Doing Business in Cyprus

2009

Contents
1. 2. 3. 4. 5. 6. 7. 8. 9. Introduction................................................................................................... 2 Businessenvironment .................................................................................. 4 Foreigninvestment....................................................................................... 7 SettingupaBusiness.................................................................................. 10 Labour .......................................................................................................... 12 Taxation........................................................................................................ 15 Accounting&reporting............................................................................. 23 UHYfirmsinCyprus ................................................................................. 27 UHYofficesworldwide ............................................................................. 29

Copyright2009UHYInternationalLtd

1.

Introduction

UHYisaninternationalorganisationprovidingaccountancy,business managementandconsultancyservicesthroughfinancialbusinesscentres inover70countriesthroughouttheworld.Businesspartnerswork togetherthroughthenetworktoconducttransnationaloperationsfor clientsaswellasofferingspecialistknowledgeandexperiencewithintheir ownnationalborders.Globalspecialistsinvariousindustryandmarket sectorsarealsoavailableforconsultation. Thisdetailedreportprovidingkeyissuesandinformationforinvestors consideringbusinessoperationsinCyprushasbeenprovidedbytheoffice ofUHYrepresentatives: UHYAntonisKassapisLtd 89KennedyAve.,Off201 NicosiaCY1640 Cyprus Tel: +35722379210 Website: www.uhy.com.cy Email: info@uhy.com.cy YouarewelcometocontactAntonisKassapis foranyinquiriesyoumay have. UHYAntonisKassapisLtdhasbeenestablishedsince1991andspecialises intheprovisionofaccountancy,auditandtaxationservices.Clients includemainlyinternationallyorientedcompaniesoriginatingfromall overtheworldandrangingfromprivateindividualsandsmallprivateor familybusinesstolargemultinationals.Theycoverabroadrangeof sectors,mainlytrading,manufacturingandconstruction.Othersectors includeshipping,consultancy,trustsandcharities. Informationinthefollowingpageshasbeenupdatedsothattheyare effectiveatthedateshown,butinevitablytheyarebothgeneraland subjecttochangeandshouldbeusedforguidanceonly.Forspecific matters,investorsarestronglyadvisedtoobtainfurtherinformationand takeprofessionaladvicebeforemakinganydecisions.Thispublicationis currentatApril2009. WelookforwardtohelpingyoudobusinessinCyprus.

Copyright2009UHYInternationalLtd

UHYAntonisKassapisLtdisamemberofUHY,aninternationalassociationof independentaccountingandconsultancyfirms,whoseorganisingbodyisUrbach HackerYoungInternationalLimited,aUKcompany.EachmemberofUHYisa separateandindependentfirm.ServicesdescribedhereinareprovidedbyUHY AntonisKassapisLtdandnotbyUrbachHackerYoungInternationalLimitedor anyothermemberofUHY.NeitherUrbachHackerYoungInternationalLimited noranymemberofUHYhasanyliabilityforservicesprovidedbyothermembers.

Copyright2009UHYInternationalLtd

2.

Business environment

Geographyandpopulation CyprusissituatedintheeasternMediterranean,lyingatthehubofthree continentsandclosetothebusytraderouteslinkingEuropewiththeArab WorldandtheFarEast.Cyprustotalareais9.251sqkmandisthethird largestislandintheMediterranean,afterSicilyandSardinia. Theislandenjoysanexcellentclimatewithabout300daysofsunshineper year.Thetemperaturevariesfrom6Cto13Cinwinterto21Cto36Cin summer. Cypruspopulationisestimatedatapproximately800,000.Theofficial languagesoftheRepublicareGreekandTurkishbutEnglishisvery widelyspokenandisregularlyusedinbusiness.Nicosia,withan estimatedpopulationofapproximately300,000,isthecapitalcity,situated inthemiddleoftheisland.Allothermajorcitiesareonthecoastandall arepopularholidayresorts,aswellasbusinesscentres. Governmentandlegalsystem Thestructureofgovernmentissimilartootherwesterndemocracieswhere humanrights,politicalpluralismandprivatepropertyaresafeguarded. TheRepublicsconstitutionislargelymodelledontheAmerican constitution.TheHeadofStateisthePresidentwhoiselectedforafive yeartermofoffice.TheCouncilofMinisters,appointedbythePresident,is theexecutiveorganoftheRepublic.LegislativepowerlieswiththeHouse ofRepresentativeswhosemembersholdofficeforfiveyears.Amulti partysystemisinoperationandtheelectoralsystemisbasedon proportionalrepresentation. TheislandwasunderBritishadministrationfrom1878to1960whenit becameanindependentrepublic.Thelegalsystemandallstatutes regulatingbusinessmattersarebasedessentiallyonEnglishLaw.Most lawsareofficiallytranslatedintoEnglish.Thereisahighlytrainedand efficientcivilservice.Englishiswidelyusedandanyonemaycorrespond withgovernmentdepartmentsinthislanguage. Politicalstability TheRepublicofCyprusisamemberoftheEuropeanUnion,theUnited Nations,theCouncilofEuropeandtheBritishCommonwealth.Ithasa verystablepoliticalsystem. PartoftheterritoryofCyprusisoccupiedsince1974byTurkey. Discussionsareinprogressaimingtoresolvetheproblem.

