The tax system of Cyprus is one of the most beneficial tax systems in the EU. This makes a Cyprus company an advantageous vehicle for International Tax Planning and use. Here are some of the benefits of the Cyprus tax system:

• Taxation is based on Residency status;
• 12,5% corporate tax on trading profits;
• Notional Interest Deduction available (up to 80% of taxable income);
• Incoming dividends exempt from taxation (subject to relaxed conditions);
• No withholding tax on outgoing payments (dividends-interest-royalties);
• No taxation on profits derived from sale of securities (provided no Cyprus situated immovable property);
• Introduction of the non-domicile principle for individuals (no tax on dividends/interest);
• Interest expense on 100% corporate acquisitions permitted;
• Beneficial IP Regime in line with OECD's "nexus" principle;
• Capital gains from the sale of immovable property situated outside Cyprus are tax exempt;
• Tax free Re-Organisations (cross border permitted);
• Foreign PE profits exempt;
• Applicability of all EU Tax directives;
• Advance Tax ruling practice exists;
• Extensive and constantly expanding attractive Double Tax Treaty network;

Moreover, Cyprus is a party to a considerable number of Double Taxation Treaties with various countries for the avoidance of double taxation of income earned in any of the two contracting states.

Cyprus is also a full member of the EU since 2004 and it benefits from all EU treaties, regulations and directives. Cyprus has successfully harmonized its legislation fully with the EU standards and introduced a thorough anti money laundering legislative framework which is in full compliance with EU and USA standards. Additionally, Cyprus is listed on the OECD ‘white list’ of global jurisdictions that are in full compliance with the internationally agreed tax standards.

A company is a legal person created by a certain legal procedure, called Incorporation/Registration. In principle, a Cyprus private company can start its business activities as soon as it is registered with the Cyprus Registrar of Companies (“RoC”).

Summary of the procedures of a company’s incorporation

• Filing of an application to get approval for the company’s name by the RoC. It takes approximately 3-5 working days to obtain approval/rejection over a name.

Once the name approval is obtained, the company has six (6) months to file the application for the incorporation of the company and for this period the approved name is reserved.

• Filing of the Memorandum and Articles of Association (“M&AA”) of the company along with the required forms whereby notification is made to the RoC about the details of the first director(s) and secretary(ies) and the registered office of the company.

In case of private companies in Cyprus the minimum number of directors is one (1) and the company secretary cannot be the same person as the sole director except where there is only one shareholder.

Also, there is an option to create a file of translations with the RoC in order to obtain certified copies of the M&AA in a language other than Greek.

• Upon examination and approval of the incorporation application, the RoC proceeds with the company’s incorporation, assigning it with a registration number and issues the Certificate of Incorporation (which constitutes undisputable evidence that all steps have been adhered in accordance with the law). Upon request, RoC can issue a set of Certificates i.e. Certificate of (a) Registered Office; (b) Directors and Secretary; (c) Shareholders, (d) Certified copy of the M&AA and (e) Certified copy of the Certificate of Incorporation. The timeframe within which a Cyprus company may be incorporated varies and takes approximately 10 working days as of the date of the filing of the required documentation with the RoC, depending on the period of time whereby the filings will be made (i.e. whether a public holiday intervenes within such period or August summer vacations etc.)

Please note that the ‘Know Your Client’ (“KYC”) procedure precedes the abovementioned steps.

Duties of directors
Since directors have the power to make important decisions, several duties are imposed on them so as to ensure that the company’s interests are well-protected.

Those duties are divided into the following categories:

I. Fiduciary Duties
II. Duty to exercise skill and care
III. Statutory duties
The directors’ duties are owed to the company as a whole and not to individual shareholders or third parties.
I. Fiduciary Duties

A director owes a duty to the company to act in good faith and in the best interests of the company. This duty is called “fiduciary duty” and it is the highest standard of care.

Directors shall exercise their powers only for the purposes allowed by law and in accordance with the company’s constitutional documents such as the memorandum and articles of association.

Furthermore, directors must not put themselves in a position where there is a conflict between their personal interests and the company’s. Therefore, directors must not misuse company’s property, information, opportunities and other confidential details for their own or anyone else’s benefit, unless allowed to by the company’s articles of association or in cases where such use has been disclosed to the company in general meeting and the company has consented to it. If a director, in breach of his fiduciary duties made a personal profit out of a business transaction, then he will be liable to pay that profit to the company.

