Doing Business In

Cyprus’s legal system is largely based on the English common law system, because Cyprus was a former British colony until 1960; however, it also encompasses civil law system elements. Today, the applicable laws are as follows:

• the Constitution of Cyprus;
• the laws retained in force by virtue of Article 188 of the Constitution;
• the principles of common law and equity; and
• the laws enacted by the House of Representatives.

Moreover, following the accession of Cyprus to the European Union in 2004, the Constitution was amended so that European law has supremacy over the Constitution and national legislation.

The primary legislative and regulatory provisions governing the establishment and operation of enterprises in Cyprus includes the following:

• Companies Law (Cap 113), as amended: This is the key statute regulating company formation and governance in Cyprus.
• General and Limited Partnership and Business Names Law (Cap 116), as amended: This law governs the formation and operation of partnerships and the registration of business names.

The following additional laws regulate publicly traded securities:

• the Cyprus Securities and Stock Exchange Laws (1993-2020), as amended (and relevant regulations);
• the Cyprus Securities and Exchange Commission (CySEC) Law (73(I)/2009), as amended;
• the Takeover Bids Law (41(I)/2007), as amended;
• the Investment Services and Activities and Regulated Markets Law (144(I)/2007);
• the Transparency Requirements Law (190(I)/2007), as amended;
• the Corporate Governance Code (5th edition), January 2019;
• the Market Abuse Law (102(I)/2016); and
• the Encouragement of Long-term Shareholder Engagement Law (111(I)/2021).

Regulated companies operating in the financial sector must comply with additional laws and CySEC regulations which relate, among other things, to:

• licensing;
• the conduct of business; and
• reporting requirements.

The House of Representatives (together with its specialised committees) is primarily responsible for the legislative function in Cyprus.

The regulatory bodies responsible for enforcing these provisions are as follows:

• The Registrar of Companies is responsible for the registration and regulation of companies. It maintains a register of all registered business entities and monitors their compliance with all relevant corporate obligations. The registrar serves merely as a notification office, subject to some exceptions. The registrar also has the power to impose administrative fines in case of non-compliance with the relevant statutory obligations.
• CySEC is responsible for the supervision of:
• • the investment services market;
  • transactions in transferable securities carried out in Cyprus; and
  • the collective investment and asset management sector.
• It also supervises firms offering administrative services which do not fall under the supervision of the Institute of Certified Public Accountants of Cyprus and the Cyprus Bar Association, as well as crypto-asset services providers. Among other things, CySEC has the authority to grant and revoke licences and impose administrative fines in case of non-compliance.
• The Cyprus Stock Exchange (CSE) is responsible for establishing and managing a central depository and central registry, in which are registered:
• • all securities listed on the CSE; and
  • unlisted securities whose issuers wish to maintain registration with the CSE.
• The Central Bank of Cyprus is responsible for supervising banks and safeguarding the stability of the financial system.

The main types of business structures are as follows:

• Companies:
• • Private limited liability company by shares: These companies have a share capital and the liability of members is limited.
  • Public limited liability companies by shares: Public companies may invite the public to subscribe for its shares and may be listed.
• Limited liability guarantee companies with share capital: The liability of the members of these companies is limited to any unpaid amount for their shares, up to the amount that members have undertaken to contribute.
• Limited liability guarantee companies without share capital: The members of these companies act as guarantors (up to the amount that they have undertaken to contribute).
• Societates Europaea: These companies can undertake business activities in more than one European country and can have unlimited number of members.
• Partnerships: A partnership does not have separate legal personality. A partnership may be either a general partnership or a limited partnership and in the latter case, there must be at least one GP with unlimited liability. General partners are jointly responsible for the partnership’s debts and liabilities, whereas limited partners are liable only for up to the amount they have contributed as capital.
• Sole proprietorships: A sole proprietor is fiscally transparent for tax purposes and has unlimited liability. When a business is carried out under a name other than the sole proprietor’s real name, registration is obligatory.
• Trusts: This is a legal arrangement whereby trustees hold and manage assets on behalf of beneficiaries. The property under the trust is legally held and registered in the name of the trustee. In Cyprus, there are two types of trusts:
• • local trusts; and
  • Cyprus international trusts.

• Companies: Pursuant to the Companies Law, there is no minimum capital requirement for a private limited liability company. On the contrary, a public company must have a minimum capital of €25,629.
• Partnerships: There is no concept of share capital, but there must be some contribution from a partner, which is known as the ‘partner’s capital’. However, there is no minimum capital requirement for registering a limited liability partnership.
• Sole proprietorship (business name): N/A.
• Trusts: There is no concept of share capital, but the trust must have specific property (assets) that is transferred into the trust by the settlor to be established.

Companies: The formation procedure involves the following steps:

• approval of the company name;
• submission to the Registrar of Companies of:
• • Form HE1, signed and sworn before the court by a licensed lawyer;
  • Form HE2 (which indicates the registered address);
  • Form HE3 (providing for the appointment of the first directors and secretary); and
  • the memorandum and articles of association (duly signed in the Greek language) together with the solemn declaration of witness of signatures.

Partnerships: Once the name application has been approved by the Registrar or Companies, the application for the partnership’s incorporation may be submitted within one month of its establishment, either through e-filing or by post, on Form Σ1, accompanied by the following:

• a solemn declaration of the signature witness; and
• permission, consent or pre-approval by the appropriate governmental authority/body (where necessary for the use of certain words/expressions).

Sole proprietorships: Following approval of the trade name, a sole proprietorship may submit the trade name registration application, either online or by post, within one month of the date of commencement of business.

Trusts: Upon the preparation of a trust deed, the trust must be registered to the relevant authorities through the online system CyTBOR.

In general, Cyprus imposes no restrictions on foreign players that wish to establish a business directly in Cyprus, with the exception of certain regulated and/or strategic areas or industries. In particular, no restrictions apply to EU nationals in relation to ownership and investment in Cyprus. Similarly, subject to the above, foreign non-EU nationals are free to invest in Cyprus companies and to acquire their entire share capital. Furthermore, there are no restrictions on the acquisition and ownership of real estate in Cyprus by EU nationals. Nevertheless, there are certain restrictions on third country (non-EU) entities or persons regarding the acquisition of real estate property. Please see question 5.3 for further details.

Cyprus complies with the European regulations and the sanctions imposed on Russia by the European Union relating to specific Russian individuals and Russian-owned entities.

In Cyprus, businesses can explore various opportunities through entities not connected to the principal person, such as agency and resale arrangements. From a legal perspective, there are generally no restrictions on these activities, unless explicitly outlined in the articles or memorandum of association. However, it is advisable to thoroughly review any contractual agreements that the entity in question may have entered in order to assess whether any contractual restrictions have been imposed.

Companies: In public and private companies, activities are carried out by the directors, who exercise all of the company’s powers through the board, with the exception of those powers which are required to be exercised by the company in a general meeting under either the Companies Law or the company’s articles of association. Different requirements on the synthesis of the board of directors apply depending on the type of company:

• A private company must have at least one director. However, the same director cannot be appointed as secretary of the same company, unless the company consists of one member only.
• A public company must have at least two directors.

Partnerships: Partnerships may be either:

• general (in which case every partner is liable jointly and severally with the other partners for all debts and obligations of the partnership while a partner); or
• limited (in which limited partners contribute a stated amount to the capital and are not liable for the debts and obligations of the partnership beyond the amount stipulated).

In either form of partnership, there must be at least one general partner with unlimited liability for the debts and obligations of the partnership. Only general partners may participate in the management and operations of the partnership and have the authority to bind it.

Regulated entities must comply with additional requirements.

It is not mandatory for any type of enterprise to appoint any specialist committees under Cyprus law. Although very rare, some companies may choose to appoint specialist committees for specific purposes.

The appointment of corporate directors is permitted under Cyprus law. However, the same corporate director cannot be appointed as a secretary of the same company, unless the company consists of one member only.

Unless ordered otherwise by the courts, an individual may become a company director unless they:

• have been disqualified from being a company director;
• have been declared bankrupt (unless allowed by the court);
• have been declared to have no legal capacity; or
• are under the age of 18.

There is no legal requirement for a director to be based in Cyprus or a Cypriot national. No local residency or nationality requirements are imposed on shareholders from a Cyprus company law perspective; however, the appointment of a non-resident director may give rise to adverse tax implications.

The first directors of a Cyprus company are appointed by the subscribers of the company. From there on, the procedure to be followed for the appointment and/or removal of subsequent directors is governed by the company’s articles of association. No restrictions apply in relation to their tenure.

The appointment of new directors is done by ordinary resolution passed by the shareholders at a general meeting. The articles of association also commonly empower the directors to appoint other directors to fill in a vacancy or in addition to the existing directors. Such appointment is usually effective only until the next annual general meeting, at which such director may be re-elected by the shareholders.

A director may be removed before the expiration of his or her period of office by an ordinary resolution of the shareholders notwithstanding anything in its articles of association or in any agreement between the company and the director. The director has the right to make representations, both orally at the meeting at which the resolution is considered and in writing by a statement, which the company must distribute to shareholders in advance of the meeting.

A director may also be removed if:

• he or she becomes bankrupt or makes any arrangement or composition with his or her creditors generally;
• becomes prohibited from being a director by reason of a court order;
• becomes of unsound mind; or
• resigns his or her office by notice in writing to the company.

The Companies Law does not explicitly specify the maximum number of directors to be appointed to the board of directors of a Cyprus company; however, this restriction is imposed in the articles of association of each Cyprus company.

The company’s activities are carried out by the directors as a board, who exercise all the company’s powers, with the exception of those which are required to be exercised by the company in a general meeting under either the Companies Law or the company’s articles of association. Please see question 4.3.

The directors are legally responsible for:

• managing the company;
• maintaining the accounting books which are necessary for preparing the financial statements; and
• submitting the tax returns and carrying out all acts relating to the submission and payment of taxes.

The directors and secretary are also responsible for submitting the relevant documents and notifications regarding the updating of the company’s particulars to the Registrar of Companies.

The powers of the directors are restricted to those which must be exercised by the company in a general meeting (ie, by the shareholders) under either the Companies Law or the company’s articles of association. Please see question 4.3.

The duties of Cyprus directors, which arise both under common law and by statute, are as follows.

