Cyprus

Introduction

Cyprus is situated in the north-eastern basin of the Mediterranean Sea at the crossroads of three continents: Europe, Asia and Africa. It is 65 km south of Turkey, 96 km west of Syria, 328 km west of Israel, 385 km north of Egypt, 980 km south-east of Athens. The strategic location of the island has played an important role in its continuing development into a financial centre. With an area of 9.251 sq km, Cyprus is the third largest island in the Mediterranean after Sicily and Sardinia.

Population

The estimated population of Cyprus is 820.000. Greek Cypriots, form by far the largest ethnic group, accounting for almost 80 percent of the population. Turkish Cypriots, British, Armenians, Maronites and other ethnic groups make up the remaining 20 percent.

History

Cyprus has a long and varied history. It was settled by the Greeks in about 1200 BC. Its strategic position made it an object of contest among the great powers ruling the world at different time periods. As a result, the island was occupied through the ages by many different races the main ones being the Egyptians, Romans, Byzantines, Francs, Venetians, Turks and British. Each one of these people, in its own way, left its mark on the island but the Greek character of the island remains predominant. The British, who were the last to control Cyprus before the island eventually became an independent sovereign republic in 1960, have left their mark on commerce, law, public administration and business life in general, all of which have developed along the British model. Cyprus joined the EU on 1 May 2004.

Political and social environment

Cyprus is an independent and sovereign Republic with a presidential system of government. The elected President of the Republic is the Head of State and takes precedence over all persons in the Republic. His term of office is set for a five-year period but he may be re-elected for an unlimited number of terms.

Legislative power lies in the hands of the House of Representatives, the members of which hold office for a period of five years.

The Cyprus legal system has been structured on its English counterpart. English case law is closely followed and all statutes regulating business matters and procedures are based essentially on English laws.

Society

Cypriots have earned themselves a reputation as a hardworking and industrious people with a flair for business. Tradition and family ties are still strong in what is also a liberal and pluralistic society. There is a high standard of education on the island, which has one of the highest percentages of university graduates in the world. Most professional and academic qualifications are gained either at the local University or Colleges, but mostly at EU and

American universities. Cypriots enjoy a high standard of living. As an example, around 70 percent of homes are owner occupied, and there are no records of homelessness. The crime rate is low on the island, Cyprus an ideal locations to visit and live.

Non-EU individuals wishing to retire in Cyprus are granted a residence permit provided they can satisfy the authorities that they have enough income from abroad to support them during their retirement in Cyprus.

Cyprus and the EU

The Republic of Cyprus is a member of the European Union as from 1 May 2004. The accession of Cyprus in the EU and the adoption of the acquis communittaire have given rise to new challenges and opportunities in the business world in Cyprus. Moreover, a number of new funding opportunities became available from EU funds aiming mainly to support the development of business activities in the area of manufacturing, agriculture and agrotourism as well as the promotion of human resource development and the development of the rural areas of the island.

Cyprus has recently entered the European Exchange Mechanism (ERMII). The Government of Cyprus has already announced the implementation of a strategic plan for the preparation of the introduction of the Euro. Businesses in Cyprus are now faced with the challenge to take all necessary action needed to ensure their smooth adaptation to the Euro.

Services sector

The services sector has become increasingly important as indicated by its almost 70 percent contribution to GDP and its share in employment, while the importance of agriculture and manufacturing is declining steadily.

