Cyprus: Cross – Border Initial Public Offerings (IPOs ) And Admission Of Shares Of Cyprus Companies On Other European Capital Markets

Cyprus has for the past years successfully attracted foreign investment by tax effective holding company regime.

With the introduction of a single European passport for securities, investors can now forum shop, for their jurisdiction of choice, to locate their holding company. The advantages for such a structure are two fold (i) it consolidates the ownership of the investments in operating subsidiaries (a tax driven exercise) in one holding company; and (ii) it allows such company to raise finance or list its shares in chosen jurisdiction.

In recent years, the competent authority of Cyprus has experienced an inflow of applications for initial public offerings, and admissions, to trading of shares by Cyprus companies, on other European capital markets, including on the London Stock Exchange, and in particular, on the main market of the Warsaw Stock Exchange.

The Attraction to the London Exchange and to the Warsaw Stock Exchange.

The London Stock Exchange is a very stable and liquid one. Listing on the London Stock Exchange means a company has access to one of the world's deepest polls of capital and a varied investor base. It is a market which exposes companies to liquidity due to presence of both institutional and retail investors.

In recent years, the Warsaw Stock Exchange has strengthened its position as the regional financial hub and constantly attracts foreign firms doing business in Poland or across central and Eastern Europe.

The main market of the Warsaw Stock Exchange (the "Main Market") was ranked third in the world based on the number of new listings in the first half of 2011, according to the World Federation of Exchanges.

Why list abroad via a Cyprus SPV?

Currently, no Ukrainian companies have direct listings of their shares or bonds abroad. The reason for this is the requirements and restrictions imposed by the Ukrainian competent authority in respect of issuers and the terms of their placement abroad. In particular, the shares to be listed abroad must not exceed 25% of the issuer's registered capital. The Russian competent authority also imposes similar restrictions with a Russian company capable of listing between 5%-25% of the issuer's registered capital.

The restrictions imposed on Russian and Ukrainian issuers by their respective competent authority can be avoided by interposing a foreign holding vehicle which may act as the issuer for the Russian - based group or Ukrainian - based group respectively.

Tax benefits of a Cyprus Company

Cyprus is considered as one of the most tax efficient jurisdictions in the European Union, well-known for its low corporate income tax rate at 10%.

A Cyprus company can achieve low or zero withholding tax rates, when extracting dividends from underlying subsidiaries, by relying either, on its double tax treaty network, or on the Parent / Subsidiary Directive. Where the investment is outside the EU, Cyprus can rely on its large network of double tax treaties, the rates of which, especially as far as Eastern European investments are concerned, are considered particularly advantageous.

Cyprus taxes foreign incoming dividends at a rate of 20% but provides for a generous exemption mechanism which is almost always satisfied resulting in the non taxation of the foreign-source dividend income. There are no withholding taxes on dividend payments to non residents regardless of the country of residence of the non resident shareholder or the existence or not of a double tax treaty with such country of residence.

There is no capital gains tax in Cyprus other than on the disposal of immovable property situated in Cyprus or shares (with the exception of shares listed on a recognized stock market) representing immovable property situated in Cyprus where the rate is set at 20%.

In contrast to other jurisdictions, there are no thin capitalization rules in the Cyprus tax legislation. Therefore a Cyprus company can be entirely capitalized by loans and subject to certain conditions any arms length interest paid to a parent is fully deductible.

The Legislation

The general rules governing the requirements for (i) drawing up; (ii) obtaining approval; and (iii) the distribution of a prospectus for securities offered to the public or admitted to trading on a regulated market; are set out by Directive 2003/71/EC (the "Prospectus Directive") and are transposed into national legislation by Law N.114(I)/2005 (the "Prospectus Law").

The authority designated by the Cyprus government to regulate the Prospectus Law, as well as to impose administrative sanctions, is the Cyprus Securities and Exchange Commission ("CYSEC").

In 2005, the companies law Cap. 113 (the "Companies Law") was amended as to include the rules for drawing up a prospectus in the case of a public offering of shares and debentures where the Prospectus Law does not apply. Where a prospectus is required to be drawn up under the Companies Law, such prospectus must be filed with the Cyprus registrar of companies.