• Fiduciary duties:
• • a duty to act in good faith and in the best interests of the company, and thus to act to promote the success of the company;
  • a duty to act in accordance with the company’s constitution and exercise their powers only for the purposes allowed by law;
  • a duty to exercise independent judgement;
  • a duty to declare an interest in a proposed transaction or arrangement;
  • a duty to avoid conflicts of interest; and
  • a duty to exercise the degree of skill, diligence, knowledge and experience which may reasonably be expected from persons carrying out the same functions and having the same knowledge and experience as the director in question.
• Statutory duties:
• • a duty to keep accounting books and records for the preparation of financial statements;
  • a duty to prepare the financial statements;
  • a duty to prepare and submit the directors’ report (annual return);
  • a duty to disclose the payment of loss of office made in connection with transfer of shares in a company;
  • a duty to maintain a corporate register reflecting the directors and secretary; and
  • a duty to disclose any direct or indirect interests, if any, which arise under a contract or a proposed contract with the company.

These duties are owed to the company and not to the individual shareholders but may be extended to the creditors in cases where the company is insolvent.

Depending on the duty breached by a director the liability will vary, as follows:

• Breach of common law (fiduciary duties) and duty to exercise skill and care: Such a breach will render a director personally liable to the company in damages or injunctive relief. It is for the company to take legal action against the director, not for the shareholders since the duty of care is owned to the company, subject to certain exceptions.
• Breach of statutory duties: In cases where there is a breach of a duty imposed by statute, the liability will be criminal, civil or administrative.
• Tax-related offences: Directors may be found liable with respect to tax-related issues. In addition to the powers of the authorities to impose heavy civil penalties and interest changes, directors can be prosecuted and face criminal charges – most commonly, for:
• • cheating the public revenue;
  • false accounting; and
  • conspiracy to fraud.

There are no specific limitations on shareholders in terms of age, financial status, nationality or residency under Cyprus law. However, the articles of association of a company can impose certain restrictions – such as for the legal representative of a bankrupt shareholder to be appointed as the owner of the shares held by that shareholder – provided that the relevant supporting documentations is submitted.

Cyprus complies with the European regulations and the sanctions imposed on Russia by the European Union in relation to specific Russian individuals and Russian-owned entities.

The rights which shareholders/members enjoy depend on the rights attached to the shares they hold, as determined by the articles of association. They may include the following:

• Right to vote: Shareholders can vote on several matters in the context of an annual general meeting or an extraordinary general meeting.
• Right to receive dividends: If the shares held entitle the holders to receive dividends, such shareholders will have the right to receive dividends.
• Right to return of capital: Once a company is wound up, a shareholder has the right to have its capital returned based on the proper order of priority in the winding up. Shareholders also have the right of return of capital following a duly authorised reduction of capital.
• Right of pre-emption: A shareholder has the right to exercise pre-emption rights over other shareholders’ shares which are conferred by the articles of association.
• Right of redemption: The right of redemption is strictly permitted in public companies. Shareholders in private companies have the right of redemption only where redeemable preference shares exist.
• Right to call a meeting: Shareholders that hold at least 10% of the company’s paid-up share capital and have the right to vote can request that the directors convene an extraordinary general meeting.
• Right to receive notices and financial statements: Shareholders have the right to receive notices about the meetings of the shareholders, including the drafts of financial statements to be approved at such meetings.

Shareholders can vote on several matters concerning the company’s structure in the context of an annual general meeting or an extraordinary general meeting. There are two types of resolutions which may be passed at meetings or, under certain circumstances, by a written resolution:

• ordinary resolutions, which require a simple majority; and
• special resolutions, which require a 75% majority.

Corporate actions that require ordinary resolutions include:

• the appointment and removal of director(s);
• the appointment and removal of auditors; and
• the alteration of the company’s share capital (excluding a reduction of share capital).

Corporate actions that require special resolutions include:

• the amendment of the memorandum or articles of association;
• a change of name;
• a reduction in share capital;
• a reduction in share premium account;
• liquidation by the court;
• voluntary liquidation;
• buy-back of shares in public companies; and
• members’ voluntary liquidation

The articles of association usually also provide for shareholders’ reserved matters, which may provide for a higher voting threshold.

Shareholders/members have the right to call meetings if certain conditions are met. Directors must, within 21 days of the date of the request, convene an extraordinary general meeting if a request is deposited by:

• shareholders that hold at least 10% of the company’s paid-up share capital and have the right to vote;
• members that represent at least 10% of the total voting rights (for companies without share capital); or
• members that represent at least 5% of the total voting rights (for listed companies in regulated markets).

The first directors of a company are appointed by the first shareholders. The procedure for the appointment of any subsequent directors is governed by the provisions of the articles of association and usually involves the passing an ordinary resolution, unless this power is explicitly restricted by the articles of association. It is also common for the company’s articles of association to empower the directors to appoint other directors if a vacancy needs to be filled or an additional director needs to be appointed.

Furthermore, shareholders/members can influence the actions of directors, as they can remove a director prior to the expiry of his or her tenure of office, notwithstanding anything in the company’s articles of association.

Shareholders do not engage in the day-to-day management and operations of the directors, except in the cases mentioned in question 4.3. However, they have the right to challenge in court decisions and/or actions of the directors if:

• the resolution or act concerned is illegal or ultra vires the company’s objectives;
• the act concerned required a specific majority resolution of the shareholders which was not secured;
• a personal right of the shareholder in question has been violated by the specific act or action of the board; or
• the company’s affairs are being conducted in a manner that is oppressive to some of the shareholders.

Subject to question 4.6, shareholders’ liability in a Cyprus company is limited to the amount, if any, unpaid on shares respectively held in the company. This means that upon the winding up of the company, shareholders are not liable for any amount beyond the amount which they have originally invested in the company (unless they have signed any personal guarantees).

