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In the below articles we will provide you with answers and reviews based on the real-life queries that we`ve been receiving from our clients related to Cyprus company and Trust incorporations. We have tried to keep the wording simple and free of legal slang as far as possible. We hope You will find this material useful.

If you have suggestions for other crucial topics we should cover, please share them with us! Here at Fidesta we believe that a well-informed client is the best client. Hence, we’re delighted to expand this virtual library for your benefit.

CYPRUS IN OFFSHORE CONTEXT

CYPRUS AS A TAX HAVEN -TAX EXEMPTIONS AND ADVANTAGES TO INTERNATIONAL BUSINESS

Yes, but not in the bad sense of this word. Cyprus is a member state of the European Union. As such, it is subject to all the relevant EU directives, in particular ones concerning tax matters. Cyprus has a comprehensive system of taxation, which just happens to be quite business-friendly. It has one of the lowest corporate income tax rates in Europe (12.5%), which can be further reduced – in some cases down to zero – by a whole range of incentives. As such, Cyprus is effectively a tax haven for several types of cross-border businesses.

In the past century, a typical offshore tax haven was a country that offered a full exemption from tax, no accounting, record-keeping and audit requirements and significant secrecy protection to businesses that were registered in that country, but effectively did their business elsewhere.

Today, due to a range of actions emanating from the OECD and the EU Code of Conduct Group (COCG), in particular the BEPS (Base Erosion and Profits Shifting) initiative, the typical zero-tax havens, such as Belize or Seychelles, have been forced to implement sweeping changes in their national laws and have somewhat lost their attractiveness. Many of the old-school “tax havens” are also routinely blacklisted by individual countries and financial institutions – for example, by imposing a ban or punitive taxation on payments made to or received from companies registered in such jurisdictions.

Cyprus does not have those problems, as it has a fully compliant national tax system already. At the same time, it has a very appealing business environment, clearly aimed at attracting international business. In this sense, Cyprus is definitely a tax haven.

Because it’s clever.

Cyprus is a small country in a good location. A country this small can not be self-sufficient and needs to trade with the world to earn its living. It needs to be competitive. Countries compete between themselves constantly – and not just in the Olympics.

Attracting foreign capital and business is a proven way to grow any national economy, to earn more and live better. In particular, the international financial services industry, in all its modern forms and shapes, creates jobs, career opportunities and income for a whole lot of people. It creates demand for professional services, commercial estate, communications and computer equipment, software and all sorts of business supplies. All that revenue filters down into all other sectors of the economy. It also generates tax revenue – at reasonable, not exorbitant, rates.

It’s just good management, really. Any country worth its name should do that.

COMPANY REGISTRATION IN CYPRUS

STRUCTURE AND REGISTRATION PROCEDURES OF CYPRUS COMPANIES

A scope of information and documents, known as KYC (Know Your Customer) or Due Diligence. In line with these requirements, we will require a clear passport copy and proof of address for all beneficial owners and (if any) individuals involved with the company in any major capacity – directors, shareholders, signatories, authorized persons. We will also need our standard Terms and Conditions countersigned and a questionnaire outlined the economic profile of the Company completed. If you would like us to act in any capacity, i.e. as directors, secretaries, etc. then it is also required to sign our Indemnity Letter. To speed up the incorporation, these documents can initially be sent by fax or, better yet, scanned and emailed. Nevertheless, we will need to be in receipt of this paperwork in original form before the company documents are dispatched as is required by our Regulator.

Not too much – keeping in mind that any new business is technically a startup. Generally, we need to know what are the intended operational objects of your new Cyprus company – what is its intended business model, from what sources and through what activities does it expect to generate earnings?

Knowing this in advance sometimes prevents potential trouble – as in cases when the intended business model is one requiring a special licence (such as most financial services). Sometimes, we could also suggest some adjustments to the corporate structure of your Company if we know what exactly you are trying to achieve. In any case, to register a Cyprus company you don’t need to come up with any commercially sensitive information, names of your potential clients, detailed product descriptions or anything to that extent. We simply need to know, in broad terms, the expected geographical area of operations of the Company, the expected levels of turnover and the principal activities. Again, in many occasions this knowledge may allow us to give you some suggestions as to the most appropriate structure or usage of your newly incorporated Cyprus company.

Yes, there are.

To start with, we will not provide any company formation or management services to Politically Exposed Persons, i.e. individuals, who are members of any state or municipal governments of any country or who are high-ranking government officers, or any persons who are closely related to them. However, subject to elevated scrutiny, we may accept business from retired holders of public office. In such cases it must be sufficiently evident that the new Cyprus company has a well defined and rational business purpose which has absolutely no relationship with the prior government position of the owner.

As far as business objects are concerned, we will not provide Cyprus company formation services for clients who purport to raise funds from general public while avoiding to be licensed and regulated as investment managers, or in any other way attempt to circumvent the legal licensing requirements in regulated areas like investment management, securities trading, insurance, banking and other financial services. We will not provide our services to companies trading in weapons, ammunition or military technology. We will not register political and social organizations, non-profit organizations and charities.

We will usually refuse to register a company for multi-level marketing operations.

In general, we may refuse the provision of any services, at any time, if it appears that our client has been dishonest with us and has withheld materially important information. If the client has intentionally misled us in respect to his source of funds, intended area of business, or if this business appears to be compromising on legality in any way, we will resign immediately.

No, You can’t. There are laws against it – the ones that aim to combat money laundering and terrorist financing. Therefore, client anonymity is not possible.

All licensed Administrative Service Providers must absolutely know the identities of their Clients and verify them. It’s a legal requirement. Therefore, the Service Provider will not only ask the client to reveal their name, but also to provide certain documents that will verify the clients’ identity and residential address. This requirement is known as Due Diligence or KYC (Know Your Customer) and is present in all reputable offshore jurisdictions with minimum variations. A completely anonymous purchase of an offshore company is legally impossible. However, the client’s interests are still very well protected! All personal information of the beneficial owner remains on file only with the Service Provider. None of this information becomes part of public record! It is required for all Service Providers to have an appointed Data Protection Officer who is responsible for the safe processing of personal data. Severe fines are prescribed by the law for illegally disclosing any client information to third parties without their consent. If implicated in breaching client confidentiality, the Service Provider will surely lose its licence and will be out of business in a blink. Therefore, all Providers are inherently interested to keep client information completely secret.

This mainly depends on what is the line of business of the Cyprus company, and where it is resident for tax purposes. The Cyprus Companies Law by itself does not contain such provisions. It only requires that a Cyprus company has a registered address and a resident secretary in Cyprus. This is a service that we routinely provide for a modest fee.

However, for banking purposes and for tax purposes a more significant presence may be needed.

