Change of registered office

Implementation of the law

Cyprus has implemented legislation¹ to permit the transfer of the registered office of a company both into and out of Cyprus. The enabling legislation permits a company registered in a foreign jurisdiction (provided the laws of such jurisdiction permit the transfer and continuation of companies elsewhere) to transfer its registered office to Cyprus, de-register from the jurisdiction of incorporation and obtain a certificate of continuation in Cyprus. Conversely, the legislation also permits Cyprus registered companies to transfer their registered office and continue in jurisdictions where transfers and continuations are permitted. However, in view of the competitive advantages of Cyprus as a jurisdiction, the movement is expected to be predominantly inward rather than outward.

Corporate Transfers

In the past, the transfer of a company to another jurisdiction often entailed significant tax consequences, which essentially acted as a deterrent for cross-border corporate immigrations. A migrating company would often be deemed to be liquidated in its jurisdiction of incorporation and this would lead to taxable disclosure of its hidden reserves. This has gradually changed with the enshrinement of the principle of freedom of establishment under the EC Treaty and more significantly, the wide interpretation given to the principle of freedom of establishment by the European Court of Justice (ECJ)[2]. The ECJ in its interpretation and application of the treaty has unequivocally supported a choice of forum approach and has emphasized the principle that companies registered in one Member State should be able to carry out their activities throughout the EU without being subject to the burdensome incorporation rules of the host Member State.

The European Company Statute (Council Regulation EC No 2157/2001) has enshrined this freedom in statutory form. In accordance with its provisions, a Societas Europaea (“SE”) (which is European public limited company) may be created on registration in any one of the Member States of the European Economic Area (EEA) (which apart from the EU Member States also includes Norway, Iceland and Liechtenstein) and Member States must treat an SE as if it is a public limited company formed in accordance with the law of the Member State in which it has its registered office. Although a welcome development however, it does not enhance the cross border activity and recognition of private limited companies which do not have access to the European Company Statute. This would be facilitated by the implementation of the Fourteenth Company Law Directive which deals with the cross-border transfer of registered office of limited companies and essentially permits a company to transfer its statutory seat without having to wind up in its home Member State. Under the provisions of this Directive, provided a company meets the requirements of national company law, it can transfer its seat, change its M&AA and keep its legal personality until attaining same in the host Member State, where it may register without further formalities of incorporation. Pending the implementation of this Directive, a number of Member States, including Cyprus, have adopted legislation to facilitate cross-border transfers of corporate seat.

The advantages to a company by this facilitative legislation are twofold: (i) a company may “forum shop” for the most convenient jurisdiction in which to continue its activities whether in tax, organization, market demand or other terms; (ii) a company is permitted to effect such a move without having to endure liquidation or winding-up proceedings in its jurisdiction of incorporation. Such a transfer should produce the same effects as a cross border merger which in accordance with the Merger Directive³ are tax-free.

Tax free exits were already supported by ECJ case law. In the case of Hughes de Lasteyrie du Saillant the ECJ, prompted by the referral of the French Conseil d’Etat ECJ invalidated a French statute which taxed the unrealized appreciation inherent in corporate stock held by a French resident upon transfer of his tax residence from France to Belgium. The interpretation of the ECJ reinforced the freedom of cross-border establishment: a jurisdiction of incorporation cannot impose exit taxes deterring corporate entities from making a rational decision as to the suitability of a jurisdiction’s corporate and tax regime to their particular needs.

Cyprus Legislation

An application by a foreign company to register in Cyprus is made to the Registrar of Companies and is accompanied by the following documents of the foreign company:

