Company Redomiciliation to Cyprus

Redomiciliation refers to the process by which a company incorporated under the laws of one jurisdiction moves its domicile to another jurisdiction while maintaining the same legal identity. This procedure, also known as corporate migration or continuation, enables the company to retain its existing assets, obligations, rights and liabilities without undergoing the complexities of liquidation in the original jurisdiction and re-incorporation in the new one.

The principle behind this is that the legal entity of the company remains the same, irrespective of the change in jurisdiction. As a result, the company continues to exist but is now subject to the laws and regulations of the new jurisdiction.

In the global business environment, companies often opt for redomiciliation to exploit more advantageous regulatory, tax, or economic environments, to access new markets, or for various strategic reasons. It’s important to note that not all jurisdictions permit redomiciliation. Therefore, companies must first verify that both the departure and the destination jurisdictions allow this process.

When we speak of redomiciliation, it’s crucial to understand the concept of a company’s legal identity. A company is considered a separate legal entity from its owners or shareholders. It has its own rights and obligations under the law, can own property, enter into contracts, sue or be sued. The legal identity of a company continues to exist regardless of changes in its members or directors. Thus, when a company redomiciles, it retains its legal identity, along with all its assets, liabilities, rights, and obligations, even though the jurisdiction governing its operation changes.

In the context of Cyprus, the process of redomiciliation is governed by the Companies Law, Cap. 113, as amended by Law 124(I)/2006. This law allows for both inbound and outbound redomiciliation, meaning that foreign companies can redomicile to Cyprus and Cypriot companies can move their domicile to a foreign jurisdiction, provided that the other jurisdiction permits such a procedure.

The redomiciliation process, though advantageous, can be complex, requiring a deep understanding of the regulatory requirements, the preparation and submission of various documents, and careful planning to ensure business continuity. It’s always recommended that companies seeking to redomicile engage with legal professionals well-versed in the corporate laws of both the original and the new jurisdictions to guide them through the process.

The Legal Framework for Redomiciliation in Cyprus

The legal framework for redomiciliation in Cyprus is primarily established under the Cyprus Companies Law, Cap. 113, with the pivotal amendments introduced by Law 124(I)/2006, specifically to facilitate corporate migration. This legislative framework has made Cyprus an attractive destination for companies seeking redomiciliation due to its robust, EU-compliant corporate laws, and favourable business and taxation environment.

Cyprus Companies Law Cap 113, as amended by Law 124(I)/2006, delineates the comprehensive legal framework for the establishment and operation of companies in Cyprus. The legislation aligns with the principles and standards of common law and the regulations of the European Union, providing a reliable and robust basis for corporate operations.

One of the significant features of this legal framework is its provision for both inward and outward redomiciliation. The law allows foreign companies to transfer their seat of incorporation to Cyprus (inward redomiciliation), and conversely, it also enables Cypriot companies to transfer their domicile to a foreign jurisdiction (outward redomiciliation). This bilateral approach enhances the flexibility for companies operating in or looking to operate in Cyprus.

However, the process of redomiciliation, whether inward or outward, is subject to specific legal prerequisites defined under the law. For inward redomiciliation, the law stipulates that:

Permission from Home Jurisdiction: The laws of the country in which the foreign company is registered must permit redomiciliation.
Continuation Provision in MA/AA: The documents of incorporation of the foreign jurisdiction company, namely the Memorandum and Articles of Association (MA and AA), must contain a continuation provision that allows the company to continue in Cyprus. If not, these documents will have to be amended to include this provision.
Licensed Activity: If the foreign jurisdiction company carries out a licensed activity in the foreign jurisdiction, it will need to satisfy local licensing criteria for the relevant activity in Cyprus.
Registered Shares: Cyprus law does not recognise bearer shares. Therefore, the share capital of the company will have to be registered shares.
Company Name: The name of the company under which it will continue in Cyprus needs to end with the word “Limited”. Therefore, possible names will need to be chosen with which the foreign company will continue in Cyprus. An application will be made in advance to the Cyprus Registrar of Companies to obtain approval of proposed names.

