1. Skip to Menu
  2. Skip to Content
  3. Skip to Footer>

Companies

Print

 

Introduction

In many ways a company is similar to a sole trader or partnership, except that it exists as a separate legal entity from the owners (who are known as shareholders or members*). This means that in most circumstances, the personal assets of the owners cannot be touched to pay for the debts of the company.

Companies have the same powers as an individual and a body corporate meaning that it has the ability to enter into contracts and own property in its own right, only limited by its own objects contained in its Memorandum and Articles.

Companies have limited liability either limited by shares or limited by guarantee. See limit of liability.

You may have heard of IBC's (International Business Companies, also known as offshore companies), prior to Cyprus' EU ascension these type of companies had certain taxing privilages, which have since been phased out through transitional provisions. Offshore companies no longer exist.

Back to top

 

Advantages

  • Limited liability (shares/guarantee).
  • Companies have the power of an individual and a body corporate meaning that it has the ability to enter into contracts and own property in its own right.
  • Unlimited life.
  • Can raise finance by issuing shares or debentures in itself.
  • Lower tax rates (12.5% tax).
  • Dividends payable to shareholders are tax exempt (resident shareholders distributions attract a further 17% SDC).

Back to top

 

Disadvantages

  • Onerous compliance requirements.
  • There are costs associated with establishment.
  • There are costs associated with its administration and its statutory requirements e.g. audit, filling of annual reports, submission of accounts.
  • Agency costs (costs for ensuring the alignment between the objectives of shareholders [owners] and those of the directors [management]).

Back to top

 

Limit of Liability

  • For companies limited by shares, the liability of shareholders is limited to the amount, if any, unpaid on the shares respectively held by them.
  • For companies limited by guarantee, the liability of shareholders is limited to the amount shareholders undertake to contribute to the assets of the company in the event the company is wound-up (specified in the company's memorandum).

Back to top

 

Taxation

  • Tax on company profits at 12.5%
  • Special Defense Contribution (SDC) 17% on profit amount, on receiving or deemed to be receiving a dividend.
  • Companies are deemed to have distributed to resident shareholders 70% of their after tax profit as at the end of two years from the end of the year in which the profits were made.

Back to top

 

Relevant Law

  • Companies have more onerous statutory requirements. The primary legislation which governs companies is the Companies Law (Cap113 (as amended) 2004.
  • Income Tax is administered by the Inland Revenue Department and is imposed under the following laws.
    • Imposition of tax - Income Tax Law of 2002, law 118(1)/2002 as amended.
    • Administration and collection - Collection of Taxes law of 1978, Law 4/78 as amended.
  • VAT is administered by the Inland Revenue Department. VAT is imposed under the following laws.
    • VAT Law Ν. 95(I)/2000.

Back to top

 

* Owners of a company limited by shares are known as "shareholders", owners of company limited by guarantee are known as "members".