General obligations of a Cyprus Company
Given the increasing regulations and compliance/reporting requirements set by the Authorities in the last years, it is now even more important to ensure that your Cyprus Company is fulfilling its obligations deriving from the Laws and Regulations.
In this document we outline the main obligations of a Cyprus Company, which are categorized as follows:
- Bookkeeping and Audit Obligations
- Corporate Statutory Obligations
- Taxation Obligations
In case certain obligations are not met, the law provides for the following implications:
- Company/Directors are liable for offences (legal action)
- Deregistration of Company according to provisions of the Companies Act
- Fines/Penalties for non compliance
- Interest and Penalty on overdue amounts payable to Tax Authorities and/or to the Registrar of Companies
Therefore, it is important to ensure that all obligations are duly met on time, in order to avoid the above implications and to avoid disputes with the local and international Authorities (e.g. Inland Revenue Department) with unnecessary financial and administration cost.
We draw your attention in two issues (which are explained later) that are currently under the attention by the local Authorities:
- Submission of Annual Return (HE32)
- Payment of Special Levy imposed to all Companies
Bookkeeping and Audit Obligations
In accordance with the Companies Law in Cyprus (Cap.113), a Company is obliged to:
- Prepare Financial Statements in accordance with the International Financial Reporting Standards (IFRS) and
- The Financial Statements must be audited by an independent registered auditor in Cyprus in accordance with International Standards of Auditing (ISA’s).
In order to meet the above requirements, it is necessary (as required by the law) to keep proper books and records:
- Company directors must ensure that all records considered necessary for the preparation of the financial statements are maintained according to Companies Law.
- All records must be kept at the Registered Office of the Company.
- Records must be updated (no later than four months from the month that the transaction was made).
- Records should be ready and available (in case of an investigation from the authorities such as, the Inland Revenue Department, the VAT Service and the Social Insurance Services).
- Obligation to maintain accounting records/proof for six years from the end of the year to which they relate (for income tax and VAT purposes).
The main Statutory Obligations are:
1. Maintain Statutory Records
Companies are required by Company Law (Cap.113) to keep and maintain their Statutory Records at their Registered Office. These records include a Register of Directors, a Register of Secretaries, a Register of Shareholders, and a Register of Charges.
Furthermore, additional documents need to be maintained:
- The Certificate of Incorporation
- The Certificate of Directors and Secretary
- The Certificate of Shareholders
- The Certificate of Registered Office
- The Memorandum and Articles of Association
- The Audited Financial Statements
- Copies of the Annual Returns submitted to the Registrar of Companies
- Minutes kept from General Meetings;
2. Annual General Meeting
Companies Law (Cap.113) requires the Board of Directors of a Company to hold General Meetings (AGM) in order to resolve important decisions in accordance with the Articles of Association of the Company. For example:
- Approval of the Audited Financial Statements
- The Election/Re-election of the Board of Directors
- The Appointment/Re-appointment of the Company’s Auditors and determination of their fees
- The Declaration of Dividends in case the Board of Directors have proposed it
The Meetings should be held in accordance with legislation and must be duly convened with appropriate notice as set in the law.
The resolutions passed in these meetings should be documented in minutes by the Company’s Secretary and kept at the Company’s Registered Office.
3. Filing of changes to the Registrar of Companies
Companies are obliged to inform the Registrar of Companies for any changes that will occur to its corporate structure, i.e. change of shareholders, directors, secretary, share capital, amendment of articles, or memorandum, etc.
Specific forms with required information duly completed, either by the secretary or the directors of the Company (sometimes to be accompanied with true copies of supportive resolutions for each action), should be submitted to the Registrar of Companies.
4. Payment of the Special/Annual Levy imposed on all Cyprus Companies
In accordance to the relevant legislation which is in force from the year 2011, all companies that are registered to the Registrar of Companies in Cyprus, have an obligation to pay a fee of 350 Euro on an annual basis (“Special/Annual Levy”).
