Steps to Form a Company in Cyprus

Forming a company in Cyprus is a relatively straightforward process, but it requires careful attention to legal requirements and administrative details. Below is a step-by-step guide to help you understand the necessary procedures and how StMatthew Global can assist in each phase.

1. Choosing the Company Name

The first step in forming a company in Cyprus is selecting an appropriate name for the business. The chosen name must adhere to specific rules set by the Cyprus Registrar of Companies to avoid duplication and ensure clarity. Here are the key points:

• Uniqueness: The company name must be unique and not identical or too similar to an existing registered business. This prevents confusion and ensures that your company has its own distinct identity in the marketplace.
• Restricted words: Certain words, such as "bank," "insurance," or "trust," are regulated and cannot be included in the company name unless specific permissions are obtained from relevant authorities. Additionally, any misleading terms suggesting an association with the government or a public institution should be avoided.
• Approval process: Once a suitable name is chosen, it must be submitted to the Registrar of Companies for approval. The approval process typically takes 3-5 working days.

At StMatthew Global, we can assist you in conducting a name availability check and guide you through the process to ensure compliance with all regulations.

2. Legal Status and Registered Office

Every company in Cyprus must have a registered office address where official documents, including communications from tax authorities and the Registrar of Companies, can be sent. This address must be located within Cyprus, even if the company’s operations are managed from another location.

• Registered office: The registered office is required by law and must be maintained throughout the existence of the company. It serves as the official place for storing company records and legal documentation.
• Virtual office or domiciliation services: If you don’t have a physical presence in Cyprus, StMatthew Global offers a virtual office service, providing you with a professional address to meet legal requirements. Our domiciliation service can also provide administrative support, including mail handling and forwarding, ensuring your company’s legal obligations are met without the need for a physical office.

By choosing our service, you ensure that your company’s registered office is professionally managed, giving you peace of mind that all legal correspondence will be handled efficiently.

3. Information Required for Registration

To begin the company formation process, specific details must be provided to the Registrar of Companies. These include:

• Shareholders: Names, addresses, and personal identification information (passport or national ID) of all shareholders. A Cyprus Limited Company must have at least one shareholder, who can be either an individual or a corporate entity. For international investors, a minimum of one shareholder suffices, and foreign ownership is allowed 100%.
• Directors: At least one director is required, and while there is no legal requirement for the director to be a Cypriot resident, appointing a local director can provide tax benefits, as it helps establish Cyprus tax residency for the company.
• Secretary: Companies in Cyprus must appoint a company secretary, responsible for maintaining statutory records. The secretary can be a natural person or a corporate entity.
• Registered Office: The company’s official address in Cyprus, as explained earlier.

By providing this information, StMatthew Global can handle the registration process smoothly and efficiently, ensuring all legal requirements are met.

4. Required Documents

Several essential documents must be prepared and submitted to the Cyprus Registrar of Companies during the company formation process. These documents are crucial for the legal incorporation of the company:

• Memorandum of Association: This document outlines the company’s core business activities and its objectives. It details the scope of the company's operations and includes the names of its initial shareholders and their shareholding structure.
• Articles of Association: The Articles of Association define the company’s internal governance, including the rights and duties of shareholders, directors, and the secretary. It covers matters such as the rules for board meetings, share transfers, and dividend distributions.
• Legal Translation: If the company involves non-Cypriot shareholders or directors, it may be necessary to translate legal documents into Greek for submission to Cypriot authorities. StMatthew Global ensures that all documentation is properly translated and compliant with Cypriot legal requirements.

Our team prepares these documents meticulously, ensuring compliance with local regulations, and submits them on your behalf.

5. Timeline for Company Formation

The process of incorporating a company in Cyprus is typically completed within 5-10 working days, provided that all required documentation and information are submitted correctly.

• 3-5 days: Approval of the company name by the Registrar of Companies.
• 5-10 days: Incorporation process, including submission of documents and approval by the Registrar of Companies.

StMatthew Global ensures that the entire process is handled efficiently, minimizing delays and ensuring that your company is registered within the standard timeframe.

6. Post-Registration Procedures

Once the company is officially incorporated, there are several important steps that need to be completed to ensure the company is fully operational:

• Opening a bank account: Every company in Cyprus should have a corporate bank account to manage its financial transactions. This process usually requires submitting the company’s Certificate of Incorporation, Articles of Association, and personal identification documents of directors and shareholders. StMatthew Global assists in liaising with local and international banks to open an account.
• Registering for VAT: Companies with an annual turnover exceeding €15,600 must register for Value Added Tax (VAT). This registration allows businesses to charge VAT on goods and services sold and reclaim VAT on business-related purchases. We handle the VAT registration process to ensure your company remains compliant.
• Social insurance contributions: If the company hires employees, it must register for social insurance and set up contributions for employee benefits, including pensions and unemployment insurance. StMatthew Global manages the registration with the Social Insurance Services and ensures that payroll and contributions are handled correctly.