II. Duty to exercise Skill and Care
This duty requires the directors to exercise skill and care of “a reasonably diligent person”. That is, to have both (a) the general knowledge, skill and experience that may reasonably be expected of persons carrying out the same functions and (b) the general knowledge, skill and experience of that particular director.

III. Statutory duties

Directors have various statutory duties imposed by the Cyprus Companies Law, Cap.113 (the “Law”) and other legislation, such as the Income Tax, VAT, Customs & Excise legislation, Health and Safety and Environmental legislation.
Liabilities of directors

In principle, there is no difference as far as a liability is concerned between executive, non- executive and/or nominee directors, as the Law refers only to directors in general.

I. Breach of fiduciary duties (under common law) and the duty of skill and care
Breach of the aforesaid duties will render the director personally liable to the company. In such cases the company may be awarded damages and/or injunctive relief.

II. Breach of statutory duties
Breach of a statutory duty may result in criminal, civil or administrative liability or in all of them.

It is worth noting that in order to deter directors escaping from the consequences of their wrongdoing/actions, it has been a common practice to include into various statutes the following wording by which directors and other officers of a limited liability company are subject to criminal liability:

“...where an offence….committed by a body corporate is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of any director, manager, secretary or other similar officer of the body corporate or any person who was purporting to act in such capacity, he as well as the body corporate shall be guilty of that offence and shall be liable to be proceeded against and punished accordingly…”
In addition, a director can also be prosecuted as a person who aids or abets the company in committing an offence.

a) Annual Company Levy
According to the Cyprus Companies Law, Cap.113 (the “Law”), all companies registered in Cyprus are required to pay an annual levy of €350 to the Registrar of Companies. This levy is payable by the 30th of June every year. Failure to comply with such obligation will result in penalties and may even result in the strike-off of the company.

b) Annual General Meeting
A Cyprus company must hold an Annual General Meeting (“AGM”) once a year. The first AGM can be held within eighteen (18) months of the date of incorporation. Thereafter, the AGM must be held on an annual basis and must not exceed fifteen (15) months as of the date of the previous AGM. The agenda usually includes a review of the audited financial statements, approval of dividend payments, appointment of the board directors and auditors.

c) Statutory Records
A company registered in Cyprus is required to keep and maintain its Statutory Records at its Registered Office either as hard copies or electronically. The statutory records are very important not only because they are required by the Law but also to comply with EU anti-money laundering legislation. These records include a Register of Directors, a Register of Secretaries, a Register of Shareholders, and a Register of Charges.

d) Accounting Records
It is a legal requirement for a Cyprus company to maintain books and records and prepare financial statements in accordance with the International Financial Reporting Standards (IFRS). Furthermore, the accounting records must be kept at the registered office of the company for six (6) years from the end of the year to which they relate and be available for inspection from the Tax Department.

e) Financial Statements
A Cyprus company is legally required to have its Financial Statements audited by a duly licensed and practicing external Auditor in Cyprus. However, subject to certain conditions, private limited companies may opt to submit their financial statements for review instead of audit.

f) Annual Returns
A Cyprus company is required by law to prepare and file with the Registrar of Companies an Annual Return once every calendar year. The Annual Return contains the company's statutory information as at the date of its compilation and should be filed with the audited financial statements of the previous year which have been approved at the AGM of the company.

g) Tax Returns
In accordance with Cyprus tax laws, every company should submit a Tax Return (IR4) on an annual basis. The Tax Return is prepared based on the Audited Financial Statements of the company and includes its balance sheet and profit and loss account in Euro and its tax computation. Administrative penalties are imposed for late submission of declarations or late submission of supporting documentation requested by the Commissioner of Taxation.

h) Register of Ultimate Beneficial Owners (“UBOs”)
Pursuant to the Prevention and Suppression of Money Laundering Activities Laws of 2007-2022 (the “Law”), companies and other legal entities incorporated in the Republic of Cyprus are obliged to identify and record on the Cyprus UBO Registry (“the Registry”) all the necessary information required by the Law and the relevant regulations.
The Registry is currently operating on an interim basis, the so-called ‘interim solution’. Throughout this period, if there has been any change with relation to the information submitted to the Registry, companies and their officers are obliged to update the Registry accordingly.

