S. Dionysiou & Partners LLC is proud to share the recent contribution of our lawyers to Mondaq‘s publications highlighting the key points of doing business in Cyprus!

We have answered the most common and complicated questions which you may face while doing your business activities in Cyprus.

Doing Business Q&A

1. Legal framework

1. 1 Does your jurisdiction have a civil law system, a common law system or a hybrid system?

Cyprus’ legal system is largely based on the English common law system as a result of Cyprus being a former British colony; however, it has also civil law system elements as well. After the independence of Cyprus in 1960, the laws applicable are as follows:

1. The Constitution of Cyprus;
2. The laws remained in force by virtue of Article 188 of the Constitution;
3. The principles of common law and equity;
4. The laws enacted by the House of Representatives; and
5. Following the accession of Cyprus to the European Union in 2004, the Constitution was amended, so that European law has supremacy over the Constitution and national legislation.

1. 2 Which legislative and regulatory provisions primarily govern the establishment and operation of enterprises in your jurisdiction?

The primary legislative and regulatory provisions governing the establishment and operation of enterprises in Cyprus include the following:

• The Companies Law, Cap. 113, as amended: This is the key legislation for company formation and governance in Cyprus.
• The General and Limited Partnership and Business Names Law, Cap. 116, as amended: This law governs the formation and operation of partnerships and the registration of business names.
• There are also the following additional laws which regulate publicly traded securities:
• The Cyprus Securities and Stock Exchange Laws of 1993–2020, as amended (and relevant regulations).
• The Cyprus Securities and Exchange Commission Law 73(I)/2009, as amended.
• The Takeover Bids law of 2007, Law 41(I) of 2007 as amended.
• The Investment Services and Activities and Regulated Markets Law, 144(I)/2007.
• The Transparency Requirements Law 190(I)/2007, as amended.
• The Corporate Governance Code (5th edition), January 2019 (the “Code”).
• The Market Abuse Law 102(I)/2016.
• The Encouragement of Long-term Shareholder Engagement Law 111(I)/2021.
• For completeness, for regulated companies, operating in the financial sector, compliance with additional laws and CySEC regulations is required; these regulations relate, inter alia, to licensing, conduct of business, and reporting requirements.

1.3 Which bodies are responsible for drafting and enforcing these provisions? What powers do they have?

The House of Representatives (and its specialized committees) is primarily responsible with the legislative function in Cyprus. Furthermore, the regulatory bodies designated for the enforcement of these provisions are as follows:

• The Registrar of Companies is responsible for the registration and regulation of companies. It maintains a register for all registered business entities and monitors their compliance with all relevant corporate obligations. It should be noted that the Registrar serves merely as a notification office, subject to some exceptions. For completeness, the Registrar also has the power to impose administrative fines in case of non-compliance with the relevant statutory obligations.
• Cyprus Securities and Exchange Commission (CySEC) is responsible for the supervision of the investment services market, transactions in transferable securities carried out in Cyprus and the collective investment and asset management sector. It also supervises the firms offering administrative services which do not fall under the supervision of ICPAC and the Cyprus Bar Association, as well as Crypto-Asset Services Providers. CySEC has, inter alia, the authority to grant and revoke licenses, impose administrative fines in case of non-compliance.
• The Cyprus Stock Exchange (CSE) has the responsibility for the establishment and management of a central depository and central registry (CSD), at which are registered all the securities listed on the CSE and also unlisted securities, whose issuer wishes the maintaining of the registry by the CSE.
• The Central Bank of Cyprus is responsible for supervising banks and safeguarding the stability of the financial system.

2. Types of business structures

2.1 What are the main types of business structures in your jurisdiction and what are their key features?

The main types of business structures are as follows:

• Companies, which are sub-divided into:
• Private limited liability company by shares: This company has a share capital, and the liability of its members is limited.
• Public limited liability company by shares: A public company may invite the public to subscribe for its shares and may be listed.
• Limited liability guarantee company with a share capital: The liability of its members is limited, up to any unpaid amount for their shares and up to the amount that its members have undertaken to contribute.
• Limited liability guarantee company without a share capital: Its members act as guarantors (up to the amount that the members have undertaken to contribute).
• SE company: It can facilitate business activity in more than one country and can have unlimited number of members.
• Partnerships: A partnership does not have a separate legal personality. GPs are jointly responsible for the debts and liabilities, whereas the LPs are only liable for up to the amount they have contributed as capital.

