types of Voluntary Liquidation: Members’ Voluntary Liquidation and Creditors’ Voluntary Liquidation Receivership A secured creditor holding a floating charge has the power to appoint a Receiver to realise as much of the assets of the company as it is necessary in satisfaction of its outstanding debt. This does not necessarily result in the liquidation of the company.
  33. 33. CHAPTER VII VII. Audit and Statutory Requirements VII.1 Financial Reporting and Auditing Cyprus as an ex-colony of Great Britain and a member of the Commonwealth has traditionally tended to follow the accounting principles of and practices adopted in the United Kingdom. Also the Institute of Certified Public Accountants of Cyprus which is responsible for the control and regulation of the accountancy profession has adopted International Accounting Standards (IAS) and expects all its members to follow them. In addition since the accounting profession in Cyprus is composed to a very large extent of accountants who belong to the four main professional bodies in the UK, the generally accepted accounting principles established by those bodies embodied in Statements of Standard Accounting Practice (SSAPs), Financial Reporting Standards (FRSs), and other guidance statements and exposure drafts are followed, provided such statements do not conflict with local regulations and /or IASs. As a rule all legal entities are required to prepare financial statements and have them audited by independent auditors in compliance with specific legislation in order to satisfy the requirements of the Tax Authorities or the Cyprus Stock Exchange or the Registrar of Companies. Auditors are appointed by the shareholders and are required by law to report to them whether in his opinion the financial statements show a true and fair view of the state of affairs of the company and of the profit or loss and cash flows for the period under review and comply wit the Companies Law. VII.2 Form and Content of Financial Statements The Cyprus Company Law provisions (Cap 113) regarding the form and conditions of financial statements are very similar to those of the UK Companies Act 1948. In addition financial statements must conform to the provisions of the International Accounting Standards. Responsibility to prepare financial statements The directors of every company including Cyprus International companies are responsible for the preparation of the financial statements that should consist of the following: - Directors’ report - Balance Sheet - Profit and Loss Account ( Income Statement) - Cash Flow Statement - Statement of Changes in Equity - Notes to the Financial Statements including the accounting policies and - Audit Report Form and Content Schedule VIII of the Companies’ Law Cap 113 sets out formats for the balance sheet and the profit and loss account. Company accounts should be drawn in accordance with certain accounting principles which are set out in a financial reporting standard. The following concepts are regarded as being all pervasive: That the company will continue as a going concern and That the accruals basis will be followed for income and expenditure
  34. 34. A further four objectives should be balanced when selecting accounting policies: That the financial information is relevant That information is reliable That the accounts are comparable with previous periods and That information can be understood by a suitably experienced person. If the financial statements depart from any of the above, special mention must be made in the financial statements by way of a note. Cyprus companies adopt the historical cost accounting convention with certain exceptions. VII.3 Public Filing Requirements Every company which has a share capital must make a return once a year to the Registrar of Companies. This is known as the Annual Return. The Annual Return must be accompanied by copies of the - Balance sheet - Profit and Loss - Directors’ Report and - Auditors’ Report. duly certified by one Director and Secretary of the Company. Branches of overseas companies have also an obligation, under special provisions of the law, to file audited branch financial statements with the Registrar of Companies. VII.4 Group Financial Statements The Companies Law requires Cyprus parent companies to prepare group financial statements, normally in the form of consolidated financial statements when the parent company has subsidiaries unless it is itself a wholly owned subsidiary of another body corporate incorporated in Cyprus. The group financial statements need not include all those subsidiaries where I the opinion of the directors - the result would be misleading or harmful to the company or its subsidiaries - the businesses are so different that they cannot reasonably be treated as a single undertaking or - it would be impracticable or of no real value to members in the view of the insignificant amounts involved or would cause undue hardship or delay. Related Party Transactions For the purpose of consolidation all transaction with other undertakings within the group should be eliminated. IAS 24 “Related Party Disclosures” specifies the disclosures required. In addition the recently enacted Stock Exchange legislation requires certain disclosures specifically for publicly quoted companies. Transactions with directors including loans must be disclosed separately, estimating their financial effect and whether these were transacted at arm’s length.