The annual levy is compulsory for all registered companies in Cyprus. In prior years certain exceptions applied which were abolished through law amendments.
The levy must be paid by the 30th of June of every year. Thus, the annual levy for the year 2018, is due by 30 June 2018.
Penalties for late payment:
In case of a late payment of the special levy, the following levy increases are payable:
€385 if paid between 1 July and 31 August 2018
€490 if paid between 1 September 2018 and 30 November 2018
Removal from the Register
If the annual levy is not paid within the period of five months (i.e. from 30th June), then the Registrar will remove the company from the Register in accordance with the provisions of the Cyprus Company Law.
Removal from the Register will restrict the company from filling documents or requesting certificates from the Registrar.
5. Submission of Annual Return (Form HE32) to the Registrar of Companies
A Company registered in Cyprus is required by the legislation, to submit to the Registrar of Companies, the Annual
Return (HE32 form) accompanied with the Audited Financial Statements, once a year, within 42 days of the date of the company’s annual general meeting, with the stipulation that this should never be later than 15 months after the date of the previous annual return. A company’s first annual return may be submitted up to 18 months from the date of its incorporation.
The submission is done once the Financial Statements:
- have been signed by the Board of Directors/ Nominees
- have been signed by the Secretary
- have been audited by an external Auditor (required by Tax Law)
- have been presented at the Annual General Meeting (AGM) to the shareholders of the company
The Annual Return contains the Company’s statutory information as at the date of the AGM and includes among other information: the Directors’ details, the Secretary’s details, the Registered Office, the Shareholders’ details, any Charges on the Company’s Assets.
Implications for non submission of the form
Failure to submit the Annual Return within the time frames, will result in the deregistration of the company from the Register and the Registrar may impose further penalties and/or take legal actions against the directors (depending on the case) in accordance with the Companies Act Cap.113.
There are many obligations deriving from the various taxes (direct and indirect) imposed in Cyprus and as a result a professional tax advice is needed in order for a Company:
- to be fully complied with the Tax Laws and
- to achieve optimization of its taxes through tax planning and exploitation of Cyprus competitive and favorable tax law and wide network of tax treaties
Non-compliance can result in substantial financial penalties/fines and/or offences/legal action.
1. Income Tax Law
Annual Tax Return
A company registered in Cyprus is required to complete and submit an annual Income Tax Return to the Inland
Revenue Department (IRD). The annual Tax Return for all Cyprus Companies (including small companies) must be based on financial statements which have been audited by auditors who must be licensed to act as auditors in
Temporary Tax Assessment
The temporary tax assessment form must be submitted on/or before 31st July of each year by all companies. The temporary tax is payable in two equal installments. The first installment of the temporary tax is due on the 31st of July and the second on 31st of December. A final payment must be made before 1st of August of the following year of assessment, so as to bring the total installment payments to the level of the actual liability due
2. Value Added Tax (VAT)
Value Added Tax can be a very a complex area for a Company and it requires specific knowledge in order to be fully complied. It should also be noted that non-compliance and persistent late filing of VAT returns will directly result in a VAT audit from the VAT Authorities.
Registration – Companies which meet the criteria for VAT registration must register with the VAT Authorities within 30 days from the date at which the requirement to register exists.
Maintain Records – Proper records must be maintained as required by law for VAT investigations.
Reporting/ Submit VAT Returns – VAT returns must be submitted on a quarterly basis.
3. Other Taxes
- Special Contribution for Defence (SCD)
Special Contribution for Defence is a tax imposed upon dividend income, ‘passive’ interest income and rental income. Different rules apply in case for residents and non residents.
- Social Insurance and other Contributions
Social insurance contributions and other contributions (e.g. cohesion fund, Redundancy Fund etc) are payable on salaries. These must be deducted and paid by the Company to the Tax Authorities.
Author: Marinos D Marinou Tax Planning specialist at D Marinou & Co EST 1988 offering a range of corporate services including company incorporation, audit, vat and tax planning in Cyprus companies and international Clients.