Copyright2009UHYInternationalLtd

Educationandhumanresources Primaryeducationisfreeanduniversal.Mostelementaryandsecondary schoolsarestateownedandofahighstandard.Inaddition,thereare numerousfirstclassprivateschools.TheseschoolsoffertuitioninGreek, English,Russian,French,Italian,ArmenianandArabicandtheyoffer specialisedcoursesleadingmainlytoentrancetoBritishandAmerican universitiesortoprofessionalqualifications. AhighproportionofCypriotshavebeentouniversity,eitherinCyprusor abroad.Asaconsequence,Cyprusranksamongtheleadingcountriesin theworldintermsofitsproportionofuniversitygraduates.Qualified technical,clericalandprofessionalstaff,withwideexperienceandfluency inEnglishandotherlanguages,areavailableforemploymentat reasonableremuneration. Transportandtelecommunications AwidenetworkofairroutesconnectsCypruswithEurope,Africaand Asia.Theislandhastwobusyinternationalairports,inLarnacaand Paphos,handlingalargenumberofscheduledflightsandservedbymany internationalandcharteredairlines.Cyprusisanestablishedinternational transitstationforcommercialairtransportationwithexcellentconnections withintheentireregion.Seabornetrafficisservedbyafullyrenewedport systemcomprisingthemultipurposeportsofLimassolandLarnaca,the industrialportofVassiliko,andthethreespecialisedoilterminalsof Larnaca,DhekeliaandMoni. AlargenumberofshippinglinesincludeCyprusintheirregularschedules toandfromfivecontinentsensuringthatthousandsofshipscallatCypriot portseachyear. Cyprushasoneofthemostadvancedtelecommunicationssystemsinthe world,basedonthelatesttechnology. Economy TheeconomyofCyprusisbasedonfreeenterprise,withmosteconomic activitytakingplaceintheprivatesector.Theservicesector,which dominatestheCyprioteconomy,accountsforabouthalfofemployment andalmosttwothirdsofitsGDP.Theaveragerateofinflationfor2008 was4.67%(2007:2.38%)andtheunemploymentrateonly2.9%in2008 (2007:3.9%).Thestandardoflivingisrelativelyveryhighwithestimated annualincomepercapitafor2008ofEUR21.454TheCypruseconomy recordedrealGDPgrowthofabout3.7%in2008whichcompares favourablywiththeEUaverageforthetwelvenewmemberstates.Itis noteworthythatthisgrowthwasaccomplishedinanenvironmentof

Copyright2009UHYInternationalLtd

almostfullemployment,lowinflationandastableandstrongcurrency. CypruspercapitaGDPhasreachedabout80%ofthecorrespondingEU average. Currency CyprusjoinedtheEurozoneasfrom1January2008. Internationalbusiness Cyprusisadevelopedandestablishedinternationalbusinesscentre,with manytaxandotheradvantagestointernationalbusiness.Theextensive networkoftreatiesfortheavoidanceofdoubletaxationwhichCyprushas formedmakestheislandveryattractivetointernationalinvestors. TherearealargenumberofInternationalBusinessCompanies(IBCs),i.e. companiesincorporatedinCypruswhosebeneficialownershipand businessactivitieslieoutsideCyprus.ItisworthmentioningthatCyprus hasthelowestcorporationtaxrateintheEUat10%onoperatingprofits. Furthermore,asholdingcompaniesinCyprusareinpracticefreeofany taxbothontheirincomefromdividendsandontheirproceeds/goingon disposaloftheirinvestments,withoutanyrestrictionstorelationtothe timeforwhichtheinvestmentwasheldorinrelationtothincapitalisation, theislandhasbecomeafavourablelocationforestablishingholding companiesbyinternationalbusiness. EuropeanUnionandOECD:taxreforms ThetaxsystemofCyprusfullyconformswithEUdirectivesandcodesof conductandwiththeOECDtoeliminateharmfultaxpractices.

Copyright2009UHYInternationalLtd

3.

Foreign investment
Attractingforeigncapitalhasalwaysbeenamongtheprimary objectivesofthecountrysdevelopmentpolicy. Administrativeproceduresaresimpleand,inmostcases,foreign participationofupto100%ispermitted.

ForeignDirectInvestmentPolicy

Inwardinvestmentregulations Directinvestment Foreigninvestorshavetheopportunityofparticipatinginmostsectorsof theeconomy,withequityparticipationofupto100%inanyCypriot enterprise,withoutaminimumlevelofcapitalinvestment.Foreigners consideringregisteringcompanies,acquiringsharesinexisting companies,orsettingupbusinessactivitiesinCypruscanregistera companydirectlywiththeRegistrarofCompanies,andobtainanylicense, ifneeded,fromtheappropriateauthorityaccordingtothenatureof investment.TheForeignInvestorsServiceCentreoftheMinistryof Commerce,Industry,andTourismhasbeensetupforthepurposeof providingguidanceanddirectiontointerestedforeigninvestors. Portfolioinvestment TradingofsharesbyforeignersontheCyprusStockExchange(CSE)isas easyasonanymodernstockmarket.Foreigninvestorsaresubjecttothe samerulesandregulationsoftheCSEasCypriotsorotherEUnationals, regardingcapitaldistribution.Providedthattheinvestmentisinlinewith theCSEslawsandprocedures,investorsmayacquireupto100%ofthe sharecapitalofallCypriotcompanieslistedontheCSE,exceptcompanies operatinginspecificsectors,suchasthebankingsector. Asfarasthebankingsectorisconcerned,noperson,eitherresidentor nonresident,mayowndirectlyorindirectly10%ormoreofabanking companyssharecapitalorvotingstockwithouttheCentralBanks approval.BankingcompaniesarealsorequiredtoobtaintheCentral Banksapprovalbeforeregisteringmorethan50%oftheirsharecapitalin thenameofnonresidents. Exchangecontrol Since1May2004allexchangecontrolshavebeenabolished;hence, residentsandnonresidentsmayholdandmanageassetsandliabilitiesin