There are occasions on which the company’s separate legal personality is disregarded and the doctrine of ‘piercing the corporate veil’ applies. This allows the courts to disregard the separate legal personality of a company and hold its shareholders or directors personally liable for its debts or actions.

In addition to statutory exceptions, based on the case law, the courts will pierce the corporate veil in cases where a company is:

• being used as a vehicle to avoid legal obligations or to perpetrate fraud; or
• found to be a sham.

The rules on the issuance of further securities in a company are contained in the Companies Law. Pursuant to the Companies Law, pre-emption rights for existing shareholders:

• are obligatory only for public companies; and
• for private companies, are obligatory only if this is specifically stipulated in the company’s articles of association.

In essence, pre-emption rights are rights of existing shareholders to acquire additional shares, pro rata to their existing shareholding, before those shares are offered to third parties in order to protect existing shareholders from dilution.

Statutory pre-emption rights can be excluded or restricted only by resolution of the shareholders passed by a majority of not less than two-thirds of the votes attached to the securities or subscribed capital represented.

Disclosure requirements are triggered under the Cyprus Securities and Stock Exchange Law in relation to securities listed in the Cyprus Stock Exchange (CSE) at thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75%. A person must disclose acquisitions or disposals to the issuer, the Cyprus Securities and Exchange Commission (CySEC) and the CSE no later than the day following the acquisition if the percentage of that person’s voting rights reaches, surpasses or falls below the abovementioned thresholds.

Similarly, pursuant to the Transparency Law, a person whose shareholding, following an acquisition or disposal of listed shares with attached voting rights (listed on either the CSE or any regulated market of any other EU member state), reaches, surpasses or falls below thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75% of the total voting rights in the issuing company must notify the issuer, CySEC and the CSE of such a transaction.

Furthermore, according to the Takeover Bids Law, in the case of any acquisition which takes place during a takeover bid period by a bidder that holds 5% or more of the voting rights of the target, the bidder must:

• disclose details of the acquisition transaction to the target’s employees, its board, the CSE and CySEC; and
• make a relevant announcement.

Anyone acquiring 0.5% of the voting rights of the target or the bidder must announce the acquisition and all subsequent acquisitions and their details.

In Cyprus, working capital may be obtained either via equity or debt:

• Debt capital: The most common types of debt financing that companies use are loan facilities and bonds. Loan facilities involve common types of lending such as term loans and overdrafts. Alternatively, a company can issue corporate bonds. These bonds are sold to investors (bondholders) and mature after a certain date. Before reaching maturity (where the principal is returned to the investor), the company is responsible for issuing interest payments on the bond to investors. From a company’s point of view, raising capital via debt is more beneficial, as any interest paid is tax deductible. In addition, investors have no say in the management of the company; as opposed to equity capital, where voting rights are provided.
• Equity capital: Raising capital via equity involves the sale of shares in return for capital investment. These can be either ordinary or preferential shares. Ordinary shares provide shareholders with voting rights but are paid last in the event of insolvency (which almost never happens in practice). Preferential shares typically have no voting rights, but payment of a specified dividend is guaranteed before any such payments are made on ordinary shares. The company is therefore not obliged to pay dividends to the shareholders. On the other hand, when voting shares are issued, control is diluted, affecting the power of the existing shareholders. From an investor’s perspective, equity is riskier than debt capital, as if the company goes bust the investor may lose its investment.

The main routes for the return of proceeds in Cyprus are as follows:

• Dividends: The most common method is the distribution of dividends. Dividends are distributed only if there are sufficient distributable profits, in accordance with the articles of association. Dividends can be in the form of a final or an interim dividend. Directors have a duty to safeguard the company’s assets and must consider its future financial needs before declaring dividends.
• Share buybacks: Share buybacks are applicable only to public companies, if permitted by their articles of association and subject to certain conditions stipulated within Sections 57(A)-(F) of the Companies Law. These include:
• • securing corporate approvals;
  • maintaining the share percentages prescribed by law; and
  • ensuring that the consideration is paid out of realised and non-distributed profits.
• Redeemable preference shares: Shares may be redeemed if issued as redeemable preference shares, subject to the redemption provisions agreed upon their issuance, the relevant provisions in the company’s articles of association and the Companies Law.
• Capital reductions: A capital reduction occurs when a company reduces the amount of its share capital. A capital reduction must be permitted in the company’s articles and be approved through a special resolution. Furthermore, a court approval is required.
• Loans: A company can also provide loans to its shareholders. The terms of such loans should be assessed to ensure that they do not give rise to any tax or legal issues.

There are no restrictions on investments by EU citizens other than in specific regulated sectors. Authorisations and consents are required for acquisitions of qualifying holdings in specific sectors such as lending and investment.

Purchases of real estate in Cyprus by third-country nationals are subject to specific rules and require authorisation. In particular, third-country nationals can directly purchase up to two properties under their name only, subject to the approval of the district officer at the place where the property is situated.

There are no exchange control requirements in Cyprus. Cyprus and non-Cyprus nationals can hold and manage assets and liabilities in any foreign currency, subject to the anti-money laundering rules and regulations.

The board of directors plays a key role in shaping business operations and is responsible for the day-to-day management and decisions on behalf of the company. Directors owe a duty to the company to act in its best interests. Employees, pensioners, creditors, customers or suppliers cannot exercise any sort of influence on the business operations and no duties are owed to them on behalf of the board. However, directors’ duties may be extended to creditors if the company is insolvent.