By partnering with StMatthew Global, you can rest assured that all post-incorporation steps are completed efficiently, allowing your business to operate smoothly from day one.

Taxation in Cyprus

Cyprus is renowned for having one of the most favorable tax regimes in Europe, making it an attractive destination for businesses looking to minimize their tax burden while benefiting from a robust and transparent regulatory framework. The Cypriot tax system offers competitive corporate tax rates, a vast network of double taxation treaties, and simplified VAT procedures, all designed to support international business operations.

1. Corporate Tax

The corporate tax rate in Cyprus is one of the lowest in the European Union, currently set at 12.5% on corporate profits. This low rate applies to all Cyprus-resident companies, meaning that the company is taxed on its worldwide income if it is managed and controlled from within Cyprus. For foreign companies operating in Cyprus, only Cyprus-sourced income is subject to taxation.

This rate makes Cyprus an appealing option for businesses seeking to optimize their tax strategies while remaining compliant with EU regulations. Compared to other EU countries where corporate tax rates can reach upwards of 25%, Cyprus’s 12.5% rate is a major draw for international companies, particularly in sectors such as shipping, finance, and technology.

Taxable Income

Corporate tax applies to the profits earned by a company after deducting allowable expenses. This includes:

• Operating expenses such as rent, salaries, and utilities.
• Depreciation allowances on capital assets like machinery and buildings.
• Interest expenses related to the company's business activities.

Some specific forms of income, such as dividends and profits from overseas permanent establishments, may be exempt from taxation in Cyprus, making the jurisdiction even more attractive for holding companies and multinational groups.

2. Double Taxation Treaties

One of the most significant advantages of the Cypriot tax system is its extensive network of Double Taxation Treaties (DTTs). Cyprus has signed treaties with over 65 countries, including major economies such as the United States, China, Russia, and most European Union members. These treaties are designed to prevent businesses from being taxed twice on the same income in different jurisdictions.

Double taxation treaties typically cover key tax areas such as income tax, capital gains tax, and withholding tax on dividends, interest, and royalties. This means that if a Cypriot company earns income from another treaty country, it may either be exempt from paying tax in that country or receive a credit for taxes paid abroad, thereby avoiding double taxation.

For multinational businesses, this DTT network is invaluable as it facilitates smooth cross-border operations while reducing overall tax liabilities. It also offers additional protection against aggressive tax practices by other jurisdictions, ensuring that businesses operating in Cyprus can operate with greater certainty and stability.

3. Value Added Tax (VAT)

Cyprus operates within the EU VAT framework, which ensures that its VAT system is aligned with those of other EU member states. This creates consistency for businesses operating across borders within the EU.

VAT Rates

Cyprus applies the following VAT rates:

• Standard rate (19%): This rate applies to most goods and services sold within Cyprus.
• Reduced rate (9%): A reduced rate applies to specific services such as tourist accommodation, passenger transport, and restaurant services.
• Reduced rate (5%): Another lower rate is applied to essential goods such as pharmaceutical products, medical equipment, books, and foodstuffs.

VAT Registration Threshold

Businesses operating in Cyprus must register for VAT if their annual taxable turnover exceeds €15,600. For businesses operating below this threshold, VAT registration is optional but may be beneficial, particularly for those looking to reclaim VAT on business expenses.

VAT Filing Requirements

Once registered for VAT, businesses are required to submit quarterly VAT returns to the Cypriot tax authorities. These returns must detail the amount of VAT charged on sales (output VAT) and the amount of VAT paid on purchases (input VAT). The difference between output and input VAT is either paid to the tax authorities or reclaimed as a refund if the input VAT exceeds the output VAT.

Cyprus also offers simplified VAT schemes for small businesses, allowing them to streamline their VAT reporting obligations. This reduces the administrative burden for companies with lower turnover, making it easier to remain compliant without extensive paperwork.

4. Other Taxes

While corporate tax and VAT are the primary taxes businesses need to manage, there are several other taxes and contributions that apply to companies operating in Cyprus.

Capital Gains Tax

Cyprus imposes capital gains tax at a rate of 20% on gains arising from the disposal of immovable property located in Cyprus. However, capital gains from the sale of shares or other securities are generally exempt from taxation, unless they derive their value from Cypriot real estate.

Social Insurance Contributions

Employers in Cyprus are required to make social insurance contributions for their employees. The contribution rate is 8.3% of the employee's gross salary, with the employer and employee each contributing an equal amount. These contributions fund the Cypriot social security system, including pensions, healthcare, and unemployment benefits.