Also, once the final solution is implemented, every December companies and their officers will have to confirm the accuracy of the information kept by the Registry.

An investment fund is a vehicle that allows a number of separate and unrelated investors, a group of individuals or companies, to make investments together by pooling their money together and taking advantage of the shared costs, spreading the risk etc.

UCITS (“Undertakings for Collective Investment in Transferable Securities”) fund is set up according to the strict rules prescribed by the European Union and may only invest in certain investment classes (transferable securities such as stocks and bonds). UCITS funds can be purchased by investors in any European country where they are authorised for sale, and in a number of countries in other regions or on other continents where they are permitted.

The UCITS regime aims to provide individuals with a secure environment for fund investing. It sets out universal rules on how these funds should be structured, managed and governed, and how their assets should be safeguarded. It imposes rules concerning diversification, liquidity and use of leverage for hidden levels of investors protection.

The enactment of the Alternative Investment Funds (“AIFs”) Law in July 2017 aligned the Cyprus legal and regulatory framework with EU directives on asset management, with the aim to enhance transparency and investor protection.

Following continued efforts to modernise its fund framework, Cyprus introduced a new Law offering more investment structuring possibilities and upgraded rules for the authorisation, on-going operations, transparency requirements and supervision of Cyprus AIFs, as well as the regulation on the role and responsibilities of their directors, depositaries and external managers.

AIFs that are established under domestic Cyprus fund legislation can be sold on a private placement basis or marketed to professional investors across the EU under the Alternative Investment Fund Managers Directive (AIFMD) passport.

A trust is established by a settlor when the legal ownership of trust property is transferred to the trustee and the trustee holds, manages and distributes such property to or for the benefit of the beneficiaries in strict accordance with the terms of the trust deed and the fiduciary duties imposed upon him by the Law, so that such beneficiaries have equitable ownership therein.

The starting point of creating the trust is the settlor’s ownership of the property he intends to place in trust. A trustee receives legal ownership (or title) to the trust property when the settlor establishes and constitutes the trust by creating a trust instrument, i.e. a trust deed.

The short answer is no. The trustee holds the legal ownership of the trust property in a separate fund and must keep it apart from its own personal property. Trust assets are insulated from the trustee’s personal creditors. The trust assets, whether real estate, a portfolio of stocks and shares or any kind of property, form a separate fund.

The main legal framework governing Cyprus Local Trusts (“CLTs”) and Cyprus International Trusts (CITs) differs. However, CITs had been built on the legal framework of CLTs.

The other difference between CLTs and CITs is that there is a two-year limitation period for challenging CITs (or challenging the transfer of assets to CITs). One of the main reasons that CITs can be challenged is for defrauding creditors and the burden of proof lies on the creditors to prove that the CIT (or the transfer of assets to the CIT) was made with the intent to defraud them. Such period does not apply to CLTs and, theoretically, the period for the creditors to challenge a CLT is indefinite.

Furthermore, foreign court orders or decisions or Governmental Authorities shall not affect the validity of CITs or the transfer of property to the Trustee of a CIT. There is no much practice concerning CLTs in this regard though.

One of the advantages that applies to both CLTs and CITs is the avoidance of forced heirships. This means that any transfer or disposition made to the trust will not be affected in any way by the inheritance law of the Republic of Cyprus and that the validity of such transfer shall not be challenged.

The main legal framework governing Cyprus Local Trusts (“CLTs”) is The Trustees Law, Cap. 193, the Common Law and the Principles of Equity. Cyprus International Trusts (“CITs”) had been built on the legal framework of CLTs, therefore the concept of CITs and CLTs is very similar. That said, the provisions of The International Trusts Law, No. 69(I)/92, enacted in July 1992 and amended with the International Trusts (Amending) Law, No. 20(I)/2012 which apply exclusively to the CIT had expanded the flexibility to trust structures for commercial and business transactions and other purposes, and provided for maximum protection of the trust assets.

Yes, it is possible. However, the relevant paperwork should be prepared accordingly.

