Comprehensive Guide to Registering a Company in Cyprus: Key Questions, Hidden Costs & Step-by-Step Setup

Before registering a company in Cyprus, there may be costs that may not be known and may not be taken into account in advance. Some of these are: 

• Cyprus Company formation cost may not include the cost of opening a bank account in Cyprus or the cost to register a Cyprus company with the Cyprus Tax Department for obtaining a Cyprus tax identification number and a Cyprus VAT number if applicable. 
• Cyprus company’s overall audit fee may not include the preparation of financial statements, full Cyprus tax compliance with the Cyprus Tax Department, and annual Cyprus company return submitted to the Cyprus Registrar of Companies. 
• Before registering a Cyprus company, the concept of accounting services has been clarified and the concept of proper bookkeeping in an appropriate computerized accounting system has been confirmed, the concept of matching banking transactions with the required supporting documents (i.e. invoices, receipts, contracts, etc.) has been clarified and the nature of transactions have been verified for the proper keeping of books. 
• Cyprus company formation may not include the cost to set up a payroll system for employees in case a Cyprus company acts as an employer. The setup of the payroll system may include:  
• Company/employer’s registration in Social Insurance Services 
• Application for exemption of the Cyprus company/employer from the Social Insurance Leave Fund (Recommended) 
• Cyprus company/employer registration in the electronic social insurance payment system   
• Registration of the Cyprus company/employer in the electronic system ERGANI for online declaration, termination of employees, etc.   
• Opening of the Cyprus company in a payroll system and initial customization of payroll software regarding employees’ working days, working hours per day, leave granted, salaries agreed, deductions, etc 
• Provisional taxation assessment of the Cyprus company and payment of corporation tax may not be included in the cost of maintaining a Cyprus company. According to Cyprus tax legislation, if a Cyprus Company generates taxable income during the year, an assessment of yearly corporation tax should be made and paid temporarily in two installments, on July 1st and December 31st, respectively.  
• Additional obligations in case a Cyprus company acts as an employer may not be included in the cost of maintaining a company in Cyprus: 
• Monthly preparation of payroll statements, salary and contribution statements, and preparation of monthly remuneration payslips 
• Monthly preparation of a statement of withholding tax for employees, electronic submission through the Cyprus Tax Department portal, and issuance of an income tax payment reference number for online payment.
• Monthly payment of employees’ deductions and contributions to the Social Insurance Services 
• Submission of the employer’s annual return after the year-end.  

Before registering a company in Cyprus, other important hidden considerations 

Before registering a Cyprus company, there might be hidden considerations that should be taken into account. For example, it is important to review and assess the strategic objectives and operating requirements of the Cyprus company as they may be affected by specific laws and regulations. Some important hidden considerations may be: 

• Before registering a Cyprus company, consider possible taxation risks that a Cyprus company may come across in the future. The activities of the Cyprus Company in terms of complexity and know-how required may not be clarified from the beginning. Additional costs that may arise in the future in dealing with complex technical matters may be: 
• Cyprus taxation system, Cyprus company tax resident status, and whether the management and control of the activities of the Cyprus company are carried out in Cyprus 
• Cyprus double tax treaties, EU parent/subsidiary directives, and EU interest and royalties directives that may apply to the Cyprus company 
• Cyprus VAT law and practices regarding EU intra-community transactions, and the obligation to register and submit VIES returns 
• Common reporting standards (CRS) and reporting requirements, for example, in case the Cyprus company generates passive income or will generate passive income in the future 
• Anti-money laundering (AML) law compliance to uncover efforts to disguise illicit funds as legitimate income 
• The DAC 6 Mandatory automatic exchange of information on declarable cross-border arrangements within the EU 
• The forthcoming Third Anti-Tax Avoidance Directive (ATAD 3) is to prevent the misuse of shell entities for tax purposes. The forthcoming Third Anti-Tax Avoidance Directive (ATAD 3) requires entities to have specific requirements regarding substance  
• Before registering a company in Cyprus, consider the Cyprus company’s future income and expenditure, including the structuring of intra-group financing arrangements, interest, and dividend streams. 
• Before registering a company in Cyprus, plan in terms of future taxation obligations, including VAT, possible issues, and obligations 
• Before registering a company in Cyprus, plan in terms of regulatory compliance, like AML requirements and procedures 
• Before registering a company in Cyprus, plan in terms of physical presence and substance requirements 
• Before registering a company in Cyprus, think of staff requirements and payroll obligations 
• Before registering a company in Cyprus, consider the assistance in opening a bank account in Cyprus and guidance in regards to bank requirements for the opening of a Cyprus bank account. Some of the considerations that may need to be taken into account in opening a bank account in Cyprus may be: 
• Responsibility for clarifying issues regarding the sources of incoming funds. 
• Liaising and ensuring proper and efficient work is performed on possible changes in the bank’s regulatory environment or any possible future changes regarding access to the Cyprus bank account. 
• Ensure proper business relationships with banks. From time to time, European banks request an update of bank account documentation for Anti-money laundering purposes, which is usually performed between 1 and 3 years, depending on the Company’s risks involved. Documentation may include renewed passports / IDs for shareholders and directors, changes in the company’s activities, information on possible changes in the structure of the group, etc. 
• Before registering a company in Cyprus, consider assistance in setting up a Cyprus fully-fledged office for the needs of the Cyprus company. 
• Before registering a company in Cyprus to set up a company in Cyprus, consider assistance in drafting Cyprus company contracts, agreements, including shareholders agreements if required, preparation of employment contracts, etc. 

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