For outward redomiciliation, the Cyprus Companies Law sets out that the foreign jurisdiction must permit the continuation of the company under its laws. The company’s memorandum or articles must provide for the possibility of redomiciliation, and a special resolution must be passed for the redomiciliation. The company must also be in good standing with its obligations under Cypriot law.

In both cases, the redomiciliation process must be conducted in compliance with the prescribed procedures and requirements under the Cyprus Companies Law, including the preparation and filing of necessary documents, obtaining relevant approvals, and fulfilling all statutory obligations. The process demands meticulous attention to detail and adherence to the statutory timeframes, making it imperative for companies to seek professional legal guidance to navigate through it.

The legal framework for redomiciliation in Cyprus, thus, provides a well-defined, transparent, and predictable path for companies seeking to move their domicile to or from Cyprus. The legislation’s robustness, coupled with Cyprus’s favourable business and tax environment, contributes significantly to making Cyprus an attractive jurisdiction for corporate migration.

Benefits of Company Redomiciliation to Cyprus

Cyprus, strategically located at the crossroads of three continents – Europe, Asia, and Africa, offers a plethora of benefits for companies considering redomiciliation. These benefits span across its favourable tax regime, robust legal system, vibrant business environment, EU membership benefits, and extensive double tax treaties.

Tax Advantages

Arguably, the most attractive benefit of redomiciliation to Cyprus is its favourable tax environment. With one of the lowest corporate tax rates in the European Union at 12.5%, Cyprus provides a tax-efficient jurisdiction for businesses. Furthermore, it offers an exemption on dividend income and profits from a permanent establishment maintained outside Cyprus, leading to considerable tax savings.

Another critical tax benefit is the deductibility of interest expense incurred for the acquisition of a fixed asset used in the business, reducing the overall taxable income. Additionally, royalties received by a connected company registered in an EU Member State are exempt from tax, providing a significant advantage for companies engaged in intellectual property rights.

Legal System Benefits

The legal system in Cyprus, based on English Common Law principles, offers a familiar and reliable legal environment for businesses. The well-established, transparent legal framework offers predictability and security, vital for businesses operating in a foreign jurisdiction. The legal system also provides robust protection of investor rights, ensuring a fair and equitable business environment.

Furthermore, the ease of the redomiciliation process, as stipulated under the Cyprus Companies Law, is another significant benefit. The process is straightforward and time-efficient, negating the need to dissolve the foreign company and re-establish it under Cypriot law. This continuity not only saves time and resources but also allows the company to retain its legal identity, contracts, and rights.

Business Environment

Cyprus offers a dynamic and supportive business environment. It has a highly educated and multilingual workforce, providing a broad talent pool for businesses. The country has made significant strides in digital transformation, making it easier for businesses to operate and comply with regulatory requirements.

Furthermore, its strategic location, coupled with excellent air and sea connections, provides easy access to markets in Europe, Asia, and Africa. The country also offers advanced infrastructure, including modern telecommunications and internet facilities, and efficient banking services with a high level of banking confidentiality.

EU Membership Benefits

As a member of the European Union, companies redomiciled to Cyprus enjoy all the benefits of EU membership. These include access to a single market of over 450 million consumers, free movement of goods, services, capital, and persons, and the ability to bid for and execute public contracts across the EU.

EU membership also brings regulatory benefits as Cyprus’s legal and regulatory framework aligns with EU Directives and Regulations. This alignment simplifies compliance for companies operating across multiple EU jurisdictions.

Double Tax Treaties

Cyprus has an extensive network of double tax treaties with more than 60 countries worldwide, providing significant tax planning opportunities. These treaties primarily aim to avoid double taxation on the same income in two states. They typically provide for reduced rates of withholding tax on dividends, interest, and royalties paid out of the treaty country. For multinational businesses, these treaties can lead to considerable tax savings and certainty about their tax treatment.