As far as tax residence is concerned, a standard minimum rule is that in order for a Cyprus company to be deemed tax-resident in Cyprus, majority of its directors must be located in Cyprus and must hold the board meetings in the country. In contrast, a Cyprus company may also be treated as non-resident for Cyprus tax purposes if its directors reside and hold their meetings outside Cyprus. Apart from that, a whole range of other criteria could be taken into account – where does the company generate its revenue, where its books and records are kept, where its actual managerial decisions are taken, etc. Of course, by default, it will be presumed that a Cyprus company will want to become tax-resident in Cyprus, to which extent it can simply do so by applying for and obtaining a taxpayer number in Cyprus.

Most importantly, the banks routinely seek evidence on the economic substance of its corporate client – the Cyprus company or a foreign company. In line with the binding guidelines issued by the Central Bank of Cyprus, the commercial banks of Cyprus are required to avoid business relationships with (read: not open accounts for) the so-called “shell companies”. Shell companies are defined as ones that have no physical presence in their country of registration – no actual place of operations, no established economic activity, no meaningful mind and management there and little to no independent economic value. However, these requirements differ significantly depending on the actual business objects of the company. For example, asset-holding companies of all types are effectively exempt. The actual requirements in other cases may vary significantly.

Being able to establish and demonstrate “economic substance” that satisfies the recent regulatory requirements is always a case-to-case task. There are no uniform, cheap, ‘standard’ solutions and You should be wary of any operators who offer such. Upon having sufficient knowledge about the business mechanics and objectives of each individual client, we can usually advise on the best way forward.

As in any country, using some words in company names is restricted or prohibited. Most of those words are related to specifically licensed activities. If you want to refer the Cyprus company name to activities like banking, insurance, re-insurance, trusts, registered agent services, asset management, then you will need to get a specific approval first from the relevant regulatory authority. You can use the restricted-activity words, but only through a prior licensing procedure aimed at the particular activity. For instance, to use a “banking” word in the name of your Cyprus company, you would have to first apply for the banking license with the Central Bank of Cyprus.

The other restricted words are the ones that would misleadingly convey an official patronage or connection with the Republic of Cyprus or the government of Cyprus, as well as similar patronage of any other country or its government. The final word in approving all such sensitive names is with the Registrar of Companies, who may permit the incorporation of a Cyprus company under a “sensitive” name, if there is a good logical or business reason to do so.

The third group of restricted words is open-ended, and much at the discretion of the Registrar of Companies. Any obscene words or expressions will be refused. Names that allegedly copy or resemble too closely an existing business name will be refused. Quite simply, the name restrictions are there to protect the general public from being misinformed or misled. Proposed names of generic nature and names already in use are also declined in name applications as there needs to be a degree of uniqueness in your Cyprus company’s name.

Additionally, it is obvious that the word “Limited” or “Ltd” is compulsory in the name of the Company if it will be set up as a private limited company.

Yes, however it can be minimal. The owners of the Cyprus company may freely decide as to the amount of the authorized capital to be stated in the formation documents, specifically in the Memorandum and Articles of Association. Furthermore, the owners of the company may decide to subscribe for and pay-up for only part of the authorized capital, the remaining part staying unissued and unpaid. The law also does not prescribe any deadlines as to when the authorized capital must be paid-up – this is for the shareholders to decide. Quite a common amount of authorized capital is either 1000 or 2000 euros.

No. All pre-incorporation and post-incorporation procedures can be carried out without personal presence of the beneficial owner – however, some forms and other documents will need to be received in paper-form by mail. That being said, nothing beats a personal conversation in order to better understand the circumstances and needs of the client, and establish a more trustful relationship. So clients are always welcome to visit our office.

Personal presence of the company owner is often a requirement at the conclusive stage of the bank account opening, prior to the activation of the account, as it may be part of the “know your client” procedure.

We are a licensed Administrative Service Provider (“ASP”), regulated by the Cyprus Securities and Exchange Commission (“CySEC”) and have to adhere to certain rules & regulations. The requirement to obtain a copy of your passport and other identification documents falls under the Directive for the Prevention of Money Laundering and Terrorist Financing. In terms of Due Diligence regulations, we are much like a bank. Hence, under the terms of our licence, we are obliged to identify and know our clients. First of all, we must know and verify the identities of all our clients. We must also determine where our clients customarily reside (proof of address), what they do for a living (a professional reference and/or a CV) and are they financially active members of society (a bank reference). In conjunction, all of this information is called “KYC” – Know Your Client. All of this information and the underlying documents remain in strict confidentiality, in our internal files only. We may be criminally punished for divulging this information. Nevertheless, this information and documents need to be provided to us, otherwise the Cyprus company formation or any other services simply cannot happen.

It’s a component of the standard “know your client” (due diligence) process. A proof of address is any original document which features the full name of the person together with his/her residential address. A utility bill, bank statement, credit card statement, mortgage or credit union statement, local authority tax bill, home security services bill, landline telephone bill, local council rent card, or an official statement of the residential address issued by the local municipality, notary or banker can serve as proof of address. A national identity card or drivers licence can also serve as proof of addres, if it contains the residential address and if such document is provided in addition to the passport of the same person. For due diligence purposes, a proof of address must be in original (no photocopies!), and issued in the past three months.

The proof of address document is supposed to provide a believable information as to what is the real, actual residence address of an individual.

A bank reference is also one of the usual documents for “know your client” (due diligence) purposes. Bank references are routinely asked from new clients at new bank account openings. Bank references are required from all individuals involved with the new account, including the beneficial owner of the company. Requests for bank references from new clients, especially foreign clients, are standard procedure in most banks. As part of our own due diligence procedure, we also require a bank reference or a professional reference from previously unknown clients.

A bank reference is a short letter from the bank where You have an account. A reference should simply state that You are their customer for a number of years (preferably, 3 or more) and should confirm that your banking relationship has been normal, without any defaults from your part. The bank reference can also confirm Your residential address, as it features in the records of the bank. This way the bank reference can also serve as proof of address, so there may be no need to provide a separate proof of address. A bank reference may be obtained on the basis of any banking relationship – a personal account, joint account or a business account (of a company), insofar as You have signatory rights in that account.

A bank reference is not a guarantee. It is just a standard, informative letter. As such, a bank reference is well known to all bankers, so they won’t be surprised when You ask for it. Every bank usually has its own wording for a reference. That’s perfectly acceptable. Some banks may also include a disclaimer to the extent that the reference letter is for information purposes only and does not provide any representations or guarantees on banks’ part. Such wording is also no problem, as the purpose of bank reference is not to guarantee anything – just provide a basic confirmation.

The bank reference does not have to reveal any confidential information! Bank reference does not have to state the account number, the amount of funds on the account, the outstanding loan or any other kind of personal financial information! If by some reason or misunderstanding the bank is purporting to include any more confidential details in the reference (like the account number), You may request them to withold any such details or You may black them out by yourself. A bank reference should be nothing more than just an informative letter, stating that the bank knows You for certain period of time as a decent customer – without going into any further detail.

