International Business Division

Tax optimisation. Corporations and Individuals from the higher-tax jurisdictions employ a large number of Cyprus holding companies for tax optimisation purposes and to prevent legal risk accruing to the main group.

Asset protection. Corporations and wealthy individuals who live in politically unstable countries utilise Cyprus holding companies to hold family wealth to avoid potential restrictions in the country in which they live.

Avoidance of forced heirship provisions. Many countries continue to employforced heirship provisions in their succession law, limiting the testator’s freedom to distribute assets upon death. By placing assets into a Cyprus holding company, and then having probate for the shares in the offshore determined by the laws of the Cyprus jurisdiction (usually in accordance with a specific will or codicil sworn for that purpose), the testator can avoid such strictures.

Collective Investment Vehicles. Mutual funds, Hedge funds, Unit Trusts andSICAVs are formed to facilitate international distribution. By being domiciled in a low tax jurisdiction investors only have to consider the tax implications of their own domicile or residency.

Derivatives trading. Corporations and wealthy individuals often form offshore vehicles to engage in risky investments, such as derivatives trading, which are extremely difficult to engage in directly due to cumbersome financial markets    regulation.

Exchange control trading vehicles. For avoiding either exchange control or increased political risk with the repatriation of funds.

Joint venture vehicles. Cyprus holding companies are frequently used to set up joint venture companies as a compromise neutral  jurisdiction.

Limited Liability Company

The Law in Cyprus governing limited liability companies is the Companies Law, CAP 113, which is based on the Companies Act 1948 of the United Kingdom. The majority of companies incorporated in Cyprus are limited liability where the liability of the shareholders is limited to the amount unpaid on their shares. Companies must have at least one director and a company secretary. Directors are considered employees of the company and are paid salaries. In some cases directors may be shareholders as well and thus can choose to some extent to be remunerated by salary or by a way of dividend. The constitution of a registered limited company consists of two documents, the Memorandum of Association and the Articles of Association.

General Partnership

A partnership is the relationship between two or more persons carrying on a business in common with a view to profit. The members of the partnership are jointly and severally liable for all debts and obligations, without limitation, and the partnership profits are shared by the partners as income, and taxation is paid on this income in exactly the same way as a sole proprietor.

Limited Liability Partnership

A limited partnership consists of one or more partners called general partners who shall be liable for all debts and obligations of the partnership and one or more persons called limited partners, who are not liable for the debts or obligations of the partnership beyond their fixed contribution.

Branch/Representative Office

The registration formalities of registering a branch are the same as the company registration. Overseas companies may also establish a branch in Cyprus provided that they file with the registrar of companies the documents listed in Appendix II.Sole Proprietorship

The owner has unlimited liability for all debts. Cypriots are allowed to carry on business in their name or under a trade name which must be registered as a business name.

All business profits are treated as income of the sole proprietor who then pays income tax according to the applicable rates in force.

Foreign investors are also allowed to carry on the same business if they comply with the immigration law and regulations.

Offshore legal entities

The Offshore legal entities in Cyprus ceased to exist on 1st January 2003. International Business Companies (IBCs) in Cyprus are essentially Cyprus registered entities owned by non-Cypriots and operating outside Cyprus. They are taxed at the same rates as local companies as indicated in Section 4 ‘Taxation’ at the rate of 10% corporation tax.

Establishment of an IBC is made in the same way as a local limited liability company.

Joint Venture

Joint ventures can be set up in Cyprus and registered with the registrar of Companies. Their operation and treatment is similar to partnerships.

Public Limited Company

Public Limited Companies are limited companies which are listed in the Cyprus Stock Exchange. In addition to the legislation applicable to limited liability companies, they have to conform to the provisions of the Cyprus Stock Exchange and Cyprus Securities and Exchange Commission regulations.

The liability of its members is limited to their share participation. The Company has its own legal personality and this personality is     distinct from its shareholders.

The minimum number of shareholders is one and the maximum number is fifty.

Shares cannot be issued to the bearer.

Special classes of shares with preferential rights may be issued.

Nominee shareholders can be used where anonymity and confidentiality is desirable.

The Company must have a registered office in Cyprus.

Each company’s file at the Registrar of Companies is available for public inspection.

The minimum number of directors is one and there is no maximum number.

Directors may be local or foreign, physical or legal persons. Alternate directors  may be appointed.

Meetings of the Board of Directors can be held either in Cyprus or abroad.

General meetings of the shareholders of the company may be held either in Cyprus or abroad.

Accounts must be kept and financial statements duly certified by certified or chartered accountants practising in Cyprus which must be prepared according to International Financial Reporting Standards. Financial statements are filed with the Registrar of Companies and tax returns are filed with the Income Tax Authority.

Bank accounts of any kind may be opened in any currency, either in Cyprus or abroad. Bank accounts opened in Cyprus are operated without any exchange control restrictions.

Annual returns must be filed with the Registrar of Companies once a year, containing information as to any changes to Directors, Secretary, shareholders, authorised, issued or paid up capital, registered office, mortgages/charges and other related matters.

The Company must appoint one Secretary, who may be local or foreign, physical or legal person.

The company must have a Memorandum and Articles of Association prepared by a licensed advocate in Cyprus, which must be signed by the subscribers and deposited with the Registrar of Companies.

Cypriots, European Union nationals and foreigners (other than Cypriots or European Union nationals) may establish such a company without obtaining any licence.

As from 01.10.2004 there is complete liberalisation of direct investments in Cyprus by foreigners.

Re- domiciliation is possible.