A partnership may be either a GP or a LP and in the latter case, there must be at least one GP with unlimited liability.

• Sole proprietorship (business name): A sole proprietor is fiscally transparent for tax purposes and has unlimited liability. When a business is carried out under a name other than their real name, the registration is obligatory.
• Trusts: A legal arrangement whereby trustees hold and manage assets on behalf of beneficiaries. The property under the trust is legally held and registered in the name of the trustee. In Cyprus, we can distinguish the “local trusts” and the “Cyprus International Trusts”.

2.2 What capital requirements apply to these different types of business structures?

• Companies: Pursuant to the Companies Law, Cap.113, as amended, there is no minimum capital requirement for a private limited liability company. On the contrary, a public company shall have a minimum capital of €25,629.
• Partnerships: There is no concept of share capital but there must be some contribution from a partner, which is known as the partner’s capital. However, there is no minimum requirement of capital for registering a limited liability partnership.
• Sole proprietorship (business name): N/A
• Trusts: There is no concept of share capital, but the trust must have specific property (assets) that is transferred into the trust by the settlor to be established.

2.3 What is the process for establishing these different types of business structures? What procedural and substantive requirements apply in this regard? What is the typical timeline for their establishment?

• Companies: Set out below is a high-level overview of the formation procedure of a company:
• Approval of the name of the company.
• Filing with the Registrar of Companies form HE1 signed and sworn before the court by a licensed lawyer, form HE2 (which indicates the registered address), form HE3 (which provides for the appointment of the first directors and secretary); and
• The Memorandum and Articles of Association (duly signed in the Greek language) together with the solemn declaration of a witness of signatures.
• Partnerships: Once the name application is approved by the Registrar one may proceed with the submission of the application for the partnership’s incorporation, within 1 month from its establishment, either via e-filing or by hand post by submitting the Σ1 form accompanied by the following:
• a solemn declaration of signature witness; and
• permission, consent or pre-approval by the appropriate governmental authority/body (where necessary for the use of words/expressions).
• Sole proprietorship (business name): Following approval of trade name one may, within one month from the date of commencement of business, submit the trade name registration application either online or by hand/post.
• Trusts: Upon the preparation of the trust deed, the trust needs to be registered with the relevant authorities via their online system CyTBOR.

2.4 What requirements and restrictions apply to foreign players that wish to establish a business directly in your jurisdiction?

In general, Cyprus does not have any restrictions to foreign players that wish to establish a business directly in Cyprus, subject to certain regulated and/or strategic areas or industries. In particular, no restrictions apply to EU nationals on ownership and investment in Cyprus. Similarly, subject to the above, foreign non-EU nationals are free to invest in Cyprus companies and also acquire their entire share capital. Furthermore, there are no restrictions on the acquisition and ownership of real estate in Cyprus by nationals of the European Union. Nevertheless, there are certain restrictions for third country (non-EU) entities or persons regarding the acquisition of real estate property. Please see paragraph 5.3 for further details.

For completeness, please note that Cyprus complies with the European regulations and the sanctions imposed on Russia by the European Union on specific Russian individuals and Russian owned entities.

2.5 What other opportunities, using people/entities not connected with the main person, are there to do business in your jurisdiction (eg, agency, resale); and what requirements and restrictions apply in this regard?

In Cyprus, businesses can explore various opportunities through entities not connected to the principal person, such as agency and resale arrangements. From a legal perspective, there are generally no restrictions on these activities, unless explicitly outlined in the articles or memorandum of association. However, it is advisable to thoroughly review any contractual agreements that the entity in question may have entered in order to analyse if any contractual restrictions have been imposed.

3. Directors and management

3.1 How is management typically organised in the different types of business structures in your jurisdiction?

(a) Companies

In public and private companies, activities are carried out by the directors who exercise all the company’s powers as a board, with the exception of those powers which are required to be exercised by the company in a general meeting, either as per the Companies Law Cap. 113, as amended, or the company’s articles of association. Different requirements on the synthesis of the board of directors apply depending on the type of company:

• A private company must have at least 1 director. However, the same director cannot be appointed as secretary of the same company, unless the company consists of one member only.
• A public company must have at least 2 directors.