Copyright2009UHYInternationalLtd

anycurrencyandinanycountry,includingfreelyconvertibleand transferablebalanceswithbanksontheisland. OtherLawsandRegulations TheliberalisationoftheFDIpolicyshouldnotbeinterpretedasconferring therighttothecompaniesforeignshareholders,principals/directorsor employeestosecureresidenceand/orworkpermits.Furthermore,itwill notprejudicethestanceofothergovernmentaldepartments,organisations orauthoritiesregardingtheissueofanyotherpermitsorconsentswhich mayberequiredunderseparatelawsorregulations. Incentives ThegeneraladvantagesofferedbyCyprusareenhancedbyconsiderable taxincentivessuchas: Lowcorporationtaxwithamaximumofonly10%.Zerotaxon certaintypesofincome(eg.ondividendincomeandontheprofit fromthesaleofsecurities) Significantannualdepreciationallowances. Industrialfreezone Exemptionfromcustomsandexcisechargesforoperationsinthe industrialfreezone.

Otherincentivesinclude: industrialtrainingschemes exportpromotionservices bondedwarehouses verylowrentalsinindustrialestates.

Realestate EUcitizens EUcitizenswhoareresidentsofCyprusmayacquireanypropertyin Cypruswithoutrestrictions. EUcitizenswhoarenotresidentsofCyprusmayacquireanypropertyin Cypruswithoutpriorpermission,exceptaresidence(ahouseoraflat). Fortheacquisitionofaresidencetheyrequirethepermissionofthe CouncilofMinisters(delegatedtotheLocalDistrictOfficer)asfornonEU citizens(seebelow).Onthecompletionof5yearsfromthedatewhen CyprusbecameamemberoftheEU,(i.e.on1May2009)allrestrictionsto EUcitizenswillbelifted.

Copyright2009UHYInternationalLtd

NonEUcitizens NonEUcitizensareallowedtoacquiretitletoimmovablepropertyin CyprusprovidedtheyfirstobtaintheapprovaloftheCouncilofMinisters (delegatedtotheLocalDistrictOfficer).Whentherealestateconcerned exceedsanareaoftwodonums(1donum=1.338metres),approvalmay onlybegrantedfor: aresidenceforownuse(mustnotexceed3donums) professionalorcommercialpurposes industrialuseinsectorsconsideredbytheCouncilofMinistersas beneficialtotheCyprioteconomy,providedtheacquisitionofthe realestateisrelatedtotheproductionofgoodsortoindustries usingnewtechnologyorknowhow.

AnygainmadeondisposaloftherealestatesituatedinCyprusissubject tocapitalgainstaxattherateof20%.(Seesection6belowformore details).

Copyright2009UHYInternationalLtd

4.

Setting up a Business

TypesofbusinessentitiesinCyprus BusinessentitiesinCypruscanoperateunderthefollowingforms: Limitedcompany Soleproprietororpartnership Branch.

ArecentdevelopmentasaresultofCyprusentryintheEU,isthe introductionoflegislationenablingtheregistrationofEuropeanPublic LimitedCompanies,otherwiseknownasSocietasEuropaea(SE). Inaddition,recentlegislationenablestheredomiciliationofforeign companiestoCyprusandviceversa.Thismeansthatcompaniesmay migratefromanotherjurisdictiontoCyprus(andviceversa)withoutthe needforatakeoveroratransferofassetstoanothercompanyalready registeredinthedestinationcountry. Registrationprocedureofalimitedliabilitycompany UndertheCompaniesLawtheprocedurefortheformationand registrationofacompanyinCyprusisquitesimpleasfollows: 1. Approvalofname Beforeanyotherstepsaretakenwithregardtotheincorporationofa company,theRegistrarofCompaniesmustbeapproachedtoascertain whethertheproposednameisacceptable. 2. FilingoftheMemorandumandArticlesofAssociation ToeffectregistrationofacompanytheMemorandumandArticlesof AssociationmustbesubmittedforfilingwiththeRegistrarofCompanies. ASpecimenMemorandumandArticlesofAssociationcanusuallybe madeavailablebutcareshouldbetakentoensurethatthefirstfewmain objectclausesaretailoredtothespecificcircumstancesandmainbusiness objects(aimsoractivities)ofthecompany. 3. Sharecapitalrequirements Therearenolegalrequirementsastotheminimumormaximumshare capitalofthecompany.Inthecaseofforeigndirectinvestmentthereare someindicativeminimumlevelsofinvestmentdependingonthesector. 4. Shareholders Undertherelevantlegislationtheremustbeatleastoneshareholderfor whomthefollowinginformationisrequiredtobedisclosedtothe RegistrarofCompanies: fullname&nationality address&occupation

Copyright2009UHYInternationalLtd

10

numberofsharesheld.

