Starting a Business in Cyprus: Key Steps, Legal Requirements, and Benefits

Cyprus Tax Framework — Why It Matters

Cyprus has one of the best tax regimes in Europe and it’s likely the main reason for its popularity. Understanding the details of this framework is important in making the most of the benefits and being compliant.

Corporate Tax Rate Overview (12.5%)

The corporate tax rate in Cyprus is one of the lowest in the EU at 12.5% on profits. This rate applies to all Cypriot companies and it’s a big advantage for companies looking to minimize their tax liabilities while taking advantage of the EU market. The low corporate tax rate means more profit and a good environment for re-investment and growth.

Dividend Tax Treatment for Foreigners

Cyprus’s dividend tax treatment is very attractive to foreign investors. Dividends received by non-domiciled shareholders are tax exempt, provided of course that those individuals first become tax residents of Cyprus. This exemption allows individuals to significantly minimize their personal tax burden. The ability to distribute profits without additional tax is an advantage that not many countries around the world offer.

Individual Tax

The individual tax system in Cyprus is progressive with the first €19,500 of income being tax free. The rest of the income is taxed at increasing rates with the highest bracket at 35% for individuals earning over €60,000 a year. New residents starting Employment in Cyprus can get up to a 50% tax exemption on their income. Unlike most jurisdictions around the world where a minimum presence of 183 is required before becoming a tax resident, Cyprus allows individuals to become tax residents with minimal physical presence under the 60-day rule. This flexibility in tax residency is a big plus for high-net-worth individuals and digital nomads looking for a tax-efficient jurisdiction.

IP Box Regime

Cyprus’ IP Box regime is one of the best in the world with an effective tax rate of as low as 2.5% on qualifying IP income. This regime is designed to attract and retain companies that develop and exploit IP assets. Tech companies, pharma companies and startups will benefit greatly from this regime and Cyprus is becoming a hub for innovation and research.

Understanding Cyprus Business Structures

Choosing the right business structure is a crucial decision that affects taxation, liability and operational flexibility. Cyprus offers many business structures each suitable for different needs and objectives.

Private Limited Company (LTD)

The Private Limited Company (LTD) is the most popular business entity in Cyprus. It offers limited liability to its shareholders, meaning personal assets are protected in case of business insolvency.  A Private Limited Company can do business locally and internationally and is flexible and scalable.

Sole Proprietorship

A Sole Proprietorship is the simplest form of business structure, suitable for small operations or individual entrepreneurs. Although it’s easy to set up and has minimal regulatory requirements, it doesn’t offer limited liability. The owner is personally liable for all business debts and obligations which can be a big risk. Despite this, sole proprietorships are popular among freelancers and small business owners because of its simplicity.

Public Company

For companies looking to raise capital from the public or list on a stock exchange a Public Company is the way to go. A Public Company requires a minimum 7 shareholders and higher initial capital of €25.629. Public companies are subject to more strict regulations and disclosure requirements, transparency and accountability. This structure is suitable for big companies looking to expand their market presence and attract big investment.

Step-by-Step Company Registration Process

Registering a company in Cyprus involves several steps, each one to ensure legal compliance and operational readiness. 

Choosing and Reserving Company Name

The first step is to choose a unique name for the company. This name must be approved by the Registrar of Companies before the company can be registered. The name cannot be similar to any existing company name and must comply with the Registrar’s requirements.

Preparing Required Documents

Once the company name is approved, the next step is to prepare the necessary documents. This includes the Memorandum and Articles of Association which outline the company’s purpose and its internal governance. These documents must be drafted and signed by a licensed lawyer as required by law and must be in Greek. However, translations can be requested. You will also need to provide details of the shareholders, directors, secretary and registered office address which must be in Cyprus.

Registration with the Registrar

Once the documents are ready, the company must be registered with the Registrar of Companies. This involves submitting the application forms and paying a registration fee. Upon approval, a Certificate of Incorporation is issued and the company is officially born. This certificate is the legal proof of the company’s existence and its ability to start operating.

Tax Registration

After incorporation, the company must register with the Cyprus Tax Department to get a Tax Identification Number (TIN) and if applicable to register for VAT. This registration is necessary for the company to commence operations. 

UBO Registration

As per international standards, companies in Cyprus must register their Ultimate Beneficial Owners (UBO) with the relevant authorities. This step ensures the company’s ownership structure is transparent and compliant with anti-money laundering regulations. UBO registration is part of Cyprus’s commitment to have a clean and transparent business environment.

Essential Legal Requirements

Complying with the legal requirements is crucial to avoid penalties. These requirements are to ensure businesses operate fair and transparently.

Substance Requirements

Cyprus has implemented substance requirements to avoid shell companies. Companies must have physical presence, including having a local office and being managed and controlled from Cyprus. Without these requirements, the Company may lose its tax residency and have its bank accounts closed. 

Shareholder and Director Requirements

A Cyprus company must have at least one shareholder, one director and one secretary. These can be individuals or corporate entities. In the case of single-member companies, an individual can hold all three positions.

Registered Office Address

Every company must have a registered office in Cyprus which is the official point of contact for all legal and administrative correspondence. This must be a physical address in Cyprus and is part of the company’s identity. 

Annual Compliance Obligations

Cyprus companies must file tax returns annually along with audited financial statements. Compliance is essential for the company to operate while non-compliance can result in penalties and legal issues. Companies must also hold annual general meetings. 

Business Opportunities for Non-EU Individuals

Cyprus has opportunities for non-EU individuals to get a foot in the EU market. The country has policies and programs to attract foreign investment and talent.

Foreign Interest Company

Non-EU individuals can register a Foreign Interest Company which allows them to reside and work in Cyprus without restrictions. The basic requirement is that the owner of the Company must deposit €200,000 in an account held by the company. After being approved as a Company of Foreign Interests, the company can employ non-EU nationals and facilitates the process of obtaining residence permits for them.

By establishing a Foreign Interest Company, non-EU individuals can get access to the European Market and also enjoy the tax benefits Cyprus offers to foreigners.

Cyprus Startup Visa Program

The Cyprus Startup Visa program is designed to attract non-EU entrepreneurs to the country. It gives a pathway for foreign entrepreneurs to set up and grow their business in Cyprus.

Eligibility Criteria (Innovative Business Ideas)

Applicants must show that their business idea is innovative and has growth and scalability potential. This criterion ensures that the program attracts high potential startups that can contribute to Cyprus’s economy.

Path to Residence

Approved applicants get a residence permit and can live and work in Cyprus. This path to residence is a big plus for entrepreneurs who want a stable base in the EU and a good environment to grow their business and personal life.

Conclusion

Setting up a business in Cyprus offers a number of advantages, not just for the business itself, but for individuals looking to reside and work in Europe while minimizing their tax obligations. By understanding the legal requirements and available benefits, entrepreneurs can capitalize on what Cyprus has to offer. Whether you’re setting up a private limited company, utilizing the IP Box regime, or participating in the Startup Visa program, Cyprus stands out as the ideal destination for European business ventures.The country has several tax incentives and a strategic location, making it the perfect hub for entrepreneurs and investors looking to grow and expand in Europe.

How EasyCorporate Can Help

If you’re thinking about starting a business or relocating to Cyprus, we are equipped to make the process easier for you. EasyCorporate is a licensed corporate service provider in Cyprus, offering everything you need to set up your business and get settled. From company registration to handling the legal and tax requirements, our team is here to help you navigate it all. Whether you’re looking to move your business, take advantage of tax incentives, or explore residency options, we’ll work with you every step of the way. Feel free to send us an email at support@easycorporate.com.cy to set up a free consultation.