The law governing companies is the Companies Law Chapter 113 (based on the United Kingdom's Companies Act 1948) and the law governing Partnerships and Business names is the Partnerships and Business Names Law Chapter 116 (which again is almost identical to that of the United Kingdom).

TYPES OF LEGAL ENTITIES

For someone who intends to do business in Cyprus, or through Cyprus, there are only four ways of doing it i.e. through:

• a company
• a partnership
• a branch
• sole proprietorship (businessname)

COMPANIES LAW
Chapter 113

The Companies Law Chapter 113 provides for two general types of Companies.

PRIVATE LIMITED COMPANY

General characteristics

• The liability of its members is limited up to the amount unpaid for their subscribed shares.
• The right to transfer the shares is restricted.
• The word "limited" must appear at the end of the name of the company.
• The minimum number of members of the company is two and the maximum number is limited to fifty. In the case where only one member desires to hold 100% of a company, a local or foreign nominee may be used as the second member, holding one share.
• Shares cannot be issued to the bearer. In case anonymity is required this can be achieved through local nominees who sign in favour of the beneficial owner of the shares a declaration of trust as well as an instrument of transfer of shares in blank.
• Prohibition as to the invitation to the public to subscribe for any shares or debentures.
• The minimum number for directors is one and there is no maximum. Directors may be local or foreign. Alternate directors may also be appointed. It is not necessary for the directors or the secretary to be shareholders. The appointment and removal of directors is made by the shareholders. Offshore companies must have at least one local director unless the secretary is local. Local nominee directors may also be used. Corporate bodies may act as Directors and Secretary.
• Meetings of the board of directors can be held either in Cyprus or abroad.
• Statutory and reporting requirements are very similar to those of the Companie"-.Act 1948 of the United Kingdom. The statutory books required are:
  - the register of members: containing details as to their full names, addresses etc., the number of shares held by each one, when they became shareholders etc.
  - the register of directors and secretary.
  - the Minute Book for all the meetings of directors and shareholders and
  - the register of charges affecting the property of the company.
• Charges, debentures, floating charges and mortgages must be registered with Registrar of Companies.
• Bank accounts of any kind may be opened, in any currency, either in Cyprus or abroad. Those opened in Cyprus may be operated without any exchange control permission.
• The seal of the company must be kept under safe custody by the Secretary.
• The Secretary is appointed by the Directors and an Assistant Secretary can also be appointed.
• Special kinds of shares with preferential or other rights may be issued.
• Annual returns must be filed with the Registrar of Companies at the end of each financial year of the company. Such returns contain information as to any transfer or issue of new shares, changes to directors/secretary/registered office, registration or cancellation of any charges/mortgages etc.
• The company's file at the Registrar of Companies is available for inspection by the public.
• The company must have Memorandum and Articles of Association, both of which must be signed by their subscribers (the first copy must be deposited, together with the other statutory documents, with the Registrar of Companies). Both documents must be printed in the Greek language but provision is also made for printing same in the English language.

Memorandum of Association

The memorandum must contain the following:

• The name of the company
• The address of the registered office which must be in Cyprus.
• The main objects for which the company is formed.
• The amount of the authorised and paid up share capital which must be in Cyprus Pounds. The authorised and paid up capital must be a minimum of
  C 10,000.00 (if no administrative office is required) or C 10,000.00 (if an office will be required). For special types of Companies such as insurance companies, O.B.U.s etc. the authorised and paid up capital is higher (there is no maximum capital). The authorised and paid up share capital can be increased at any time by special resolution of its members.
• Special provision as to the liability of the Members of the company, which is limited up to the amount they have paid for their subscribed shares.
• Provisions as to the various classes of shares.
• The names, addresses and description of the subscribers together with the number of shares for which they subscribe. If anonymity is required this can be achieved through nominees who sign in favour of the beneficial owners of the shares a declaration of trust and an instrument of transfer of shares in blank.
  