Services include banking and financial services, insurance, advertising, legal, architecture and civil engineering, accounting and auditing, consultancy, design, electrical and mechanical engineering, film production, market research, medical, printing and publishing, public relations, education, software development, tourism and related services, telecommunications, transportation and other services. The size and rate of growth of this sector, which has been the fastest in recent years, has led observers to call Cyprus a “service economy”

• services including tourism 63%
• manufacturing 9%
• transport and communications 9%
• construction 8%
• agriculture 4%
• other 7%

Cyprus as a Financial Centre

Having as from 1 January 2003 amended its tax legislation in anticipation of EU accession, Cyprus has set-up a tax system which is ideally suited both to inbound and outbound EU investors. It resulted in aligning Cyprus with EU directives, abolished all distinctions between international business (formerly “offshore”) and local companies as from 1 January 2003 whilst maintaining a favourable tax regime for the international investor that include the following provisions:

• corporate profits are taxed at 10%
• investment income from dividends is tax free (0%)
• profit on sale of shares and securities is tax free (0%)
• repatriation of profits from Cyprus companies - dividends, royalties, interest - to non-residents is tax free (0%)
• no time restrictions on carrying forward tax losses
• group relief provisions
• no CFC rules applied

The island's 34 double tax treaties remain in force and continue to offer ample opportunities for international tax planning whilst also reducing legally overall taxes for businesses and individuals.

Cyprus has double tax treaties in force with the following countries:

Austria, Belarus, Belgium, Bulgaria, Canada, China, Czech Republic, Denmark, Egypt, France, Germany, Greece, Hungary, India, Ireland, Italy, Kuwait, Malta, Mauritius, Norway, Poland, Romania, Russia, Singapore, Slovakia, South Africa, Sweden, Syria, South Africa, Thailand, United Kingdom, United States, USSR and Yugoslavia.

Cyprus is most commonly used as an intermediate holding company jurisdiction and is of particular interest in the following circumstances:

• for groups international or domestic investing outside Cyprus, aiming at dividend income streams. Such dividend in most cases will be tax exempt in Cyprus
• to hold subsidiaries that have scope for significant capital appreciation and that may be spun off or sold in the future. Such disposals are not taxable in Cyprus
• to benefit from the favourable withholding tax provisions of the Cyprus double tax treaties network and the EU parent-subsidiary directive and the other directives
• where a jurisdiction is required that does not have controlled foreign company legislation
• where it may be important to achieve a tax free unwind of the holding company at some stage in the future
• to avail of the easy exit strategy under Cyprus law which allows payment of dividend, interest and royalties (in most cases) without payment of withholding tax
• appropriate for any fund or investment vehicle, as there is no tax on transactions in securities as defined, even if this is the trading activity of the entity
  

Double Tax Treaties

The above table provides a summary of the withholding taxes applicable for payments to Cyprus companies from double tax treaty countries.

Negotiations are currently in process for the conclusion of double tax treaties with Estonia, Latvia, Lithuania, Spain, the Netherlands, San Marino, Sri Lanka and Iran.

Paid from Cyprus

Dividends

No withholding taxes exist for dividend payments which are made to non-tax residents of Cyprus.

Interest

No withholding taxes exist for interest payments which are made to non-tax residents of Cyprus.

Royalties

No withholding taxes are levied on royalties as long as the right is used outside Cyprus.

Cyprus Post – EU Accession

As from 1 January 2003 Cyprus has set - up a tax system which is ideally suited both to inbound and outbound EU investors. The new tax climate offers to the investors.

• low taxation
• extensive double tax treaties network
• exemption from tax in most cases on dividends received
• exemption from tax of profit from sale of shares and securities
• exemption from withholding tax on the repatriation of income either of

dividends, interest and on royalties

• access to EU directives

Tax costs play a significant role in investment decisions. Investors aim in maximising after-tax return on investment. Therefore, investment structures which have the least tax leakage are preferred by investors and are recommended by the advisers.

As such, a Cyprus investment vehicle can collect income which is a charge against high tax income. Withholding tax is eliminated or reduced under double tax treaties or under EU directives. The rate of tax in Cyprus is low compared to other EU countries. The income  can then be repatriated in any form the investor wishes without withholding tax.

This investment vehicle is suitable both for EU inbound and outbound investments. There are no investment activities which are inappropriate for the Cyprus tax environment. However, there are investment activities which are indeed ideally suited to the Cyprus tax

environment such as:

• investment funds
• finance companies
• royalty companies
• south Europe, Middle East, Russia, central and eastern Europe headquarter business activities

European enlargement and the accession of Cyprus opens up a new gate to investors who wish to invest in EU or who wish to invest from the EU.

