New laws, regulations and practices in the
EU environment
1. The prestige of Cyprus as an International Business Center has been
enhanced and Cyprus became more attractive to investors. The infrastructure
has been improved and the procedures became faster through automation and
more personnel. Cyprus has complied with the EU and the OECD regulations
regarding harmful tax competition, and with the regulations of the Financial
Action Task Force, the International Monetary Fund, and the Council of
Europe in the fight against money laundering.
2. The term “Offshore” has been removed from the legislation and all
companies are now known as “Cyprus” companies.
3. The Management and Control Principle was incorporated in the Cyprus
tax law as from 1st January 2003 in order to determine whether a company
is Cyprus tax resident. In other words a company can not be considered
Cyprus tax resident merely because of registration in Cyprus (see related
article).
4. EU directives were incorporated in Cyprus Law, for example Parent-Subsidiary
Directive; Merger Directive; Savings Directive; Interest and Royalty Directive;
Mutual Assistance Directive on Taxes; the Vat Directives; and the Convention
for the Elimination of Double Tax in connection with the adjustment of
profits of associated enterprises.
5. The audited financial statements have to be prepared under the International
Financial Reporting Standards, by requirement of the Company Law.
This was applied previously, as well, but now it became obligatory under
the Company Law.
6. The audited financial statements have to be filed with the Registrar
of Companies in the Greek language and be available for public inspection.
However there are proposals that the English lanquage be acceptable.
7. Companies which have subsidiaries are obliged to prepare audited
group financial statements which are also filed with the Registrar of Companies
and are available for public observance. However there are proposals so
as to exclude small groups from preparing audited group financial statements.
8. The ultimate beneficial owner either EU on non EU national has to
be disclosed to the commercial bank that opens the bank a/c as before,
and this information is kept confidential. This disclosure applies to all
jurisdictions after the 11th September, otherwise the bankers refuse to
open a bank a/c.
9. The corporation tax rate is 10% as from 1st January 2003.
10. The Mutual Assistance Directive on direct taxes for exchange of
information on all forms of taxation including VAT with other EU member
states has been incorporated in Cyprus Law. This Law also provides
for collection of tax debts (in Cyprus and on behalf of the other Member
State) created by Cyprus tax residents in other EU Member States, and vice
versa. Exchange of information provisions exist in all the agreements
for the avoidance of double taxation currently in force. An example of
such an exchange of information is whether purchases or expenses
declared in one country were declared as sales or income in Cyprus, and
whether they were declared at the same amounts. A second example is whether
the recipient of royalties, fees, profits, etc, is in fact a tax resident
of Cyprus and the beneficial owner of the royalties. A third example is
the exchange of information on transactions between related companies ie.
for how much the goods were purchased by the Cyprus subsidiary and sold
to the holding company overseas etc.
The exhange of information as regards VAT is done through the VIES
system
(Vat Information Exchange System). The companies are obliged
to report their EU sales of goods (both normal sales or triangular sales)
and this information is made available to the other Member States.
11. Auditors in Cyprus are now being monitored by control visits by
the Institute of Certified Public Accountants of Cyprus in cooperation
with the Association of Chartered Certified Accountants of UK. In
other words auditors have to accept a visit by a committee which reviews
audit files to express an opinion
on whether proper audits are performed and reports back to the Institute
for
misconduct.
12. The Director's Report which is included in the financial statements
has to mention 11 points by Company Law requirement and the auditor has
to include in his report whether the directors report is consinstent with
the financial statements.
13. The names of Shareholders, Directors and Secretary of the Company
are available to public inspection at the Registrar’s office, as before.
14. There is another form of taxation which is called “Defence Tax”
and is approximately 9.45%, and it is levied on companies with Resident
Shareholders only. The Defence Tax is payable two years after the end of
the tax year concerned. In the case where a company is using a resident
(Cypriot) Trustee Shareholder, a declaration by the Director of the company
has to be made to the Income Tax Service in Cyprus, so as to avoid
this tax. The declaration by the Director states that he is in possession
of sufficient evidence to justify the fact that the Beneficial Shareholder
is not a Cyprus Resident and that he undertakes the obligation to submit
this evidence, in case it is required by the Cyprus Income Tax Service.
If the company has a Non-resident Shareholder, then the Director does not
have to make this declaration and the company does not have to pay this
tax.
The purpose of this article is not to list all changes but to give an
indication of the main ones. Also please note that the content of each
paragraph is not exhaustive.