When establishing business operations in Cyprus, several critical considerations must be addressed. First, choosing the appropriate business entity is pivotal. Cyprus offers various structures, including limited liability companies and partnerships. Please see question 2 for further details. The selection should align with the business’s goals and liability preferences; and the tax implications should be considered.

Understanding the financial and tax implications is also crucial in order to understand the most efficient way to receive the proceeds.

Additionally, it is imperative to adhere to all compliance obligations for the avoidance of penalties (eg, ultimate beneficial ownership submissions, annual returns, notification of the Registrar of Companies of any changes in the business structure).

Lastly, it is paramount for businesses to safeguard their innovations, brands and creations. IP protection prevents unauthorised use, duplication or exploitation, preserving a company’s competitive edge. It ensures exclusivity, enhances market value and fosters innovation by providing legal recourse against infringement. Securing IP rights is integral to maintaining business reputation, attracting investors and sustaining long-term success in a global market in which innovation is a key driver of growth.

Every company must file an annual return with the Registrar of Companies. This annual return is accompanied by the audited financial statements of the company which were presented at the annual general meeting. Failure on the part of the company to file its annual returns together with the audited financial statements could result in financial penalties and in the dissolution of the company by the Registrar of Companies by striking off its name from the register of companies.

The annual return must be filed with the Registrar of Companies within 28 days of its drafting date. In the case of a new company, the drafting date of the annual return is the day following the expiry of 18 months from the date of incorporation of the company. In the case of an existing company, the drafting date of the annual return is the day on which one year has lapsed since the drafting date of the last filed annual return.

The directors are responsible for maintaining the accounting books and records on the basis of which the company’s financial statements will be prepared, explaining correctly and precisely all transactions of the company and allowing the company’s financial position to be assessed at any time. All records must be kept at the registered office of the company. For income tax and value-added tax purposes, companies must keep accounting records for six years from the end of the year to which they relate.

The directors are also responsible for ensuring the preparation of a complete set of annual financial statements of the company in accordance with International Financial Reporting Standards, accompanied by the management report. Failure to prepare and file the financial statements constitutes a criminal offence and the directors will be liable to criminal prosecution and/or penalties.

Accountants usually prepare the management accounts. Auditors are responsible for auditing the management accounts where necessary. Please see question 12.1 on when an audit is required.

In the context of accounting reporting in Cyprus, several key concerns and considerations merit attention. First, adherence to International Financial Reporting Standards (IFRS) is paramount. Cyprus has adopted IFRS for the preparation of financial statements and businesses must ensure strict compliance to maintain transparency and consistency in reporting.

Tax considerations are also critical. Understanding the local tax regulations – including corporate tax rates and allowable deductions – is essential for accurate financial reporting. Cyprus’s tax environment, with its competitive corporate tax rates and various incentives, requires meticulous navigation to optimise tax efficiency while remaining compliant.

Executive compensation is not regulated in Cyprus.

With respect to listed companies, please note that the Corporate Governance Code, provides guidelines and best practices for corporate governance, including principles relating to executive remuneration. The code is not legally binding, but adherence to its principles is encouraged.

N/A.

N/A.

N/A.

The employment regime in Cyprus varies between the public and private sectors:

• The Law on Public Service is mainly applicable in the public sector; and
• In the private sector, the two main applicable laws are:
• • the Termination of Employment Law; and
  • the Annual Leave with Benefits Law.

There are also other laws that regulate the health and safety of employees and the relationship between employee and employer, such as the new Law on the Provision of Information to the Employee by the Employer on the Conditions Applicable to the Contract or Employment Relationship.

Although the system is largely based on the determination of employment conditions through the conclusion of collective agreements, whether at the sectoral or operational level, the need to harmonise Cyprus law with EU law led to the regulation of important terms of employment. This has not reduced the importance of collective agreements, which remain the most important way of determining terms of employment in Cyprus; it has simply filled in gaps in the regulation of the minimum levels of terms of employment of:

• those not organised by trade unions; and
• those who work in companies that do not have collective agreements.

The terms of collective agreements or personal employment contracts cannot be more unfavourable than those provided by labour legislation, as the provisions of the relevant laws will always prevail.

According to Article 21 of the Constitution, every worker/employee has the right to associate with others, including the right to establish and join trade unions to protect his or her own interests. In Cyprus, in addition to the Trade Union Organization of Public Employees, there are various trade unions for various categories of employees in the private sector, which play an active role in determining the terms of collective labour agreements.

The Termination of Employment Law covers:

• all employees in both the private and public sectors, including apprentices; and
• shareholders of private companies who are employed by their companies.

An employer that intends to terminate the employment of an employee who has completed at least 26 weeks of continuous employment with that employer must give the employee a minimum period of notice, depending on length of service. The employer is not obliged to give notice if the employment is on a probationary basis for a period of up to 104 weeks.

The employer has the right to terminate the employment of an employee without notice where his or her conduct is such as to justify dismissal without notice – for example, due to:

• gross misconduct by the employee in the course of his or her duties;
• commission by the employee in the course of his or her duties of a criminal offence without the agreement, expressed or implied, of the employer;
• immoral behaviour by the employee in the course of his or her duties; or
• serious or repeated contravention or disregard by the employee of work or other rules in relation to his or her employment.

Where the employer does not exercise its right to dismiss without notice within reasonable time, the termination of employment is deemed to be unjustified.