Cyprus Legal Framework

We address key issues relating to private limited liability companies which are governed by the Cyprus Companies Law Chapter 113, as amended.

We refer to private companies limited by shares.  They are by far the most common type of legal entity registered in Cyprus and used in international tax structures. They have Articles of Association (Charter) that specifically:

• restrict the number of members to less than 50
• restrict the right to transfer its shares
• prohibit any invitation to the public to subscribe to its shares or debentures
• prohibit the issue of bearer shares

Key features of Cyprus private companies

Incorporation and capacity to contract

A company comes into existence as a legal entity as soon as it is incorporated by the Registrar of Companies.  This is evidenced by the Registrar issuing a Certificate of Incorporation that is conclusive evidence that the company has satisfied all legal requirements in respect of incorporation and that the company is duly registered under the Companies Law.

A company cannot contract or enter any other obligation under the law until it has been incorporated.  It cannot become liable on, or entitled under contracts purporting to be made on its behalf prior to incorporation.  It cannot ratify contracts that were made prior to its existence.  In practice, companies should enter new contracts to give force to agreements that were made prior to incorporation.

Memorandum of Association

The company's objects and powers are defined in the company's Memorandum of Association.  Any act beyond a company's legitimate powers as defined in its Memorandum is void.  Consequently, the Memorandum of Association is normally drafted as widely as possible to enable the company to engage in any type of business.

Articles of Association

The Articles of Association set out the administrative regulations and procedures for running the company.  They stipulate and define how meetings of shareholders and directors are held, the powers bestowed on directors, the method of appointing and removing directors, determine the minimum number of persons that must be present for a quorum, set out the procedures for issuing new shares, transferring shares, borrowing powers and so on.

Although the Articles of Association can often be in standard form, they are also drafted to take into account the specific needs and requirements of the shareholders.                                     

Shareholders and directors

The powers in a company are distributed between the board of directors and the shareholders as stipulated in the Articles of Association.  The power of the directors can therefore be as wide or narrow as the Articles provide except that the exercise of certain powers are specifically reserved for the shareholders.  For example, the shareholders always have the right to remove directors.

The Memorandum of Association and the Articles of Association are filed with the Registrar and are therefore public documents available for inspection by everybody.

As previously stated, an action outside the objects of the company is void and therefore unenforceable.  The remedy commonly available to the other contracting party is to recover money or property paid or transferred under the void transaction to the extent that it is possible to trace it. 

However, the situation regarding an action that is within the objects of the company but made by directors acting outside their powers as stated in the Articles of Association may be very different.  The “indoor management rule” as it is often called, accepts that persons dealing with directors are entitled to assume that the directors have the authority which they claim to have.  Under common law principles, the company is bound by the actions of a director where that director acted within the usual, apparent or ostensible scope of the "director's authority".

Directors and secretary

A private company may have only one director and a secretary.  A director may also be the secretary.  From an administrative point of view it is advisable for the secretary to reside in Cyprus and be conversant in Greek as all communications and filings with the Registrar of Companies are required to be  made in the Greek language.

Procedural requirements

All companies are required to hold in each calendar year, an Annual General Meeting (AGM).  Not more than 15 months must elapse between one AGM and the next.  The first AGM must be held within 18 months of incorporation.  Failure to comply makes the company and each director liable to a fine not exceeding C£250.

The Articles of Association normally provide that the directors may call an Extraordinary General Meeting at any time.  Notwithstanding the provisions of the Articles, the law states that the holders of 10 percent of the paid up capital of the company have the right to require the directors to call an Extraordinary General Meeting.

The notice period for an AGM or the meeting for the passing of a special resolution is 21 days.  The notice period is 14 days for every other case.  These notice periods may be shortened if 95 per cent of the members entitled to attend and vote agree to so do, except in the case of  AGM where all the shareholders must agree to the shorter notice period.