The underlying logic for the bank reference is to establish that the particular person is a regular member of society with some economic activity or vocation – as all such individuals would normally have some sort of bank account. The secondary purpose of a bank reference may be to confirm the identity and address of an individual by an independent, reputable financial institution (the bank).

The preventive purpose for requesting the bank reference is to avoid fraudulent attempts to register a company in the name of a “ghost”, a dead person, or based upon a stolen identity.

A professional reference may serve as a suitable alternative to the bank reference, described in the previous question. Same as the bank reference, a professional reference may state that the writer of the reference knows the particular person for a prolonged period of time (at least several years). A professional reference should briefly describe the manner of relationship – usually that would be a professional relationship. A professional reference may be be issued by a barrister, a solicitor, a notary, a judge, an auditor, a chartered accountant, a financial advisor or just about any other reputable individual with whom the subject of the reference has a long-standing professional relation.

OWNING A CYPRUS COMPANY

OWNERSHIP OF MY CYPRUS COMPANY

Yes, certainly. It is actually quite a popular setup – especially for pure asset-holding companies.

Yes, corporate shareholders are allowed. For due diligence purposes, we will still need to “peel the onion” and determine the ultimate beneficial owner(s) of the company. The bank will also need to know this.

No. Bearer-shares are generally a thing of a past and have been phased out everywhere.

Ready-made companies go by their other name: “shelf companies”.  These are companies that have already been registered and are awaiting “on the shelf” until they are bought by an interested client (hence the name). The primary purpose of buying a ready-made company is to save some time that would otherwise be spent during the new-registration procedure.

In some circumstances it may also be necessary to acquire a Cyprus company that has already been in legal existence for some time – for formalizing an existing de-facto deal, or for purely having a company with a more respectable age. A variation of this option are the so-called “vintage” or “aged” companies. A vintage company may have been maintained for several years before it is sold. A purchase of a vintage company is justified when there is a genuine necessity to show that the company has actually been in legal existence for some time.

While a regular shelf company would usually cost the same as a brand-new company, a vintage company will always be more expensive. This is because the government fees and the professional servies fees for all the previous years will have to be covered on top of the incorporation fees, with some interest.

Ready-made companies are guaranteed by us to have no transaction history whatsoever. Written guarantees can always be provided in confirmation that the shelf company has not traded.

Yes. It will just cost extra, because the name change for any existing Cyprus company is a separate procedure with the Companies Registry. It involves additional government and professional fees and will take between one and two weeks to accomplish.

In the context of company ownership, the ultimate beneficial owner (UBO) of the company is the person who is the actual economic owner of the business, and thus entitled to the benefits from that business (such as dividends and gains from the sale of that company). The ultimate beneficial owner is, therefore, also the person who bears the actual economic risk in case of the failure of the company, in the simplest form, by losing the capital that has been invested in that business. Quite often (but not always), the ultimate beneficial owner is the person who has conceived the business that the company carries out, and has established the company for that purpose. Obviously, a business may have one or several beneficial owners. The beneficial owner and the shareholder of a company can be the same person (and often are), but this is not always the case. It’s particularly true when the beneficial owner has chosen to employ a nominee shareholder in order to achieve a degree of privacy.

For practical compliance and due diligence purposes, financial service providers (such as banks and company administration firms, like ourselves) will always seek to establish and verify who is the ultimate beneficial owner of the company and the assets committed to that new business. This is a legal requirement, stemming, in particular, from the anti-money laundering laws and regulations.

A nominee shareholder is an person, unrelated to the actual owner, who is officially registered as the holder of shares in the company – both in the internal Registry of Shareholders of the company and in any public registries. In Cyprus, the rational purpose of the nominee shareholder is to shield the real owner of the Cyprus company from being publicly shown as shareholder. Shareholder information in Cyprus is part of public record, as is the case in the entire EU.

Engaging a nominee shareholder may be useful for anyone who prefers a degree of privacy and modesty, and does not wish to be immediately seen as owning a certain business. There is a personal security dimension to such desire as well.

When a nominee shareholder is engaged as a service, a confidential legal document (a declaration of trust, nominee services agreement or a similar document) is issued by the nominee to the actual owner. Such document would confirm in writing the actual maters of fact – namely, that the shares are only held by the nominee for the benefit and on behalf of the beneficial owner, and that only the beneficial owner is entitled to all benefits and profits from those shares.

Nominee shareholder service is optional. Licensed company administration firms, such as ours, usually provide this service through a dedicated in-house corporate entity, which is covered by the umbrella license of the main firm and is thus equally regulated and accountable.

In Cyprus, the names and addresses of the shareholders of all Cyprus private companies are filed with the Companies Registry, and thus part of the public record. Consequently, the shareholder of a Cyprus company is the person in whose name the shares in a particular company are registered, as per the official records in the Registry of Companies. That shareholder can be a private individual or another corporate body.

However, the shareholder may not always be the ultimate beneficial owner. A distinction can be made between “holding” the shares and actually owning them. While the shareholder may hold shares in his own name, he may at the same time hold those shares on behalf of another person on a contractual basis. Accordingly, that other person would be the actual, ultimate beneficial owner of those shares. Such arrangement is called nominee shareholding. Effectively, then, a nominee shareholder acts as a stand-in for the beneficial owner, preventing general public from seeing who is the real owner of the company.

The signal distinction between the nominee shareholder and the ultimate beneficial owner is that the nominee would only be entitled to a contractual fee for its service, while the beneficial owner retains the full economic interest (and risk) in the underlying business.

Provided the owners do not hold any statutory positions or are not direct shareholders in the Cyprus company, then no. But before the Service Provider starts a new incorporation, all new clients must sign a formal company formation order. The incorporation documents themselves (Memorandum of Association, Articles of Association, First Minutes and Resolutions) will be signed by the initial Subscriber, as provided by the Service Provider, according to the incorporation procedure as is required by the Registrar of Companies in Cyprus. In case the company owner is also the direct shareholder in the company (which is quite often the case with private holding companies), then the owner must sign the actual Memorandum and Articles of Association documents.

Apart from the declaration of trust from the nominee shareholder, our standard Terms & Conditions of Business effectively is a contract between a licensed service provider and the client, where it clearly states who (the client of record, i.e. the beneficial owner) has the legal rights to the company ownership itself and the rights to give binding instructions.

This depends on the actual configuration of the Cyprus company. If You are a direct shareholder in the company (without using the nominee shareholder service), then Share Certificate(s) and an entry in the Register of Shareholders serves as your ultimate “proof of purchase”. If nominee shareholder is involved, then the clients’ proof of beneficial ownership is confirmed by a declaration of trust, a deed of transfer, a nominee services agreement, a beneficial owner declaration. Regardless of the title, this document, signed by the nominee shareholder will confirm in absolute certainty who is the real owner of the company.

