The Dos and Don’ts of Setting up a Business in Cyprus

by | Sep 4, 2023

Do your homework! Don’t rush the pace! Do find a good accountant! Don’t ignore cultural nuances!

These are some of the words of advice from foreigners who have set up or are busy setting up businesses in Cyprus.

We will discuss their dos and don’ts in greater detail later in this article but first we will examine why so many foreign entrepreneurs are moving to the eastern Mediterranean island.

The Attractions of Setting up Shop in Cyprus

In the aftermath of the Coronavirus pandemic, the Cyprus government amended laws and regulations to make it easier for foreign businesses to set up in Cyprus.

As a result of the government’s “New Strategy for Attracting Business and Talent”, the number of applications by foreigners to establish companies on the island more than doubled – from an average of 456 per month in 2021 to 985 per month in 2022.

These are some of the reasons foreigners are flocking to the country:

  • Cyprus is a full member of the European Union, giving it access to all European markets.
  • It is strategically located at the crossroads of Europe, Asia, and Africa.
  • It has one of the lowest tax rates in Europe—just 12.5% on net corporate profits.
  • It has a skilled workforce.
  • It has a well-established legal framework.
  • English is widely spoken.
  • The Cyprus economy has been growing steadily after a period of economic downturn caused by the pandemic.
  • The country has a well-developed infrastructure, including a modern telecommunications system and global ports.

However, like any business venture, there are many factors one should consider before setting up a company in Cyprus.

We have compiled the following ‘dos and don’ts’ from comments made to us by expats doing business in Cyprus and from comments by users of the discussion platform, Reddit.

The Dos:

1. Undertake Comprehensive Research

Spend as much time as possible researching the local market, legal requirements, and the specific industry regulations that apply to your business. Familiarise yourself with the local business culture and customs to ensure a smooth entry into the market.

2. Choose the Right Business Structure

Cyprus offers various business structures, including sole proprietorships, partnerships, limited liability companies, and a sole trader option. Each structure has its own advantages and implications in terms of liability, taxation, and management. Choose the structure that aligns with your business goals and needs. A comprehensive guide to the island’s business structures can be found in a legal article published by the Michael Chambers Law Firm.

3. Engage an Experienced Accountant

Reddit users all agree that your first step should be to engage an accountant experienced in helping foreigners set up shop in Cyprus. She or he can guide you through registration, tax planning, and compliance matters. Shop around since the quality of accountants on the island varies.

4. Register with Relevant Authorities

Register your company with the appropriate authorities, as directed by your accountant. Follow the required procedures for obtaining licenses, permits, and approvals specific to your industry.

5. Understand Taxation

Cyprus offers a favorable tax regime, including low corporate tax rates and double taxation treaties with numerous countries. However, it’s crucial to understand the tax laws and regulations to optimize your tax planning and ensure compliance.

Simon, a Briton who investigated the tax implications of registering a company in Cyprus, decided after much research that it was more beneficial for him to remain a sole trader.

“My accountant calculated the taxes payable as a proportion of my expected revenue (VAT and income tax/company tax), and I learned that the outgoings in taxes and accounting fees would increase eightfold, in comparison with remaining a sole trader,” Simon told Headliner Cyprus.

“As a sole trader with expat status, I benefit from a very low rate of income tax (5% of my entire income) provided my annual income does not exceed 70,000 Euros. Therefore, even if I could clear 100k as a company owner (highly unlikely – and certainly not on a regular basis), I would be significantly worse off.

“I think you would need to be sure of profit (not just revenue) in the region of 150k per year to make company establishment worthwhile.”

Open a Bank Account

Once your company is registered, open a business bank account in Cyprus. This will facilitate your financial transactions and allow you to operate smoothly within the local economy.

The Don’ts:

1. Don’t Neglect Compliance

Cyprus has strict legal and financial compliance requirements. Failure to meet these obligations could result in penalties and legal consequences. Ensure you stay up to date on changes to regulations and fulfill your reporting and filing obligations on time.

2. Don’t Overlook Cultural Nuances

Building relationships and networking are essential in Cyprus’s business environment. Don’t underestimate the significance of understanding and respecting local cultural nuances. Building trust and rapport with local partners, clients, and authorities can contribute to your business’s success.

3. Don’t Underestimate Administrative Work

While Cyprus offers a business-friendly environment, administrative tasks can still be time-consuming. Be prepared to deal with paperwork, bureaucratic processes, and administrative tasks related to running a company.

4. Don’t Disregard Employment Laws

If you plan to hire employees in Cyprus, familiarise yourself with local labour laws and regulations. Ensure proper employment contracts, fair wages, and compliance with working hours and conditions.

5. Don’t Rush Decision-Making

Setting up a company requires careful planning and consideration. Don’t rush into decisions without evaluating all aspects of your business. Take the time to develop a solid business plan, financial projections, and a clear understanding of the market demand.

We wish you luck and good fortune as you go about setting up your business in Cyprus.

The country is blessed with plenty of sunshine, sparkling seas, a low crime rate, clean air, and reasonably priced local foods and wines.  All of which makes for a very healthy environment in which to do business.

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