  35. 35. VII.5 Audit Requirements Financial statements prepared by companies in Cyprus must be audited unless a company meets the “small business” criteria which in any event do not apply to consolidate financial statements. All financial statements forwarded to the Inland Revenue must however be audited. Auditors are required to report on the financial statements audited by them and on the consistency of the directors’ report with the financial statements. The audit is carried out in accordance with International Accounting Standards on Auditing issued by IFAC. VII.6 Auditors During Annual General Meetings members of a company appoint an Auditor. Special provisions in the Companies Law deals with the appointment, removal, disqualification and resignation of auditors. VII.7 Qualifications of an Auditor In order to be appointed Auditor of a company operating in Cyprus such person must be a member of the Cyprus Institute of Certified Public Accountants. Non members of the above Institute, such as members of bodies established outside Cyprus may be allowed to act as auditors under certain conditions. VII.8 Accounting Records Under the Companies Act Cap, 113, as amended, and the relevant tax laws, the directors of every company are responsible to keep proper books of account showing the assets and liabilities and the daily receipts and payments of the company. Books of account according to the law are defined as those books of account deemed necessary for the preparation of financial statements and which are adequate for the presentation of a true and fair view of the company’s affairs and an explanation of its transactions. VII.9 The Accounting Profession A very advanced and sophisticated accounting profession exists in Cyprus. Most member of the Cyprus Institute of Certified Public Accountants of Cyprus are university graduates, members of the major accounting bodies of the UK and USA. All of the big international accounting firms are represented in Cyprus with members or correspondent firms.
  36. 36. CHAPTER VIII VIII. Cyprus Taxes VIII.1 Personal Income Tax Who is Liable Where an individual is a resident in the Republic of Cyprus, tax is imposed on income accruing or arising worldwide, i.e. from sources both within and outside Cyprus. An individual who is not a resident of Cyprus, tax is imposed on income accruing or arising only from sources within Cyprus. Resident in Cyprus is an individual who is present in the Republic for a period exceeding 183 days in a tax year. Tax rates Taxable Income Tax Rate Tax Cumulative Tax Euro % Euro Euro 0-19,500 0 0 0 19,501- 28,000 20 1,700 1,700 28,001- 36,300 25 2,075 3,775 36,301 and over 30 Exemptions The following are exempt from income tax: a) Interest Income under certain conditions 100% b) Dividend income 100% c) Deposits with the Housing Finance corporation ( the annual deposit cannot exceed 25% of the gross income). 40% Only for schemes that were in existence on 30/4/2003. d) Gains from disposal of securities 100% e) Remuneration for the rendering outside the Republic of salaries services to anon resident employer or to a permanent establishment outside the Republic of a resident employer for a total aggregate period in the year of assessment of more than 90 days. 100% f) Remuneration from any office or employment exercised in the Republic b an individual whose residence was outside the Republic before the commencement of the employment. The exemption is applicable for a period of three years from 1 January following the year of commencement of the employment. 20% of the remuneration or Euro 8.543,01 whichever is the lower. g) Profits from a permanent establishment maintained outside the Republic (subject to certain conditions) 100% h) Rents receivable from property under preservation order 100% i) Widow’s pension granted under schemes approved by the Commissioner of income Tax 100%
  37. 37. j) Foreign pension Euro 3.410 (Special rate of 5% on balance of income) k) Gratuity of lump sum received on retirement or commutation of pension or as a result of death. 100% l) Lump sum received from life assurance schemes or from approved provident funds. 100% m) Life Assurance Premiums (7% of cover), social insurance contributions, provident funds contributions, contributions to medical and other approved funds. Restricted to 1/6 of taxable income Social Incentives a) Allowance in cash for every child that attends university either in Cyprus or abroad Euro 2.562,90 b) Blind Persons Allowance in cash Euro 3.417,20 c) Cash Allowance for every child depending on his parents and who has his permanent residence in Cyprus Varies Also other social incentives are available (allowance to mothers with at least four children, invalidity allowances, grant for the purchase of vehicle to invalids etc), the amount of assistance varying according to disability etc Deductions from income a) Interest relating to the acquisition of fixed assets used in a business 100% b) Rents receivable 20% of the gross rents interest on loans for acquisition of building