A declaration of trust is legal document that identifies the actual beneficial ownership of some asset – typically, shares in a company. A declaration of trust in the context of an offshore company is a written statement issued by the nominee shareholder to the beneficial owner. This statement confirms that the nominee is in fact holding the shares in the company for and on behalf of the beneficial owner, and not for his own name. Such document would clearly state the name of the beneficial owner as the real owner of such shares, and would also reiterate, that the nominee can not transfer, deal with or dispose with the shares otherwise, than only under express written instructions by the beneficial owner. It would also state that all rights, profits, dividends and other benefits potentially accruing from such shares belong to the beneficial owner, and not to the nominee.

To start with, we are not in the business of stealing money. We make money by providing incorporation, administration, management and accounting services to our clients. By even attempting to defraud one single client, we would lose all of our business. As a licensed company administration firm, our operations are monitored and regulated by Cyprus Securities and Exchange Commission (CySEC). Any dissatisfied client may complain directly to the CySEC. In that case our actions will be immediately investigated. If any wrongdoing on our part is determined, our firm will lose the professional services license, we will be out of business and may even be prosecuted. In this respect, the business of Administrative Service Providers in Cyprus is supervised and monitored as closely as that of banks or insurance companies, and we must comply with the same standards.

MANAGING AND RUNNING A CYPRUS COMPANY

CONTROL AND MANAGEMENT OF MY CYPRUS COMPANY

Yes. However, bear in mind that the residence of the director(s) is one of the criteria that determines the location of the tax-residence of the company itself. There are, of course, many other variables that determine the tax residence of a corporate body – the location of the board being just one of them. So it must be viewed in context. To avoid even a theoretical controversy in this respect, the obvious option is to engage only Cyprus-based directors (individual or corporate).

It is the function of being and acting as the director of the Cyprus company. The names, addresses and nationalities of all directors of a Cyprus company must be registered with the Cyprus Registry of Companies. This information is publicly available. Also, the residence of the company director is one of the components by which the tax-residence of the company itself is being determined.

For these reasons it may often be undesirable for the owner of the Cyprus company to also be on the board of directors of the company. This may be particularly true for owners resident in highly-regulated high tax countries.

Directorship services are provided by licensed Company Administrators, such as ourselves, as an optional service. The individual directors would normally be fit and proper individuals, specifically vetted and approved by the government regulatory body – in our case, CySEC. The directorship service can also be provided by a dedicated corporate body.

There were times in the past when the director of a typical offshore company was only supposed to be a “nominee”, fully delegating all operational aspects of the business to the actual owner, and merely acting to rubber-stamp all the decisions taken elsewhere. At this time, such approach has become highly dangerous for the company owner and is generally considered unacceptable.

Being able to demostrate that the Cyprus company is professionally managed by a competent and independent director is extremely important, both for tax and regulatory compliance purposes. Of course, the actual composition of the board of directors and how it functions is quite dependent on the size and business model of the company.

The beneficial owner always have the ultimate decision-making rights on all significant strategic issues, while the company management should be vested in an independent board of directors. Of course, the beneficial owner can have direct signatory rights if he also serves as an officer or in any managerial capacity in his own company. The beneficial owner may act as a controlling co-signatory in the company bank account, typically for transactions that exceed certain size.

In some cases, for sake of expediency, limited representation rights can be allocated by means of special powers of attorney – for example, delegating the negotiation and execution of a certain business deal abroad.

In a properly managed company, the owner should not even need to have any signatory rights, as proper governance can be carried out by a competent board of directors.

Yes, absolutely. The formal procedure for removing the directors of the Cyprus company and appointing new directors will depend on the structure of the particular company. Namely, how many directors there are, who are the shareholders, what is the quorum necessary to carry out corporate resolutions, what is the procedure for calling and holding meetings of members and/or directors. For those companies where full management services are provided by the professional service provider, the change of the director(s) or any other amendment to the internal structure of the company can be effected as soon as all beneficial owner(s) of the company expressly request such change to be carried out.

When some or all of the important positions in the Cyprus company are filled from the client side, we can advise on the appropriate procedure and prepare all documents for execution and filing.

Yes, and we will help You in the process.

Changing the registered address, secretary and (as the case may be) other professional functionaries of your Cyprus company may be a good idea if You are not satisfied with your present service provider.

Usually, there are two reasons for that. Price is one reason. Another, more important cause for changing the service provider is the service quality. Some company administration providers (which may also include major accounting firms and law offices) tend to acquire a large volume of clients. Without commensurate investment in professional training and systems, such operators then tend to get overwhelmed by the sheer volume of work. This results in delays, missed deadlines, costly mistakes and general deterioration of service quality. The nature then balances itself out and businesses seek and find a better service elsewhere.

Yes, although we will try our best not to give You a reason. Any change in company functionaries can be done by passing requisite company resolutions and filing them with the Registrar. Of course, You will need the new service provider agreeing to take your business.

Although legally the change of the company administration provider is a pretty straightforward matter, those clients, who act in bad faith (for instance, try to avoid the payment of confirmed and past-due fees) will face difficulties. Quite simply, they may not find any other provider willing to accept the administration of their company. Therefore, maintenance of the Cyprus company in good standing is a priority.

Yes. A foreign company which is in good standing in its own country, can be re-domiciled into and become registered in Cyprus. Such continuation must, however, be allowed under the laws of the country of original incorporation. Most, but not all, countries allow their companies to be re-domiciled and continued in other jurisdictions. The continuation procedure itself is largely similar to a standard registration process for a new Cyprus company. The main difference is that a number of additional documents must be presented to the Registry in order to confirm the legal existence, good standing and proper decision of the foreign company to be continued as a Cyprus limited company. Such documents will specifically have to be obtained by the owner of that company, from its home jurisdiction. Therefore, the continuation process is not entirely automatic and requires certain input from the company owner. The company name should also be available in Cyprus, otherwise the “incoming” company will hve to change it’s name in the process to a name that is available in Cyprus. Name checks and reservations can be carried out in advance.

The end result of the continuation process is the alteration of the foreign company into a  Cyprus company. The new Cyprus company would remains the legal holder of all assets and liabilities on balance sheet of the “old” company, the only difference is its country of registration, which would be Cprus instead of the previous jurisdiction.

The data available on public record are, typically, the name of the Company, the registration date, the registration number, the status of the Company (i.e. active, dissolved, public), the Director(s), the Secretary, the registered office address, up to which year the Annual Levy has been paid and the last 20 submissions in the Company’s file at the Registrar of Companies regarding statutory changes etc.  The names of the shareholders and the names of the beneficial owners are not on public record, but are of course on file with the Service Provider (where they remain strictly confidential).

CYPRUS COMPANY AND DOCUMENTS

MUST HAVE DOCUMENTS FOR MY CYPRUS COMPANY

In order to make documents acceptable in another country – other than where they were issued. Without notarization and (often) apostille legalisation, You might be unable to use commercial or business documents issued by a Cyprus company back at home in your own country, or in any country where You plan to do business. This is generally true with any documents created abroad.