(b) Partnerships

Partnerships may be either general (in which every partner is liable jointly and severally with the other partners for all the debts and obligations of the partnership while a partner) or limited (in which limited partners contribute a stated amount to the capital and are not liable for the debts and obligations of the partnership beyond the amount stipulated). In either form of limited partnership, there must be at least one general partner, with unlimited liability for the debts and obligations of the partnership. Only general partners may participate in the management and operations of the partnership and have the authority to bind it.

Kindly note regulated entities must comply with additional requirements.

3.2 Is the establishment of specialist committees recommended or mandated for certain types of enterprises? If so, which areas should they cover?

It is not mandatory for any type of enterprise to appoint any specialist committee under Cyprus law. Although very rare, some companies may choose to appoint specialist committees for specific purposes.

3.3. Is the appointment of corporate directors permitted in your jurisdiction?

Appointment of corporate directors is permitted under Cyprus law. However, the same corporate director cannot be appointed as secretary of the same company, unless the company consists of one member only.

3.4 What requirements and restrictions apply to the appointment of directors, in terms of factors such as number, residence, independence, diversity etc?

Unless ordered otherwise by the courts, an individual may become a company director unless they are:

• Disqualified from being a company director or;
• declared bankrupt (unless allowed by the court) or;
• declared to have no legal capacity or
• are under the age of 18.

There is no legal requirement for a director to be based in Cyprus or to be a Cypriot national. There are no local residency or nationality requirements placed on shareholders from a Cyprus company law perspective, however, the appointment of a non-resident director may give rise to adverse tax implications.

3.5 How are directors selected, appointed and removed? Do any restrictions or recommendations apply to their tenure?

The first directors of a Cyprus company are appointed by the subscribers of the company and from there on, the procedure to be followed for the appointment and/or removal of subsequent directors is governed by the company’s articles of association. No restrictions apply in relation to their tenure.

Appointment of new directors is done by ordinary resolution passed by the shareholders at a general meeting. It is common that the articles of association also provide the directors powers to appoint other directors to fill in a vacancy or as an addition to the existing directors. Such appointment is usually effective only until the next annual general meeting, where such director may be re-elected by the shareholders.

A director may be removed before the expiration of his period of office by an ordinary resolution of the shareholders notwithstanding anything in its articles of association or in any agreement between the company and the director. The director has the right to make representations, both orally at the meeting at which the resolution is considered and in writing by a statement, which the company is required to distribute to shareholders in advance of the meeting.

A director may also be removed if:

• he becomes bankrupt or makes any arrangement or composition with his creditors generally; or
• becomes prohibited from being a director by reason of a court order
• becomes of unsound mind; or
• resigns his office by notice in writing to the Company.

The provisions of the Cyprus Companies Law, Cap. 113 do not explicitly fix the maximum number of directors to be appointed on the board of directors of a Cyprus company, however, this restriction is imposed in the articles of association of each Cyprus company.

3.6 What are the directors’ primary roles and responsibilities, and how are these exercised?

The company’s activities are carried out by the directors, as a board, who exercise all the company’s powers, with the exception of those powers which are required to be exercised by the company in a general meeting, either as per the Companies Law or the company’s articles of association. Please see point 4.3. below.

They are legally responsible for the management of the company, and for maintaining the accounting books which are necessary for the preparation of the financial statements. At the same time, the directors are responsible for submitting the tax returns of the company and for carrying out all acts relating to the submission and payment of the tax levied.

It is noted that the directors and secretary are responsible for submitting the relevant documents and notifications, regarding the updating of the company’s particulars, to the Registrar of Companies.

3.7 Are the roles of individual directors restricted? Is this common in practice?

The powers of the directors are restricted to those which are required to be exercised by the company in a general meeting (i.e. by the shareholders), either as per the Companies Law or the company’s articles of association. Please see point 4.3. below.

3.8 What are the legal duties of individual directors? To whom are these duties owed?

The duties of the Cyprus directors arise under both common law and by statute and are as follows:

(a) Fiduciary duties:

• A director owes a duty to the company to act “in good faith” and in the best interests of the company and thus the directors must act to promote the success of the company.
• Duty to act in accordance with the company’s constitution and exercise their powers only for the purposes allowed by law.
• Duty to exercise independent judgment.
• Duty to declare interest in a proposed transaction or arrangement.
• Duty to avoid a conflict of interest.