The Cyprus law contemplates 3 types of resolutions: ordinary, special and extraordinary.  The minimum notice period and majority required in each case, are summarised

*21 days if the resolution is to be passed at an AGM

The Cyprus law details the nature of resolutions for each type of decision required

Obligations to maintain accounting records and to prepare audited financial statements

• The directors are obliged to ensure that the company maintains accounting records that enable the preparation and audit of financial statements that show a true and fair view of the company's financial position and performance in accordance with International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS).
• The accounting records must be held either at the registered office or at another place in Cyprus and must always be available for inspection by the directors.  Where the bookkeeping function is maintained outside Cyprus then arrangements must be made for those accounting records to be sent to Cyprus in regular intervals not exceeding 6 months. 
• Every company that has subsidiaries is obliged to prepare consolidated financial statements in accordance with IFRS and IAS and to present these financial statements to the members in general meeting.  Additionally, those financial statements must disclose the following:
  • remuneration of auditors
  • amounts paid to directors as compensation for loss of office
  • the total amount paid to directors in fees and emoluments
  • directors holdings in shares and debentures
  • loans granted to directors

It is important to understand that one company is considered to be a subsidiary of another only if that other company controls the constitution of its board or holds the majority of the voting rights either directly or through an appointed agent or trustee.

The financial statements must be accompanied by a report of the board of directors  which includes:

• details of any changes in the nature or volume of operations
• any changes in the share capital
• any significant change in the constitution of the board of directors or the duties assigned to its members
• directors' proposals regarding the distribution or not of the retained profits

Failure to comply with these requirements leaves the directors open to prosecution with the possibility of a fine of up to C£10.000 and imprisonment of up to 12 months.

• The financial statements must be audited by a registered auditor.

Aspects of Cyprus Tax

Taxable and non-taxable entities

A company is considered to be a tax resident of Cyprus if it is “managed and controlled” in Cyprus.  Although no definition of management and control is provided in the tax law itself, this is generally accepted as being the place where board decisions are taken and where the directors reside.  Consequently, for a company to be managed and controlled in Cyprus we would expect to see resident directors and regular board meetings being held in Cyprus.

A company that is incorporated in a foreign country is considered to be tax resident in Cyprus if managed and controlled in Cyprus.  Similarly, it is possible to incorporate companies in Cyprus that are non-resident for Cyprus tax purposes.

Non-resident companies i.e. entities not managed and controlled in Cyprus are not subject to taxation in Cyprus unless they have a permanent establishment in the island.  Where they have such an establishment, they are taxed only on that income that arises from the activities of that establishment.  Such companies cannot take advantage of the Cyprus network of double tax treaties and are therefore used mainly for trading activities where treaty benefits are not required.  The reputation of Cyprus as a top quality financial centre with highly developed banking, legal and accountancy professions gives a non-resident Cyprus company a clear advantage over known offshore jurisdictions which are often viewed with suspicion or mistrust.

Taxation of resident companies

Resident companies are subject to Cyprus corporation tax at the rate of 10 percent.  This is the lowest corporate tax rate in the EU.

Dividends, interest, royalties and profits realised for sale of securities are subject to special tax treatment as detailed below:

Taxation of transactions in shares and other securities

Profits realised from the sale of securities are exempt from tax.

“Securities” are defined as meaning shares, bonds, debentures, founders' shares and  securities of companies or other legal persons and options thereon. 

The definition of security does not embrace all financial instruments. The Cyprus  Tax Authorities have not issued a definitive list of all the financial instruments that they consider to fall under this definition but it is generally considered that promissory notes, shares in mutual funds and currency contracts are not considered as securities. Profits realised on dealing in these instruments are not exempt and are subject to corporation tax.

Taxation of dividends

Dividends received by a Cyprus resident company are generally exempt from taxation in Cyprus if they are received from a foreign entity in which the Cyprus entity owns more than 1 percent of its share capital. 