  

Articles of Association

The Articles of Association contain the regulations for the internal managem  of the company. In the Companies Law Chapter 113 under the heading 'Table A" a specimen of certain statutory provisions regarding the regulations and the functioning of the company is provided. This specimen may be adopted by the Articles of Association fully or partly.

The Articles of Association may be amended at any time by special resolution of the members (majority vote of over 75%).

The Articles of Association may include provisions as to the - dividends - accounts and audit - right of transfer and procedure to transfer the shares - voting rights - debentures - general meetings of the company - the appointment, removal and meetings of the directors - annual general meetings - extraordinary meetings and meetings for special resolutions winding up of the company - loans to directors etc.

Exchange Control

The Central Bank of Cyprus is the only authorised institution exercising exchange control, under the Exchange Control Law. The approval of the Central Bank is required for any non-resident to become a shareholder, or for the transfer of any share in an offshore company. Such approval is always given by the Central Bank either for offshore or shipping companies in bona fide cases. However bank references as to the credit worthiness, financial character, respectability and business integrity of the beneficial owners of the shares are required, unless they are well known foreign companies or are already involved in other Cyprus offshore companies. The Central Bank in granting the exchange control approval imposes the following conditions:

• The shares of the company must belong, directly or indirectly, exclusively to aliens. Nominees may also be used if anonymity of the shareholders is required, but the names of the beneficial owners of the shares must be disclosed to the Central Bank who will treat the information as strictly confidential.
• The objects of the company (other than management) shall be confined outside Cyprus.
• The company will be considered as a non-resident company.
• The company must derive income from abroad either from immovable property, royalties, commissions, investments of capital in bonds, shares, debentures or loans, or income deriving from any business, the objects of which lie outside Cyprus.
• The company will not obtain any finance from local sources. Any additional finance required must be received in fall from external sources, or through Cyprus offshore banking units.
• All local expenses such as registration expenses, printing, legal fees, etc. must be covered from funds to be imported from abroad.
• The company must submit regularly copies of its balance sheet and profit & loss account, as at the end of eac of its financial years, certified by auditors practicing in the Republic of Cyprus. The accounts must also bear a confirmation from the auditors that the company did not carry out any transactions with residents other than local payments for administrative purposes e.g. rents, salaries, electricity etc. Such accounts may be kept in any currency.
• The minimum authorised and paid up capital must be at least CY 1,000.00 (as already mentioned the minimum authorised paid up capital is higher for certain types of companies such as O.B.U.s, insurance companies etc.).
• Companies may be allowed by special permission to carry on transit trade through Cyprus e.g. printing work (in any foreign language for magazines, newspapers etc.) carry out any kind of repacking, purchasing goods from local markets for re-exportation etc.
• In case the company opens an administrative office in Cyprus on its own then the company, and everyone of its expatriate personnel, will be required to open local disbursement current accounts with authorised dealers (onshore banks) for the purpose of meeting all their payments to residents.

  -  Such local disbursement current accounts may only be credited with amounts transferred from external accounts and/or foreign exchange converted into Cyprus pounds and will be only debited in connection with cash withdrawals or with payments to residents, either physical or legal persons.

  -  Offshore enterprises and their expatriate personnel may place in their local disbursement current accounts such amounts that they expect to spend in Cyprus. The expatriate personnel need not place all their emoluments into these accounts. Local disbursement current accounts must not be overdrawn.

  -  Upon- winding-up of the offshore enterprise or departure of its expatriate personnel any residual balance in the respective local disbursement current account will be convertible into foreign exchange and transferable abroad without reference to the Central Bank of Cyprus.

• Authorised dealers (onshore banks) with which local disbursement current accounts may be opened are the following (in alphabetical order):
  
  Bank of Cyprus Ltd.
  Barclays Bank Plc
  Co-Operative Central Bank Ltd.
  Hellenic Bank Ltd.
  Lombard NatWest Bank Ltd.
  National Bank of Greece S.A.
  The Arab Bank Ltd.
  The Cyprus Popular Bank Ltd.
  

