Starting Investment business in Cyprus – the 6 things to know.

It has over the past few years been some enormous focus on investment services in Cyprus.  There has been much effort to transform Cyprus into a global financial and investment services jurisdiction aiming to provide access to Europe and other key markets such as Russia, the Middle East, Asia and Africa.  Many globally recognized top Investment Firms have already set a footprint in Cyprus, or have moved their headquarters in Cyprus, in an effort to acquire the relevant Cyprus Investment Firm (CIF) License under EU Markets in Financial Instruments Directive (known as “MiFID”) from the Cyprus Securities and Exchange Commission (“CySEC”) and operate as a regulated investment services firm from Cyprus in all EU markets, Russia, the Middle East, Africa, Asia or other third countries.

Cyprus is an ideal jurisdiction for setting up Investment Firm headquarters for a great number of reasons, among others for:

1. EU regulatory status with favorable tax regime for having the lowest income corporate tax rate in the EU, at 12% on net profits;
2. Passporting – the CIF license provides the opportunity to the company to offer cross-border investment services or establish a branch in another EEA jurisdiction without the need to obtain any additional licenses;
3. The banking system in Cyprus is very well developed and capable of providing fast and efficient service worldwide, modelled on the British System and structured around the Central Bank of Cyprus which monitors banks’ operations;
4. No exchange control regulations. Accordingly, Cyprus is an ideal location for the maintenance, transfer and conversion of funds, which is facilitated by efficient international banking services;
5. Cyprus’ Investment Policy allows 100% foreign direct participation in Cyprus businesses;
6. Professional, friendly and efficient Government authorities, including CySEC, with possibility of obtaining a CIF license in less than 6 months from the application date;
7. A mature professional services sector at a very low expense level (fees) for financial and professional services compared to other EU Jurisdictions (estimated to be at 35-40% lower than Western European rates); and
8. Excellent air and sea connections and telecommunications/internet services.

The purpose of this article is not to concentrate on the CySEC license application but to put across a summary of the things to know on How to Start Business of Investment Services in Cyprus.

Starting a new business is not rocket science if one keeps the basic legal requirements in mind; certainly, before entering a new market legal advice is strongly recommended.   Listed below is a detailed summary of the 6 things to know.

Step 1 – Registration of a Cyprus company

To register a private company in Cyprus is the first step.  Cyprus companies are limited liability companies (LTD) and need to have at least one director and up to 50 shareholders; anyone can be a director or shareholder.  There also needs to be a secretary appointed and the company’s registered office address need to be in Cyprus.

The company’s operations and corporate governance rules are set within its’ Memorandum and Articles of Association.  Only lawyers can register companies in Cyprus and the time needed for registration is around 1 month.

Our Firm can assist on formation and registration of the Cyprus Company.

Step 2 – Registration to Tax Authorities

Within 60 days from its’ incorporation date the Company needs to register to the Cyprus tax authorities.

Our Firm can assist its’ clients on doing so.

Step 3 – Bank Account

Cyprus’ currency is in EURO, however bank accounts can be opened and operate foreign currency very easily.

Many Cypriot Banks have branches throughout the world. International Banks also have branches throughout the island, with major credit cards like Visa, MasterCard, Diners, American Express being widely used.

Bank accounts can be opened within a day however KYC details of the Company shareholders and the company’s intended operations need be disclosed to the bank.  Banking in Cyprus is subject to Banker’s Duty to Confidentiality therefore any information disclosed to the bank is strictly confidential unless disclosure is requested by court order.

Our Firm can assist on the opening of bank accounts in Cyprus.

Step 4 – Accounting and Audit

All Cyprus companies need to be audited annually and to submit financial and tax statements to the Inland Revenue and the Registrar of Cyprus Companies. The audit must be carried out by a Cypriot firm of auditors in accordance with the International Accounting and Auditing Standards.

Our Firm can introduce a firm of auditors.

Step 5 – Application to the Cyprus Securities and Exchange Commission (CySEC)

Once points 1 to 4 above are fulfilled the next step is to proceed with the preparation of the CySEC application.  At a summary, an application can be for the following investment services:

1. Reception and transmission on behalf of investors;
2. Execution of orders on behalf of investors;
3. Dealing in financial instruments for own account;
4. Managing of investment portfolios;
5. Investment advice;
6. Underwriting ;
7. Trading for own account;
8. Operation of Multilateral Trading Facility.

The share capital for the applicant Company must be fully paid up (at the latest stage of the CIF application).  The necessary share capital for services 1-4 above is €125,000 and for services 5-8 above is €730,000.  A company that provides the investment services of Reception and Transmission of orders and/or Investment Advice and does not hold clients’ money or clients’ financial instruments, and which for that reason may not at any time place themselves in debt with their clients, may have an initial capital of €80.000 or at least €40.000 and professional indemnity insurance.

The application needs to be followed by an internal operations manual, a business plan, a policy manual and anti-money laundering procedures in order for these to comply with the requirements of CySEC.

The following experienced personnel, who must be approved by CySEC as persons having the reputation and knowledge to hold their respective positions, must be in place:

• 4 directors including managing director, two executive and two non-executives, 3 of them must be Cyprus residents;
• Money laundering, risk manager and compliance officer;
• Internal auditors;
• External auditors;
• Legal consultants.

The aforementioned is a summary of the process for CySEC application; our Firm can provide further details and assist on the application process, and on personnel recruitment, upon request.

Step 6 – Immigration Issues

EU Employees: While certain formalities must be observed (registering with the Cyprus government, etc), EU/EEA citizens do not require a work permit to take employment in Cyprus.

Non-EU Employees: Immigration and employment in Cyprus of citizens from countries outside the EU/EEA requires advance residence permit from the Migration Department, which is given fairly freely to the employees of a Cyprus company of “foreign interests” (“foreign interest” requires at least 50% of the company’s share capital to belong to a foreigner or, its’ direct foreign capital investment to be at least €171.000), called a Temporary Residence Employment Permit.   Eligible companies which fulfil the “foreign company” condition may employ third country nationals in the positions of executive directors, managers, middle-management staff, executive staff, other key personnel and supporting staff.  Minimum salaries apply for such employees and there are no restrictions on their residence period.  Family members are also entitled to resident permit but not work permit.

Our Firm can assist on immigration issues.

Hereinabove is a summary of the things to know when considering Cyprus as a market of setting up an Investment Firm.  We shall be glad to discuss any inquiries you may have.

By Angelos Paphitis
Managing Director of A.G. Paphitis & Co. LLC