The exemption does not apply where the foreign entity:

• receives more than 50 percent of its income from investment activities, and
• the foreign tax burden of the company paying the dividend is substantially lower than that of the Cyprus resident company 

"Substantially lower" has been interpreted as meaning less than 5 percent.

The Cyprus Tax Authorities have acknowledged that foreign tax burden does not cover only the tax paid by the company paying the dividend but includes also the tax paid by lower level subsidiaries.  In practice, therefore dividends received from subsidiaries or associates are rarely taxed.  

Where dividends do not satisfy the requirements for exemption from taxation or where the holding constitutes less than 1 percent of the paying company's share capital, then they are subject to defence tax at the rate of 15 percent.  However, any tax withheld at source is allowed as a deduction from this tax even if it is made from a country that does not have a double tax treaty with Cyprus.

EU parent-subsidiary directive

Cyprus holding companies take benefit of the EU parent-subsidiary directive. 

Dividends paid between associated enterprises that are both situated in the EU are made without any withholding taxes.  A company is defined an associate of another, if that other company holds at least 20 percent of its share capital.  This percentage will fall to 15 percent  in January 2007 and 10 percent in January 2009. 

Taxation of interest income

The taxation of interest income depends on whether it is derived in the ordinary course of business or it is closely related with that business.  In such cases, the interest income earned is included in the calculation of taxable income under corporation tax  and taxed at 10 percent. Interest earned by banks, financial companies, hire purchase companies or leasing companies is considered to arise from the ordinary course of business.   

Interest earned as detailed below is considered to be closely related to that business and is also subject to corporation tax:

(a)businesses such as car dealers, property developers that sell their products on extended payment terms and charge interest on their trade debtors

(b)interest on current account balances at banks

(c)interest earned by companies which act as a vehicle through which a group finances the operations of companies within it. No formal definition of "group" has been provided but it is generally considered that a group comprises any relationship where the companies are ultimately controlled by one entity.  Consequently, two entities that are owned by a physical person without a common holding company are not considered a group

In all other cases, where the interest is considered to arise outside the ordinary course of business then only half of that is treated as income for corporation tax purposes but the gross interest received is also subject to defence tax at the rate of 10 percent.   Thus the effective tax burden on such interest is 15 percent.   Interest on deposit accounts  and interest earned on loans granted to third parties are treated in this way. 

A credit is provided against the defence tax payable for any taxes withheld at source irrespective of whether a double treaty exists or not.

EU interest and royalty directive

The EU interest and royalty directive came into effect on 1 January 2005 and provides that interest and royalty payments arising in one EU member state are exempt from any taxes imposed on those payments in that state, whether by deduction at source or by assessment, provided that the beneficial owner of the interest is a company in another EU member state.

For the directive to apply the companies must be associated.  One company is defined as an associate of another if that other company holds at least 20 percent of its share capital.  This percentage will fall to 15 percent in January 2007 and 10 percent in January 2009. 

The company receiving the interest or royalty payment must not be acting as a trustee, agent or intermediary.  It should be receiving the income for its own benefit.

The interest or royalty must be on an arm's length basis.  The directive will not apply to what is considered to be "in excess of an arm's length amount".

The low tax regime of Cyprus makes it the ideal route through which non-EU residents can extract profits from their EU operations.  Interest and royalties are allowed as an expense in the EU payer reducing its tax base and is taxed at low rates, often nearly zero in Cyprus.

Greece, Czech Republic, Slovakia, Poland, Portugal, Spain, Latvia and Lithuania have been granted a transitional period in which to apply the directive as the economic effect of immediate compliance would be onerous.  They can charge a maximum withholding tax of 10 percent up to 2007 and 5 percent until 2011.  However, the Cyprus network of double taxation treaties includes Greece, Czech Republic, Slovakia and  Poland.                                                          

The overall tax burden on interest and royalties remitted to Cyprus from these  countries is not affected by the transitional provisions as Cyprus grants a tax credit for the taxes withheld by these countries. 

