Cyprus: how to start or move your business there in 2021

This article is the first of a series of reviews of jurisdictions for doing business from the VERSUS.legal law firm. It deals with the conditions for opening and doing business in Cyprus, the country that first comes to mind for Russian businessmen who think “where can I open a company outside the CIS?“.

The material was prepared by Alina Davletshina, Senior Lawyer Versus.legal.

Alina Davletshina

Despite the fact that statistically fewer Russians are opening companies in Cyprus compared to the conditional 2010, Cyprus is still an excellent country for doing business.

And before we start, sign up for our free webinar on foreign incorporation for IT and gamedev. During the event, we will consider the specifics of working in different jurisdictions together with experts, and also present our guide to foreign incorporation.

Why Cyprus is a good idea:

a fairly low income tax rate (compared to other European countries) is 12.5%. When using IP Box (preferential taxation regime for intellectual property) the tax rate on profits from the use of intellectual property objects (including software) can be reduced to 2.5%;
there is a double taxation agreement with Russia;
it is possible to open a company without personal presence;
favorable business climate, the presence of an extensive IT community;
convenient jurisdiction for the use of “flexible” English law when concluding transactions;
Cyprus is not included in the black lists of offshore companies.

It is important to consider:

The provisions of the double taxation agreement with Russia have been tightened since January 1, 2021 (the tax on dividends and interest has increased to 15%);
to apply low tax rates and benefits, a “real presence” in Cyprus is required, it is necessary to have a director and a secretary (they may be nominal, but it is desirable that they are residents of Cyprus) and a real office;
All company documents and annual financial and tax reports will be compiled in Greek;
Since 2018, Russia and Cyprus have been cooperating under the system of automatic transfer of tax information – the Russian authorities can obtain information about the accounts of Russians in Cyprus.

And now more about where to start.

Opening a company

The company registration period will be 10-14 days. It is necessary to do:

Step 1. Check that the company name you have chosen is unique and not similar to other brand names or registered trademarks (here). It needs to be confirmed and reserved via an online application (here). The fee will be €10, and for an expedited procedure – €20.

Step 2. Prepare the company’s articles of association and the founding agreement, arrange for their signing and translation into Greek. Declarations for submitting an application must be signed by a Cyprus registered lawyer.

Step 3. Apply for registration of a legal entity through the electronic registration system (here).

Attached to the application are:

application form HE 1 (Declaration of conformity signed by a Cyprus registered lawyer);
notification of registration of the real address of the company’s office (form HE 2, signed by the director or secretary of the Cyprus company being created);
information about the owner, director and secretary (form HE 3);
the founding agreement and the charter (in Greek), as well as a certified translation (by a Cyprus translator) into another language, if used.

The fee will be €165 if the authorized capital is formed, or €235 if it is not. Please note that the average cost of consultants for the organization of the company registration process is about € 2000. As a result, the certificate of incorporation will be sent by e-mail.

After the company is registered, it must be included separately in the Cyprus Tax Register (here) and registered as a fee payer.

Opening a bank account

As a general rule, a personal presence is required to open a bank account, although there are some banks that open accounts online. In practice, we had a successful experience of opening accounts remotely at Hellenic Bank and Ancoria Bank.

The set of documents, of course, depends on the bank itself. Usually requested:

Founding Agreement and Articles of Association;
Certificate of Incorporation;
A certificate of the presence of a registered office (sometimes they ask for proof of the “reality” of the office, for example, utility bills);
Certificate of appointment of directors and executive Secretary in a Cyprus company (copies);
Copies of passports of the beneficiary, director, secretary;
Application in the form approved by the bank.

Maintenance of the company after opening

In order to apply for Cyprus tax residency and benefits, a sufficient amount of presence in the country is required after the registration of the company (substance). It assumes the presence of a registered “real” office in Cyprus. But the postal address (PO address) is not enough.

