Christos Mavrellis brings us up to date with developments in Cyprus regarding corporate law, shipping law and taxation.
Cyprus, in accordance with its declared policy to play an important role as an attractive location for international businesses, as well as one of the world’s most important ship registries, has continued the modernisation of its legal regime in the fields of corporate law, shipping law and taxation.
The recent changes in the Cyprus Companies Law, Cap. 113, are laid out below.
Execution of Deeds and Power of attorney
The archaic provisions in the Companies Law, which required deeds, powers of attorney and some other contracts entered into by a Cyprus company to be necessarily executed under the common seal of the company, have been amended, making it now possible for all such deeds and documents to be executed under the signature of any person authorised by the company.
Provisions of the Companies Law dealing with the requirement for the issue of prospectus, filing of prospectus and other relevant provisions, shall not apply in all cases relating to the issue of shares or debentures to which the Public Offer and Prospectus Law and/or the law dealing with Collective Investment Organisations of Open Type, which laws have in fact introduced into the Cyprus legal system the relevant provisions of the corresponding EU Directives, are applicable.
These developments make it much easier for Cyprus companies to offer their shares in accordance with the provisions of the EU Prospectus Directive, not only for listing in Cyprus but also in any other recognised stock exchange without the need to go through the cumbersome provision of the Companies Law and without the necessity to file the prospectus in the Greek language and some times without the need to even issue a prospectus when such issue falls within the exemptions of the Prospectus Directive and the corresponding Cyprus legislation.
Linked to the above is also the amendment to the relevant provisions of the Companies Law enabling a Cyprus company to have and maintain a registry abroad, not only within Her Majesty’s Dominions, as it was the case until recently.
Transfer of shares
Furthermore, provisions have been introduced accepting transfer of shares of companies listed in recognised stock exchanges if they are made in compliance with the rules of the relevant stock exchange, which may include dematerialisation of share certificates, and without the need to use an instrument of transfer in such cases.
Financial assistance for purchase of shares
One very important development is the amendment to the provisions of the law prohibiting direct or indirect financial assistance by a company in connection with the subscription or purchase of its shares. Following such amendment it is now possible for private companies, which are not themselves subsidiaries of a public company, to offer such financial assistance, provided that the decision is approved by an affirmative vote of 90 per cent of all the issued shares of such company. Following such amendments, the concept of whitewashing has now been introduced.
One long standing ambiguity as to whether pledges by Cyprus companies of shares in the capital of a Cyprus company constitute registerable charges for the purposes of the Companies Law has been clarified by the introduction of a new provision in the law making it clear that such pledges need not be registered as charges in order to be valid against the liquidator of the Cyprus company that owns such pledged shares.
In line with the provisions of the EU Directive 2004/25/EC, extensive provisions have been introduced in the law enabling the shareholders of a company which is listed in an organised market to vote through electronic means and to receive documents, to convene extraordinary general meetings etc.
In 2010, the long awaited amendments to the Merchant Shipping (Fees and Taxing Provisions) Law were introduced having first been approved by the appropriate authorities of the European Union.
The amendments, as introduced, have first reaffirmed the exemption from tax of the profits from the ownership, bareboat chartering and operation of Cyprus ships, as well as profits from ship management and of all dividends distributed to shareholders by corporate ship owners or ship managers. In addition, it has extended the tax benefits to the charterer of ships. The amendments have also extended the tax exemptions to cover not only owners and bareboat charterers for Cyprus registered ships, but also owners of European Community ships and in some cases, under certain conditions, to owners and operators of non-Community ships if a combination of Community and non-Community ships exists.
It has also been clarified that profits realised from the disposal of a ship are tax exempt.
Now ship owners, ship managers and charterers, if they are managed and controlled in Cyprus or they have a permanent establishment in Cyprus, can opt to be taxed on tonnage tax basis by reference to the tonnage of the ships they own, manage or operate under a bareboat, demise, time or voyage charter. The tonnage tax rates are such so as to result in an overall low tax burden for those qualifying owners, operators, managers or charterers.
Further to the above, interest earned by ship owning companies is, under certain conditions, tax exempt.
With the amendments introduced, Cyprus not only expects to maintain its leading position in international shipping but also to attract more ship owners to use the Cyprus Registry and the Cyprus flag and also to remain a major third party ship management centre of the world. The tax exemptions that have been introduced with respect to profits from chartering operations are expected to attract to Cyprus international chartering companies, which may establish their offices on the island and manage their activities with a low tax exposure as profits from such operations can now be taxed, at the charterer’s option, on the basis of the tonnage of the ships under charter.
New provisions have been introduced into the Income Tax Laws and thus have extended the exemption of interest income from income tax to all persons, including legal entities.
Before the amendment, 50 per cent of interest earned by legal entities was subject to 10 per cent corporation tax. Still, this exemption does not cover interest earned by any person in the ordinary course of its business as well as interest closely connected with the carrying on of such person’s business and interest earned by a collective and investment undertaking of close or open type. Interest earned by banks or financial institutions as well as interest earned by Cyprus companies in connection with intergroup financing are considered business profits and they are liable to income tax. Of course, all expenses relating to the income are deductible.
It has now been clarified that any profit on the disposal of any securities, including any share or interest in a collective investment scheme of open or closed type, including any profit realised on the redemption of any interest in such a collective investment scheme, are fully exempt from income tax.
As regards the Special Defence Contribution levy, the relevant legislation has been amended:
Christos Mavrellis, Chrysses Demetriades & Co, LLC, Cyprus