Residence and employment applications for the first directors, executives, employees etc. are submitted to the Central Bank. Any renewals or subsequent permits are made directly to the Department of Aliens and Migration.

Formation Procedure

According to Cyprus Law an application for the formation and registration of a company must be carried out through a Cyprus law office.

The formation procedure of a company is, in general lines, as follows:

• Approval of the name of the company.
• Application to the Central Bank for Exchange Control approval.
• Preparation and printing of the Memorandum and Articles of Association of the company in Greek and English languages.
• Filing with the Registrar of Companies the Memorandum and Articles of Association of the company in Greek language (duly signed by the subscribers), together with forms H.E.l., H.E.2., H.E.3., (duly signed by one director or the secretary) a copy of the approval of the Central Bank and the receipt for the payment of the registration duty. Form H.E. 1. is an affidavit by the lawyer of the company as to the legitimacy of the formation of the company. H.E.2. provides for the registered address of the company. H.E.3. provides for the appointment of the first directors and the secretary.
• As soon as registration of the company is effected the Registrar of Companies furnishes the secretary with the Certificate of Registration together with certified copies of the list of directors and secretary, shareholders, registered address, Memorandum and Articles of Association, a copy of the Certificate of Registration and a certificate of good standing of the company. Certified copies of the Memorandum and Articles of Association, and registration of the company are always given in Greek, but the lawyer of the company may prepare certified translations of these two documents. Certificates as to the list of directors and secretary, address of the company, shareholders certificates and certificate for the good standing of the company can be obtained in the English language. As soon as the certificate of the registration of the company is issued the company can arrange for the first meeting of the directors for statutory matters such as appointment of auditors, appointment of legal adviser, opening bank accounts, approval of the seal of the company, and of the Memorandum and Articles of association, appointment of the secretary etc.
• The whole application, formation and registration procedure can be completed within seven to ten days.
• There are certain registration fees which must be paid upon the application for the registration of any company. The registration fees vary, depending on the nominal capital of the company, between CY125.00 up to capital of CY 5,000.00 and CY175.00 up to;CY 10,000.00 capital.

For higher authorised share capital the fees payable increase by f.0.40 per every CY 100.00 of capital.

Information needed for registration

Information needed for registration of an offshore company is detailed below:

• The names, addresses, occupations and nationality of at least two persons or legal entities who are to be the shareholders or the beneficial owners of the shares of the company, irrespective of whether anonymity is required to be kept and nominees shall be used. Since the Memorandum & Articles of Association of the company must be signed by the subscribers, and in order to save time, the first subscribers of the company are usually employees or nominee companies of a law office who, upon the registration of the company, transfer their respective shares to the real shareholders. (In cases of anonymity the nominees sign a blank instrument of transfer of shares together with a trust deed, and the Share Certificates which they pass over to the beneficiaries who keep these to safeguard their interest).
• The name of the proposed company to be registered. It is advisable that several alternative names are given in order to save time and unnecessary correspondence. In cases where the name of the company is not an important element law firms have available a list of approved names ready for immediate use.
• The main objects of the company.
• The proposed authorised and issued share capital and the participation of each shareholder or beneficial owner in the company. As previously stated the minimum authorised share and paid up capital required by the Central Bank is CY 1,000.00 without an administrative office or CY 10,000.00 if an office is required.
• The name, address, occupation and nationality of at least one person to be appointed as a director, and the same particulars for the secretary. As previously stated one of these two people must be a person residing in Cyprus. It is advisable, however, to appoint more than two directors, so that a decision may be easily obtained. It is also advisable to appoint local directors if the management and control of the company must be in Cyprus. Although if local directors are appointed they act only upon the instructions received from the beneficiaries of the company.
  

PARTNERSHIP AND BUSINESS NAME LAW

Chapter 116

Partnership and Business Name Law Chapter 116 also provides for two general types of partnerships.