(b) In addition, the directors of a company have a duty to exercise the degree of skill, diligence, knowledge, and experience which may reasonably be expected from persons carrying out the same functions and having the same knowledge and experience as the director in question.

(c) Statutory duties:

• Keeping of accounting books and records for the preparation of financial statements.
• Preparation of financial statements.
• Preparation and submission of the directors’ report (annual return).
• Disclosure of payment of loss of office made in connection with transfer of shares in a company.
• Maintenance of a corporate register reflecting the directors and secretary.
• Duty to disclose any direct or indirect interests, if any, which arise under a contract or a proposed contract with the company.

These duties are owed to the company and not to the individual shareholders but may be extended to the creditors in cases where the company is insolvent.

3.9 To what civil and criminal liabilities are individual directors primarily potentially subject?

Depending on the duty breached by a director the liability will vary.

• Breach of common law (fiduciary duties) and duty to exercise skill and care:

Such a breach will render a director personally liable to the company in damages or injunctive relief, and it is for the company to take legal action against the director, not for the shareholders since the duty of care is owned by the company, subject to certain exceptions.

• Breach of statutory duties: In cases where there is a breach of a duty imposed by statute, the liability will be criminal, civil or administrative.

• Tax related offences: Directors may be found liable with respect to tax related issues. In addition to the powers of the authorities to impose huge civil penalties and interest changes, directors can be prosecuted and face criminal charges, most commonly, for cheating the public revenue, false accounting and conspiracy to fraud.

4. Shareholders/members

4.1 What requirements and restrictions apply to shareholders/members in your jurisdiction, in terms of factors such as age, bankruptcy status etc?

There are no specific limitations in terms of age, financial status, nationality or residency for shareholders’ appointment under Cyprus law. However, the articles of association of the company can impose certain restrictions such as for the legal representative of a bankrupt shareholder to be appointed as the as the owner of the shares held by the said shareholder, provided that relevant supporting documentations is submitted.

For completeness, please note that Cyprus complies with the European regulations and the sanctions imposed on Russia by the European Union on specific Russian individuals and Russian owned entities.

4.2 What rights do shareholders/members enjoy with regard to the company in which they have invested?

The rights which shareholders/members enjoy, depend on the rights attached to the shares they hold, as determined by the company’s articles of association. These rights can relate to:

• Right to vote: Shareholders can vote on several matters in the context of an annual general meeting or an extraordinary general meeting.
• Right to receive dividends: If the shares held have the right to receive dividends, such shareholders shall be entitled to receive dividends.
• Right to return of capital: Once a company is wound up, a shareholder has the right to have his capital returned based on the proper order of priority in the winding up. Shareholders also have the right of return of capital following a duly authorised reduction of capital.
• Right to pre-emption: A shareholder has the right to exercise pre-emption rights over other shareholders’ shares which are conferred by the articles of association.
• Right of redemption: Right of redemption is strictly permitted in public companies. Shareholders in private companies have the right of redemption only where redeemable preference shares exist.
• Right to call a meeting: Shareholders who hold at least 10% of the company’s paid-up share capital and have the right to vote can request that the directors convene an extraordinary general meeting.
• Right to receive notices and financial statements: Shareholders have the right to receive notices about the meetings of the shareholders including the drafts of financial statements to be approved on such meetings.

4.3 How do shareholders/members exercise these rights? Do they have a right to call shareholders’ meetings and, if so, in what circumstances?

Shareholders can vote on several matters, concerning the company’s structure, in the context of an annual general meeting, an extraordinary general meeting. There are two types of resolutions which may be passed at meetings or under certain circumstances by a written resolution. These are the ordinary resolutions requiring simple majority and the special resolutions require a 75% majority to pass.

Corporate actions that require ordinary resolution include:

• appointment and removal of director(s);
• appointment and removal of auditors;
• alteration of the company’s share capital (excluding reduction of share capital)

Corporate actions that require special resolution include:

• amendment of the memorandum and articles of association;
• change of name;
• reduction of share capital;
• reduction of share premium account;
• liquidation by Court;
• voluntary liquidation;
• buy-back of shares in public companies;
• members’ voluntary liquidation

The articles of association usually also provide for shareholders’ reserved matters, which may provide for higher voting threshold.