Directors HowdirectorsareappointedisusuallylaiddownbyArticlesof Associationaswellashowmanyconstituteaquorum.However,itisusual fortheretobeatleasttwodirectors.Thenamesofthedirectorsarealso requiredtobedisclosedtotheRegistrarofCompanies. CompanySecretary Theappointmentofthesecretaryismadebythedirectorsinaccordance withtheArticlesofAssociation.Forpracticalpurposesabodycorporate maybeappointedsecretary. RegisteredOffice EverycompanymusthavearegisteredofficeinCyprus,whichis determinedbythedirectors.

Copyright2009UHYInternationalLtd

11

5.

Labour

Labourandemploymentconditions ThelabourforceinCyprusconsistsofhardworkingandskilledpeople, workingatrelativelyinexpensiverates.Thereisaconsensusbetween managementandunionsandindustrialpeacesafeguardsexistforongoing productionandagrowingeconomy.Theunemploymentrateisabout2.9% (2008). Cyprusranksamongsttheleadingcountriesintheworldintermsofthe proportionofuniversitygraduates,ensuringtheavailabilityofhigh qualitymanagerialandadministrativepersonnel. Cyprushasfullemploymentamongbluecollarworkersandunskilled labour.Infact,ithasbeennecessarytoimportforeignworkersfromsome easternEuropeanandAsiancountries.AsCyprusisnowafullmemberof theEU,wherethereisingeneralhigherunemployment,labourisalso availablefromanyoftheotherEUcountries. Employmentlegislationandregulations EUAcquisCommunautaire TheLabourrelatedlegislationinCyprushasrecentlybeenamendedin ordertocomplywithEUregulations. Employerscontributions Socialinsurance From1April2009theemployerscontributiontoSocialInsuranceis6.8% (6.3%upto31March2009)oftheemployeessalary.Thiscontributionis usedtopayunemploymentandsicknessbenefits,paymentformaternity leave,disabilityandoldagepensions. RedundancyFund TheemployerscontributiontotheRedundancyFundis1.2%ofthe employeessalary.Thiscontributionisusedtopaysomecompensationto employeesincasetheyaremaderedundant.

Copyright2009UHYInternationalLtd

12

TrainingDevelopmentFund TheemployerscontributiontotheTrainingDevelopmentFundis0.5%of theemployeessalary.Thiscontributionisusedtopayforvarious governmentsponsoredtrainingneedsofindustry. SocialCohesionFund TheemployerscontributiontotheSocialCohesionFundis2%ofthe employeessalary. Fringebenefits Inadditiontotheabovecompulsorycontributions,manyemployersoffer providentorpensionfundswhichofferpaymenttoemployeeson retirementorvoluntaryterminationofemployment,aswellasmedical andothersimilarfunds. IncomeTaxLaw

UndertheIncomeTaxLawallemployersareobligedtodeductfromtheir employeessalariestheamountofincometaxapplicabletoeachemployee andremitittotheIncomeTaxAuthorities(PayAsYouEarnsystem). Otherlabourrelatedregulations AnnualHolidayswithPayLaw UnderthisLaw,anemployersponsoredCentralHolidayFundwas establishedoutofwhichemployeesobtaintheirholidayentitlement.All employeeswithatleast50weeksserviceareentitledtoaminimumof20 workingdaysofpaidholidays.Employershavetocontribute8%ofthe employeessalarytothisfund.Theymay,however,applyforexemption fromhavingtocontributetothefundprovidedtheyofferbetterconditions totheiremployees. Otherleaveofabsence Thereisnolegislationyetinrelationtosickleaveentitlementorother leaveofabsence.Maternityleaveis16weeks. TerminationofEmploymentLaw TheTerminationofEmploymentLawprovidesforminimumperiodsof noticebeforedismissals(i.e.fromonetosixweeksnotice)andfor paymentofcompensationincaseofarbitrarydismissalorredundancy(i.e. twotofourweekssalaryforeachyearofemployment).

Copyright2009UHYInternationalLtd

13

AliensandImmigrationLaw UnderthisLaw,foreignerswishingtotakeupemploymentinCyprus musthaveeitherabusinesspermitoranemploymentpermit.Citizens ofEUmemberstatesmaybeemployedinCypruswithoutrestrictions. Otheraliensrequireresidence/employmentpermits

Copyright2009UHYInternationalLtd

14

6.