1. General Partnership

2. Limited Partnership

Offshore partnerships enjoy all the advantages extended to offshore companies.

There are two general types of partnerships, the general partnership and the limited partnership.

I. General Partnership

In the general partnership every partner is liable jointly and severally with all the other partners for an unlimited amount for the debts and obligations of the partnership. Partner can also be a company with limited liability or another partnership. The partners of a partnership may be only companies with limited liability, or only partnerships or both.

II. Limited partnership

The limited partnership is a Partnership in which at least one of the partners must have unlimited liability for the debts and obligations of the partnership, whereas the remaining partners may have limited liability. Limited liability companies may also be partner in a limited partnership, as the partner with unlimited liability.

Cyprus offshore partnerships enjoy full tax exemption in partnership profits. In the case of an investor wishing to enjoy the advantages of the tax exempt position of the Partnership and at the same time the limited liability of the Partnership, then the following example may be followed: He may form a limited Partnership in which the partner with the unlimited liability is a limited liability offshore company.

The minimum number of partners required for partnerships (whether general or limited) is two and the maximum is twenty.

Registration

The procedure for registration of a partnership is as follows:

• Securing the partnership's name.
• Preparing the partnership contract.
• Filing with the Registrar of Companies a special form in which certain information is given as to the names, addresses, description of the partners, the unlimited or limited liability of each partners, the duration of the partnership, the person authorised to sign and bind the company etc.
• Filing a copy of the exchange control approval for the non-resident partners.
• Payment of the registration fees.
  
  

BRANCHES

(s. 347 of Cap. 113)

This section falls under s.347 of the Companies Law Chapter 113 and provides for the registration in Cyprus of foreign Companies under the legal form of a branch (overseas companies).

Any foreign company may register in Cyprus a branch under Section 347 of the Companies Law Chapter 113. The procedure followed is identical to that of the United Kingdom.

To register a branch the following documents, duly translated into Greek, are needed:

• a certified copy of the charter, the Memorandum and Articles of Association, or other document proving the constitution of the company
• particulars of directors and the secretary of the company
• name and address of at least one person resident in Cyprus authorised to receive on the company's behalf any notices required by law.

The fee payable for the registration of a branch of an overseas company is
CY 3OO.OO

Branches of overseas companies whose management and control is in Cyprus are taxed at the same rate as the offshore companies i.e. 4.25% on their net profits, whereas if the management and control is not in Cyprus the profits of the branch are exempted from all taxes. In addition offshore branches enjoy all the advantages extended to offshore companies.

SOLE PROPRIETORSHIP (BUSINESS NAME)

Chapter 116

Any Cypriot or any foreigner (subject to exchange control approval) may carry on business either on his own name or through a business name which may be registered under Cap. 1 16.

People in Cyprus are free to carry on business in their own name or under a business name registered under the Partnership and Business Names Law Cap. 116.

A business name is not in fact a legal entity on its own but may be registered by any individual or any legal entity carrying on business under a name other than their own.

To register a business name someone needs to file with the Registrar of Companies a form containing:

• the business name
• the place of business
• the general nature of the business
• the name, address, nationality and occupation of the person or legal entity applying
• date of commencement of business

The application for registration of a business name must be made within 30 days from the date of commencement of business.

Non-residents require the approval of the Central Bank of Cyprus.

OFFSHORE ACTIVITIES

As stated above the most common type of company used for offshore activities by non-residents is the private limited company. The procedure followed for the formation and registration of offshore companies is identical to the local companies of similar type. The only additional document required which characterises these companies as "offshore" is the approval of the Central Bank granting to the offshore company the non-resident status.