Shareholders/Members have the right to call meetings if certain conditions are met. Directors must, within 21 days from the date of the request, convene an extraordinary general meeting if a request is deposited by:

• Shareholders who hold at least 10% of the company’s paid-up share capital and have the right to vote.
• Members representing at least 10% of the total voting rights (for companies without share capital).
• Members representing at least 5% of the total voting rights (for listed companies in regulated markets)

4.4 What influence can shareholders/members exert on the appointment and operations of the directors?

The first directors of a company are appointed by the first shareholders. The procedure for the appointment of any subsequent directors is governed by the provisions of the company’s articles of association and it is usually made by passing an ordinary resolution, unless this power is explicitly restricted by the articles of association of the company. It is also common for the company’s articles of association to provide some powers to the directors to appoint other directors if a vacancy needs to be filled or an additional director needs to be appointed.

Furthermore, shareholders/members can influence the actions of the directors as they can remove a director prior to the expiry of their tenure of office, notwithstanding anything in the company’s articles of association.

As mentioned, shareholders do not engage on the day-to-day management and operations of the directors, except in the cases mentioned in section 4.3. above. However, they have the right to challenge in courts decisions and/or actions of the directors in cases where:

• the resolution or act concerned is illegal or ultra vires (outside the company’s objectives);
• the act concerned required a specific majority resolution of the shareholders which was not secured;
• a personal right of the shareholder in question has been violated by the specific act or action of the board;
• the company’s affairs are being conducted in a manner oppressive to some of the shareholders.

4.5 What are the legal duties/responsibilities and potential liabilities, if any, of shareholders/members?

Subject to paragraph 4.6, shareholders’ liability in a Cyprus company is limited to the amount, if any, unpaid on shares respectively held to the Company. This means that upon the winding up of the company, shareholders are not liable for any amount beyond the amount they have originally invested in the company (unless they have signed any personal guarantees).

4.6 To what civil and criminal liabilities might individual shareholders/members be subject?

There are occasions where the company’s separate legal personality is disregarded and the so called “lifting the corporate veil” doctrine applies. Lifting of the corporate veil is a legal doctrine that allows the courts to disregard the separate legal personality of a company and hold its shareholders or directors personally liable for its debts or actions.

In addition to statutory exceptions, based on the case law, the courts will lift the corporate veil in cases where the company is being used as a vehicle to avoid legal obligations or to perpetrate fraud or the company is found to be a sham.

4.7 Are there rules governing the issuance of further securities in a company? Do rights of pre-emption exist and, if so, how do they operate? Can they be circumvented? If so, how and to what extent?

The rules relating to the issuance of further securities in a company are contained in the Companies Law, Cap. 113 (as amended). Pursuant to the Companies Law, pre-emption rights for existing shareholders are only obligatory for public companies, whereas for private companies they are only applicable if specifically stipulated within the company’s articles of association. In essence, pre-emption rights refer to the rights of existing shareholders to acquire additional shares, pro-rata to their existing shareholding, before those shares are offered to third parties in order to protect existing shareholders from dilution.

Furthermore, kindly note that the statutory pre-emptive rights can only be excluded or restricted by a resolution of the shareholders passed by a majority of not less than two-thirds of the votes attaching to the securities or subscribed capital represented.

4.8 Are there any rules on the public disclosure of levels of shareholding and/or stakebuilding?

Disclosure requirements are triggered under the Cyprus Securities and Stock Exchange Law in relation to securities listed in the Cyprus Stock Exchange (“CSE”) at thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75%. A person is required to disclose acquisitions or disposals to the issuer, CySEC and CSE no later than the day following the acquisition when the percentage of that person’s voting rights reach, surpass or fall below the above-mentioned thresholds.

Similarly, pursuant to the Transparency Law, a person whose shareholding, following an acquisition or disposal of listed shares with attached voting rights (either listed in the Cypriot Stock Exchange or in any regulated market of any other EU member state) has a shareholding which either reaches, surpasses or falls below thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75% of the total voting rights in the issuing company, must notify the issuer, CySEC and CSE of such a transaction.