The benefits of redomiciliation to Cyprus are manifold, offering a compelling proposition for businesses seeking a favourable, supportive, and strategic jurisdiction. The tax advantages, coupled with a reliable legal system, dynamic business environment, EU membership benefits, and extensive double tax treaties, make Cyprus an attractive destination for redomiciliation.

Inward Company Redomiciliation Process: Detailed Steps and Requirements

The process of redomiciliation to Cyprus is straightforward, well-structured, and facilitated by the Cyprus Companies Law. The process entails several steps, which can be broadly grouped into preliminary considerations, document preparation and requirements, application process, and receipt of certificates of continuation.

Preliminary Considerations

Before initiating the redomiciliation process, certain preliminary conditions must be met. The laws of the country where the foreign company is currently registered must permit redomiciliation. Furthermore, the company’s memorandum or articles of association must contain a provision allowing the company to continue its business under the laws of another jurisdiction. If such a provision is not present, an amendment would be required.

If the foreign company operates a licensed activity, it will need to satisfy local licensing criteria in Cyprus. As Cyprus law does not recognise bearer shares, the share capital of the company must be registered shares. Finally, the company’s name, under which it will continue in Cyprus, must end with the term “Limited.” A name approval request must be made to the Cyprus Registrar of Companies to secure a suitable name.

Document Preparation and Requirements

Upon satisfying the preliminary conditions, the company must prepare several documents as required by section 354C of the Cyprus Companies Law. These documents include:

A board resolution authorising the redomiciliation, which outlines the company’s intention to continue its business in Cyprus.
A solvency declaration sworn before a Cyprus court by a director of the company, confirming compliance with the foreign jurisdiction’s laws, the company’s solvency, and the absence of any administrative or criminal proceedings against the company.
A shareholders’ resolution approving the new memorandum and articles of association of the company, which will govern the company’s operations in Cyprus.

Further, if the company operates under a foreign license or its shares are listed on a recognised stock exchange, the consent of the relevant foreign authority or stock exchange must accompany the application. If the company is a public company that has offered its shares to the public, the most recent public offer for registration should also be included.

Application Process and Submission to the Registrar

With the necessary documents prepared, the company must complete the ME1 and ME4 forms and submit them to the Registrar, along with all requisite documents. These documents must be translated into Greek. Once the Registrar is satisfied with the submission, a temporary certificate of continuation is issued. This certificate provisionally registers the company as continuing in Cyprus and is considered a legal entity under Cyprus law.

Temporary and Permanent Certificates of Continuation

The temporary certificate of continuation marks the start of the company’s legal existence in Cyprus. From this moment, the company is subject to all obligations under Cyprus law and is capable of exercising all the powers of a company registered in Cyprus.

Following the issuance of the temporary certificate, the company has a period of six months to provide proof of its de-registration from the foreign jurisdiction. If this proof is provided satisfactorily, the Registrar will issue a permanent certificate of continuation. This certificate confirms the registration of the company as a continuous entity in Cyprus.

In summary, the redomiciliation process to Cyprus is facilitated by a clear, step-by-step process, with well-defined requirements at each stage. As such, companies can confidently undertake this process, knowing that they will be supported by a robust legal framework and a business-friendly environment.

Potential Challenges and Grounds for Rejection

While the process of redomiciliation to Cyprus is generally straightforward, it can present some challenges and pitfalls that companies should be aware of. Understanding potential grounds for rejection and being prepared to handle legal and financial hurdles can significantly improve the chances of a successful redomiciliation.

Common Reasons for Application Rejection

The Registrar of Companies in Cyprus can reject a redomiciliation application under several circumstances. A primary reason for rejection is if the company has started dissolution, liquidation, or insolvency proceedings, or if there are ongoing court orders or similar proceedings against it. An application can also be rejected if a liquidator, special administrator, or receiver has been appointed for the company, or if a decision or order has been issued that suspends or limits the rights of creditors.

Another potential ground for rejection is if the company is found to have contravened the laws of the country or jurisdiction of its incorporation. This might include administrative or criminal proceedings initiated against the company.