1. The Settlor is the person of full age of eighteen (18) and of sound mind who sets the Cyprus International Trust (“CIT”) and can be either a natural or legal person who may not be resident in Cyprus during the calendar year immediately preceding the creation of the trust;
   
   
2. The Trustee or at least one of the Trustees must be resident in Cyprus for the whole duration of the CIT. This means that if the Settlor wants to appoint a Trustee who has his residence outside of Cyprus then he must appoint a second trustee;
   
   
3. The Beneficiary or Beneficiaries must not be resident in Cyprus during the calendar year immediately preceding the creation of the trust and that applies equally whether the beneficiary is a natural or legal person;
   
   
4. The trust property can include all kinds of assets situated anywhere in the world and it can comprise of real estate property located in Cyprus.

1. Comply with the residency requirements of the International Trusts law;
2. The trust instrument satisfied the three (3) certainties requirement:
   
   
   1. Certainty of Intention - the Settlor’s intention to create the trust;
   2. Certainty of Subject Matter - the assets which will form the trust property must be readily identifiable and tangible;
   3. Certainty of Objects - the identity of the beneficiaries must be clearly stated and sufficiently defined in cases where this involves as large group of people.
      
      
3. Provide information related to a trust to the relevant competent authority
4. Payment of stamp duty.

1. It can be used as an asset protection vehicle as it is immune from forced heirship and claw back rules in other jurisdictions where the assets are located;

2. It does not become void even where the Settlor becomes insolvent or bankrupt;
   
   
3. It has no limit on the period over which it is valid and enforceable, given that it was set up after 2012;

4. When a creditor contemplates that the Settlor used the Cyprus International Trust to defraud him the burden of proof is upon the creditor to prove such a sham within two (2) years of creation of the Cyprus International Trust. After the two (2) year period the creditor will be barred from bringing an action against the trustees.

(2) years of creation of the Cyprus International Trust. After the two (2) year period the creditor will be barred from bringing an action against the trustees.

1. Income
   1. If the Beneficiary is not resident in Cyprus and receives income from outside of Cyprus this income will not be subject to tax.
   2. If the Beneficiary is resident in Cyprus and receives income from Cyprus this income is subject to tax.
   3. If the Beneficiary is resident in Cyprus and receives income from outside of Cyprus and also from Cyprus then this income will be subject to tax.
   4. A Cyprus International Trust (“CIT”) does not pay any tax on income received from outside of Cyprus whereas a Cyprus Company pays income tax on its worldwide income.
   5. A CIT does not pay any tax on the interest received provided that the beneficiaries are not resident in Cyprus.
   6. CITs are not affected by the non-existence of a double taxation treaty.
      
      
2. Dividends
   Dividends which are received by the CIT from a Cyprus company are not subject to tax.
   
   
3. Payments to beneficiaries
   There is no withholding tax on payments to beneficiaries provided that they are not resident in Cyprus.
   
   
4. Capital Gains
   Any gains from asset disposal, other than immovable property situated in Cyprus, made by the CIT are not subject to capital gains tax in Cyprus.
   
   
5. Estate Duty
   No estate duty is payable by a CIT that was formed for the purposes of estate duty planning.

On 23 February 2021, Cyprus fully implemented the provisions of the 5th Anti-Money Laundering EU Directive 2018/843 in its domestic legislation. This was effected by way of an amendment to the Prevention and Suppression of Money Laundering and Terrorist Financing Law 188(I)/2007, whereby it was decided to establish central registers of ultimate beneficial owners, with one of them being the Register of Beneficial Owners of Express Trusts and similar legal arrangements (the “Register”).

Further, on 18 June 2021, the Cyprus Securities and Exchange Commission (“CySEC”), as the Supervising Authority, published the Directive/ Regulations (effective immediately) ‘for the prevention and suppression of money laundering and terrorist financing (register of beneficial owners of express trusts and similar legal arrangements)’, which provides information and guidance in relation to the registration of express trusts and similar legal arrangements in the Register.

The term “express trust” refers only to those trusts created expressly by a settlor at their own will and does not include trusts arising by operation of law, nor trusts for which the settlor shows no clear intention for their creation.

The Register is kept electronically by the Cyprus Securities and Exchange Commission and any express trust must be registered therein provided that: 

(a) its trustee is located or residing in the Republic of Cyprus, or

(b) its trustee, which is located or residing outside EU, establishes a business relationship or acquires immovable property on behalf of the express trust in the Republic.