Furthermore, according to the Takeover Bids Law, any acquisition which takes place during a takeover bid period by a bidder who holds 5% or more of the voting rights of the target company or the bidder must disclose details of the acquisition transaction to the target company’s employees, its board, CSE, CySEC and make relevant announcement. Anyone acquiring 0.5% of the voting rights of the target company or the bidder must announce the acquisition and all subsequent acquisitions and their details.

5. Operations

5.1 What are the main routes for obtaining working capital in your jurisdiction? What are the advantages and disadvantages of each?

Under Cyprus jurisdiction, working capital may be obtained either via equity or debt.

• Debt capital: The most common types of debt financing companies use are loan facilities and bonds. Loan facilities involve common types of lending such as term loans, overdrafts etc. Alternatively, a company can issue corporate bonds. These bonds are sold to investors (bondholders) and mature after a certain date. Before reaching maturity (where the principal is returned to the investor), the company is responsible for issuing interest payments on the bond to investors. From a company’s point a view, raising capital via debt is more beneficial as any interest paid is tax deductible. In addition, investors have no say in the management of the company as opposed to equity capital in cases where voting rights are provided.
• Equity capital: Raising capital via equity involves the sale of shares in return for capital investment. These can be either ordinary or preferential shares. Ordinary shares provide shareholders with voting rights, but they are paid last in the event of insolvency (almost never paid). Preferential shares typically have no voting rights, but payment of a specified dividend is guaranteed before any such payments are made on ordinary shares. The company is therefore not obligated to pay the dividends to the shareholders. On the other hand, when voting shares are issued, control is diluted affecting the power of the existing shareholders. From an investor’s perspective, equity is riskier than debt capital as if the company goes bust the investor may lose their investment.

5.2 What are the main routes for the return of proceeds in your jurisdiction? What are the advantages and disadvantages of each?

Set out below are the main routes for the return of proceeds in Cyprus:

• Dividends: The most common method is the distribution of dividends. Dividends are distributed only if there are sufficient distributable profits, in accordance with the provisions of the articles of association. Dividends can be in the form of a final or an interim dividend. Directors have a duty to safeguard the company’s assets and must consider its future financial needs before declaring dividends.
• Share buybacks: Share buyback is only applicable to public companies, if permitted by their articles of association of the company and subject to certain conditions stipulated within section 57(A)-(F) of the Companies Law, such as, among others, (i) securing corporate approvals, (ii) maintaining the share percentages prescribed by law, and (iii) ensuring that the consideration is paid out of realised and non-distributed profits.
• Redeemable preference shares: Shares may be redeemed if issued as redeemable preference shares, subject to the redemption provisions agreed upon their issuance, the relevant provisions in the company’s articles and Companies Law.
• Capital reductions: A reduction of capital occurs when a company reduces the amount of its share capital. Capital reduction must be permitted in the company’s articles and be approved through a special resolution. Furthermore, a court approval is required.

• Loans: A company can also provide loans to its shareholders. The terms of such loans should be assessed to ensure they do not give rise to any tax or legal issues.

5.3 What requirements and restrictions apply to foreign direct investment in your jurisdiction?

There are no restrictions on investment by EU citizens other than in relation to specific regulated sectors. Authorisations and consents are required for acquisitions of qualifying holdings in specific sectors such as lending and investment etc.

Purchases of real estate in Cyprus by third-country nationals are subject to specific rules and require authorisation. In particular, third-country nationals can directly purchase up to two properties under their name only, subject to the district officer’s approval where the property is situated.

5.4 What exchange control requirements apply in your jurisdiction?

There are no exchange control requirements in Cyprus. Cyprus and non-Cyprus nationals can hold and manage assets and liabilities in any foreign currency, subject to the AML rules and regulations.

5.5 What role do stakeholders such as employees, pensioners, creditors, customers and suppliers play in shaping business operations in your jurisdiction? What other influence can they exert on an enterprise?

Only the board of directors plays a key role in shaping business operations and are responsible for the day-to-day management and decisions on behalf of the company. Directors owe a duty to the company to act for its best interest. Any employees, pensioners, creditors, customers or suppliers cannot exercise any sort of influence on the business operations and no duties are owed to them on behalf of the board. However, directors’ duties may be extended to its creditors in cases where the company is insolvent.

