Since Cyprus's accession to the EU, the legislation regulating M&A activity in Cyprus has been closely aligned with Europe-wide practices.

Prior to Cyprus's EU membership, the ability of Cyprus companies to merge was limited to domestic mergers and was governed by the general provisions of the Company Law on arrangements and reconstructions. In 2007 Cyprus enacted legislation harmonising its existing laws with Directive 2005/56 on cross-border mergers of limited liability companies opening the route for cross-border mergers between companies incorporated in Cyprus and companies in the EU.

A cross-border merger may take place by acquisition whereby one or more limited liability companies are wound up without going into liquidation and transfer all their assets and liabilities to an existing company or a newly established company. In exchange, the shareholders of the acquired company are issued shares and a settlement amount in cash payment not exceeding 10 per cent of the nominal value of shares or when the shares have no nominal value of the accounting par value.

What is envisaged is a cross-border merger of companies that have been incorporated in accordance to the laws of a Member State and have their registered office, central administration or main place of establishment within the EU under the condition that at least two of these companies are governed by the law of different Member States.

A cross-border merger may only take place between companies for which merger is permitted in accordance with the provisions of the national law of the Member State in which they are incorporated. In Cyprus any company may take part in a cross-border merger, except companies with limited liability by guarantee (that is to say, without share capital) and companies under liquidation. Most structures involve either a merger between private limited liability companies by shares or in cases where the intended result of the merger is the formation of a European company, public limited liability companies by shares.

Notably the legislation provides for simplified procedures in the case of intra-group cross-border mergers, dispensing with requirements for expert reports, general meetings at dissolving company level and the need to include information on share exchange ratio and related issues in the cross-border merger plan; providing significant savings of both time and cost. Such simplification procedures have provided a stepping stone to international groups of companies, which have sought to restructure or consolidate their activities in the financial crisis taking full advantage of the Cypriot tax regime.

The acquisition of shares in private or public companies is governed by the provisions of the Company Law and the companies' articles of association. Where the shares of a public company are listed on the Cyprus Stock Exchange or on a regulated market outside Cyprus, special consideration must be given to the provisions of the Public Takeover for the Acquisition of Shares in a Company and Related Matters Law, which is complemented by directives issued by the Cyprus Securities and Exchange Commission. Other sources of legislation that should be considered are the Cyprus Stock Exchange Law and the Inside Information and Manipulation of Market Law. Special consideration must also be given to the disclosure requirements of the transparency legislation that may be triggered.


On 29 April 2011 Cyprus enacted legislation amending the Criminal Code, effectively introducing an interest rate ceiling affecting loans granted by persons or entities that are not financial institutions. The interest rate ceiling is calculated using a formula based on half the average bank lending rate of the previous year (including commissions and other charges that banking institutions charge on consumer loans) plus a margin of between 5 and 10 percentage points, which varies according to various risk factors. This interest rate ceiling is calculated and published by the Central Bank of Cyprus quarterly and on 24 April 2015 was set at 10.44 per cent.

The interest rate ceiling applies to lenders that are not financial institutions and catches interest received or charged on granting of the loan, extension of repayment, prepayment and renewal. Breach of the provisions constitutes an offence and on conviction a person may be liable to up to five years' imprisonment or a fine capped at €30,000, or both.

The legislation was intended to target the increasing problem of loan sharking and profiteering but due to its impact on the structuring of intra-group loans, the following arrangements were carved out of the prohibition:

  1. a loan extended to a legal person, where the funds have originated directly or indirectly from sources outside Cyprus, provided that (1) the amount of the loan exceeds €1 million and (2) the minimum disbursement is €500,000;
  2. a loan extended to a legal person, which is disbursed abroad (i.e., outside Cyprus) and provided that (1) the amount of the loan exceeds €1 million and (2) the minimum disbursement is €500,000; and
  3. a loan where the borrower and the lender are legal persons and who are considered to be related or connected parties for the purpose of application of Section 33 of the Cyprus Income Tax Laws.

The carve-outs ensure that the legislation will not have a negative impact on the ability of group companies to enter into intra-group financing arrangements.

The Company Law prohibits a company from directly or indirectly providing financial assistance to a third party for the purpose of a purchase or subscription of its shares or shares in its holding company. A transaction that is considered to be financial assistance is void and therefore gives rise to serious consequences making this a fundamental issue to be considered by parties in structuring an acquisition. In 2009 the prohibition on financial assistance was relaxed so that the prohibition would not apply to private companies provided that the same was not a subsidiary of a public company and provided that the act was approved by a majority of shareholders holding more than 90 per cent of the votes of all the issued share capital of the company. The relaxation has assisted the structuring of the financing of acquisitions in private companies, which has proved another useful tool to groups navigating their way through the financial crisis.

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Previously published by Law Business Research Ltd.

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