If you wish to open another financial account for your Cyprus company, purchase real estate or any other asset requiring public registration, establish a branch office or a subsidiary of your company, or enter into any similar transaction where you would have to present the company documents to an official third party outside Cyprus, Your documents need to be apostilled in order to be accepted.

Contrary to what the name may suggest, apostille does not have anything to do with religion. Apostille certification is a formal name for an official procedure, whereby official documents issued in one country are certified in a uniform way. By means of this certification, documents from one country become formally acceptable in any other country. This procedure was established by the 1961 Hague Convention. Almost all countries of the world are part to this Convention as of today – although there are a few exceptions.

At the apostille process, the signature of the officer, who has certified the document locally (usually, that the Notary or the Chief Registrar of the Companies Registry) is followed up by a second-level certification. A specific stamp or sticker, called “Apostille”, is attached to the document, besides the Notarial text. Contrary to a popular belief, the apostille does not confirm the actual contents of the document. apostille merely certifies that the first-level certifier – the Notary or the government officer – is real, and has the appropriate rights and powers to make the underlying certification in the first instance. In essence, Apostille is the official confirmation of the post and powers of the Notary or that of a government officer. Apostille is usually issued by a designated government institution – like, in Cyprus, by the Ministry of Justice and Public Order.

The full legalisation process of documents for international purposes is not always necessary. The receiving party (to whom You need to present the documents) should always be able to tell how they expect the documents to be certified. We can thereafter prepare the paperwork exactly as needed.

A Certificate of Good Standing (CGS) is an official document, issued by the Companies Registry. A CoGS confirms that a particular company legally exists, has complied with all the administrative requirements as to its presence within the official registry, and has paid all government duties, and, thus, is “in good standing” vis-a-vis the Companies Registry as of the date of issue.

The Certificate of Good Standing is used to formally confirm the continued legal existence of a Cyprus company after it has already been in operation for some time. The CoGS confirms that the status of an independent legal entity (a juridical person) has not been revoked, that this company has not merged with another firm, has not filed for dissolution and has not been struck-off.

Many banks tend to regularly ask for fresh Certificates of Good Standing in respect to the companies with accounts on their books, as soon as the company is more than a year old. A potential customer or supplier may ask for a CoGS as evidence that your company is in legal existence. The Certificate of Good Standing can be requested and obtained from the Companies Registry, as and when required. This is one of our standard services. As the Certificate of Good Standing is basically a “snapshot” of the legal health of the company at a particular moment in time, there is no sense to order the CoGS in advance, without a special need.

If, over time, the Cyprus company has not been properly maintained or has not paid its state duties, it can lose its status of good standing and, ultimately, be struck-off from the Registry. For such companies, of course, the Certificate of Good Standing will not be issued until all overdue fees are paid and the good corporate status is restored. Reinstatement of a struck-off company is possible, but it is costly and time-consuming.

In Cyprus, the main information in respect to any Cyprus company (including its organisation status) can be obtained by anyone, free of charge, as this information is available on the website of the Cyprus Department of Registrar of Companies.

PAYMENT AND REFUNDS

HOW DO I PAY FOR MY CYPRUS COMPANY AND IS THERE REFUN POLICY?

We accept payment by all major credit cards and bank wire transfer in Euros (SEPA or SWIFT transfers). From clients with established order history and due diligence record, we can also accept payment through PayPal and other electronic money systems. Payments in cash are discouraged, but still possible as a matter of exception.

Generally – no refunds are possible once the company formation order has been confirmed by the client, received and put in motion. Part of the fees are paid to the government – and the government does not provide any refunds. Neither can we.

As a matter of exception, however, we may provide a refund or a partial refund in case of a new incorporation that is cancelled for good reason – in particular, if the company documents have never left our premises and no transactions have been carried out by the new entity.

No. It is impossible for us to verify that the company has not been involved in any deals or obligations. We absolutely do not buy back or re-sell any companies once they have been transferred to the client. However, You may re-sell the offshore company privately, to anyone who agrees to buy it from You. In such case we will assist with all changes that are necessary in the internal structure of Your Cyprus company in order to formally transfer it to a new owner.

BANK ACCOUNT OPENING IN CYPRUS

ALL ABOUT BANK ACCOUNT OPENING

Technically, there is no such requirement. However, for all practical purposes it is best for a Cyprus company to have a bank account locally in Cyprus. Assistane with bank account opening is our standard service. A Cyprus company is also allowed to open and operate bank accounts anywhere outside Cyprus.

No. The registration of a Cyprus company itself is a fairly standardized process. On the contrary, opening of a bank account, even for the same newly registered company, is not automatic. The success of the bank account opening does not depend on us. It primarily depends on the owner of the company. The corporate status and structure of the company bears a secondary importance when opening the bank account. The personal and business background of the beneficial owner are most important variables. The main pre-requisite for a successful corporate bank account opening is to provide a clear and logical information to the bank as regards the intended business of the company and the personal background of the beneficial owners of the company, including the legitimate source of his funds. This is something that we can not prepare for the client, only the client himself can come up with this information.

The bank account introduction is a professional service, which takes time and effort on our part. As approved business introducers we refer our client to the bank and carry a certain responsibility for it. We also assist the client with filling out the account opening forms, along with recommendations as to what information should be provided and how. Following the completion of the account application file, we introduce the client to a dedicated customer services manager in the bank. The banker would then take over the whole account application process directly. The bank account introduction is a one-time service.

Often our involvement in the bank account opening process may also include evaluating the clients’ needs and background in order to suggest which could be the most appropriate bank to approach.

During the bank account opening process we spend quite a lot of our time in order to assist the client with the account application. In fact, the time spent by a qualified member of staff on any particular account opening well exceeds the time required for the Cyprus company fomation itself. Therefore, it is quite logical that this service involves a fee, which is actually quite modest for the usual effort involved.

A bank introduction service is optional. Nothing precludes the company owners from approaching any banks at their own discretion. To that extent, we would still be around to provide any assistance that might be required to support the company during the account application.

No. The bank account introduction fee does not guarantee the opening of the bank account. It is a service fee, for our time and effort spent to assist during the account opening procedure. The end-decision is always with the bank and the introducing agent can not influence it.

The success of an offshore bank account opening mainly depends on the particulars of the beneficial owner, his background, his business model and his source of wealth. This information is provided to the bank by the client himself, not by us. In essence, the bank will attempt to determine how safe and valuable the potential client is for the bank. Is the new applicant worth accepting, or is he only going to be a trouble? On these considerations, banks do sometimes reject new account applications. Prior to the bank application, the best we can do is provide an “educated guess”, estimating the potential success or failure, based on our knowledge of similar earlier applications. The end decision, however, will always be with the bank!

Yes. A personal appearance of the beneficial owner in the bank considerably increases the chances for a successful bank account opening – to the extent that this is deemed mandatory. This is because the bank’s Know Your Customer rules place great emphasis and value on a personal meeting with the customer, as opposed to only having the file of documents.

