Managing a Cyprus company
has many statutory and other reporting obligations. The main of these are the following:
A. STATUTORY OBLIGATIONS
Every company has both statutory reporting and financial obligations to meet, including:
Annual General Meetings
A company must hold its first Annual General Meeting (AGM) within 18 months of the date of its incorporation. Thereafter, an AGM must be held annually and the time between them must not exceed 15 months. The agenda of the AGM usually includes the following:
- The approval of the payment of dividends to shareholders
- The appointment (or re-appointment) of the Board of Directors
- The appointment of auditors
- The approval of the financial statements
- Deciding on issues like the amendment of the memorandum of association of the company etc.
Annual Returns (HE32)
Within 42 days of the AGM, the company must complete and file a fully signed (by a director or the company’s secretary) copy of the Annual Return with the Registrar of Companies. According to the Companies Law Cap. 113, as amended, the Annual Return (HE32 form) must be accompanied by, amongst others, certified copies of the financial statements, directors’ report and auditors’ report. Delays in the submission of Annual Returns will result in financial penalties.
Company Annual Levy
Every company must pay an annual levy of €350 to the Registrar of Companies. The levy is payable by the 30th June every year. Failure to effect timely payment will result in penalties.
Notification to the Tax Authorities of Statutory changes to the Company
Newly incorporated and foreign companies that become tax resident of Cyprus
must register with the Cyprus Tax Authorities (Income Tax) within 60 days from the date of incorporation at which they become resident of Cyprus.
Furthermore, all companies are required to inform the Tax Commissioner of any changes that may affect the records of the Inland Revenue register within 60 days from the date of that change. Heavy financial penalties will be imposed where a company refuses, omits or neglects to give notice to the Commissioner, or to perform any compliance obligations, within the deadline given in the relevant Tax law.
Statutory keeping of records and good practice
Recording of Minutes: The minutes of proceedings of any general meeting of a company shall be kept at the Registered Office of the company and shall be open to inspection.
Filing of changes with 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. If the Registrar is not duly notified of any changes, financial penalties will be imposed.
It is also important for every company to have its activities duly covered by its Memorandum and Articles of Association. Any activities performed which are not in accordance with the company’s Memorandum and Articles could have an adverse effect and leave the company exposed to potential legal proceedings by other parties.
B. TAX COMPLIANCE OBLIGATIONS
Corporate Tax is collected through a self-assessment system. Companies pay provisional tax on estimated taxable profits during the year of assessment, in two equal instalments on 31 July (which is also the deadline for submission of the Provisional Tax Return
) and 31 December. Late payment of any instalment carries interest at the rate set by the Minister of Finance, which as from 1 January 2014 stands at 4.50% per annum (calculated on the basis of completed months) and a penalty of 5%.
The final tax liability, based on the actual taxable profits of a company, is again paid through a self-assessment system on or before 1 August of the year following the year of assessment. A penalty of 10% is imposed on the Final Tax Assessment if the provisional tax paid is less than 75% of the final liability for the year.
Company Tax Returns (form IR4) must be filed not later than 31 December of the year following the year of assessment (or by 31 March of the subsequent year for electronic submissions). In the case of late filing an immediate penalty is imposed, with further penalties arising until submission.
A legal action may be initiated against the company for continued non-submission of company Tax Returns. This may also lead to the disclosure of the beneficial owner(s) to the Tax Authorities.
Special Contribution for Defence (SCD) Tax
SCD Tax is imposed upon dividend income, ‘passive’ interest income and rental income earned by Cyprus companies. Non- tax residents are not liable to pay SCD for dividends and interest income distributed to them.
Late payment of SCD results in accrued interest and late filing penalties on the same basis as for Corporation Tax (see above).
Value Added Tax (VAT)
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. Late registration will result in a penalty of €85 for every month, or part month, of delay.
Reporting - VAT returns are submitted on a quarterly basis. The deadline for the submission of the VAT return, and the settlement of any VAT payable, is the 10th day of the second month after the date on which the VAT return being reported ends. Late submission/payment will result in a surcharge equating to 10% of the liability and thereafter will be liable to interest at a rate of 5%.
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, incurring useless additional fees and long negotiations. Companies must also inform the VAT Authorities of any changes to their details in order for the information held to be true and correct.
De-registration - An application to de-register must be submitted to the VAT authorities within 60 days from the date at which the requirement to be registered no longer exists. Late notification in either instance will result in financial penalties. At the point of de-registration every company will face a VAT ‘audit’ which with be performed by the VAT Authorities. This audit will undertake a review of the company’s records in order to verify that all reporting has been undertaken in accordance with the laws and regulations. Any errors or omissions found in the course of the audit will result in heavy financial penalties and back dated interest.
INTRASTAT - The INTRASTAT Return is submitted to the VAT Authorities on a monthly basis and relates to receipts of goods from, as well as supplies of goods to other EU Member States. The return must be submitted to the VAT service by the 10th day following the end of the month to which the return relates.
Non-compliance that continues after thirty working days constitutes a criminal offence and a convicted person may incur an additional fine of up to €2,562. Additionally, if a person submits the INTRASTAT Return containing a substantial omission and/ or inaccuracy and does not notify the VAT Commissioner within sixty days from the end of the relative period, this person is liable to a further penalty.
VIES - A Recapitulative Statement (or VIES Form) must be submitted every month. Submission must be made by the 15th day of the month following the month for which the Recapitulative Statement is reporting in order to avoid financial penalties. Wrong submissions must be corrected within 15 days of the due submission date in order to avoid any penalties.
C. ACCOUNTING & AUDIT OBLIGATIONS
All companies registered in Cyprus must prepare accounts in accordance with the International Financial Reporting Standards (IFRS) and these must be audited in accordance with International Auditing Standards (IAS). Failure to prepare and file accounts amounts to a criminal offence and the company, as well as its directors, are liable to prosecution accordingly.
Company directors must ensure that all records that are considered essential for the preparation of the financial statements are maintained. All records must be kept at the registered office of the Company and must be open for inspection by any person during business hours. For income tax and VAT purposes, companies are obliged to keep accounting records for 6 years from the end of the year to which they relate.
Timely maintenance of a company’s accounting records is significant for many reasons, including:
- assisting the audit procedure and minimising audit fees
- avoiding complications arising from receiving a ‘Qualified Audit Opinion’ in the Audit Report, resulting from incomplete records/lack of information
- enabling correct and swift responses to any tax enquiries which may arise
- enabling the punctual preparation of interim accounts in order to determine potential interim dividend distributions
- facilitating the prompt acquisition of Tax Residency Certificates, as and when required
Every Cyprus registered company’s accounts must be audited and the Auditors must be duly licensed and practicing in Cyprus.
In case certain obligations are not met, one will be exposing himself to unwanted attention from the local and other Tax Authorities and therefore, it is important that all filings are up to date, regular updates are given by a proactive service provider so that one can track the progress of operations in order to ensure that all obligations are duly met on time and that unnecessary penalties are avoided.