and capital allowances deduction. No further expenses for letting of building allowed c) Subscriptions to trade unions or professional bodies 100% d) Expenditure for the maintenance of building under preservation order Upto Euro 512,58, Euro 854,30 or 939.73 per sq m (depending on the size of the building) e) Donations to approved charitable organisations (with receipts) 100% Non – deductible expenses The following expenses are not tax deductible: a) Business entertainment expenses Including hospitality expenses of any kind which are incurred for the purposes of the business Amount in excess of 1% of the gross income or Euro 107.86,01 whichever is the lower) d) Private motor vehicle expenses 100% e) Professional Tax 100% f) Interest payable or deemed to be payable in relation to the acquisition of a private motor vehicle, irrespective of whether it is used in the business or not, or other asset not used in the business. This restriction is lifted after seven years from the date of purchase of the relevant asset. 100%
  38. 38. g) In the event of cancellation of a life assurance contract within 6 years from the date it was entered into, part of the life insurance premiums already given as an allowance will be taxable as follows: - cancellation within 3 years 30% - cancellation between 4 to 6 years 20% Capital Allowances The same capital allowances apply to individuals who prepare financial statements as they apply to companies. Losses a) Losses are carried forward indefinitely. Losses for the years 1997 onwards, which have not been offset against profits arising up to the year 2002, will be carried forward to 2003 and subsequent years without restriction. b) Where a person including a partnership converts his business into a limited liability company, any unrelieved losses can be transferred to the new company. c) Losses arising from a permanent establishment maintained outside the Republic can be offset against profits arising in the Republic. However when a profit arises from such a permanent establishment an amount equal to the losses that have been utilised in the past against profits arising in the Republic will be included in the taxable income. VIII.2 Company Income Tax Who is liable A company that is resident in the Republic is liable to Cyprus tax on income accruing or arising both fro sources in and outside the Republic. A company that is not resident in the Republic is liable to Cyprus tax on income accruing or arising only from sources within the Republic. Resident in the Republic is a company that is managed and controlled in the Republic. Tax Rates Companies 10% Public corporate bodies 25% Exemptions from Cyprus Tax Interest income arising in the ordinary course of business including interest closely connected with the carrying on of the business, is not considered interest but trading and therefore the 50% exemption is not applicable 50% Dividend income 100% Profit from the disposal of securities 100% Profits from a permanent establishment maintained outside the Republic Subject to certain conditions) 100%
  39. 39. Deductions Deductible from income are all expenses incurred wholly and exclusively for the production of income including: a) Interest incurred for the acquisition of a fixed asset used in the business 100% b) Subscriptions to trade unions or professional bodies 100% c) Expenditure for the maintenance of building under preservation order Upto Euro 512,58, Euro 854,30 or Euro 939,73 per sq m (depending on the size of the building) d) Donations to approved charitable organisations (with receipts) 100% Non-deductible expenses The following are not deductible from income: a) Business entertainment expenses including hospitality expenses of any kind which are incurred for the purposes of the business Amount in excess of 1% of the gross income or Euro17.086,01 whichever is the lower) b) Private motor vehicle expenses 100% c) Professional Tax 100% d) Interest payable or deemed to be payable in relation to the acquisition of a private motor vehicle, irrespective of whether it is used in the business or not, or other asset not used in the business. This restriction is lifted after seven years from the date of purchase of the relevant asset. 100% Contributions to the Social Cohesion Fund 100% Losses a) Losses are carried forward indefinitely. Losses for the years 1997 onwards, which have not been offset against profits arising up to the year 2002, will be carried forward to 2003 and subsequent years without restriction. b) Where a person including a partnership converts his business into a limited liability company, any unrelieved losses can be transferred to the new company. Group Relief Losses for the current year only can be surrendered by a group to another group company. Group relief will be given provided that both companies are members of the same group for the whole of a tax year. Two companies are considered to be part of group for group relief purposes if: - one is a 75% subsidiary of the other or - both are 75% subsidiaries of a third company.