The clock actually starts ticking after the bank has received the completed bank account application. The account application must contain a number of documents and information from the beneficial owner. Of course, we can not influence the time taken by the client to fill these forms and to obtain these due diligence documents. In some cases the bank would ask for some clarifications or extra documents from the applicant. Then, obviously, it would take additional time until such information or documents are provided. All in all, it is difficult to determine an exact timeframe for the account opening, as it also depends on seasonality and workload at the bank’s compliance department. So, from the moment the application is with the bank, it can take from a couple of days to a couple of weeks for the bank to process it.

An account signatory is an individual who has signatory rights in the bank account. Such rights are granted by a Company Mandate (a special resolution, signed by the company Director(s), resolving to open a bank account and to appoint particular individuals as account signatories). An account signatory may “sign” on the account – which means, he or she can execute transfers, sign cheques and otherwise dispose with the money on the account. An account signatory may either have a single signatory right, or a joint signatory right together with another person. In the latter case, only two signatures are good to execute a transaction. In principle, there is an endless variation of options of how to configure joint signatory rights on a bank account.

For any regular company, the most obvious option is that the director is also the account signatory. However, anyone can be an account signatory to a corporation – even if such person is not formally related to the company.

By core principles of proper corporate governance the company director must have control over the company assets. Thus it is practically a requirement that the director should serve as the bank account signatory. Of course, a system of additional verification can be established – for example, where transactions exceeding a certain threshhold require an approval from another officer.

If the company accounts are fully controlled by someone else while the company director is clearly a “nominee” without any real control, this is primary evidence that the company itself is merely a sham and used only as a nameplate for the owners personal business affairs. Consequently, this poses significant tax implications for the owner itself.

Of course, nothing precludes the owner of the company to also act as its director. In this case, however, the individual tax residence of the owner will play a crucial role, as it may also be deemed as the tax residence of the company itself.

Yes, certainly. Depending on your status in the company (beneficial owner only, or shareholder, or director, or any combination of those), You may approach any bank and apply for the account opening – including banks outside Cyprus. Just bear in mind that Cyprus companies must conduct full and proper accounting and produce audited financial statements annualy – therefore, full account information will need to be provided to the company accountants (that may or may not be us) and the auditors.

Yes, such service can be arranged. It really depends on whether the bank will be willing to open a personal account for a particular individual. Again, the personal background of the individual will be the most important aspect.

There are several operational international information exchange systems. The two with the most profound implications are CRS – the Common Reporting Standard of OECD and FATCA – Foreign Accounts Tax Compliance Act. FATCA concerns US citizens, CRS concerns all the rest.

Cyprus, same as a large number of countries of the world, has joined the CRS. Here is the list of all participating jurisdictions: http://www.oecd.org/tax/transparency/AEOI-commitments.pdf

Under CRS, the banks and financial institutions must identify the ultimate beneficial owners of all accounts (in case of corporate accounts, the UBO’s of the companies), and determine the location of their tax residence. To that extent the banks will usually require to see a personal tax identification number, a copy of a tax return or a taxpayer certificate.

Thereafter, if the owner of the account has the fiscal residence in a CRS member-country, the bank will collect the information on the account particulars and year-end balances of all accounts where that person has significant control and will report that information through the centralized CRS framework to the tax authority of the country where the account-holder has his fiscal residence. There are certain exceptions in respect to pre-existing accounts and accounts that generate passive income. Generally, however, it must be presumed that your domestic tax authority will become aware of your foreign company and its earnings. Therefore, as is always our advice to anyone, your offshore strategy should not be built on the premise of secrecy, but rather on the foundation of legality. In other words, your foreign business enterprise must be able to withstand legal scrutiny, even if it’s made completely transparent.

ANNUAL RENEWAL DUTIES OF CYPRUS COMPANIES

ANNUAL MAINTENANCE OF CYPRUS COMPANIES

The annual renewal fees are the government and professional fees that your company must pay every year in order to maintain the company in good legal standing. Some of these costs are fixed – such as the Cyprus Annual Company Fee (EUR 350), the registered address and secretary fee. Some other fees are variable – for example, the accounting fees and audit fees depend on the volume and complexity of company transactions during the year. Based on the revenue structure of the company, there may or may not be some corporate income tax payable to the Republic of Cyprus (the highest possible tax rate is 12.5%). Of course, all professional fees and charges in respect to the maintenance of your Cyprus company are tax-deductible.

The annual renewal fees consist of two main parts – mandatory fees and optional fees. The mandatory fees cover the absolute minimum necessary to maintain the company in good standing. The optional fees are charged for services which help the company operations, but are not absolutely essential. Usually, the type and the amount of the optional fees depend on the exact configuration of the company. The optional fees may be calculated on time-spent basis or as a fixed agreed charge.

The mandatory fees always include (a) the Cyprus Annual Company Fee, and (b) the Registered Office and Secretary fee. In some cases, depending on the ownership and management structure of the company, an annual compliance fee will also be charged, for time-spent while updating the compliance file of the entity.

The Annual Company Fee in Cyprus is essentially a fixed state service charge paid by all companies. It is in addition to any corporate tax liability, that may or may not accrue depending on the company business.

The Registered Office and Secretary fee is a professional fee. It is paid to the licensed Company Administrator for its role, effectively, as an official point-of-contact between the company and the Cyprus government. This fee also covers the usage of the office address as the legal address of the Cyprus company, in case the company has not yet obtained its own separate premises. The Registered Office / Secretary fee also covers the minimum adminstrative services necessary to comply with the regulations of the Cyprus Companies Law, including the filing of the annual administrative returns.

The optional fees would be payable for any additional company management services. Such optional services would include (a) directorship services; (b) shareholder services; (c) accounting services; (d) bank account signatory services; (c) audit fees; (d) miscellaneous legal and managerial services, billed either on a fixed-charge or time-spent basis.

For the sake of simplicity, the fixed annual renewal fees are normally invoiced once a year, and are payable in advance, for the next year. The accounting fees and company management fees can be invoiced separately, on monthly, quarterly or yearly basis, depending on volume and complexity.

Your Cyprus company will be struck-off the Registry for non-compliance with its statutory duties. Failure to submit tax returns will trigger administrative penalties. Failure to pay any tax due will cause late charges to accrue and may result in litigation.

Regardless of the fact that a company has been struck-off the Registry for non-compliance, it still remains liable for any due and unpaid fees with all its remaining assets. Such company also remains liable to all its debts and obligations. Any creditor may legally raise a claim against a struck-off company for debts and pursue the collection of those debts through litigation.

A struck-off company may not legally continue to trade or enter into any new transactions, and its directors, shareholders, managers and owners may not enter into any transactions with the assets of the Company. If they do, they may be personally liable for any debts or legal consequences resulting from such transactions. If the struck-off company is operated by appointed third-party managers for and on behalf of a beneficial owner and under his instructions, the personal liability will also extend to the beneficial owner. Essentially, striking-off a company means that all its assets are legally frozen until the entity is restored in good standing – or until it’s legally dissolved.