The concept of Trust

The Trust is one of the most important and flexible institutions of English law and finds no parallel in any legal system not influenced by English law. The Cyprus legal system is modelled on the English legal system and the concept of Trust in Cyprus is routed in the English law.

The legal framework in Cyprus allows also the establishment and operation of International Trusts which are created by non-residents for the benefit of non-residents.

The nature of a Trust

A Trust, or a Settlement as it is often called, is established by an individual “the Settlor” and is a means whereby property “the Trust Property” is held by one or more persons “the Trustees” for the benefit of another or others “the Beneficiaries” or for specified purposes. The Settlor can be a Trustee and the Settlor and the Trustees or any of them can be Beneficiaries. A Settlor cannot be a Trustee and a Beneficiary at the same time.

In law the Trustees are the owners of the Trust Property, although, they may not deal with it as absolute owners, but rather in accordance with the provisions of the law relating to Trusts and the rights of the Beneficiaries as set out in the Trust document. The Trustees are under a binding obligation to deal with the Trust document and the beneficial owners of the Trust Property are the Beneficiaries.

The Trust Property can include all kinds of assets situated anywhere in the world provided the Trustees have legal control and ownership of the assets according to the law governing the particular Trust.

Trusts can be established:

-By lifetime gift

-On a death pursuant to Will

-By operation of law

-By accident

Creation of Trusts

A Trust may be created by the owner of property during his lifetime by Deed or upon his death by Will. Trusts created by operation of law and by accident are outside the scope of this publication.

No one should enter into a Trust arrangement without first having obtained expert professional advice and ensuring that he understands what he is doing. He should also see that the Trust instrument provides exactly the degree of flexibility or otherwise what he requires.

Reasons for making a Trust

There are many reasons for which the Settlor may wish to create a Trust but some of the principal reasons are:

To avoid or mitigate taxation liabilities. Trusts have traditionally been a very important tax planning device and even today a very high proportion of tax saving schemes involve Trusts.

To preserve property in the family, by ensuring that an individual is well provided for, without giving that individual the opportunity of exhausting the family assets because of mismanagement of unsuitable marriage.

To benefit disabled or mentally handicapped persons by making them Beneficiaries without passing control of the property to them.

To keep control as Trustee over the enjoyment and ultimate destination, despite giving the assets away.

To provide flexibility over the identity of the donees and the extent of the interest taken by them in order to take account of future developments.

To make gifts for charitable and religious purpose to be held by Trustees for such purposes

1. Disclaimer

This publication has been prepared as a general guide and for information purposes only. It is not a substitution for professional advice. One must not rely on it without receiving independent advice based on the particular facts of his/her own case. No responsibility can be accepted by the authors or the publishers for any loss occasioned by acting or refraining from acting on the basis of this publication.

-By operation of law

-By accident

There is no distinction between local companies and offshore companies. Companies for Tax purposes will be identified as tax resident and non tax resident. The different tax treatment between resident and non-resident companies is summarized in Appendix I.

A Company, irrespectively of where it is registered, is taxed only if it is a tax resident of Cyprus. A Company is considered as tax resident of Cyprus if its management and control is in Cyprus.

A non tax resident company is not subject to any tax in Cyprus on any income derived from sources outside Cyprus (0%), but is taxed on its profits arising from within Cyprus.

The taxable net profits of all tax resident companies (i.e. having their management and control in Cyprus) whether incorporated in Cyprus or not, will be liable to corporation tax at the rate of 0% – 10%, depending on the type of income.

There is no tax (0%) on profits from the sale of titles i.e. shares, bonds, debentures, founders’ shares and other titles of companies or other legal persons, incorporated in Cyprus or abroad and options thereon.

There is no corporation tax (0%) on dividends received by a tax resident company. There are also very wide exemption criteria from Special Defence Contribution Tax for such dividend income.

There is no tax (0%) on profits from a permanent establishment abroad (under certain conditions).

Passive Interest Income as is taxed only under Special Defence Contribution Tax at 15%.

The impressive number of the double tax treaties combined with the tax and other advantages of Cyprus, have contributed to the          development of Cyprus as a reputable international business centre. Cyprus companies may be beneficially used as a vehicles where a treaty partner does not have a treaty with the country in which an investment is proposed or where such a treaty exists but is not as beneficial as Cyprus own treaty with the country.

In addition the reputation that Cyprus enjoys with foreign tax jurisdictions means that tax screening requirements normally relevant to tax heavens and low tax countries, may not be relevant to payments to Cyprus entities while the anti-avoidance legislation of high tax      countries aim at clawing back benefits derived through tax heavens and low tax centers may be less significant with regard to Cyprus.

A number of tax planning schemes is illustrated in the following pages. These illustrations have been prepared as a general guide and for information purposes only. It is not a substitution for professional advice. One must not rely on them without receiving independent advice based on the particular facts of the case

Government Relations is an essential component of any business that is subject to government regulations. At its core, government relations is an educational process of educating business and industry leaders about the governmental process; educating officials about the issues important to business or other constituencies; and educating governmental and business leaders, and the public, about the potential consequences of legislation.

Law has an impact on business, but business professionals do not always comprehend the difficulties of running a country and politicians do not always understand the complexities of running a business, so educating both about the potential effect legislation could have on an industry is an essential part of the law-making process.

Without an understanding of the law-making process, opportunities to shape the outcome of legislation that affects a given business can be missed. Government relations specialists educate clients about the law-making process and identify and monitor important issues – issues that affect their business. Once these issues are identified, government relations specialists offer advice on how to influence the underlying laws and public policy. And, when necessary, ensure that their client’s position is considered in the debate by lobbying public officials, staff, and/or the general public.

Ultimately, we do is to make the case for our client’s business in the public policy arena.