  40. 40. Loss of a permanent establishment outside the Republic Losses arising from a permanent establishment maintained outside the Republic can be offset against profits arising in the Republic. However when a profit arises from such a permanent establishment an amount equal to the losses that have been utilised in the past against profits arising in the Republic will be included in the taxable income. Insurance companies - losses of the life business can be offset against profits of the general business - losses of the life business can be offset against profits fro other sources - losses of the life business can be carried forward indefinitely International Business Companies In July 2002, Cyprus enacted new tax legislation aimed at satisfying the European Union’s Code of Conduct for Business Taxation as well as meeting its commitments to the OECD in their efforts to eliminate harmful tax competition. Under the new legislation, which came into effect on 1 January 2003, there is a uniform rate of corporation tax (10%) for all companies registered in Cyprus, including Cyprus International Business Companies (IBCs). The introduction of the new legislation has enhanced Cyprus’s attraction as a location for foreign investors. Prior to the tax reforms international business companies (IBCs) were confined to activities outside Cyprus. However, provided they convert their status from an IBC to a local company, IBCs can now engage in local activities without being taxed at a higher rate. By doing so they can avail themselves of the opportunities that the Cypriot market provides whilst at the same time being taxed at a much lower rate than in many other countries. Company Re-organisations In the event of a company reorganisation unused losses brought forward will be transferred to the new company and the provisions dealing with the set off of transfer of losses will apply accordingly. Capital Allowances for Annual Wear and Tear % Plant and Machinery Usual Plant and Machinery, furniture and Fittings 10 Bulldozers, excavators, fork lifts etc 25 Motor Vehicles –except private saloon cars 20 Personal computers – hardware and software 20 Agricultural Plant and Machinery 15 Water Drilling, industrial carpets, video recorders, tv 10 Buildings Industrial agricultural and hotel buildings 4 Commercial, shops etc 3 Metallic frame of greenhouses 10 Wooden frame of greenhouses 33.5 Ships Steamships, tugboats and ships Used in the fishing industry 6 Sailing vessels 4.5
  41. 41. % Ship launching machinery 12.5 New commercial ships 8 New passenger ships 6 Used ships special agreement or remaining useful economic life Tools All tools in general 33 1/3 Videotapes used by video clubs 50 VIII.3 Special Contribution for Defence Rates All residents of the Republic are subject to Defence Contribution on the sources of income indicated below. Non residents are not subject to the Defence Contribution. Dividends 15% Interest income 10% Interest received by an individual from Government Savings Certificates 3% Interest received by an individual from Government Bonds 3% Interest earned by an approved provident fund 3% Rental income less 25% 3% Profits earned by public corporate bodies 3% Dividends Exemptions: a) dividends paid by a company resident in the Republic to another company resident in the Republic b) dividends received by a company resident in the Republic or a company not resident in the Republic which maintains a permanent establishment in the Republic from a company which is non-resident in the Republic and of which at least 1% of the share capital is held (with certain criteria) c) dividends paid out of dividend income which has suffered income tax at source of 20% and are paid within a period of six years from the date of receiving such dividend income. d) dividends derived directly or indirectly from profits arising from operating a Cyprus flag ship in the course of shipping activities or from ship management services SPECIAL CONTRIBUTION FOR D Interest income Interest that is received as a result of the carrying on of a business activity, including interest closely connected to the ordinary activities of the business, is not considered interest for Special Defence Contribution purposes. A person whose total annual income, including interest, does not exceed Euro 11.960,21 who receives interest which has been subject to Defence Contribution at 10%, has the right to a refund of the amount of Defence Contribution suffered in excess of 3%.

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