Cyprus is strategically located in the Eastern Mediterranean at the crossroads of Europe, Asia and Africa. It is an independent, sovereign republic with a presidential system of government and a written constitution which safeguards the rule of law, political stability, human rights and the ownership of private property. Cyprus has been a member of the EU since 1 May 2004 and of the Eurozone since 1 January 2008. In preparation for EU membership, Cyprus made significant structural and economic reforms that transformed its economic landscape and created a modern, open and dynamic business environment. Since joining the EU, it has established itself as the natural portal for inward and outward investment between the EU and the rest of the world, particularly the rapidly-growing economies of Russia, Eastern Europe, India and China.
Cyprus is very well-placed as an international business and financial centre. Apart from its strategic geographical location, cosmopolitan environment and attractive climate, it offers an excellent commercial infrastructure, a highly educated English-speaking labour force, a business-friendly environment, particularly in the area of taxation, a high quality of life and a low rate of crime. The official languages are Greek and Turkish, but English is the lingua franca of business.
The island was invaded in 1974 by the Turkish army and about one-third of its territory remains under Turkish occupation. The so-called Turkish Republic of North Cyprus is recognised only by Turkey, and this chapter relates only to the area controlled by the Republic of Cyprus. While political uncertainty continues to surround the 'Cyprus problem' and it is hoped that there will be a satisfactory resolution in the near future, day-to-day life and business are unaffected by the issue.
The business environment
When Cyprus gained independence from the UK in 1960, it was left in a poor economic state by the former colonial power. Its economy was based largely on agriculture and tourism and its only resources were its people and its location. Cyprus sought to take advantage of its location and the talents of its people by becoming a maritime and trading post. It achieved its breakthrough in the 1990s, following the dissolution of the Soviet Union, when it established itself as the main portal for investment from the developed western economies into the newly liberalised economies of Russia and Eastern Europe. One of the main reasons was the fact that Cyprus's double tax agreements with Russia and the newly independent Commonwealth of Independent States (CIS) countries were hugely advantageous. At the beginning of the 1980s, Cyprus and the Soviet Union had signed a double tax agreement, which eliminated withholding tax between the two countries. Russia and most of the newly independent states adopted this agreement, which meant that interposing a Cyprus-holding company between investors in the west and an operating business in the country concerned would eliminate tax leakage and substantially increase the post-tax return to shareholders. While new double tax agreements have been signed with most of the countries concerned, they all retain similar benefits to some degree.
However, tax was not the only factor. The Cyprus legal system is based on common law and its judiciary is independent and impartial. As a result, it enjoys the confidence of investors. At the same time Cyprus, Russia and many of the CIS states shared a common Orthodox religious and cultural heritage, and Cyprus had maintained good relations with them since independence. Cyprus was therefore able to act as a bridge between the western economies on the one hand and Russia and Eastern Europe on the other.
Since joining the EU, Cyprus has consolidated its position as an international financial centre and a portal for cross-border investment between all the main economies of the world. It is a low-tax jurisdiction with fiscal and regulatory regimes fully aligned with EU norms, particularly the Code of Conduct for Business Taxation. It has a simple, modern tax system offering predictability in planning and a network of more than 60 agreements for the avoidance of double taxation.
Cyprus has a highly-educated workforce, with more than 40% of the workforce having completed tertiary education, and world-class communications and professional services.
Forming a company
The Cyprus Companies Law is based on the English Companies Act 1948. While many new provisions have been added to comply with EU legislation, the basic corporate structures remain intact and most provisions regarding companies remain the same. Most companies, including trading, holding or finance companies, take the form of private companies limited by shares.
A company has a legal persona, which is separate from that of its owners or members and its management. Regardless of changes in their identity or number, the company has perpetual succession. The company's constitutional documents comprise its memorandum and articles of association, which set out the objects of the company and regulate its operations and relations between the company, its members, officers (directors and secretary) and other stakeholders. Table A, Pt 1 of the First Schedule to the Companies Law (commonly known as 'Table A') contains model articles of association, which apply unless the company has adopted different regulations, and most companies adopt Table A with specific additions or exclusions.
It is important to note that the principle of limited liability refers to the members and not the company. The company must meet all its debts for so long as it has sufficient assets to do so. If the company cannot pay its debts, the liability of the shareholders is limited to the amount unpaid on their shares. Companies may have a sole member. They must have one or more directors and a secretary, and a sole director may not also act as secretary. The officers of the company may be natural or legal persons. A private company may have only one director and a secretary, but the same person may not be a sole director and the secretary unless the company is a single member private limited liability company
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Originally published by Lexis Nexis
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