Why groups look at Cyprus
Cyprus is a member state of the European Union and uses the euro. Its company law is based on English law, and its courts draw on common law principles. English is widely used in business and many professional documents are drafted in English. Those three facts, EU membership, the euro and a familiar legal tradition, explain a good part of its appeal to international groups.
Other reasons groups give, in general terms, include:
- A deep pool of lawyers, accountants and corporate service providers who are used to working with international clients.
- A network of double tax treaties with many countries, which groups consider alongside their own advice. Whether any treaty benefit applies to a particular structure is a matter for tax advisers.
- A time zone that sits between Europe, the Middle East and Asia.
- Established regulated sectors such as investment firms, funds and shipping, supervised by local authorities including CySEC.
- The ability to place real operations on the island, with offices and staff in Limassol, Nicosia or Larnaca.
This article does not discuss tax treatment. Tax rules change, they depend heavily on the facts of each group, and the rules in the countries where the subsidiaries and owners sit often matter as much as the rules in Cyprus. Groups should take tax advice in every relevant country before relying on a Cyprus holding company.
Company law basics
Cyprus companies are governed by the Companies Law, Cap. 113, which is modelled on older English company legislation and has been amended many times. The Department of Registrar of Companies and Intellectual Property keeps the register of companies.
The usual vehicle for a holding company is a private company limited by shares. Its key features include:
- One or more shareholders, who can be individuals or companies of any nationality.
- One or more directors. Many groups appoint a majority of directors resident in Cyprus for governance and management reasons, which ties in with the question of where the company is managed and controlled.
- A company secretary.
- A registered office in Cyprus.
- A memorandum and articles of association setting out its objects and internal rules.
- An obligation to prepare audited financial statements and file an annual return.
The audit requirement is a meaningful difference from many offshore companies. A Cyprus holding company has audited accounts, which gives a payments provider an independent view of its assets, liabilities and activity. Those accounts are usually one of the most helpful documents in an onboarding file.
How a holding structure is typically arranged
A typical Cyprus holding structure looks like this. The ultimate owners, who might be a family, a private equity fund or a trust, own a Cyprus company. The Cyprus company owns operating subsidiaries in several countries, perhaps in Eastern Europe, the Middle East or further afield. Sometimes there is an additional layer, such as a BVI or Cayman company above the Cyprus company, or an intermediate company between Cyprus and a subsidiary.
The Cyprus company's activities are often limited. It holds shares, receives dividends, may lend money to subsidiaries and receive interest, and occasionally sells a subsidiary. It may also provide management services to the group, in which case it is likely to have staff.
From a governance point of view, the most important point is that the Cyprus company should actually be run from Cyprus if that is the basis on which the group operates it. Board meetings held in Cyprus, local directors who understand the business and take real decisions, and proper minutes are all part of this. A company that is managed from somewhere else in practice can find its position questioned in more than one country, and a payments provider will notice if every instruction comes from outside the island.
Documents a Cyprus company produces
Cyprus companies generate a reasonably complete public record, which helps with onboarding. The core documents are:
- Certificate of incorporation. Issued by the Registrar on formation.
- Memorandum and articles of association. The company's constitution.
- Certificate of registered office. Confirms the registered address.
- Certificate of directors and secretary. Lists the current officers.
- Certificate of shareholders. Lists the registered shareholders and their holdings.
- Certificate of good standing. Confirms the company is registered and has not been struck off.
- Audited financial statements. Usually the most recent year, sometimes two.
- Tax identification. The company's tax registration number with the Cyprus Tax Department.
Registrar certificates are often issued in Greek with English translations, or as bilingual documents. Some providers ask for them to be apostilled when used outside Cyprus. Check the issue date: providers commonly want certificates issued within a recent period.
Where the shares are held by nominees, which is common with Cyprus companies administered by service providers, the registered shareholder on the certificate is not the beneficial owner. You will need to provide the nominee declaration or trust deed and identify the real owner.
Beneficial ownership and transparency
As an EU member state, Cyprus has implemented the EU anti money laundering directives, including a register of beneficial owners for companies and other legal entities. Companies must submit information on their beneficial owners to the register and keep it up to date. Access rules for EU beneficial ownership registers have changed following court decisions in recent years, so the extent of public access should be checked at the time.
A payments provider will verify the beneficial owners independently. Make sure the information you provide matches what has been filed in Cyprus, and keep it current. If a shareholder changes, the Cyprus filings and the provider's records should both be updated.
The euro and currency management
A Cyprus company's functional currency is often the euro, but holding companies frequently have income and costs in other currencies. A Cyprus parent might receive dividends in US dollars from one subsidiary, in Polish zloty from another and in dirhams from a third, while paying its directors and service providers in euros.
Managing this well involves a few simple habits:
- Decide when to convert. Converting each receipt immediately into euros is simple but leaves the timing to chance. Holding foreign currency balances for a period and converting at spot when the rate suits gives more control.
- Match currency to liabilities. If the company will soon fund a subsidiary in US dollars, it may make sense to keep a dollar dividend rather than converting it twice.
- Record rates. Auditors will want to see the rates used for conversions, so keep confirmations of every trade.
- Use SEPA for euro payments within the EEA. Euro transfers within the Single Euro Payments Area are standardised and predictable. Non-euro payments and payments outside SEPA go through international routes.
Our article on choosing a holding company jurisdiction discusses how currency fits into the wider choice of location.
Payments considerations for holding companies
Holding companies have a distinctive payment profile, and providers assess them with that in mind.
- Infrequent, larger receipts. Dividends, loan repayments and sale proceeds arrive a few times a year. Each should be supported by a board resolution of the paying subsidiary, a loan agreement or a sale contract.
- Intercompany funding. Capital contributions and loans to subsidiaries should be documented with resolutions and agreements before the money moves.
- Service provider payments. Audit, legal, secretarial and director fees are routine and easy to explain.
- Distributions to owners. Dividends paid up the chain should be supported by resolutions and, where relevant, by audited accounts showing distributable reserves.
What draws attention is anything that does not fit this profile. A holding company that starts receiving payments from unrelated third parties, or paying suppliers on behalf of subsidiaries, may be carrying on a different business from the one described. That is not necessarily a problem, but it needs explaining.
Geography is another factor. Cyprus holding companies are often used for investments in regions that providers consider higher risk. Providers will look at the countries where subsidiaries operate and where payments go, and may apply more checks on payments connected to those countries. Sanctions screening applies to every payment and every counterparty.
Building a strong onboarding file
A complete file for a Cyprus holding company usually includes the Registrar certificates, the memorandum and articles, the latest audited financial statements, a group structure chart, a board resolution opening the account, identification of directors, signatories and beneficial owners, and a short description of the group's business and expected payments.
Add a list of the main subsidiaries with their countries and activities, and a note of the main currencies and counterparties. If the company has local staff or an office, say so. If it relies on a corporate service provider for its directors and secretary, name the provider and explain who takes decisions. A provider that can understand the group from one well organised file will move faster and ask fewer follow up questions.
After onboarding, send the new audited accounts each year when they are signed, and tell the provider about changes to directors, shareholders or the group's main subsidiaries. If the company plans an unusual transaction, such as the sale of a subsidiary or a large dividend, a short note in advance with the draft agreement or resolution means the funds can be received or paid without delay.
General information only
This article is general information about Cyprus holding companies and payments. It is not legal or tax advice, and in particular it says nothing about how any group will be taxed. Take advice from qualified advisers in Cyprus and in each country where your group operates. CCYFX does not form companies or give tax advice. Cyprus companies needing EUR based FX and international payments can learn how CCYFX works with them on our Cyprus page.