Taxation
ResidentsofCyprusaretaxedontheirworldwideincome.Non residentsaretaxedonlyonsomespecificincomefromsourcesin Cyprus. AnindividualisresidentinCyprusifhe/shestaysinCyprusfor morethanatotalof183daysinanycalendaryear. AcompanyisresidentinCyprusifitsbusinessiscentrally managedandcontrolledinCyprus.(Incorporation,byitselfis insufficienttoestablishresidenceinCyprus). TherearetwomainformsofdirecttaxationinCyprus: IncomeTax DefenceFundContribution

Mainfocusofincometaxlegislation

Allthesesectionsshouldbereadtoobtainafullunderstandingofthe mainformsofdirecttaxationaffectingcompaniesandindividuals. Corporationtax Basicfeatures Asstatedabove,acompanyisresidentinCyprusifitsbusinessiscentrally managedandcontrolledinCyprus. ACyprusresidentcompanyistaxedonitsworldwideincome. Therateoftaxis10%(seebelowforsignificantexemptions) ProfitsearnedbyaCyprusshippingcompanywhichownsships undertheCyprusflagandoperateininternationalwatersare exemptfromincometax Profitsofshipmanagementcompaniesaretaxedat4.25%unless thecompanyelectstopaytonnagetaxontheshipsitmanages.

Taxexemptionsapplytothefollowingincome: Dividendincome. Profitsfromthesaleofsharesandothersecurities. 50%ofpassiveinterest Profitsofapermanentestablishment(p.e.)abroad(providedthe foreigntaxisnotsignificantlylowerthanCyprustaxandthep.e. doesnotderivemorethan50%ofitstotalincomefrom investments.

Copyright2009UHYInternationalLtd

15

Taxlosses Thesecanbecarriedforwardindefinitelyuntilsetoffagainst futureprofits. Groupreliefisavailable. Lossesforap.e.abroadcanbesetoffagainstotherprofitofthe Company.

Withholdingtaxes NoCypruswithholdingtaxondividends,interestorroyalties paidtononresidents,(exceptroyaltiesonfilmsshowninCyprus whicharesubjecttoa5%withholdingtax). IncomefromCyprussourcesofnonresidentprofessionals, entertainersandsportsmenissubjecttoa10%withholdingtax.

Personalincometax Basicfeatures ResidentsofCyprusaretaxedontheirworldwideincome.Nonresidents aretaxedonlyonsomespecificincomefromsourcesinCyprus. AnindividualisresidentinCyprusifhe/shestaysinCyprusformorethan atotalof183daysinanycalendaryear. RemunerationforsalariedservicesrenderedoutsideCyprustoanon Cyprusresidentemployer(ortoapermanentestablishmentofan employerwhoisaresidentofCyprus)areexemptfromCyprustaxation providedthattheperiodoftheseservicesinanycalendaryearismore than90days ApplicableRates Theapplicableratesofincometaxare: 2006and2007 Taxableincome CYP 010.000 10.00115.000 15.00120.000 Over20.001 Exemptions 2008&2009 Taxableincome EUR 019.500 19.50128.000 28.00136.300 Over36.000 Taxrates % 20 25 30

Copyright2009UHYInternationalLtd

16

Certaintypesofincomeareexemptfromincometax(butseebelowsection 6.4DefenceFundContribution),including: Interest Dividends Profitsfromsaleofsecurities

Taxdeductions 2006&2007 2008&2009 Thewholeamount Thewholeamount 20%ofrentalincome Thewholeamount

Contributionstotradeunionsor Thewholeamount professionalbodies Lossofcurrentyearand previousyears Rentalincome Donationstoapprovedcharities (withreceipts) Expenditureincurredforthe maintenanceofbuildingin respectofwhichthereisa preservationorder Socialinsurance,Provident Fund,medicalfund,pension fundandlifeinsurance premiums DefenceFundContribution Thewholeamount 20%ofrentalincome Thewholeamount

UptoCYP200,CYP300or UptoEUR342,EUR513or CYP350persqm EUR598persqm

Upto1/6ofthe chargeableincome

Upto1/6ofthe chargeableincome

Defencefundcontributionisaformoftaxationimposedonlyoncertain typesofincomeofresidentindividualsandcompanies,aslistedbelow. 10%onpassiveinterestreceivedbyresidentsofCyprus (individualsorcompanies). 3%oninterestreceivedbyprovidentfunds. 3%and10%oninterestfromgovernmentbondsbyindividuals andcompaniesrespectively. 3%onanyinterestreceivedbyanindividualwhoseincomedoes notexceedEUR11.960(2007:CYP7.000) 3%on75%ofrents. 15%ondividendincomereceivedbyresidentindividuals.

Copyright2009UHYInternationalLtd

17

Exemptions DividendincomereceivedbyaCyprusresidentcompanyfrom anotherCyprusresidentcompanyisexemptfromdefencefund contribution. DividendincomereceivedbyaCyprusresidentcompanyfrom abroadisexemptfromdefencefundcontributionprovidedthat thecompanyreceivingthedividendownsatleast1%ofthe companypayingthedividend.Thisexemptiondoesnotapplyif a) morethan50%ofthecompanysactivitiesresultin investmentincome; b) theforeigntaxissignificantlylowerthanthetaxrate payableinCyprus. Whentheexemptiondoesnotapply,thedividendincomeistaxed attherateof15%. NonresidentsofCyprusarenotsubjecttodefencefund contributions.

