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CYPRUS: An Introduction to General Business Law

Contributors:

Christiana Vassiliou

Olga Adamidou

Olga-Maria Zenon

Anna Charalambidou

Maria Vassiliou

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An Introduction to General Business Law in Cyprus 

Cyprus has always been a well sought-after destination for business and investment, not least due to its geographical location which provides a stepping stone between three different continents. Businesses and investors are attracted by a country which is a full member of the European Union, a member of the Commonwealth and a well-established international business and investment hub, with low living and operational costs and easy access to an unlimited pool of highly educated, professionally qualified and often multilingual personnel.

The government of Cyprus is constantly committed to maintaining Cyprus as an attractive and secure business centre by offering appealing and competitive incentives for attracting and protecting entrepreneurship and fostering growth.

Business Relocation 

The country’s policies relating to business relocation which are aimed at facilitating and encouraging more and more multinational firms to either relocate their entire businesses and staff to Cyprus, or open branches on this strategically located island of the Mediterranean Sea. Such policies have been particularly welcome in recent times, due to various ongoing geopolitical situations and turbulence around the globe as well as due to tax incentives offered for relocating employees.

Businesses stemming from industry sectors, including tourism, leisure and technology, can benefit from the Business Facilitation Unit (the “BFU”), a unit that was transformed in January 2022 in order to expedite the efficient examination of requests of all foreign companies intending to establish or expand their activities to Cyprus. The BFU acts as a single point of contact for, inter alia, the establishment of the new Cypriot company of foreign interests, the acquisition of any necessary licenses and the facilitation of the issuance of any work permits to the company’s third country employees. Recent amendments to the requirements for obtaining such work permits include: the increase of the minimum gross monthly salary of potential applicants to at least EUR 2,500; an up to three years work permit duration at a time (instead of up to two years); the addition of partners, parents, parents-in-law and adult children (under 25 years old) of such applicants to the dependent family members who have a right to accompany them to Cyprus (previously, only spouses and minor children would accompany them); and most significantly, the (re-introduction) of the obligation for owners of Cypriot companies/employers to provide an initial investment, in a Cypriot bank account in the company’s name, of at least EUR 200,000, for the purposes of the operations of the business in Cyprus.

Digital Nomad Visa 

Another noteworthy update on immigration-related changes is the introduction of the Digital Nomad Visa (the “DNV”), a new type of residence visa which has emerged as an aftermath of the COVID-19 pandemic and the global shift to remote work. Aimed at strengthening Cyprus as a technological hub while also bringing economic growth to the island, the DNV allows third country nationals to move and reside in Cyprus for up to three years and continuing to either work for companies abroad (for salaried employees) or offer their services remotely for clients abroad (for self-employed individuals), as long as they will not provide work/services to employers or clients in Cyprus and subject always to them proving that they have a stable and sufficient net income of at least EUR 3,500 to cover living expenses during their stay in Cyprus, without burdening the country’s social welfare system. This new remote way of working provides such individuals (and their spouses or civil partners) with the benefit of being considered tax residents of Cyprus (provided that they are not tax residents in any other country), in the event that they reside in Cyprus for one or more periods totalling more than 183 days within the same tax year.

Cyprus Equity Fund 

Furthermore, in 2023, the launch of the Cyprus Equity Fund is due to take place, which will be the first equity fund in Cyprus to obtain public funding and it will be managed by the European Investment Fund. The fund’s establishment is viewed as a crucial development for the nascent venture capital market in Cyprus, and it is expected to contribute significantly to the industry’s growth in 2023. The investment fund will support start-ups and innovative small and medium-sized enterprises.

Tax Incentives 

In terms of the tax incentives, it is well-known that the tax regime of Cyprus is among the most appealing and competitive globally, resulting in organisations worldwide opting for Cyprus as a result of its attractive tax system offering low corporate and personal income tax rates, as well as various benefits, deductions, and exemptions, for both individuals and companies. In 2022, several amendments were introduced, including, among others, the introduction of the transfer pricing rules consistent with the OECD guidelines, the increase of the tax deduction granted on expenses incurred for research and development to 120%, the revisions of the 20% and 50% tax exemptions that are offered to individuals who take up employment in Cyprus for the first time and have not been previously tax residents of Cyprus for a certain period that aim to attract foreign investors and high-profile foreign employees. Businesses and individuals in Cyprus are expected to experience significant effects as a result of these changes.

Fintech 

Over the past few years, Cyprus has also experienced rapid technological development in the financial and commercial world, with a shift towards e-commerce business models as well as the digitalisation of financial trading and payments. The global growth of financial technology (“Fintech”) business models and the widespread use of digital assets/crypto assets, both as payment methods but also for investment purposes, have led to recognition of the need for effective regulation. At the European level, crypto-asset regulation in the form of the Markets in CryptoAssets Regulation (MiCA) is expected to be published in April 2023 and become effective in Cyprus in 2024. Crypto Asset Service Providers are already required to be registered with the Cyprus Securities and Exchange Commission under the anti-money laundering legal framework. Cyprus has made significant efforts to create a favourable environment for tech and Fintech companies, recently introducing a number of measures to facilitate the growth of the tech and Fintech sectors.

International Shipping Sector 

Moreover, the country’s pivotal role in the international shipping sector is well-known. Recently steps have been taken to strengthen competitiveness, promote Cypriot shipping, increase the extent and quality of maritime education and encourage innovation. Such steps include the approval, in October 2022, by the Cyprus Parliament, of the Shipping Limited Liability Company Law of 2022, which aims to improve the competitiveness of the Cyprus flag in international shipping and simplify procedures for Cypriot shipping companies owning Cyprus-flagged vessels. The law aims to establish a ‘one-stop-shop’ framework for ship-owning companies under the Cyprus flag, with the designation of the Shipping Deputy Ministry as the competent authority, for handling registration of these companies and all related matters, which were previously handled by the Registrar of Companies. With the 3rd largest shipping fleet in the European Union after Malta and Greece, Cyprus has proven its appeal as a favourable environment for international shipping business and it is clear that all the recent reforms will contribute to the further development of the Cyprus maritime industry.

Judicial Reform 

Finally, extensive judicial reform laws have been passed, bringing long-awaited changes to the Cyprus justice system. Most notably, the current Supreme Court will now be separated into two distinct entities: the Supreme Court and the Supreme Constitutional Court. Additionally, a new Court of Appeal will be established and all three newly established courts will commence operations on July 1st, 2023. Furthermore, a law establishing two new specialist courts was passed, namely the Commercial Court and Admiralty Court. Moreover, the introduction of new civil procedure rules is set to take effect in September 2023. These rules, modelled after the English Civil Procedure Rules, will arm the courts with significant ‘case management powers’ and establish an ‘overriding objective’ to guide proceedings. It is also noted that mandatory pre-action conduct will be introduced aiming at reducing the number of claims that reach the courts. Overall, these legislative reforms signify a significant step forward in the progression and development of the Cyprus legal system, and are expected to have far-reaching implications for the administration of justice in the years to come.