Incentives introduced by Cyprus to attract specialist talent include the following:

• Business Facilitation Unit (BFU): The BFU serves as a focal point of contact for all international companies of foreign interest and provides fast-track services to such companies. Work permits are issued within one month, while employees’ spouses also have access to the country’s labour market. The BFU provides work permits for highly skilled employees from third countries with a minimum gross monthly salary of €2,500.
• Digital nomad visa: These visas are granted to people who wish to live in Cyprus but work remotely in companies operating abroad. The visa is granted for a period of 12 months, with the right to renew for another two years.
• Tax incentives: The following reductions are available:
• • a 50% tax exemption, for a period of 17 years, for the remuneration of first employment exercised in Cyprus for individuals with an annual salary of €55,000 who were not residents of Cyprus for a period of 15 consecutive tax years immediately prior to the year of commencement of employment in Cyprus; and
  • a 20% tax exemption for a period of seven years for the remuneration of first employment exercised in Cyprus for individuals (with a maximum amount of €8,550 per year) who:
  • • were not residents of Cyprus for a period of three consecutive tax years immediately prior to the year of commencement of employment in Cyprus; and
    • were employed outside of Cyprus by a non-resident employer.
• Cypriot citizenship: Highly skilled foreign workers can now obtain citizenship within four or five years, depending on their knowledge of the Greek language.

Cyprus has taken significant steps to ensure that workers’ rights are protected while also ensuring a favourable economic environment for employers. One of the areas in which further improvement is needed is the operation of effective mechanisms within the workplace to deal with complaints of mobbing and sexual harassment. Specialised training for staff at the Ministry of Labour is also required to deal with such complaints; and the legal framework for the protection of victims of such behaviour should be strengthened.

The tax regime in Cyprus is summarised below.

Corporation tax: The corporate tax rate is 12.5%.

Value-added tax (VAT): The supply of goods and the provision of services in Cyprus are subject to VAT at 19%. However, there are several categories of goods and services that attract VAT at lower rates or are even exempt from VAT.

Capital gains tax: Subject to limited exceptions (eg, transfers on death and transfers due to organisations), capital gains tax is imposed (where the disposal is not subject to income tax) at a rate of 20% on gains from the disposal of immovable property situated in Cyprus, including gains from the disposal of shares in companies which directly own such immovable property.

Special contribution for defence: This is imposed on dividend income, ‘passive’ interest income and rental income earned by:

• tax resident companies in Cyprus; and
• individuals who are both Cyprus tax resident and Cyprus domiciled.

Income tax: The following income tax rates apply to individuals.

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Cyprus offers several exemptions and incentives to encourage enterprises to do business in the country. The main tax exemptions and incentives are outlined below.

The following are exempt from corporate tax:

• profits from the disposal of securities and shares of Cyprus companies;
• dividends (excluding, as from 1 January 2016, dividends which are tax deductible for the paying company);
• interest that does not arise in the ordinary course of business;
• the profits of a permanent establishment under certain circumstances; and
• gains relating to foreign exchange differences that do not arise from the trading of related derivatives and currencies.

A partial exemption for tax purposes applies to 80% of the net profits, as calculated in the nexus approach, derived from qualified intangible assets in the form of:

• royalty income;
• embedded income; and
• other qualified income.

The following constitute tax-deductible expenses:

• Equity introduced to a company as from 1 January 2015 (new equity) in the form of paid-up share capital or share premium is eligible for an annual notional interest deduction; and
• Interest expenses incurred for the direct or indirect acquisition of 100% of the share capital of a subsidiary company will be treated as deductible for income tax purposes, provided that the 100% subsidiary does not own (directly or indirectly) any assets that are not used in the business.

In the context of real estate transactions, the following tax considerations should be considered.

The buyer must pay transfer fees for the transfer of immovable property into its name. The transfer fees are calculated as follows:

However, no transfer fees are payable if VAT is applicable upon purchasing the immovable property. Also, the above transfer fees are reduced by 50% if the purchase of the immovable property is not subject to VAT.

According to the new provisions of the VAT Law (95(I)/2000), as amended, a reduced VAT rate of 5% will apply to the first 130 square metres of a primary residence, up to a value of €350,000, provided that:

• the total transaction value does not exceed €475,000; and
• the total buildable area does not exceed 190 square metres.

Moreover, stamp duty is payable on any agreement which relates to any property situated in Cyprus or any matter or thing to be performed or done therein, irrespective of where it is executed. Stamp duty rates depend on the contract value, as follows.

With respect to CGT, please see question 9.1.

The Companies Law:

• governs:
• • mergers, divisions, conversions reconstructions and amalgamations of private and public companies; and
  • the exchange of shares between two (or more) companies; and
• establishes the regulatory framework for cross-border mergers – in particular, by providing, among other things, for:
• • shareholder and creditor approval of the transaction; and
  • approval of the transaction by the court.

Furthermore, reference must be made to the following laws:

• the Control of Concentrations between Enterprises Law (83(I)/2014);
• the Protection of Competition Law (13(I)/2022) which grants powers to the Commission for Protection of Competition;
• the Preservation and Safeguarding of Employees’ Rights in the Event of the Transfer of Undertakings, Business or Parts Thereof Law (104(I)/2000) (as amended); and
• the Income Tax Law (118(I)/2002) (as amended).

If the M&A transaction involves public companies and/or companies listed on the Cyprus Stock Exchange, the following laws are also applicable:

• the Public Takeover Law (41(I)/2007), as amended;
• the Securities and Cyprus Stock Exchange Law (14(I)/1993), as amended;
• the Transparency Requirements (Securities Admitted to Trading on a Regulated Market) Law (190(I)/2007) (as amended);
• the Market Abuse Law (102(I)/2016); and
• the Cyprus Corporate Governance Code.

The legal framework governing M&A transactions from a competition perspective in Cyprus is set out in:

• the Control of Concentrations of Enterprises Law, which sets out rules on the control of concentrations to ensure that they do not result in the distortion of effective competition in a market; and
• the Protection of Competition Law, which regulates restrictions in agreements and abuse of a dominant position.

Under the Control of Concentrations of Enterprises Law, a concentration of major importance must be notified and pre-approved. A concentration is deemed to be of major importance if either:

• the total turnover realised by at least two of the undertakings concerned exceeds, for each of them, €3.5 million and:
• • at least two of the participating undertakings have turnover in Cyprus; and
  • at least €3.5 million of the total turnover of all participating undertakings is realised in Cyprus; or
• it is declared to be of major importance by order of the minister of energy, commerce, industry and tourism.

A concentration is deemed to arise when a change of control on a lasting basis results from either:

• the merger of two or more previously independent undertakings or parts of undertakings; or
• the acquisition, by one or more persons already controlling at least one undertaking, or by one or more undertakings, by a purchase of securities or assets, contract or any other means, of direct or indirect control of all or part of one or more other undertakings.

The substantive test for compatibility of a concentration with competition law is whether it substantially affects or obstructs competition in Cyprus (ie, whether it creates or strengthens a dominant position).

The Preservation and Safeguarding of Employees’ Rights in the Event of the Transfer of Undertakings, Business or Parts Thereof Law (104(I)/2000) applies to any transfer of undertakings or businesses (or parts thereof) to another employer as a result of a legal transfer or a merger. The law provides that the target’s rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer will, by reason of the transfer, be transferred to the acquirer.

Accordingly, following the transfer, the acquirer must continue to observe the agreed terms and conditions of any collective agreement, on the same terms as previously applied under such an agreement, until:

• the date of its termination or expiry; or
• the entry into force or application of another collective agreement for a minimum period of one year.

The transfer of an undertaking, business or part of an undertaking or business will not in itself constitute grounds for the dismissal of an employee by any of the contracting parties.

If an employee is terminated or dismissed and the relevant provisions of the aforementioned law are not upheld during a transfer, the employee may seek compensation under the Termination of Employment Law (24/1967), as amended.

The key concerns and considerations with regard to M&A activity are as follows:

• Pre-contract: Thorough legal, financial and tax due diligence must be conducted to understand the operations of the target and thus be in a position to negotiate on the purchase price and the terms of the acquisition. Accordingly, it is crucial to enter into binding exclusivity and/or non-disclosure agreements in order to facilitate the negotiations.
• Furthermore, the buyer will need to consider:
• • how the business will fit in with existing operations; and
  • how the acquisition and financing will be structured.
• Contract: The agreement should:
• • be properly drafted;
  • clearly specify the purchase price and method of payment; and
  • include:
  • • purchase price adjustment and earn-out provisions;
    • conditions precedent;
    • a material adverse effect clause; and
    • termination rights; and
• allocate the risk between the parties through the warranties, representations and indemnities contained therein.
• Completion: The key to a smooth completion meeting is the preparation of a completion agenda. The agenda should cover:
• • all actions that must take place before and after completion; and
  • all documents that must be produced and signed.
• Post-completion: In a share acquisition, the buyer must ensure that:
• • all internal registers of the target have been updated; and
  • all relevant information has been filed with the Registrar of Companies.

In an asset acquisition, the buyer should ensure that the appropriate registrations have been made with the Land Registry. The buyer further should not overlook the post-merger integration (strategic and cultural), as this should maximise synergies and increase profits.

Money laundering and other forms of financial crime are primarily governed by the Prevention and Suppression of Money Laundering and Terrorist Financing Law (188(I)/2007), as amended, which is aligned with the EU directives on combating money laundering and terrorist financing.

Reference should also be made to the Criminal Code (Cap 154).

Key concerns and considerations that merit attention include adherence to stringent anti-money laundering requirements. Accordingly, the implementation of robust customer due diligence and know-your-customer procedures – including the verification of the source of funds for high-risk transactions and ongoing staff training – is essential. Conducting thorough risk assessments to identify and understand the specific risks of each case is also imperative.

In addition, all companies and other legal entities that are incorporated or registered in Cyprus (subject to certain exemptions) must identify and record on the beneficial ownership register all relevant information about their beneficial ownership.

Lastly, as Cyprus aligns its legislation with evolving international standards, businesses and financial institutions must stay abreast of regulatory updates to ensure full compliance.

In this regard, robust measures for the prevention of financial crime are crucial.

Since 1 January 2023, and in accordance with amendments to the Companies Law and the Assessment and Collection of Taxes Law, subject to certain thresholds, small and medium-sized Cyprus companies can submit their financial statements to a licensed auditor operating in Cyprus for review (a so-called ‘limited assurance audit’) instead of a full audit.

Prior to these amendments, all Cyprus companies were obliged to perform an audit, irrespective of size, risk, turnover and volume of transactions. This led to extensive audit work and high costs for small companies.