Moreover, the Registrar may reject an application if it deems that the proposed redomiciliation serves an aim other than the genuine continuation of the company in Cyprus. This could include the creation of a new legal entity, fraudulent disposal of assets, or the avoidance of legal proceedings against the company.

Potential Legal and Financial Hurdles

Legal and financial obstacles may arise during the process of redomiciliation. For example, the company’s existing structure and operations might not be compatible with Cyprus law, requiring significant restructuring or changes to business operations. Additionally, financial issues such as outstanding debts, tax obligations, or disputes with creditors could complicate the process.

Another potential hurdle is obtaining the necessary approval from foreign jurisdictions. Some countries might have strict regulations or lengthy procedures for companies seeking to leave their jurisdiction, which could delay the redomiciliation process.

Strategies for Successful Redomiciliation

Given these potential challenges, companies should approach the redomiciliation process with careful planning and thorough preparation. This includes conducting a comprehensive review of the company’s legal and financial status, understanding the requirements of both the current jurisdiction and Cyprus, and preparing all necessary documents accurately and completely.

While redomiciliation to Cyprus offers numerous advantages, it is not without its challenges. By being aware of potential hurdles and preparing accordingly, companies can improve their chances of a successful transition and reap the benefits of operating under the favourable business environment of Cyprus.

Case Study: Successful Company Redomiciliation to Cyprus

To illustrate the process and potential benefits of redomiciliation to Cyprus, let’s consider the case of Company X, a successful software development company originally incorporated in Country Y.

Steps Taken and Challenges Overcome

Company X decided to redomicile to Cyprus to take advantage of the country’s favourable tax regime and extensive network of double tax treaties. The first step involved ensuring that their home country, Country Y, allowed for redomiciliation, and that their company’s memorandum and articles of association permitted a continuation in another jurisdiction. After confirming this, Company X worked closely with its legal team to prepare the necessary documents and satisfy the legal requirements set out by the Cyprus Companies Law.

The process was not without challenges. The biggest hurdle was the requirement to translate all documents into Greek, a task that required significant time and resources. Furthermore, the company faced some administrative delays in obtaining the necessary approvals from the foreign jurisdiction.

Despite these challenges, Company X successfully navigated the redomiciliation process with the help of their legal team and other advisors. They filed the necessary application and supporting documents with the Registrar of Companies in Cyprus, obtained a temporary certificate of continuation, and eventually secured a permanent certificate of continuation.

Benefits Realised Post-Redomiciliation

Following successful redomiciliation, Company X reaped numerous benefits. The company’s effective tax rate was significantly reduced due to Cyprus’s low corporate tax rate and the benefits of double taxation agreements. This resulted in considerable savings and enhanced the company’s profitability.

In addition to the tax benefits, Company X also benefited from operating within the legal framework of the European Union, which allowed the company to expand its operations across EU member states more seamlessly. Furthermore, the redomiciliation also increased the company’s credibility and appeal to investors due to Cyprus’s robust regulatory environment.

Redomiciling to Cyprus also gave Company X access to a highly skilled workforce, due to Cyprus’s excellent education system and high proficiency in English, which is crucial in the global software industry.

Conclusion

Company X’s successful redomiciliation to Cyprus illustrates the strategic benefits that can be gained from such a move. Despite facing challenges during the process, the company was able to overcome them with careful planning, professional legal guidance, and a clear understanding of the requirements and benefits of redomiciliation. This case study demonstrates that, with the right approach and resources, redomiciliation to Cyprus can be a strategic move that yields substantial benefits.

At Chambers & Co, we specialise in assisting companies through the redomiciliation process. Our services include:

Comprehensive legal advice on all aspects of redomiciliation under Cypriot law.
Preparing and submitting all necessary documents to the Registrar of Companies.
Assisting with the necessary alterations to the company’s memorandum.
Providing guidance through the de-registration process in the foreign jurisdiction.
Ensuring continued compliance with Cypriot laws following redomiciliation.

By partnering with Chambers & Co, you can navigate the redomiciliation process with confidence, ensuring a seamless transition for your company to Cyprus.