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
Similar Articles
Relevancy Powered by MondaqAI
 
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”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions