Andreas Neocleous & Co was selected by the Cyprus government to draft the law and supporting documentation and all relevant forms and we are delighted that the legislation has now been passed. We are currently well advanced with the formation of the first Cypriot SE and, given the benefits of the Cypriot SE outlined below, we expect many businesses to follow this path.
Following Cyprus’s accession into the European Union in 2004, Andreas Neocleous & Co was commissioned by the government of Cyprus to draft the necessary amendments to the Cypriot Companies Law in order to implement Council Regulation No 2157/2001 on the statute for a European Public Limited Company, otherwise known as Societas Europaea ("SE"), together with all necessary subsidiary legislation and the relevant forms.
After a delay in the legislative process due to parliamentary elections held earlier in the year, the Bill has now been enacted, together with all the relevant ancillary legislation, and the way is clear for the registration of the first Cypriot SEs.
The concept of the SE, a pan-European corporate form transcending national boundaries and common to all member states, was first proposed in the late 1960s. The aim of the SE regime is to allow companies incorporated in different member states (and also in Norway, Iceland and Liechtenstein) to avoid the legal and practical constraints arising from the existence of different national legal systems and to merge or form a holding company or joint subsidiary that is able to operate throughout the internal market and beyond. Companies may migrate from one jurisdiction to another, without the need for a takeover or a transfer of assets to a company already registered in the destination country. Companies will therefore have the commercial freedom to decide where they are registered. Incorporation as an SE can significantly reduce the costs for businesses operating in more than one member state of the EU and allow them to restructure quickly and easily to exploit the advantages presented by the internal market.
One of the major factors determining the attractiveness of an SE is the tax regime of the host country. The SE Regulation itself does not define any provisions when it comes to taxation but instead refers to the respective national law of the Member State in which the SE has its registered office. Cyprus’s low tax rates, its extensive network of double taxation agreements and its simple, modern tax legislation make it extremely attractive as a location for SEs. It is therefore likely that businesses from all over Europe will find it advantageous to re-incorporate as Cyprus SEs. Existing companies from other member states may be merged into an SE in Cyprus without any tax cost, since Cyprus has fully implemented the EU Mergers Directive.
For a company to re-form in Cyprus, it must be permitted to do so under the law of its existing registration, and must provide the Cyprus Registrar of Companies with documents similar to those required for re-registration within Cyprus. The legal framework within which business must be carried on in the Community will be based on Cypriot laws. Furthermore, an SE that markets its securities to the public and to the investment market must comply with national regulations.
The creation of an SE in Cyprus has a great number of advantages. By setting up an SE businesses operating on a trans-national basis will avoid the cost and delay involved in forming and maintaining a complex network of subsidiaries, each governed by different national laws. If it were to become advantageous to do so, an SE registered in Cyprus could move its registered office to another member state without having to wind up under the Cypriot legislation and re-register. However, given Cyprus’s advantages as a business base, the direction of movement is likely to be to, rather than from, Cyprus.
For many years international businesses have chosen Cyprus as a base for a host of reasons that include its transparent legal system, excellent communications, world-class professional and banking services and its benign taxation environment, with a corporate tax rate of only 10% and an extensive network of double tax treaties. The passing into law of the SE legislation is a major step forward in the Cypriot corporate legal framework that will further enhance Cyprus’s attractiveness as a location for international business.
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