The Benefits of the Prospectus Directive / Prospectus Law

The spirit of the Prospectus Directive is to ensure investor protection and to enhance market efficiency. Due to the fact that there is a broad range of investors taking part in the securities market which have different levels of expertise, it was necessary to provide protection for those with limited knowledge and expertise. For example a prospectus is not required for offers limited to qualified investors since their level of expertise differs from that of non-qualified investors.

Information is the key to investor protection. The regulations set out by the Prospectus Directive and subsequently the Prospectus Law have harmonized the information to be contained in the prospectus in order to safeguard potential investors. The information must be sufficient in relation to the financial circumstances of the issuer, by using as much as possible an objective standard, and the rights attached to the securities should be presented in a simple comprehensive way.

Market efficiency has been achieved by the Prospectus Directive as all insurers within the European Union follow common rules, when offering securities to the public in another member state, or when admitting the securities to trading on a regulated market in another member state. The competent authorities of each member state, are also bound by common rules with regards, to deadlines and methods of checking information, contained in a prospectus.

Issuers complying with the Prospectus Directive, are granted a single passport with the opportunity to raise capital on a pan-European level.

Where the issuer is a Cyprus company, the home member state is Cyprus and the competent authority to approve a prospectus is CYSEC. Once approved, CYSEC will provide the competent authority in the member state in which the securities will be offered to the public, or admitted to trading (referred to as the host member state), a certificate confirming that the provisions of the Prospectus Directive have been fully complied with, enabling the prospectus to be used in other member states, without the need to follow additional administrative procedures.

CYSEC must at the request of the issuer, or person requesting admission to trading (as the case may be), provide the certificate to each of the host member states facilitating the cross-border IPO or listings, in each of the host member states within one or three working days.

The promptness of the competent authority of the home member state to issue a certificate to the competent authority of a host member state; and the importance of raising capital in different member states through a single passport, is part of the Prospectus Directive's spirit.

The Rules Governing Prospectus Liability in Cyprus

Persons involved in drafting a prospectus for a Cyprus issuer should consider the responsibilities and liabilities that may arise regardless of whether a public offering will take place in Cyprus or in another member state, and regardless of whether its shares will be listed on the Cyprus Stock Exchange, or on the stock exchange of another member state.

The persons usually identified in a prospectus other than the issuer itself, or the person applying for admission for trading and the underwriter, are the advisors to the issuer, the legal counsel and auditors acting for the issuer, and the legal counsel and auditors who have conducted a due diligence on the issuer, on behalf of the underwriter. However, it is only the underwriter and the offeror, or person requesting admission to trading, that are required to sign a responsibility statement, contained in the prospectus, confirming that the information included in the prospectus is true and correct.

Under the Prospectus Law, the civil liability attaching to the persons identified in a prospectus is not equal. The liability of the underwriter under the Prospectus Law, is more limited than the liability of others, who are required to sign the prospectus, in that the underwriter's liability is confined to the damage sustained by investors as a result of the fall in price of the securities. The liability is broad in the case of other persons required to sign the prospectus, as an investor may for example, claim damages based on the fact that he/she was not able to sell the securities and thus sustained damage, regardless of whether there was a fall in the price to the securities or not. Where the prospectus has been drawn up by more than one underwriter, each underwriter is jointly and severally liable.

If the contents of the prospectus were subject to a legal and financial due diligence examination carried out at the request of the underwriter, through independent legal advisors and auditors, there is a presumption that the underwriter is not liable for the contents of the prospectus. This presumption is capable of being rebutted, if by way of an example, it is proven that the independent auditors and/or legal advisors raised red flag issues in the due diligence report, and despite this, the underwriter proceeded with the drawing up of the prospectus without rectifying the issues raised.

The Prospectus Directive imposes a responsibility on member states to ensure that responsibility for information given in a prospectus is attached to the issuer or its management or supervisory bodies, the offerror, the person asking for admission to trading on a regulated market or the guarantor as the case may be. The Prospectus Law has gone a step further than the obligation imposed by the Prospectus Directive by also attaching civil liability to persons making statements in a prospectus within their professional capacity such as lawyers, auditors and financial advisors. Where such statements are expressed in the prospectus, the author is responsible to investors for every loss they may sustain, if the prospectus contained inaccuracies or material omissions due to deficiencies in such statements.

Amended Prospectus Directive

In an effort to simplify the rules on prospectus drafting and improve investor protection the European Parliament and European Council passed Directive 2010/73/EU amending the Prospectus Directive which came into force on 31 December 2010 (the "Amended Prospectus Directive"). Each member state must ensure that this is implemented into national law by 1 July 2012. Cyprus has not yet transposed the Amended Prospectus Directive into national legislation but in any case will meet the implementation deadline. The Amended Prospectus Directive will have important implications to issuers and investors alike once transposed into national legislation.

Some of the significant amendments include:

  • The consideration threshold for an offer of securities for which a prospectus is required will be increased from €2.5 million to €5 million;
  • A prospectus will not be required for offers addressed to less than 150 persons per member state (currently at 100 person under the Prospectus Directive);
  • The exemption for offers of securities with a minimum consideration per investor or denomination per unit will be increased from €50,000 to €100.000;
  • The expansion of the definition "Qualified Investor" (falling under the exemptions of an offer to the public thus not requiring a prospectus) now in line with the definitions for persons or entries treated as "professional clients" and "eligible counterparty" under the Markets in Financial Investments Directive;
  • The Prospectus must be published on the website of the issuer, or the financial intermediary, previously an option, not an obligation.

The Amended Prospectus Directive provides that the summary of a prospectus is now required to be presented in a concise manner and include key information, which is to be provided to the investors with a view to enable them to understand the risks of securities being offered. The key information will include the following elements:

  1. a short description of the risks associated with and essential characteristics of the issuer and any guarantor including the assets liabilities and financial position;
  2. a short description of the risk associated with an essential characteristics of the investment in the relevant security, including any rights attaching to the securities;
  3. general terms of the offer, including estimated expenses charged to the investor by the issuer or the offeror;
  4. details of the admission to trading; and
  5. reasons of the offer and use of proceeds.

In addition to providing the key information, the summary of all prospectuses must be drawn up in a standardized format in order to facilitate comparability of the summaries of similar securities. The particular amendment should be viewed as an enhancement of investor protection.

Cyprus Legislation Amended to Support Cross-border IPOs and Listings

Recent amendments to the Companies Law overcame practical issues which arose in cases of cross-border listings by Cyprus Companies resulting from the need to maintain a physical register of members in Cyprus. More specifically:

  1. The registration of a transfer of shares or other securities is legal even in the absence of an instrument of transfer provided, however, that such transfer has taken place in accordance with the rules of the regulated market in which the shares or securities are listed;
  2. A Cyprus company whose shares are listed in a regulated market abroad can keep a register of members outside Cyprus in the jurisdiction of the regulated market or where the members reside, provided copies of all entries therein are sent to the registered office of the company; and
  3. In cases of companies the shares of which are listed on a market outside Cyprus, the obligation to keep a register of members is satisfied if a register of members is maintained in accordance with the rules regulating such market which, in effect, allows for electronic register.

As cross border IPOs and listings inevitably mean the shares of Cyprus companies are held by persons who do not reside in Cyprus it became evident that a gap existed throughout the European Union as between non-resident shareholders and resident shareholders. This gap was due to the geographical obstacle for non-resident shareholders to attend the general meeting at the registered office of the relevant company and subsequent inability to exercise their voting rights.

The transposition of Directive 2007/37/EC regulating the exercise of certain rights of shareholders in listed companies into the Companies Law has rectified this situation by allowing the possibility of participating in general meetings via electronic means and the possibility of cross border voting rights of shareholders to be exercised at general meetings.

Cyprus has established its position as a competitive forum for tax purposes and further has enacted and amended laws in order to facilitate and enhance cross-border IPOs and listings by Cyprus companies. Due to the inflow of applications for single passports (in particular listings on the Main Market of the Warsaw Stock Exchange), CYSEC is now well-equipped with sufficient experience to process applications within the timeframes imposed by the Prospectus Directive and Prospectus Law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.