The address of the registered office is published in the electronic register of the Registrar of Companies, and is also required to open an account with a local bank. All notifications are sent to this address (for example, letters from the Registrar of Companies).

Notification of the address of the registered office of the company is carried out by submitting the HE 2 form simultaneously with the filing of the application for registration of the company. And notification of a change of address – using the HE2 form within fourteen days from the date of its change.

It is also assumed that there is a director and a secretary. They can be individuals or legal entities of any nationality, but preferably residents of Cyprus. Another requirement is not formal, but you will probably need to hire a Cypriot accountant.

In practice, the cost of maintaining a company with a nominal service is at least €2,500 per year, not counting office rent. The estimated cost of an average annual office rental (25 sq. m.) is €1,750.

Companies need to submit financial statements to the Tax Department once a year. The first reporting is submitted 18 months after the establishment of the company. The auditor’s report is attached to the financial statements. A fee of €20 is charged for filing reports.

Meetings of participants are mandatory, and they must be held, but:

they can be conducted remotely;
they may not be held if the company has only one participant.

The first meeting must take place within 18 months from the date of incorporation. Further meetings are held annually.

Taxation

Income tax – 12.5%. It can be reduced to 2.5% if the IP BOX mode is used. You can read more about how to get a benefit in our article about IP BOX modes with examples of calculations.

VAT – as a general rule, 19%. If the revenue from the sale of goods or the provision of services exceeds €15,600 per year, VAT is required to obtain a VAT number. You need to apply to the tax authorities for it

Personal income tax is paid on a progressive scale from 0% to 35%. If you have an income of up to €19,500 per year – 0%. Income over €19,501 per year is subject to taxation at the following rates:

€19 500 – €28 000 – 20%
€28 001 – €36 300 – 25%
€36 301 – €60 000 – 30%
Over €60,000 per year – 35%

The tax on the transfer of intellectual property and royalties, if the income was received from the use in Cyprus – 10%, and if the use of intellectual property does not occur in Cyprus – 0%.

Cyprus has signed more than 60 agreements on the avoidance of double taxation. Their list can be viewed here. It is important that Cyprus has such an agreement with the United States, from where payments to companies earning through the App Store or Steam most often come.

Please note that Cyprus does not withhold tax on dividends. That is, when paying dividends from a Cyprus company to Russian owners in Cyprus, no tax is charged, it is paid in Russia. And this is 20% of income tax if a legal entity receives dividends, and 13% of personal income tax if an individual. At the same time, a tax of 15% is provided by virtue of the double taxation agreement in Russia for the payment of dividends from Russian companies in favor of Cypriot ones.

Hiring employees

There are no restrictions on hiring foreigners in Cyprus and there is no obligation to give preference to local citizens when hiring. This is reasonable, because every fifth person living in Cyprus is a foreigner.

The total contributions to various social funds is 25.85% – the employer pays 14.9% of the employee’s income at his own expense and another 10.95% at the expense of the employee.

Mandatory payments include:

payment of social security contribution to the FSS (8.3% at the expense of the employer and 8.3% at the expense of the employee, from 2024 the percentage will increase to 8.8%);
payment to the fund of benefits for the dismissed (1.2% at the expense of the employer);
payment to the industrial training fund (0.5% at the expense of the employer);
payment to the unity social fund (2% at the expense of the employer);
medical insurance (2.9% at the expense of the employer and 2.65% at the expense of the employee).

Additionally, a payment to the vacation fund in the amount of 8% is provided. But this is by choice, only if the employer does not provide annual leave.

The working week in Cyprus is the same as in Russia – 40 hours, vacation – 21 working days

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We hope this information will help you decide whether to open a company in Cyprus. Next week we will tell you about the next jurisdiction. In the meantime, you can read our previous materials about protecting your game from cloning, the legal features of developing children’s games, the nuances of launching games in China, as well as register for our free webinar on foreign incorporation, which will be held on May 20 at 19:00..