Deemeddividenddistribution Thereisa15%defencefundcontributionondeemeddividend distributionstoresidentshareholdersofaCyprusresidentcompany.A deemeddividenddistributionisdefinedasthe70%ofdistributable accountingprofitsofacompanywhichhavenotbeendistributedwithin twoyearsfromtheyearend.Thiscontributiondoesnotapplywhenthe shareholders(atthetimeofthedeemeddistribution,i.e.twoyearsfrom theyearend)arenonresidentsofCyprus. Capitalgainstax Rate Capitalgainstaxispayableonlyoncapitalgainsarisingfromthedisposal ofimmovableproperty(realestate)situatedinCyprusorthedisposalof sharesofnonlistedcompanies,whichownimmovablepropertysituated inCyprus,attherateof20%. Taxablegain Thetaxablegainisthedifferencebetweenthesaleproceedsandthe originalcostofthepropertyplusimprovementsasadjustedforinflation.

Copyright2009UHYInternationalLtd

18

 Lifetimeexemptions Lifetimeexemptionsareavailabletoindividualsongainsupto: Disposalofanyproperty Disposalofagriculturallandbya farmer Disposalofownresidence Note:Eachindividualisentitledtoonlyoneoftheabovethree exemptions,whicheveristhegreater. Exemptdisposals DisposalofpropertysituatedoutsideCyprus; Profitsfromthedisposalofsecuritiesquotedonanyrecognised stockexchange; Profitsfromdisposalofanysecurities(exceptforsharesinnon listedcompaniesowningrealestatepropertyinCyprus); Transfersbyreasonofdeath; Giftsbetweenrelativesuptothethirddegreeofrelation; GifttoRepublic/localauthority/approvedcharitableinstitutions; Exchangeofproperties,providedthatthewholeofthegainmade ontheexchangeisusedtoacquiretheotherproperty.Thegain thatisnottaxableisdeductedfromthecostofthenewproperty; ExchangeorsaleinaccordancewiththeAgriculturalLand (ConsolidationLaws); Giftstofamilycompaniesofwhichalltheshareholdersare,and continuetobe,membersofthedonorsfamilyforatleastfive years; Giftsfromfamilycompaniestotheirshareholdersprovidedthe companyoriginallyacquiredthepropertybywayofgift.Incases wheretheshareholderdisposesofthepropertygiftedbythe companybeforetheexpirationofthreeyearsfromthedateofthe gift,hewillnotbeentitledtothelifetimeexemptionsapplicableto individualssetoutunderexemptgainsabove; Expropriations; 2007 LimitinCYP 10,000 15,000 50,000 2008&2009 LimitinEUR 17,086 25,629 85,430

Copyright2009UHYInternationalLtd

19

Disposalofproperty,orsharesofcompaniesowningimmovable property,aspartofareorganisationofcompanies; Disposalofpropertyacquiredbetween1August1980and13July 1990withforeignexchangeimportedintoCyprusbynon residentsofCyprusandexpatriatesresidinginCyprus.

Valueaddedtax Mainprovisions Legislationisbasedonthe6thEuropeanDirective.Itspurposeistoachieve harmonisationwithEUprovisions.Themainprovisionsare: Registrationthreshold TheregistrationthresholdisEUR15,600(2007:9,000)pa.Thereforeall businessesthathavetaxablesuppliesexceedingEUR15,600inayearhave toregister. Voluntaryregistration AnyenterprisewhichcarriesonbusinessoutsidetheRepublic,andwhose operationswouldbetaxableiftheywerecarriedoutintheRepublic,can applyforvoluntaryregistration.Thiscanbeadvantageoustosuch businessesastheirsupplieswillnotbesubjecttoVATbuttheywillbeable toclaiminputVATontheirpurchasesandexpenses. Groupregistration SingleregistrationforagroupofcompaniesincorporatedinCyprusisnow possible.Forthispurposecompaniesareconsideredagroupif: onecompanycontrolseachoneoftheothercompanies aperson(legalornatural),controlsalltheothercompanies twoormoreindividualscarryingoutabusinessasapartnership controlalltheothercompanies.

Groupregistrationmeansthattransactionsbetweenmembersofthegroup aredisregardedforVATpurposes.OnlyoneVATreturnisrequiredtobe submittedforallthecompaniesinthegroup,insteadofoneVATreturn foreachcompany. RateofVAT Taxattherateof15%ischargedontaxablesupplieswithintheRepublic. Thesupplyofmedicinesandairandseatransportarezerorated. Exempteditemsincludemedicalservices,postalservices,educationetc. Booksandmagazinesaretaxedat5%.

Copyright2009UHYInternationalLtd

20

Estateduty Thereisnoestateduty(inheritancetaxes)inCyprus. Stampduty Stampdutyispayableonvariouslegaldocuments. Doubletaxationtreaties Cyprushasawidedoubletaxationtreatynetworkwhichservesasa strongincentiveforforeigninvestment. Doubletaxationtreatieswereconcludedwiththefollowingcountries: Austria Canada Denmark Greece Italy Mauritius Poland Serbia** Slovenia** Thailand *IncludesArmenia,Kyrgyzstan,Tajikistan,Ukraine **ThetreatybetweenCyprusandSFRYugoslaviaisstillinforcein relationtoSloveniaandSerbia.Althoughnotofficiallyconfirmed,in practiceitisalsoenforcedinthecaseofMontenegro. Mostoftheseagreementsarecomprehensiveandfollowthepatternofthe OECDModelAgreement.Theynormallyprovideforreliefasfollows: Specifieditemsofincomearefullyexemptfromtaxinoneofthetwo countries,whereitwouldotherwisebetaxedtwice,e.g.royaltiesarenot taxedinthecountrywheretheyarise. Thescopeorextentoftaxchargeableoncertainothertypesofincomeis restricted,e.g.Taxoninterestinthecountrywhereitarisesmustnot exceed10%. Belarus China Egypt Hungary Kuwait Moldova Romania Seychelles SouthAfrica UK Belgium CIS*(USSR) France India Lebanon Montenegro** Russia Singapore Sweden USA Bulgaria CzechRepublic Germany Ireland Malta Norway SanMarinos Slovakia Syria

