Differences between a Cyprus company and a Cyprus partnership / Cyprus joint venture in terms of ownership of profits, method of distribution and taxation

Differences between a Cyprus legal entity/Cyprus company and a Cyprus partnership/Cyprus joint venture regarding the ownership of profits, the manner of allocation/distribution of profits, and taxation.

Cyprus legal entities, Cyprus corporations, Cyprus partnerships, Cyprus consortiums, and Cyprus joint ventures are various forms of organizational structures used in the business world. Each of these schemes has different characteristics in terms of the ownership of profits, the manner in which those profits are allocated or distributed, and their taxation.

Cyprus legal entity/Cyprus company

Cyprus legal entity – A Cyprus company is considered a Cyprus legal entity separate from its shareholders. The profits of the Cyprus company belong to the Cyprus company by virtue of its corporate veil. The profits of the Cyprus company are subject to taxation and are paid by the Cyprus company before the profits are distributed to its shareholders by virtue of the decision of its directors and the approval of its shareholders. According to the tax laws of Cyprus, 12.5% is applied as a tax rate on the Cyprus company’s profits and it is taxed as an autonomous independent entity. The Cyprus company as an autonomous independent entity can on the contrary and after the mandatory taxation of its profits (by virtue of the relevant tax laws) choose not to redistribute its profits in the form of dividends to its shareholders, i.e. even if the relevant taxation on profits has been paid to it or accounted for in the company’s books as a liability of the company to the Cyprus tax department.

Cyprus Partnership / Cyprus Joint Venture / Cyprus Consortium

A Cyprus partnership / Cyprus joint venture/Cyprus consortium is a form of organization where members/partners work together with or without an agreement as a registered or unregistered Cyprus partnership / Cyprus joint venture with the Cyprus Registrar of Companies and Intellectual Property to achieve common goals and share the financial benefits of their partnership. In Cyprus partnerships / Cyprus joint ventures, the veil of partnership is not applied as in the case of the Cyprus company and consequently, the profits of the Cyprus partnership / Cyprus joint venture belong to its members according to the agreement of the partners. The profits of the Cyprus partnership / Cyprus joint venture are compulsorily distributed to the members at the end of each period/year without the right to choose not to redistribute as in the case of the Cyprus company. Each party undertakes the accounting of the profits attributed to him as well as the taxation of the profit attributed to him which are recognized, accounted for, and taxed as part of the activities of each partner, whether the partner is a natural or legal person. There are various ways of distributing profits depending on the agreement of the partners such as:

  1. Equal distribution
  2. Distribution to members according to how much they contribute to the transactions with the cooperative.
  3. Redistribution according to the use of services
  4. Other ways by virtue of a decision of the partners

In summary, Cyprus legal entities, Cyprus companies, Cyprus partnerships, and Cyprus joint ventures represent different forms of organization in the business world. Companies are usually private or public, and their shareholders enjoy profits through dividend payments. Cyprus partnerships / Cyprus joint ventures, on the other hand, are based on cooperation between the partners, with the distribution of profits usually to be based on their work or contribution.

Finally, Cyprus partnerships / Cyprus joint ventures refer to temporary partnerships between two or more businesses to carry out a specific project. Profits and tax liabilities are usually allocated according to the contractual provisions set out in the partnership / joint venture agreement.

It is important to recognize these differences in organizational structures, as they significantly influence the decision of choosing to establish a company or cooperative.

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