In addition to Cyprus Securities and Exchange Commission, all supervisory authorities, such as the Customs Department, the Taxation Department, MOKAS and the Police have unhindered access to the Register within the framework of their responsibilities.

I. For the Trusts

• Name of the Trust
• Country and date of creation and/or establishment
• Termination Date (if applicable)
• Country to which the Trustee is located or residing and their Residential Address
• Date of commencement of the business relationship, the name of the person with whom such relationship is established together with the document which governs the relationship (Applicable only in cases where the Trustee resides outsides EU and establishes a business relationship on behalf of the Trust in the Republic)
• Registration Number and Address of the Immovable Property together with the Title Deed of the property (Applicable only in cases where the Trustee resides outsides EU and acquires immovable property on behalf of the express trust in the Republic)
• Any other information and/or supporting documentation requested by the Cyprus Securities and Exchange Commission (“CySEC”) for identification purposes

II. For the Ultimate Beneficial Owners of the Trust (Trustee, Settlor, Protector, Beneficiaries)

• Name and Surname together with the name of their father
• Date and Place of Birth
• Nationality or Nationalities
• Residential Address
• Number, Type and Country of issuance of identification document
• Date of Death (where applicable)
• Date on which the UBO became beneficial owner
• The nature and extent of the rights which are directly or indirectly held by the beneficial owner
• The role of the Beneficial Owner in the trust
• Any other information and/or supporting documentation requested by CySEC for identification purposes
• In case the Trust has class of beneficiaries, CySEC requests a description of classes and the members of each class and also the nature and extent of the rights each class of beneficiaries has

Five (5) years after the date of removal of a registered express trust, access to the information contained in the Register is permitted only in the course of administrative or criminal enquiry conducted by the Supervisory Authority, Unit, Customs and Excise Department, Tax Department and the Police.

CPM is obliged to collect KYC documents for each of its clients. The risk assessment for each client determines the extent and timing of the due diligence procedure.

CPM will not enter into a business relationship with a potential client if:

1. it is unable to comply with its due diligence requirements
2. it is not satisfied that the purpose of the business relationship is legitimate
3. it cannot effectively manage the Money Laundering and Terrorist financing risk it is exposed to
4. the potential client and the business fall outside the risk appetite of CPM

Client Due Diligence Requirements

1. For the client:

• An Internal Client Identification Form - Under Management Legal Entity duly completed and signed by the UBO or authorized person.
• A corporate chart, indicating the complete structure to which the company forms part of, leading to the UBOs. The chart should also indicate all the entities in which the company has ownership. The chart should be signed and dated by the controlling person or authorised person.
• For all the entities that the company has ownership in, CPM needs to be provided with the latest financial statements (audited if applicable).

2. For the Directors, Authorized Persons and Bank Signatories of the Company, (if physical person):

• An Internal Client Identification Form (Individual) duly completed and signed by each individual
• Passport copy
• Utility bill evidencing the current permanent residential address not older than three (3) months
• CV
• GDPR letter duly completed and signed by each individual
• In the case that any of the above entities is a legal entity, then appropriate evidence is required to verify the ownership of the legal entity up to its UBO(s)

3. For the Registered Shareholder (if legal entity):

• Register of Shareholders, or equivalent official document showing the current shareholders of the company
• If the shareholder of the Registered Shareholder of the company is another legal entity then appropriate evidence is required to verify the ownership of the legal entity up to its UBO(s)

4. For the UBOs, Registered Shareholders, Settlor, Trustee, Protector, General Partner, Foundation Council and Fund Manager (if physical person):

• An Internal Client Identification Form (Individual) and an Enhanced Client Form (Individual) (where necessary) duly completed and signed by each individual
• Passport copy
• Professional reference letter (i.e. from a Lawyer/Accountant operating in an EEA country), in favor of each of the above individuals
• Utility bill evidencing the permanent residential address not older than three (3) months.
• CV
• GDPR letter duly completed and signed by each individual
• In the case that any of the above entities is a legal entity, then appropriate evidence is required to verify the ownership of the legal entity up to its UBO(s)

Please Note

All KYC documentation must be provided in original. If the original format is not available, then a copy duly notarized or apostille must be provided. If the documents are not in English language, then official translation is needed.