Copyright2009UHYInternationalLtd

21

Taxpaidinoneofthecountriesisallowedasataxcreditagainsttax payableintheothercountryonthesameincome. Theexactprovisionsofthedoubletaxtreatyofeachoftheabovecountries withCyprusareavailableonrequest.

Copyright2009UHYInternationalLtd

22

7.

Accounting & reporting

Booksandrecords CompaniesincorporatedinCyprusarerequiredtokeepproperbooksof accounteitheratthecompanysregisteredofficeoratanyplacedesignated bythedirectors.Thebooksandrecordsofacompanyarenotopento inspectionbyanyoneotherthanthedirectorsandauditors.TheInland RevenueaswellastheVATauthoritiescan,however,requestthe productionofanyrecordswhileexaminingaccountsfortaxorVAT purposes. Theaccountingrecordsmustshowallsumsofmoneyreceivedand expended,allsalesandpurchases,andassetsandliabilities. Otherbooksrequiredtobekeptare: registerofmembers registerofdirectorsandsecretary registerofdirectorsinterests(insharesofthecompany) registerofdebenturesandcharges minutesofdirectorsandshareholdersmeetings.

AnnualReturns Allcompaniesmustfileanannualreturngivingdetailsofthecompanys capitalstructure,mortgageparticulars,andparticularsofregistered shareholders,directorsandsecretary.Acopyoftheannualfinancial statementsmustbeattachedtotheannualreturn,withanauditorsreport wherethisisrequired(seebelow).ThedocumentsfiledwiththeRegistrar ofCompaniesmustbeinGreek(orTurkish)andareopentopublic inspection. FinancialStatements FinancialStatementsmustbepreparedbyallCyprusincorporated companiesonceayearandpresentedattheshareholdersannualgeneral meeting.Theymaybeinanylanguage,butaGreektranslationisrequired tobefiledwiththeRegistrarofCompaniesasanattachmenttothe companysAnnualReturn.Theaccountingperiodshouldbefortwelve monthsendingonanydatedecideduponbythedirectors.Financial StatementsshouldbepreparedinaccordancewithInternationalFinancial ReportingStandardsasadoptedbytheEUandInternationalFinancial ReportingStandardsasissuedbytheIASBandtherequirementsofthe CyprusCompaniesLaw,Cap.113.InternationalFinancialReporting StandardsandshouldcomplywiththeCompaniesLaw,Cap.113.The 23

Copyright2009UHYInternationalLtd

Accountingyearendisdeemedtobe31December,unlessnoticeof anotherdateisgiven. StandAloneandConsolidatedfinancialstatements Inrelationtotheobligationtoprepareconsolidatedfinancialstatementsor not,followingrecentamendmentstotheCyprusCompaniesLaw,the followingexemptionswereintroduced: a)smallsizedgroupsmaybeexemptfromtheobligationstodrawup consolidatedfinancialaccounts(seedefinitionbelow) b)groupsofcompaniestheholdingormothercompaniesofwhich publishconsolidatedfinancialaccountsonthebasisofGenerally AcceptedAccountingPrinciplesshallbeexemptfromthe obligationtodrawupconsolidatedfinancialaccounts Smallsizedgroupsofcompanies UndertheCompaniesLaw,thetermsmallsizedgroupshallmeana groupofcompanies,ofwhichthecompaniesthatarebeingconsolidated: i. arenonpubliclytradedcompanies; ii. Thedrawingupoftheirconsolidatedfinancialaccountsisnot subjecttootherlegislation; iii. Fullycomplywithtwooutofthefollowingthreecriteriaatthe dateofclosureofthebalancesheetoftheholdingcompany: a)Thebalancesheettotalofthenetassetsbeingpresented (andwithoutextractingliabilities)doesnotexceed EUR14,6m; b) ThenetturnoverdoesnotexceedEUR29,2m; c) Theaveragenumberofemployeesduringthefinancial yeardoesnotexceed250. AuditofFinancialStatements TheFinancialStatementsofallCypruscompaniesexceptthosewhich,in accordancewiththeCyprusCompaniesLaw,aresmallcompaniesandare not: requiredtoprepareconsolidatedfinancialstatements,or publiccompanieshavetobeauditedbyanindependentauditor orauditors.(ButseebelowrequirementsofIncomeTaxlawwhich effectivelyobligesallCypruscompaniestoprepareaudited financialstatements).