5.6 What key concerns and considerations should be borne in mind with regard to general business operations in your jurisdiction?

When establishing business operations in Cyprus, several critical considerations must be addressed. Firstly, choosing the appropriate business entity is pivotal. Cyprus offers various structures, including limited liability companies and partnerships. Please see paragraph 2 for further details. The selection should align with the business’s goals, liability preferences, and tax implications.

Furthermore, understanding the financial and tax implications is crucial in order to understand the most efficient way to receive the proceeds.

Additionally, it is imperative to adhere to all compliance obligations for the avoidance of penalties (e.g., UBO submissions, annual returns, notifying the Registrar of Companies for any changes in the business structure).

Lastly, protecting intellectual property (IP) rights is paramount for businesses to safeguard their innovations, brands, and creations. IP protection prevents unauthorized use, duplication, or exploitation, preserving a company’s competitive edge. It ensures exclusivity, enhances market value, and fosters innovation by providing legal recourse against infringement. Securing IP rights is integral to maintaining business reputation, attracting investors, and sustaining long-term success in a global market where innovation is a key driver of growth.

6. Accounting reporting

6.1 What primary accounting reporting obligations apply in your jurisdiction?

Every company is under an obligation to file every year an annual return with the Registrar of Companies. This annual return is accompanied by the audited financial statements of the company which were presented at the annual general meeting of the company. Failure on the part of the Company to file its annual returns together with the audited financial statements could result in financial penalties and in the dissolution of the Company by the Registrar by means of a strike off of the company’s name from the register of companies maintained by the Registrar.

It should be noted that the annual return must be filed at the Registrar of Companies within twenty-eight (28) days from its drafting date. In the case of a new company, the drafting date of the annual return is the day following the expiry of the period of 18 months from the date of the incorporation of the company. In the case of an existing company, the drafting date of the annual return is the date on which 1-year lapses from the drafting date of the last filed annual return.

6.2 What role do the directors play in this regard?

The directors of the company are responsible for maintaining the accounting books and records on the basis of which the company’s financial statements will be prepared, explaining correctly and precisely all the transactions of the company and allowing the assessment of the financial position of the company at any time. All records must be kept at the Registered Office of the Company. For income tax and VAT purposes, companies are obliged to keep accounting records for six years from the end of the year to which they relate.

The directors of the company are also responsible for ensuring the preparation of a complete set of the annual financial statements of the company, in accordance with the International Financial Reporting Standards accompanied by the management report. Failure to prepare and file the financial statements constitutes a criminal offence and the directors, are liable to criminal prosecution and/or penalties.

6.3 What role do accountants and auditors play in this regard?

Accountants usually prepare the management accounts of the company. Auditors are responsible for the audit of the management accounts, where this is necessary. Please refer to paragraph 12.1. in relation to when an audit is required.

6.4 What key concerns and considerations should be borne in mind with regard to accounting reporting in your jurisdiction?

In the context of accounting reporting in Cyprus, several key concerns and considerations merit attention. First and foremost, adherence to the International Financial Reporting Standards (IFRS) is paramount. Cyprus has adopted IFRS for the preparation of financial statements, and businesses must ensure strict compliance to maintain transparency and consistency in reporting.

Tax considerations are also critical. Understanding the local tax regulations, including corporate tax rates and allowable deductions, is essential for accurate financial reporting. Cyprus’s tax environment, with its competitive corporate tax rates and various incentives, requires meticulous navigation to optimize tax efficiency while remaining compliant.

7. Executive performance and compensation

7.1 How is executive compensation regulated in your jurisdiction?

Executive compensation is not regulated in Cyprus.

For completeness, with respect to listed companies, please note that the Corporate Governance Code, provides guidelines and best practices for corporate governance, including principles related to executive remuneration. The code is not legally binding, but adherence to its principles is encouraged.

We at S. Dionysiou & Partners LLC advise on various matters related to business or private activities. For any further assistance, you may contact us at info@dplawcyprus.com.

This content is solely for general information purposes. None of the information herein should be relied on or substituted for specific professional advice regarding a particular matter or situation and no person should act or refrain from acting on the basis of the information contained in this brochure without first obtaining advice from an attorney.

We are not engaged in rendering legal services or advice by providing the information contained in this brochure.