Due to the geographical position of Cyprus, its infrastructure and the other advantages many foreign enterprises consider the Island as an ideal place for business in Europe, Middle East, Eastern Mediterranean, Arab Gulf and also in Africa and West Asia. The following categories of offshore companies are currently operating in Cyprus:

Offshore companies may also be formed for the management and control of affairs of any other company. They may also buy and use their own premises such as offices, stores, flats and houses for accommodating their directors, employees, etc. They can also store goods, in transit or in bonded stores, and proceed with repacking and crating processes etc. They may proceed with opening documentary credits, obtaining certificates of origin of the goods from the Chamber of Commerce, legalisation of the documents, employ any type of employees, clerical, technical, either local or foreign; act as trustee or nominee for other offshore companies or as shipowners, shipmanagers, brokers, charterers, agents etc. They may also become full members of the Cyprus Chamber of Commerce and Industry for which the annual membership fee is CY 150.00

Section 28A of the Income Tax Laws 15/77 as amended (Law 245/90) refers to any kind of business as long as these businesses are lawful, performed outside Cyprus, and the income emanates from abroad.

CAPTIVE INSURANCE COMPANIES

Other reasons for setting up a capitive are:

These are just some of the reasons for establishing a captive. The USA and UK are some way ahead of the others in this area but mainland Europe and the Far East are catching up fast.

The industry has of course become extremely complex and now includes multi-parent or association captives and extends to every line of business including medical malpractice, workers' compensation, auto liability, general liability, products liability, errors and omissions, property and marine.

Offshore Banking Companies or branches may be registered in Cyprus (registration of both types has already been explained) under certain provisions and requirements imposed by the Minister of Finance who is the licencing authority and who acts on the recommendation and consent of the Central Bank of Cyprus under the provisions of the Banking Business (Temporary Restrictions) Law Chapter 124. The policy of the licencing authorities is that only international enterprises or their subsidiaries, established in countries where there is good banking supervision, are eligible for a licence to operate in Cyprus as an OBU.

In granting the licence, the Minister of Finance imposes the following conditions which the parent company must accept in writing before the commencement of the business:

• the foreign employees are exempt from social insurance contributions
  
• the net profits of the company are subject to a corporate tax at the flat rate of 4.25% and if such profits are derived from dividends received from another Cyprus offshore company, then no further tax is payable other than the flat rate of 4.25 " paid only by the distributing company.

  This rate is paid irrespective of whether they are managed and controlled from Cyprus or elsewhere

• shareholders are not liable to an additional tax on dividends over and above the amount of corporate tax paid by the company
  
• exemption from stamp duty on any contracts entered into by offshore entities
  
• no estate duty on the inheritance of the shares provided the deceased was not domiciled in Cyprus
  
• duty free facilities are extended to offshore companies maintaining an office in Cyprus and to their expatriate personnel in respect of motor vehicles, office equipment and household effects (except furniture and air-conditioning equipment)
  
  "motor vehicles" covers all saloon cars, sport cars, jeeps, land rovers etc. but does not include motor cycles, buses, coaches or caravans.
  
  "office equipment" covers photocopiers, typewriters, computers and calculating machines. It excludes consumer goods such as stationery etc.
  
  "household effects" include carpets, curtains, TV sets, video sets, washing machines, refrigerators, kitchen units, mattresses, tables, beds, kitchen cutlery and hi-fi sets.

The above mentioned goods do not have to be imported into Cyprus from abroad, but they may be bought from the local market duty free.

All the above mentioned duty free goods must observe the following conditions:

• they must be in the possession and use of the beneficiaries and are not allowed to be lent, exchanged, hired or otherwise disposed of or diverted
  
• they must not be sold except to persons entitled to possess duty-free goods and only after the prior approval of the director of the customs and excise
  
• motor vehicles shall be reported to the Deputy Registrar of Motor vehicles within 15 days of clearance of customs, for the purpose of the registration and circulation licencing.

reads as follows:-

Provided that the Council of Ministers may, after the lapse of ten years, by its decision published in the official gazette of the Republic, prolong such Provisions for any further period. "

(Note: this law has already been prolonged for a further period of ten years i.e. up to 2007.)