Special Defense Contribution (SDC)

The Special Defense Contribution (SDC) applies to income earned from dividends, interest, and rental income. The current SDC rates are:

• 17% on dividends received by Cyprus-resident individuals and companies (though exemptions apply for non-domiciled individuals).
• 30% on interest income.
• 3% on rental income.

Companies with non-resident shareholders or businesses classified as “non-domiciled” in Cyprus are generally exempt from SDC, making Cyprus a highly attractive jurisdiction for holding companies and high-net-worth individuals.

 Responsibilities of Company Directors in Cyprus

Directors of companies in Cyprus hold significant responsibilities, both to the company and its stakeholders. The Companies Law (Cap. 113) outlines specific duties that directors must fulfill to ensure the company operates in accordance with Cypriot legal and regulatory frameworks. Failure to meet these obligations can result in severe penalties. Below is an overview of the key legal duties, consequences of non-compliance, and the procedures for appointing and removing directors.

1. Legal Obligations

Company directors in Cyprus have several key fiduciary responsibilities, meaning they must act in good faith and in the best interests of the company. These responsibilities include:

• Duty of Loyalty: Directors must always act in the best interest of the company and its shareholders. This includes making decisions that benefit the company as a whole, even if they conflict with the director’s personal interests. Directors must avoid conflicts of interest, disclose any potential conflicts, and refrain from exploiting company information for personal gain.
• Compliance with Corporate Laws: Directors must ensure that the company complies with all relevant laws and regulations in Cyprus, including tax laws, labour laws, and environmental standards. They are responsible for overseeing the preparation and filing of accurate financial reports, tax filings, and maintaining proper corporate records.
• Duty of Care and Skill: Directors are expected to manage the company with the level of care, diligence, and skill that a reasonably competent person would exercise. This means making informed decisions based on the advice of experts when necessary, and regularly reviewing the company’s financial performance and risk management processes.
• Protection of Company Assets: It is the responsibility of the directors to safeguard the company’s assets, ensuring that they are used for the benefit of the company and not for personal or improper purposes. This includes ensuring that the company remains solvent and operates within its financial means.
• Acting within Powers: Directors must act within the scope of their powers as outlined in the company's Memorandum and Articles of Association. Any decisions outside of these powers can be considered invalid and may lead to personal liability.

2. Sanctions for Non-Compliance

Failure to meet the legal obligations of a director in Cyprus can result in severe penalties, including:

• Fines: Directors may face significant fines for non-compliance with statutory obligations, such as failing to submit financial statements or tax filings on time. Companies House in Cyprus and other regulatory authorities closely monitor compliance, and delays or inaccuracies in reporting can lead to escalating fines.
• Disqualification: Directors who consistently fail to meet their legal duties or engage in wrongful trading (such as continuing to operate a business when it is insolvent) can be disqualified from acting as a director in any company. Disqualification can last up to 15 years, depending on the severity of the breach.
• Personal Liability: In cases of fraud, gross negligence, or wrongful trading, directors may be held personally liable for the company’s debts. This means their personal assets could be used to settle the company’s liabilities if it is found that they failed to take reasonable steps to prevent the company from going insolvent.
• Criminal Prosecution: In extreme cases, directors may face criminal prosecution for breaches of their duties, particularly in cases involving fraud, money laundering, or tax evasion.

3. Nomination and Resignation of Directors

The procedures for appointing and removing directors in Cyprus are governed by the company’s Articles of Association and the provisions of Cyprus Company Law (Cap. 113). Below are the key steps involved in the process:

Appointment of Directors

1. Board or Shareholder Decision: Directors can be appointed either by the board of directors (in the case of filling a vacancy) or by the shareholders during a general meeting. The company’s Articles of Association will dictate the exact process.
2. Notification to Registrar of Companies: Once a new director is appointed, the company must notify the Cyprus Registrar of Companies within 14 days. The notice must include the director’s full name, residential address, nationality, and occupation.
3. Director’s Consent: The individual being appointed must consent to the appointment and acknowledge their understanding of the responsibilities they are assuming. This is typically done through a signed declaration.

Resignation of Directors

1. Written Notice: A director may resign from their position by providing written notice to the company. The resignation takes effect upon the receipt of the notice or at a later date specified in the notice.
2. Notification to Registrar of Companies: The company is required to inform the Registrar of Companies of the resignation within 14 days. The company’s public records will be updated accordingly.
3. Ongoing Responsibilities: Even after resigning, directors may still be held accountable for decisions made during their tenure. For example, if the company goes into insolvency due to actions taken while the director was in office, they could still face consequences.