It is possible to restore a company after it has been struck-off the Registrar, but substantial government fees will apply for restoration. These reinstatement fees will be in addition to all past-due renewal fees and penalties. In addition, substantial professional fees will also apply if a struck-off company must be reinstated in good standing.

Cyprus trusts

Interesting comparisons and basic information about Cyprus trusts

Generally, trusts are most suitable for protection of an existing asset portfolio and for personal succession planning purposes, also including charity.

In contrast, companies (corporations) are designed for launching, building and managing an active business, be it in trading, services or any other segment of commercial activity.

As a typical interaction, many trusts are shareholders in business corporations. Or, to put it otherwise, business companies are often part of a trusts’ asset portfolio.

The main differences between companies and trusts are in their purposes and operational mechanics.

A company is a separate legal person. It is owned by shareholders. There can be just a single shareholder, or there can be thousands of them – it does not significantly change the mechanics of how the company operates.

The shareholders elect directors to manage the company. The directors, in turn, hire employees and junior managers to run the routine business of the company. Companies are meant to operate businesses for profit. The profits are either reinvested in growth and expansion of the asset base, or distributed to shareholders as dividend. There is absolutely no ambiguity in that the company is owned by its shareholders and it exists, works and makes profit for them.

Companies act through the various individuals who run them in their various roles. These roles are defined by the corporate documentation – memorandum and articles of association, shareholder resolutions, director’s  actions. The company directors and officers can bind the company by signing contracts and other binding documents on its behalf. The company directors and officers are accountable directly to the shareholders to run the corporation for the benefit of the shareholders.

A trust is usually not a separate legal person. It is a legal arrangement between three main parties – the Settlor, the Trustee and the Beneficiary. Those roles can also overlap.

The most significant distinction in a trust is the split between the ownership of the trust property, which vests in the Trustee, and the economic benefit (a.k.a. beneficial interest) of the trust property, which vests in the Beneficiaries. In comparison, in any corporation both the ownership and the beneficial interest vest in the shareholder.

Trusts are also different in terms of assets. By definition, there must be some materially valuable asset, which the Settlor has transferred into the Trust, for the Trustee to keep and manage for the ultimate benefit of the Beneficiaries. Without such asset the Trust has no reason to exist and should in all fairness cease to exist.

This is not necessarily the case for all business corporations. A company can carry on without a meaningful asset base or even with negative assets – provided that the owners and managers of the business have a feasible plan of how to ultimately generate earnings. The presence of a meaningful, valuable, income-generating property is not really a mandatory pre-requisite for a corporation, but is for a trust.

The mechanics of operation of trusts are also different.

Trusts have beneficiaries, for whose benefit the trust is established and is to be managed. The beneficiaries do not necessarily need to be people. They do not even need to currently exist – for example, an unborn child can be designated as a trust beneficiary. Some trusts are known to have animals as chosen beneficiaries. Trusts can be established for charitable purposes, where specific charitable organizations are set out as beneficiaries, or some general charitable purpose is to be supported.

In stark contast to company shareholders, the trust beneficiaries do not have much of a say in how the trust should be ran. They can’t remove the Trustee. (The Protector can, though.) They can’t resolve to wind up the trust and distribute its assets. They can’t demand if, when or how much they will be paid. All of that has already been pre-determined by the Settlor through the Trust Deed, which binds the Trustee to act accordingly.

In a proper trust, the beneficiaries are like passengers in an airplane. They will get the benefit of travelling in comfort to their desired destination, but they most definitely are not allowed to fly the aircraft.

To continue with that analogy, the Trustee is the captain of the aircraft. Trustee is designated with the responsibility and the authority to carry out the instructions of the Settlor, which are embedded in the terms of the Trust Deed. The Trustees are entitled and responsible to make decisions when decisions need to be made. Same like company directors, Trustees have the authority to bind the trust assets through deeds and contracts. The Trustee is accountable to the beneficiaries to handle the trust for their benefit, but enjoys significant discretion of decision under the laws and the Trust Deed. As a safety mechanism against dishonest trustees, a Protector can be appointed to remove such trustees or override their decisions.

Trusts are usually set up for private, personal purposes. The most typical purposes are asset protection and efficient transition of the Settlors’ estate to its designated successors.

Companies are usually set up for active business and for-profit purposes. They are great for scaling and attracting capital, running a wide variety of business models and management structures. Unlike trusts, companies do not accommodate legal separation between their formal and beneficial ownership.

Both wills and trusts are used for inheritance planning. The mechanics of their operation are quite different.

A will is arguably the simpler and cheaper option. However, wills are restricted by the national inheritance laws, first and foremost by the forced heirship rules. Regardless of the contents of the will, the testator has restrictions as to whom outside the close family to leave any of his assets. Based on the forced heirship provisions, the testator will not be able to disinherit his closest heirs – at best only to reduce their share. The protected heirs can easily overturn a will.

In contrast, a trust is much more flexible when it comes to how much, when, to whom and how a person’s assets are distributed. A well-constructed trust is also extremely difficult to overturn.

A will can only be effective upon the death of the testator. It can achieve nothing while the person is still alive. In contrast, most trust are what is called inter vivos trusts – trusts created during one’s lifetime and going into effect immediately after it’s signed.

A will typically goes into a court probate after the testator’s death, which can be lengthy and cumbersome. A trust does not need any court approval to be effective. Under a trust, the settlor can have anyone of his choice as a beneficiary, including himself for the time being. Thus, a trust can set in motion asset transfer and protection measures both during the life of the Settlor and carry on with yet further functions after the Settlor has passed.

Trust is generally a more universal tool than a will. A trust can include conditions such as age and other attainment provisions, parameters or methods and mechanisms on how the assets will be used, as well as how and when they will be distributed to the beneficiaries. Trusts offer a wide range of benefits, from protecting assets against creditors to facilitating business succession and distribution of one’s assets over time, to ensuring education for dependents.

No. It is erroneous to consider that trusts are only for the very affluent. However, in terms of the cost-benefit equation, it is generally considered that trusts become cost-efficient with asset values of €500’000 and higher. It’s not an axiom, though. Personal trusts are a powerful planning tool that can benefit a wide range of people across the wealth spectrum.

A trust depends not on the size of someone’s wealth but on the specific needs and purpose for which it is required and one’s unique financial situation, family needs, expectations and goals. Trusts can benefit any individual by ensuring, for example, the inheritance of assets in different jurisdictions without the need to have more than one will. Trusts can also protect and preserve assets, customise and control how, to whom and when one’s wealth is distributed – both before and after death. At the same time, they can assist the beneficiaries in managing property more efficiently, including minimising taxes, addressing family needs such as providing for young children and avoiding conflicts on inheritance in case of divorce, blended families or undivided property.