Client Due Diligence (“CDD”) is a legal obligation for administrative service providers like CPM and refers to the process of identifying and verifying the identity of its clients and their business.

CPM is regulated by the Cyprus Securities and Exchange Commission (“CySEC”), which is responsible for monitoring the compliance of CPM based on the provisions of the Prevention and Suppression of Money Laundering and Terrorist Financing Laws of 2007-2021, as well as the current CySEC Directive.

On the basis of the risk factors that are depicted in the Law and the Directive, clients are classified into certain risk levels. More stringent controls, enhanced due diligence measures and rigorous transaction monitoring are applied to higher risk clients. These measures are applied in addition to CDD measures.

Any natural person who ultimately owns or controls the client and/or the natural person on whose behalf a transaction or activity is being conducted and includes at least:

1. in the case of corporate entities:

(i) the natural person who ultimately owns or controls a corporate entity through direct or indirect ownership of a sufficient percentage of the shares or voting rights or ownership interest in that corporate entity, including through bearer shareholdings, or through control via other means, other than a company listed on a regulated market that is subject to disclosure requirements consistent with European Union Law or subject to equivalent international standards which ensure adequate transparency of ownership information.

Provided that-

(a) an indication of direct shareholding shall be a shareholding of 25% plus one share or an ownership interest of more than 25% in the client held by a natural person and

(b) an indication of indirect ownership shall be a shareholding of 25% plus one share or an ownership interest of more than 25% in the client held by a corporate entity, which is under the control of a natural person, or by multiple corporate entities, which are under the control of the same natural person or persons.

Provided further that the control by other means can be verified, inter alia, based on the criteria provided for in s.142(1)(b) and s.148 of the Cyprus Companies Law, Cap.113.

(ii) the natural person who holds the position of senior managing official if, after having exhausted all possible means and provided there are no grounds for suspicion, no person under sub paragraph (i) of the present paragraph is identified, or if there is any doubt that the person identified is the beneficial owner: Provided that the obliged entity shall keep record of the actions taken in order to identify the beneficial ownership under sub paragraphs (i) and (ii);

2. in the case of trusts:

(i) the settlor;

(ii) the trustee or commissioner;

(iii) the protector, if any;

(iv) the beneficiary, or where the individual benefiting from the legal arrangement or legal entity have yet to be determined, the class of persons in whose main interest the legal arrangement or entity is set up or operates;

(v) any other natural person exercising ultimate control over the trust by means of direct or indirect ownership or by other means; and

3. in the case of legal entities, such as foundations, and legal arrangements similar to trusts, the natural person holding equivalent or similar positions to the person referred to in paragraph (b);

A Politically Exposed Person means a natural person who is or who has been entrusted with prominent public functions in the Republic of Cyprus or in another country, an immediate close relative of such person as well as a person known to be a close associate of such person:

Provided that, for the purpose of the present definition, ‘prominent public function’ means any of the following public functions:

a. heads of State, heads of government, ministers and deputy or assistant ministers;
b. members of parliament or of similar legislative bodies;
c. members of the governing bodies of political parties;
d. members of supreme courts, of constitutional courts or of other high-level judicial bodies, the decisions of which are not subject to further appeal, except in exceptional circumstances;
e. members of courts of auditors or of the boards of central banks;
f. ambassadors, chargés d'affaires and high-ranking officers in the armed forces;
g. members of the administrative, management or supervisory bodies of State-owned enterprises;
h. directors, deputy directors and members of the board or equivalent function of an international organisation;
i. mayor

Provided further that no public function referred to in points (a) to (i) shall be understood as covering middle-ranking or more junior officials;

Provided furthermore that "close relatives of a politically exposed person" includes the following:

a. the spouse, or a person considered to be equivalent to a spouse, of a politically exposed person;
b. the children and their spouses, or persons considered to be equivalent to a spouse, of a politically exposed person;
c. the parents of a politically exposed person;

Provided even furthermore that ‘persons known to be close associates of a politically exposed person’ means natural person:

a. who is known to have joint beneficial ownership of legal entities or legal arrangements, or any other close business relations, with a politically exposed person;

b. who has sole beneficial ownership of a legal entity or legal arrangement which is known to have been set