Taxation of royalties

Royalties received by a non-resident from sources within Cyprus are liable to 10 percent withholding tax. However, if a Cyprus company is granted the right to use a patent, trademark or innovation outside Cyprus, then there is no withholding tax and the Cyprus company is taxed at the corporate tax rate on the profit margin that it realises on the  use of the right.

Other provisions of the Cyprus Tax Law

The treatment of tax losses

­Taxable losses incurred during a tax year which cannot be set-off against other income of the same tax year are carried forward indefinitely and set-off against future profits. This provision is applicable for losses arising from the year 1997 onwards.

Taxable losses cannot be carried forward if there is a change in the ownership of the company and a significant change in the nature of business within three years from the year in which the loss arose.

Group relief

The taxable losses of any company may be set off against the taxable profits of another company in the same group provided that the two companies are members of the same group for the whole year and are both tax residents of Cyprus.  For the purpose of group relief, a company is deemed to be a member of the same tax group if:

(a) it is 75 percent subsidiary of another company, or

(b) both are 75 percent subsidiaries of a third company

Reorganisations

Any profits arising on the transfer of assets and liabilities between companies during a reorganisation plan are tax free. A reorganisation plan includes mergers of companies, remerges, transfer of activities or exchange of shares.

Inheritance or estate taxes

There are no inheritance, estate or other taxes on shares held in a Cyprus company.

Wealth taxes     

Cyprus imposes no taxes on wealth and it is not anticipated it shall do so in the years to come.

Thin capitalisation rules

There are no thin capitalisation rules in the Cyprus tax legislation. Caution needs to be exercised in relation to interest deductions in respect of loans used for the purchase of assets not used in business as such interest is disallowed.

Transfer pricing

There are no transfer pricing rules in Cyprus but a provision in the Cyprus Tax Law, requires transactions to be based on an "arm's length" principle. Cyprus legislation incorporates the OECD model and pertinent guidelines to determine what an arm's length transaction is.

International Business Companies (IBC) established prior to 2002

IBC and international branches incorporated prior to 1 January 2002 and which had activities during 2001 are entitled to elect to be taxed at 4,25 percent on profits for the tax years 2003, 2004 and 2005. 

Those making the election are taxed irrespective of whether or not their place of management and control is in Cyprus.  Such companies are not subject to defence tax on interest but the following exemptions are not applicable

• 50 percent exemption from tax of interest income
• exemption from tax of dividend income (other than dividends from other IBC)
• exemption from tax of profit from disposal of securities
• group relief of losses between group companies
• tax exemptions on reorganisations
• credit of foreign taxes in the absence of double tax treaty

Losses accumulated until the year 2000 can only be set-off against the profits until the year 2005 and losses from the year 2001 onwards are carried forward without any restrictions.

Brief Notes On The Establishment of Cyprus Entities

Registration Procedure

Before any other steps are taken with regard to the incorporation of a company, the Registrar of Companies must be approached to ascertain whether the name by which the company is proposed to be incorporated is acceptable. The Registrar will not accept a name if:

• it is too similar to the name of an existing company
• it is considered to be misleading (for example, if the name of a company with small resources suggests that it is trading on a great scale or over a wide field)
• it suggests a royal connection (for example names containing such words as “Royal”, “King”, “Queen”, “Crown” )
• it includes any of the following words: “Imperial”, “National”, “Corporation”, “Commonwealth”, “Co-operative”

Bearing in mind the above restrictions it is desirable to submit for approval to the Registrar two or three alternatives to the first choice of name, as experience has shown that this can save time.

Where the proposed Cyprus company is intended to have a similar name to that of its parent company, the Registrar will require the consent of the parent company for the use of such name.

Filling of the memorandum and articles of association

To effect registration of a company the memorandum and articles of association must be submitted for filling with the Registrar of Companies.