In February 2021 Cyprus implemented the provisions of the 5th Anti-Money Laundering EU Directive 2018/843. Accordingly, the Registry of Beneficial Owners have been established for Cyprus companies and Cyprus trusts. The Cyprus Trusts Beneficial Owners Registry (CyTBOR), also referred as the trust register, is kept by the Cyprus Securities and Exchange Commission.

Cyprus trustees must disclose and file to CyTBOR relevant information on all parties to a Cyprus trust, including the trustee, settlor, protector and any beneficiaries. The information filed for each such individual would routinely contain full name, date and place of birth, nationality, residential address, number, type and country of issue of identification document, role of the person in the trust and other information which the CySEC may request for identification purposes.

The Cyprus Trusts Beneficial Owners Registry is not accessible to general public.

The Registry is accessible to the Cyprus Tax Department, the Cyprus Customs Department and the Cyprus Police with no restrictions.

The Registry is also accessible to “liable entities”, such as banks and other fiduciary service providers, in the context of due diligence and identification measures for their client.

Finally, subject to special permission by the Cyprus Securities and Exchange Commission, the Registry may be accessed by any person who can demonstrate a legitimate interest – such as a controlling interest in a specific entity, inter alia, either directly or indirectly. If such access is granted, the inquirer will be provided with the name, month and year of birth, the country of residence and the nationality of the people involved in the respective trust and the type and extent of the rights they hold in the trust. Quite obviously, such access will only be limited to the one specific entity and could not be used for any “fishing operation” type of inquiries.

In itself the existence of a closed Registry of Beneficiaries is a positive element, as it may provide additional legal safeguards for all parties involved in a trust, including the trust beneficiaries.

For any trust to be established as Cyprus Trust or Cyprus International Trust, it must have at least one Cyprus-resident trustee.

Trustees carry the fiduciary responsibility for the proper management of trust assets in accordance with the trust deed and any “letters of wishes” from the settlor or the beneficiaries. With trusts, there is really no “one-size-fits-all” solution. Professionals in the field need to be well-educated and stay updated on all regulatory and legal changes that impact trusts and their operations.

Provision of trustee services, administration or management of trusts in or from within Cyprus are regulated activities subject to the provisions of the Law Regulating the Businesses Providing Administrative Services and Related Matters of 2012, Law No. 196(I)/2012, also referred to as the “Fiduciaries Law”.

Such activities may be offered only by licensed legal persons pursuant to a licence granted by the regulating authority which is the Cyprus Securities and Exchange Commission. In accordance with the “Fiduciaries Law” trust services in Cyprus may also be provided by lawyers, members of the Cyprus Bar Association and accountants, members of the Institute of Certified Public Accountants of Cyprus and their subsidiaries.

OFFSHORE COMPANIES IN GENERAL

GENERAL KNOWLEDGE ABOUT OFFSHORE COMPANIES

There is no such thing as “the best offshore jurisdiction”. Almost every decently-governed country on the planet offers some kind of economic benefits or tax incentives. It all depends on what kind of activity it wishes to attract. Some countries wish to invite foreign business (Cyprus is definitely one of them), some countries want to do just the opposite. Some countries want to stimulate certain types of business – for example, technology, tourism, financial services, energy or perhaps manufacturing.

It really depends on what You want to do. Thus, the actual choice of location for your offshore company may depend on such variables as the geographical location, language spoken, stability and reputation of the country, its legal and judiciary system, costs of running business, speed of incorporation, the type of business for which the company is required, and, of course, the range of services offered.

There are at least three reasons. The first, generally, is cost reduction. It’s not just tax rates, but could also be payroll, rents, interest rates, utilities and materials. If Your competition have lower costs and You can’t, your business will fail. The second reason is asset protection – in simple terms, protection from your national government robbing you blind. The third reason is the business climate – simpler regulation, less red tape, incentives for doing business. All of these reasons usually complement each other. Many countries – especially the small ones – often have powerful combinations of all of these advantages.

It’s a myth. This myth is maintained by bloated, inefficient governments of the large countries, who want to maintain their expensive habits and global dominance by simply bullying the rest of the world.

The truth is, there is competition between countries in order to attract business, money and talent. Part of that competition is tax. Yet, there are some national governments who believe that they have the moral right to tax their citizens to death and the rest of the world should fall in line – or else…

Offshore tax havens have for decades been the target of blackmail campaigns by the powerful high-tax countries. Many high-taxing governments would like their citizens to believe that offshore companies are only used by terrorists and crooks. Well, by corrupt politicians, too … but that’s always the other guy. Yes, it’s partly true. It’s about 0.01% true.

Any international bank or corporate services provider will tell You that an overwhelming majority of all business transacted through international companies is completely legitimate. It’s just that – trade, business, services, finance.

More than that. Offshore financial centres – such as Cyprus – are actually much better managed, have much better regulatory standards and systems to detect and prevent crime than many of the large, high-tax states. No wonder, some of the biggest money-laundering scandals in recent history have exploded in seemingly reputable “first-world” countries – and not in tax havens.

The narrative is being maintained by the powerful. The big nations, who are quite eager to criticize the offshore financial centres, are no better themselves. Then again, it is an old story.

Yes – unless You happen to live in one of the very few remaining communist dictatorships.

Apart from that, shares in a business company are just personal property. You can own them freely and as many as You like. Legally, it’s no different than owning a domestic business. A bank account is just a legal contract between You and a bank, by which the bank, well … borrows your money until you claim it back.

That being said, You should not expect to keep any of these arrangements secret. There are several international information-exchange systems in place, best known by their abbreviations: CRS – Common Reporting Standard, FATCA – Foreign Accounts Tax Compliance Act, MLAT – Mutual Legal Assistance Treaties. Under these arrangements, your government can, and most likely will, obtain information your foreign financial holdings – in particular, the bank account balances, both private and corporate. Also, there are what’s know as CFC – Controlled Foreign Corporation rules. Such are in force in many developed countries, such as the USA, UK, Germany, Japan, Australia, Russia, Brazil, New Zealand and several others. In simple terms, under the CFC regulations, if You own and control a foreign company, then the income of this foreign company may be deemed as your personal income for tax purposes in your home country, regardless of the fact that the money is still on the balance sheet of a separate person (the company) and it has not yet been paid out to You. There are many variables and exemptions here, and the worst-case scenarios rarely apply. Still, all of this goes to say that prior to going offshore, You should consult a competent accountant or tax lawyer at home.

Let us help you find the right answer!

If You think there is another important theme we should write about, please let us know! Here at Fidelity we quite believe that an informed client is the best of them all…

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Fidesta Limited is a specialized company administration firm, licensed and regulated by Cyprus Securities and Exchange Commission (CySEC) as Administrative Service Provider – license No 197/196

We are located in Cyprus and specialize in Cyprus company and trust formations. 

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