The thresholds that a Cyprus company must meet to be able to submit financial statements for a limited assurance audit instead of a full audit are as follows:

• Its net turnover does not exceed €200,000. ‘Turnover’ refers to all sources of income with no exceptions (eg, income from rent, dividends, interest); and
• The total value of its assets does not exceed €500,000.

These thresholds must be met for at least two consecutive years.

However, the above exemptions do not apply and a full audit must be prepared for the following types of companies:

• parent companies that must prepare consolidated financial statements; and
• companies:
• • that are regulated and supervised by:
  • • the Central Bank of Cyprus;
    • the Cyprus Securities and Exchange Commission; or
    • the commissioner of insurance; or
  • that hold a qualifying participation in such companies.

In relation to the appointment of auditors, please see question 12.1.

Auditors are appointed by the shareholders at the annual general meeting (AGM). The first auditors of a company can be appointed by the directors at any time before the first AGM. They hold office until that meeting is concluded. Notwithstanding the contractual arrangement between the auditors and the company, all companies must, at each AGM, appoint the auditors to hold office from the conclusion of that meeting until the conclusion of the next AGM. Shareholders have the authority to remove the auditors at any time before the expiration of their tenure.

The auditors must be independent from the company’s accountants; and it is prohibited to provide book-keeping and accounting services to the same company. This is because the law requires the auditors to control and oversee the accountants to ensure the provision of proper and truthful accounting services.

The remuneration of the auditors, in relation to both audit and non-audit services, is not fixed under Cyprus law. The remuneration is decided between the company and the auditors through contractual arrangement.

• Liquidation:
• • Shareholders’ voluntary liquidation: A company can resolve by special resolution that it be wound up voluntarily or, if it cannot by reason of its liabilities continue its business, that it is advisable to wind up the company.
  • Creditors’ voluntary liquidation: A creditors’ voluntary liquidation is used to distribute the available assets of an insolvent company among the creditors and bring the company’s existence to an end.
• Compulsory liquidation by court: A compulsory liquidation is ordered by the court following an application filed by the company itself, a creditor or any other interested party.
• Strike-off: A company that has ceased to carry out or that never carried out business, may apply for strike-off. Before proceeding with the submission, the company must fulfil its obligations towards the Tax Department, Social Insurance Services and the Registrar of Companies.
• A company can also be wound up when:
• • the fixed period for its duration set out in the articles of association expires or an event occurs upon which the articles of association provide that the company is to be dissolved; and
  • the company in general meeting has passed a resolution requiring the company to be wound up voluntarily.

Liquidation is more expensive but faster than strike-off. Furthermore, with respect to liquidation, any creditor of the company can apply to the court for reinstatement within two years; whereas for strike-offs, this period is 20 years.

As mentioned in question 13.1, it is essential to consider that any member or creditor of the company can apply to the court for reinstatement within 20 years in case of a strike-out; for all other forms of termination, this period is only two years. In order to avoid such an application for reinstatement at a later date and/or a voluntary strike-off being halted by a third party, before proceeding with termination, companies should ensure that they have satisfied all of their obligations towards:

• the Registrar of Companies;
• the Tax Department;
• Social Insurance Services; and
• all other creditors and third partyies (eg, employees or other contractual obligees).

The current business landscape in Cyprus is resilient and dynamic, fostering both local and international business activities. In recent years, Cyprus has positioned itself as an attractive destinations for foreign investment due to, among other things:

• its favourable tax regime;
• a well-established legal system;
• its membership of the European Union; and
• a well-regulated financial sector.

All of these factors contribute significantly to the country’s international reputation as a financial hub and business centre.

One prevailing trend is the growing emphasis on technology and innovation. The Cypriot government has been proactive in promoting the digital economy, with initiatives to support startups and tech-based businesses. The development of the fintech and blockchain sectors has gained traction, positioning Cyprus as a hub for innovation in the Eastern Mediterranean region.

With respect to legislative reforms, the Cyprus Securities and Exchange Commission is working towards upgrading the current Innovation Hub to a regulatory sandbox, which will provide regtech and fintech companies with detailed guidance within a safe regulatory space. This is expected to further promote fintech and alternative finance. The announcement of the launch of the regulatory sandbox is expected to be made during the first quarter of 2024.

Several key tips can contribute to the seamless and efficient operation of business activities in Cyprus. In general, this requires a combination of:

• local networking;
• legal and business acumen; and
• familiarity with the procedural and bureaucratic complexities of the governmental authorities.

It is crucial to establish strong local connections, as:

• networking within the Cypriot business community can:
• • provide valuable insights;
  • foster collaboration; and
  • add value to a business; and
• relationships with local legal professionals and accountants with expertise in local law can prove invaluable in:
• • providing efficient solutions to complex issues that may arise; and
  • navigating administrative processes.

Furthermore, familiarity with the Cyprus legal system, taxation policies and filing requirements is important in order to ensure compliance and avoid any potential pitfalls such as penalties and bureaucratic delays.

Despite the business-friendly environment, potential sticking points include bureaucratic processes. While Cyprus has made efforts to streamline procedures, occasional delays may still occur. In this regard, a proactive approach to understanding and managing these processes can help to mitigate their impact. Moreover, it should be borne in mind that in real estate transactions, property title issues have been known to cause complications; as such, it crucial to conduct thorough due diligence.

By bearing in mind these points and proactively addressing potential challenges, a business can position itself for success in Cyprus. Seeking local expertise and staying adaptable will contribute to a smoother business experience in this dynamic market.