1. the certificate of incorporation;
2. the corporate resolution authorizing the transfer-in and continuation in Cyprus;
3. a certificate of good standing;
4. an affidavit by a Director, duly authorized by resolution, confirming (i) the name of the company and the name by which it intends to continue; (ii) the jurisdiction and date of incorporation; (iii) the resolution to transfer to and continue in Cyprus; (iv) that notification has been made to the jurisdiction of incorporation as to the transfer and continuance in Cyprus and proof of such notification must be provided; (v) that there are no proceedings administrative or criminal against the company in contravention to the laws of its jurisdiction of incorporation;
5. an affidavit by a Director, duly authorized by resolution, containing a statement of solvency confirming that no circumstances exist to negatively influence such solvency within a period of twelve months from the date of submission of the application to continue;
6. certificate of Directors and Secretary (if appointed);
7. certificate of Shareholders;
8. such other documents as may be necessary for the Registrar to satisfy itself that (i) such an application is permitted by the transfer-out jurisdiction; and (ii) the consent required to effect the transfer out and continuation has been obtained by the relevant threshold of members, debenture holders and/or creditors as the requirements of the transfer-out jurisdiction may be. If the company is carrying out a licensed activity it will need to satisfy local licensing criteria for the relevant activity.

When the above documents are submitted the company will be issued with a certificate of temporary continuation and will be considered a legal person for the purposes of the law. Within six months from the date of issue of such certificate of temporary continuation, the company must submit to the Registrar proof that it has been “deregistered” from its transfer-out jurisdiction. The company is then issued with its permanent certificate of continuation. If the company does not procure such proof of deregistration within six months, then the Registrar may (i) delete the name of the company from the register and inform the jurisdiction of incorporation that the company has not been registered in Cyprus; or (ii) if there is a reasonable cause for the delay, extend the period for submission of proof of deregistration by a final three month period, after which no further extensions are granted and deletion and notification ensue.

Competitive Advantages of Cyprus

Cyprus has a number of advantages which place it in a unique position from which to invest, trade, restructure or hold underlying assets. At 10% Cyprus can boast the lowest corporate tax rate within Europe. Its participation exemption for dividends has no minimum holding period and requires a holding of just 1%. It does not tax capital gains other than on the disposal of immoveable property situated in Cyprus or the disposal of shares representing immoveable property situated in Cyprus (and then only proportionately to the property-holding shares) and specifically exempts the trading in shares, stocks or debentures from any taxation. Cyprus does not tax outgoing dividends paid to non resident shareholders wherever they may be situated. Moreover Cyprus has an extensive and growing network of double tax treaties many of which feature highly attractive (often nil rated) withholding tax rates from the contracting jurisdictions to Cyprus. To give a simple example, the typical Dutch Sandwich (where a Netherlands Antilles company is parent to a Dutch BV) yields a net exit tax of 8.3% (for a shareholding of 25% of more of the share capital or voting rights). If Cyprus were to replace the Netherlands Antilles in the present structure via a transfer and continuation of the Netherlands Antilles company to Cyprus the net exit tax would be 0%.

Cyprus has also transposed the European Company Statute allowing public companies the option to convert into an SE. The Statute provides for four ways of forming an SE: by merger, by formation of a holding company, by formation of a joint subsidiary, or by conversion of a public limited company previously formed under national law⁴. So a company incorporated in a jurisdiction which permits transfers out has the option today of transferring its registered office to Cyprus and reaping all the tax and regulatory benefits and optionally, transforming into an SE (as a surviving member of a cross-border merger by acquisition, or as an SE member into which two other EU public companies merge) without incurring any taxation, courtesy of the EU Merger Directive.

Conclusion

The new legislation enabling transfers in and out of Cyprus is expected to bring to Cyprus relocations from jurisdictions permitting transfers out. Cyprus unique tax and regulatory advantages have brought it to the forefront of “vehicle” jurisdictions for financing, restructuring, holding, investment and trading. In conjunction with the possibilities offered by complementary EU legislation such as the Merger Directive and the European Company Statute, it is expected that the much-awaited transfer of registered office legislation will further bolster the popularity of the Cyprus company.

¹ Law 124(I) of 2006.

² Case C-212/97, Centros v Erhevers-og Selskabsstyrelsen, 1999 E.C.R. I-1459; Case C-167/01, Uberseering C-208/00, Kamer von Koophandel en Fabrieken voor Amsterdam v Inspire Art Ltd, 2003 WL 102001

³ Directive 90/434/EEC

⁴ Formation by merger is available only to public limited companies from different Member States. Formation of an SE holding company is available to public and private limited companies with their registered offices in different Member States or having subsidiaries or branches in Member States other than that of their registered office. Formation of a joint subsidiary is available under the same circumstances to any legal entities governed by public or private law.

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