Memorandum of Association

The memorandum must contain the following information:

• the name of the company with “Limited” as the last word
• the situation of the registered office
• the objects of the company, which it is advisable that they should be as wide as possible so as to enable the company to engage in any kind of business or activity, without this being ultra vires (beyond the powers of) the company and, therefore, void
• a statement that the liability of the members is limited by shares or by guarantee
• the amount of the share capital
• the subscribers to the memorandum together with the number of shares for which they have subscribed

Articles of Association

The articles contain rules governing the internal management of the company and regulating the rights of its members among themselves. The articles may be altered or added to by means of a special resolution, which requires a majority vote of over 75 percent of the member. The articles deal with matters such as:

• general meetings of the company
• voting rights of members
• transfer of shares
• appointment and powers of directors
• dividends
• accounts and audit

Specimen memorandum and articles of association which have been prepared after careful study by lawyers can be made available, but care should be taken that the first few main object clauses are tailored to the specific circumstances and main business objects of the company.

Share capital requirements

There is no legal requirement as to the minimum or maximum share capital of the company. It is recommended that the authorised share capital should be at least C£1.000 (or approximately ˆ1.700) which may conveniently be divided into 1.000 shares of C£1 each.        

Shareholders

Under Cypriot law, every company limited by shares, must have at least one shareholder. If anonymity is required, the shares may be held by trustee companies in trust for the beneficial owners without public disclosure of the owners' identity. Trustee companies may be provided by reputable service providers recommended by ourselves.

Bank references for each beneficial shareholder are required. A specimen bank reference letter is as follows:

REFERENCE LETTER FROM BANK
To be typed on the letterhead of the bank
Oneworld Limited
(Date)

Dear Sirs

We hereby confirm that Mr/Mrs ______________ is well known to us for ____________ years and in our opinion of good financial standing and trustworthy person in his/her business obligations.

This is given without any risk, responsibility or any engagement on our part.

(Signed) ......................

Name of bank

The following information is required for each shareholder:

• Full name
• Residential and business address
• Date of birth
• Nationality
• Occupation
• Details of past and existing business activities and sources of income with supporting evidence
• Exact description of the activities to be carried out by the proposed Cypriot company
• Number of shares to be held
• Copy of passport
• For corporate shareholders, copy of the statutory documents and the most recent financial statements

An additional reference from a lawyer or professional adviser may be necessary. A specimen reference letter is as follows:

REFERENCE LETTER FROM PROFESSIONAL FIRM

To be typed on the business letterhead

Oneworld Limited
75 Prodromou Avenue
Oneworld Parkview House
PO Box 25207, Nicosia 1307
Cyprus
Tel:  +357 22496000
Fax: +357 22493000

(Date)

Dear Sirs

Reference for (name and address)

I confirm that I have known Mr/Mrs __________ for the last {    } years acting for him/her {state capacity in which you have acted} {and also acted for him/her in relation to {give name of company} and that the above address is the address shown in our records for him/her.

I confirm that I know him/her to be a person of integrity, honesty and good character and that there is no reason why you should not act on his/her behalf or provide business services to him/her or (give name of company).

Yours truly

{Professional capacity}

Appointment of directors

The manner of appointment of directors is laid down in the articles of association. Whatever these may provide, the ultimate control for the appointment and removal of directors vests with the members of the company. The articles of association may, in certain cases, name the first directors of the company, who thus become directors from the date of incorporation. Alternatively, and more commonly, the articles may provide that the names of the first directors be determined by the subscribers to the memorandum, who in fact are the first members.

From a tax planning point of view, it is important that the company is managed and controlled in Cyprus and, accordingly, it is recommended that the majority of the directors appointed are Cyprus residents. It is sometimes desirable that expatriate directors are also appointed, but it is advisable that the number of the intended expatriate directors resident in a particular country is always below the minimum number necessary to constitute a quorum. With regard to the appointment of directors the following particulars are required:

• full name
• residential address
• date of birth
• nationality
• occupation
• passport number for expatriate, ID number for Cypriot companies

Corporate documents

It is advisable to ensure that upon the incorporation of the company its beneficial owners or other appropriate officials are provided with copies of all corporate documents, properly legalized and translated where appropriate, from Greek into English or any other language. Such corporate documents normally comprise:

• certificate of incorporation
• memorandum and articles of association
• address of the company's registered office
• the first of directors, secretary and shareholders
• share certificates
• statutory and other necessary minutes of the meetings of the directors and shareholders
• letterheads, invoices and other company stationery
• any other documents pertaining to the company's activities up to the date of its establishment

Stamp duty

Stamp duty is payable on the registration of a company and its level depends on the authorised share capital of the company. Stamp duty payable is as follows:

Appointment of secretary

The appointment of the secretary is made by the directors and the articles of association should normally contain an appropriate provision to this effect. The existence of a secretary is a requirement of the law. For practical purposes a body corporate (i.e. a company) may be appointed secretary. A number of secretarial companies which can act as secretaries to Cyprus companies are available and operate satisfactorily.

Registered office

Every company must have a registered office from the day it commences business or from the fourteenth day after its incorporation, whichever is earlier. The registered office is the place where writs, summonses, notices, orders and other official documents can be served upon the company. The registered office is usually the place where the company's Register of Members is kept, unless the company informs the Registrar of Companies of another place.

Period needed for registering a company

The formation and registration procedures, including various administrative needs such as printing of the company's letterheads, opening of statutory books and the opening of the required bank accounts, up to the time the certificate of incorporation is issued, can normally be completed within a period of a week.

Bankers, currency and signatories

The company may open bank accounts with any bank in most of the main currencies and money transfers can be effected without foreign exchange restrictions. Bank signatories can be provided locally, if necessary.

Certificate of incorporation

Once the Registrar of Companies has been satisfied that the documents lodged in relations to a proposed company are in order, a certificate of incorporation will be issued, whereupon the company becomes a corporate body, having an independent legal existence quite distinct from the shareholders composing it.

Formation costs

Total formation costs for a company with an authorized share capital of C£10.000, including lawyers' and accountants' fees, and all other out of pocket expenses such as stamp duties etc, are estimated to be C£1.400 (EUR 2.400). Fees for services such as opening of bank accounts, issuing powers of attorney or providing tax advice will be additional to the formation costs.

Administration costs

Fixed

The minimum annual fixed costs for keeping the company in good standing may be summarised as follows:

Other costs calculated on a time basis

Professional fees are normally determined on a time-spent basis, which depends on the volume and complexity of the transactions involved. Fees for audit, accountancy and bookkeeping services and fees for processing payrolls, for attending to personnel matters and other related services are very competitive.

Day-to-day management of the company

Oneworld Ltd, through our International Business Services Division (IBS), is capable of dealing with all the day to day activities of any company, such as bank account monitoring, processing of bank transfers, payroll preparation, invoicing, preparation and review of agreements, bookkeeping, preparation of management reports and statutory financial statements, company secretarial and administration, tax and financial advice and other accounting and business administration.

Services

Oneworld Ltd also provides a comprehensive package to assist their clients in carrying out their marketing functions without losing valuable time in administrative matters which covers:

• Immigration and government offices' work including work and residence permits, alien registration, driving licenses, duty free applications and liaison
• full reporting requirements including budgeting, cash flows, etc
• specialised administrative services mainly on documentation, credits, payroll and all aspects of day-to-day financial matters

Cyprus Branch

As in the case of international business companies it is advisable that the manager of a Cyprus branch of the overseas company are provided, upon the registration of the branch, with a full set of documents, properly legalised and translated, where appropriate, into English or any other language. In the case of a branch such documents normally comprise:

• certificate of registration
• the charter of the overseas company or other instrument defining its constitution
• list of directors and name of the person authorised to accept notices
• letter headings, invoices and other branch stationery
• any other information and documentation pertaining to the activities of the branch to the date of its establishment

Formation and administrations costs

Total formation costs of a branch are likely to be in the region of C£1.000 (or approximately ˆ1.700) Professional fees for the administration of the branch are normally based on time spent and can be described as very competitive.