Copyright2009UHYInternationalLtd

24

 UndertheCompaniesLaw,asmallcompanyforthispurposemust satisfyatleasttwoofthefollowingcriteria: Theauditorsarerequiredtoexpressanopiniononthefinancialstatements andstatethefollowingintheauditorsreport: whethertheyhaveobtainedalltheinformationandexplanations which,intheiropinion,werenecessaryforthepurposeoftheir audit; whether,intheiropinion,properbooksofaccounthavebeenkept bythecompany; whetherthefinancialstatements(balancesheetandprofitand lossaccount)areinagreementwiththebooksofaccount; whether,intheiropinion,thefinancialstatementsgivethe informationrequiredbylaw,andgiveatrueandfairviewofthe stateofthecompanysaffairsasatthedateofthebalancesheet andtheprofitorlossforthefinancialyearendedonthebalance sheetdate; whether,intheiropinion,theinformationgiveninthereportof theBoardofDirectorsisconsistentwiththefinancialstatements. totalassetsnotexceedingEUR3,417,200 turnovernotexceedingEUR6,834,400 averagenumberofemployeesnotexceeding50.

Furthermore,auditorsinCyprushavetofollowInternationalStandardson Auditingandreportastowhetherthefinancialstatementscomplywith InternationalFinancialReportingStandards. AnnualIncomeTaxReturn EverycompanyresidentinCyprusfortaxpurposesisrequiredto completeandsubmitanannualIncomeTaxReturntotheDepartmentof InlandRevenue(IncomeTaxOffice). TheannualTaxReturnforallCypruscompanies(includingsmall companies)shouldbebasedonfinancialstatementswhichhavebeen auditedbyauditorswhomustbelicensedtoactasauditorsinCyprus. Althoughitisnotnecessarytofileacopyofthefinancialstatements themselves,exceptiftheIncomeTaxOfficerequests,thisprovisionmeans thateffectivelyallCypruscompaniesmustproduceannualaudited financialstatements,(buttheauditreportofsmallcompaniesisnot requiredtobemadeavailabletothepublic).

Copyright2009UHYInternationalLtd

25

Copyright2009UHYInternationalLtd

26

8.

UHY firms in Cyprus

UHYAntonisKassapisLtd 89KennedyAve.,Off201 NicosiaCY1640 Cyprus Tel: +35722379210 Website: www.uhy.com.cy Email: info@uhy.com.cy UHYAntonisKassapisLtd,istheCyprusmemberfirmofUHY International. WithintheAssociationwehaveparticularexperienceofworkingwith familyandownermanagedbusinesses,andaspecialunderstandingofthe needsofpersonalclients.Ourstrongspecialisationisinprovidingawide rangeofservicestoclientswithinternationalbusiness,originatingfromall overtheworld,whoareusingCyprusbecauseoftheexcellent opportunitiesitprovidesforinternationalbusiness. Ourpartnersanddirectorsarehighlyspecialisedprofessionalaccountants, membersofinternationallyrecognisedprestigiousprofessionalbodies, suchasICAEW,ACCAandCPA).Workingwiththemisadedicatedteam ofmanagersandstaff,trainedtothehighesttechnicalstandardsand supportedbythelatestbusinesstechnology.Aparticularstrengthofour firmisourabilitytoworkinmanylanguagessuchasEnglish,Greek, Russianandothers. Wearerecognisedbyotherprofessionalswithwhomwework,including bankers,lawyers,theInlandRevenueandotherGovernmentbodies,asa qualityfirmwithareputationforintegrity,reliabilityandprofessionalism. Ourservices Financialaccounting,auditingandtaxation Bookkeeping Managementandfinancialaccounting Managementconsultancyincludinginternationaltaxplanning Taxation,localandinternational,includingVAT Auditing Specialinvestigations Inaddition,inassociationwithourpreferredcorporateservicescompany 27

Copyright2009UHYInternationalLtd

A.K.COSMOSERVELTD,wecanprovideawiderangeofcorporate, fiduciary,administrativeandmanagerialservices,suchas: Internationalandnonresidentcompaniesandtrusts Generalconsultancyrelatingtointernationalbusinessenterprises Selectionofinternationallocation/jurisdiction Registrationofcompaniesandtrusts Redomiciliationofcompanies Shipping Shippingcompaniesregistration Shipregistration Legalandcompanysecretarial Legalconsultancy Registeredofficefacility Trusteeandnomineeservices Companysecretarial Companydirectorships Managementandadministration Mailboxserviceandmailhandling Officeandsecretarialfacilities Legalisationofdocuments Openingand/ormanagingofbankaccounts Immigration,setupandrelocation Officeacquisitionandsetupassistance Residenceandworkpermits Staffrecruitment Acquisitionofproperty Ourclients Ourclientsaremainlyinternationallyorientedcompanieswithinterestsin Europe,CIS,theMiddleEastandAsia.Theycomefromabroadrangeof sectors,mainlytrading,manufacturing,oilexplorationandoilfield servicesandconstruction.Othersectorsincludeshipping,consultancy, trustsandcharities. AlargenumberofourclientsarenotresidentsofCyprusyettheyare controllingverysuccessfulcompaniesthroughourofficeinNicosia. Othershavesetuptheirownadministrativeofficesontheislandandhave chosenCyprustobetheirhome.

Copyright2009UHYInternationalLtd

28

9.

UHY offices worldwide

ForcontactdetailsofUHYofficesworldwide,orfordetailsonhowto contacttheUHYexecutiveoffice,pleasevisitwww.uhy.com

Copyright2009UHYInternationalLtd

29