Opening a Branch vs. a Subsidiary in Cyprus
Opening a Branch vs. a Subsidiary in CyprusUpdated on Thursday 15th October 2020
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Many companies want to enter the Cypriot economic market due to Cyprus’ statute of an offshore tax-heaven. The legislation that enables a company to open a branch office or a subsidiary in Cyprus is based on the Companies Law.
The main differences between a branch and subsidiary in Cyprus are presented below. If you want to open a branch or subsidiary you can contact our law firm in Cyprus.
The branch office in Cyprus
If you want to start a business in Cyprus by opening a branch office the registration process is the same as the procedure for the incorporation of a new Cypriot company. Within the first month the parent company must submit an application form with the Registrar of Companies in the Ministry of Trade, Industry and Tourism.
The Cypriot branch office must carry the same name as the parent company and acts as an extension of the head office. The parent company will be fully liable for all activities the branch undertakes, activities that must be the same with the parent company’s businesses.
The Cypriot branch of a foreign company must name a resident representative in charge of maintaining relations with the tax authorities.
The documents a foreign company must submit with the Companies House in Cyprus in order to open a branch office are:
- a copy of the parent company’s certificate of registration issued by the authorities in its home country;
- the foreign company’s statutory documents which can imply the Memorandum and Articles of Association in original;
- a copy of the certificate of good standing of the parent company which is also issued by the authorities in its home country;
- information about the parent company’s directors and secretary (where applicable);
- information about the representative appointed by the parent company for the Cypriot branch;
- proof of registered address of the branch office in Cyprus (a rental or lease agreement).
All documents issued in a foreign language must be translated into Greek, notarized and apostilled.
Our attorneys in Cyprus can help representatives of foreign companies to prepare the set of documents which needs to be filed here in order to set up a branch office. We can also assist with EORI registration in Cyprus.
Also, for a good organization of the company registration procedure, the documents must be filed one month prior to the branch office starting its activities.
From tax point of view, the branch office in Cyprus will be treated as part of the parent company and not as a separate entity, thus being subject to the Cyprus taxation system.
The subsidiary in Cyprus
The Cypriot subsidiary falls under the government of the Cyprus Companies Act. Foreign companies are drawn towards Cyprus due to its low taxes and the double taxation treaties which allow companies to benefit from small or no withholding taxes. Subsidiaries are regarded as separate entities and have limited liability.
A Cypriot subsidiary is required to register with the Inland Revenue Office in order to receive a tax identification number (T.I.N.) and with the Registrar of Companies.
The Companies Act requires subsidiaries to file an audit report and its financial accounts annually.
The documents which need to be filed in order to open a subsidiary in Cyprus are not very different than those required to set up a branch office, however, there are certain differences. The following paperwork is required for the creation of a subsidiary in Cyprus:
- the Memorandum and Articles of Association of the subsidiary to be opened in Cyprus;
- information about the foreign company, however, only a certificate of good standing is required;
- proof of the registered address of the subsidiary is also necessary, just like in the case of the branch office;
- the dated and signed resolution of the parent company to open the Cypriot subsidiary;
- proof of depositing the share capital of the Cyprus-based company which also implies opening a bank account here.
Another difference between subsidiaries and branches in terms of registration in Cyprus is that the subsidiary must also register with the Ministry of Commerce, Industry and Tourism.
We have also created an infographic highlighting the main differences between branches and subsidiaries in Cyprus:
Differences between the branch office and the subsidiary in Cyprus
In terms of opening a branch office or registering a subsidiary the process is the same and will take about 20 days. Also both types of companies must file annual reports with the tax authorities, the process for the branch office being more complicated because it must present documents from the parent company as well.
When registering a Cypriot subsidiary a company can choose between a private limited liability company and a public limited liability company. For the branch office the whole liability will fall onto the parent company, while the subsidiary will be liable for its assets and share capital only.
Taxation of branches and subsidiaries in Cyprus
One of the most important aspects foreign companies consider when choosing between a branch and a subsidiary in Cyprus is related to taxation. Compared to other countries, the differences between these two business forms in Cyprus are not that big, which can make the decision harder.
The taxation of branches depends on whether its management is located in Cyprus or not. In the case of branch offices with management in Cyprus, they will be taxed as international companies and will pay a corporate tax at the rate of 10%. In the case of branch offices managed from outside Cyprus, the income generated here will be exempt from taxation in Cyprus, however, the parent company will pay the corporate tax in its home country.
Compared to the branch office, the subsidiary is treated like a domestic company which will trigger the payment of one of the lowest corporate taxes in Europe, of 12.5%. Also, the subsidiary can obtain more tax benefits under Cyprus’ double tax agreements.
Apart from taxation, there is also the issue of the accounting requirements which need to be respected by Cyprus branches and subsidiaries. There are several differences to note here. A Cypriot branch office is required to file VAT returns and annual financial statements. The subsidiary, must comply with the International Accounting Standards which implies filing annual financial accounts and undergo audits every year.
It is important to note that the subsidiary is required to register with the Inland Revenue Service and obtain a tax identification number in Cyprus.
All financial documents to be filed by branches and subsidiaries in Cyprus must be submitted with the Cyprus Tax Department.
What is the most popular business entity in Cyprus?
Generally, the most common form of business entity used to establish a presence in Cyprus is the subsidiary. By opening a subsidiary, the foreign company takes advantage of certain benefits, such as:
- Tax benefits, since Cyprus has some of the lowest corporate taxes in the European Union;
- Certain tax exemptions, for instance related to:
- o foreign exchange profits or losses, for businesses in the forex sector;
- o interest income, in certain situations. Our lawyers in Cyprus can offer more details on what these situations are;
- o income from business reorganizations;
- Tax relief for foreign tax paid.
Furthermore, many times a foreign shareholder can benefit from:
- An advantageous tax treatment related to the distributed profits at tax residency level;
- Many double taxation treaties concluded by Cyprus.
Besides the tax benefits, subsidiaries which comply with certain requirements can also employ a number of foreign citizens in the country.
As a result, a foreign company can make sure that the management of a subsidiary is effectuated by individuals who are familiar with the activities of the foreign business.
Our experienced Cypriot lawyers can provide assistance in setting up a branch or a subsidiary in Cyprus, as well as any type of legal advice in the country.
How to choose between a branch and a subsidiary in Cyprus
Choosing between a branch office and a subsidiary in Cyprus can be more difficult than in other countries, as both types of structures offer benefits, however, foreign investors can base their decision on the activities they want to complete in Cyprus. The main difference between a Cypriot branch and subsidiary is that the branch is limited to undertaking the same activities of the parent company, while the subsidiary can complete more activities outside the specter of the foreign business.
From a taxation point of view, the subsidiary will obtain more benefits under Cyprus’ conventions for the avoidance of double taxation, compared to the branch office.
In terms of foreign direct investments in 2017 and 2018, Cyprus:
- attracted investors from countries like Russia, the United States and countries in Asia and the Middle East;
- in 2018, Cyprus' credit rating was significantly improved after attracting more than 3 billion USD in FDI;
- in 2018, Cyprus occupied the 8th place in the FDI Superstars 2018 report issued by Global Finance magazine;
- tourism is Cyprus' most performant economic sector, expecting a growth of 4 million euros by 2025.