The role of a company director in Cyprus carries significant responsibilities, from managing the company’s affairs diligently to ensuring compliance with legal and regulatory frameworks. Failure to adhere to these obligations can result in personal liability, fines, or even disqualification. To mitigate these risks, directors should act in the best interests of the company and seek professional guidance when necessary. At StMatthew Global, we assist companies in managing director responsibilities, ensuring compliance and reducing the risk of legal complications.

 Employment and Human Resources in Cyprus

Setting up a company in Cyprus involves not only navigating the financial and legal landscape but also understanding the employment laws and regulations that govern employee rights, compensation, and hiring. Here’s a breakdown of the key aspects you need to consider when employing workers in Cyprus.

1. Employment Contracts

In Cyprus, all employment relationships must be governed by a formal employment contract. While contracts can be verbal or written, it is mandatory for employers to provide employees with a written statement of terms within one month of the start of employment. This document must include the following key elements:

• Job title and description: Clearly stating the role and responsibilities.
• Duration of employment: Whether the contract is permanent, temporary, or fixed-term.
• Compensation: Including salary, bonuses, and any other financial benefits, such as overtime payments or performance incentives.
• Working hours: The standard working week in Cyprus is 40 hours, and contracts must outline any deviations from this.
• Annual leave: Employees are entitled to at least 20 working days of paid leave if they work a five-day week or 24 days for those working a six-day week. Public holidays are also granted in addition to this leave.

The employment contract also covers details about probation periods, notice periods, and procedures for termination. Both the employer and the employee must adhere to the conditions stipulated in the contract to avoid legal disputes.

2. Labour Regulations

Cyprus offers a well-regulated labour market that ensures protection for both employers and employees. Companies must be aware of several key labour regulations to maintain compliance:

• Minimum Wage: The minimum wage in Cyprus applies primarily to certain professions, such as office clerks, salespeople, and cleaners. As of 2024, the national minimum wage is set at €940 per month, after six months of employment. For those employed for less than six months, the wage stands at €885 per month. However, certain industries have their own agreements that may stipulate different wage levels.
• Working Hours: The standard working week in Cyprus is 40 hours. Employees are entitled to a break of at least 15 minutes if they work more than 6 hours. Employers are required to ensure that employees do not work more than 48 hours per week, including overtime, unless agreed otherwise.
• Social Security Contributions: Employers are required to contribute to the social insurance fund, which provides employees with benefits such as healthcare, maternity leave, and pensions. As of 2024, the employer's contribution rate stands at 8.3% of the employee's gross salary. Employees also contribute at a rate of 8.3%. In addition to this, there are contributions to the National Health System (GESY), calculated at 2.9% for employers and 2.65% for employees.
• Pension Contributions: Although Cyprus does not have a mandatory pension scheme, many companies provide voluntary pension plans. Employees have the right to join such schemes if offered, and employers are encouraged to support these plans as part of their employee benefits packages.
• Rights to Sick Leave and Maternity Leave: Employees are entitled to maternity leave of 18 weeks, with a possibility of an extension in the case of multiple births. During maternity leave, eligible employees receive social security benefits. Sick leave is also protected by the social insurance fund, ensuring employees receive compensation for lost wages during extended periods of illness.

3. International Recruitment

Cyprus is a member of the European Union, which makes it easier for companies to recruit from other EU countries. However, hiring workers from outside the EU requires adherence to strict work permit and visa regulations. There are several programs that facilitate international recruitment for businesses seeking foreign talent:

• Temporary Employment Permit: For non-EU nationals, businesses must apply for a Temporary Employment Permit. This process involves proving that the company cannot find a suitable candidate within Cyprus or the EU. Permits are generally granted for specific roles, such as executives, specialized technicians, or highly skilled professionals. Companies must also meet certain conditions, such as having a physical office in Cyprus and demonstrating financial stability.
• Cyprus Investment Programme: While primarily aimed at high-net-worth individuals looking to invest in the country, this program also offers benefits for employers. Entrepreneurs and investors can use this route to bring foreign talent to Cyprus by meeting certain investment thresholds, making it easier to recruit and retain highly skilled professionals from non-EU countries.
• Visas and Work Permits: For other types of workers, companies need to obtain specific work visas. For example, the Category E Visa is granted to non-EU nationals who have been offered permanent employment, provided that the role cannot be filled by a Cypriot or EU national.

Hiring and managing employees in Cyprus requires an understanding of the country’s employment laws and regulations. By ensuring that employment contracts comply with local labour laws and staying up-to-date with changes in minimum wage rates, working hours, and social security contributions, businesses can establish a solid HR foundation. Additionally, navigating the international recruitment process with the help of permits and visa programs ensures that companies can attract the global talent they need to thrive in Cyprus.