In the following cases full income tax exemption may be enjoyed:

• Shipping companies deriving their income from abroad.
  
• Profits of companies owning aircrafts.
  
• Crew salaries.
  
• Profits of offshore partnerships.
  
• Profits of the non-resident partners in an offshore partnership.
  
• Income of Cyprus registered branches of foreign companies, provided management and control lie outside Cyprus.
  
• Any kind of income derived by way of interest on foreign capital when it is deposited in any local operating bank.
  
• Any kind of income arising outside of Cyprus.

The Law governing the "Free Zones" in Cyprus is the Free Zones Law 69/1975. This Law provides for the establishment of Free Zones in Cyprus and gives to the Council of Ministers full powers, on the submission of the Minister of Commerce and Industry, to declare any area in Cyprus as a Free Zone. The area which the Council of Ministers has already declared as a Free Zone is situated in the Larnaca district, close to the town and airport. According to the above mentioned law, and the regulations in force for the time being, the following arrangements and procedures are followed:

Bonded factories enjoy the same custom advantages and other benefits as the factories operating in the free zones. However, due to the strict customs control which is exercised there is a fixed supervision fee of CY 2,000.00 p.a.

After approval is granted a deposit of a security bond is requested, which varies according to the case (usually a security bond of CY 10,000.00 is required).

In general, goods imported to Cyprus are placed into transit sheds for 30 days during which they must be collected. After that period they must be transferred to bonded warehouses (public or private).

The annual fee for a private warehouse is CY1000.00 p.a.

The application for approval of a bonded warehouse (private or public) is addressed to the Director of Customs and Excise and must state the location and particulars of the premises to be used, the kind of goods to be stored, a brief description as to how the warehouse will be operated, and a copy of the lease agreement.

The Director of Customs and Excise in granting the approval imposes certain conditions such as the provision of security, the kind of goods to be warehoused, the working hours, the amount of charges for customs attendance etc.

The principles which govern leaseholding in Cyprus are similar to those of the United Kingdom. Until 1978 leaseholding in Cyprus was unknown. The law 2 of 1978 has amended the basic Immovable Property (Tenure, Registration and Valuation) law and the following subsections were inserted immediately after section 65 of the basic law:

Section 65 (b)

Refers to leases exceeding 15 years, whereby the lessor acquires certain rights, provided that the lease is registered with the appropriate District Land Office within 3 months from the date of the signing of the contract of lease. In the case of a building under construction, or to be constructed, the registration of the lease must take place within 3 months from the date the certificate of registration for such a building was issued. Registrations may be accompanied by other documents as reasonably required by the Director of the District Land Office. The director will thereafter make a note of the registration in a book specially kept for that purpose.

Section 65 (c)

Upon the registration of a lease in accordance with section 65 (b) the lessor shall acquire a real right on the property leased in respect of which the registration was made.

Section 65(d) & (e)

Any subsequent sub-leases for any terms exceeding 15 years give also the right to the new lessors for a real right on the property provided they follow the same procedure for the registration of the contract according to section 65(b).

Section 65 (j)

All taxes, fees or other charges in respect of any immovable property payable by the owner thereof under the provision of any law or regulation in force at any time shall, in the case of immovable property in respect of which a contract of lease in accordance with section 65 (b) was registered, be borne by the lessor.

Location

Cyprus has a Double Taxation Treaty with the following countries:

• Austria
• Belarus
• Bulgaria
• Canada
• China P.R.
• Czech Republic
• Denmark
• Egypt
• France
• Germany
• Greece
• Hungary
• India
• Ireland
• Italy
• Kuwait
• Kyrgyztant
• Malta
• Moldova
• Norway
• Poland
• Romania
• Russia
• Syria
• Sweden
• Tajikistan
• Turkmenistan
• Ukraine
• United Kingdom
• U.S.A.
• Yuogoslavia

Double taxation treaties with Belgium and Finland are currently being negotiated.