International Corporate Finance – Cyprus – Charalambos Papasavvas

Adopting a proactive approach to addressing financial challenges is crucial. This mindset enables us to explore all available solutions promptly, increasing the likelihood of success for our clients’ business expectations.

With in-depth experience in providing international businesses and organisations with advice at the highest level – on such matters as cross-border investment, business structuring, drafting of international contracts and agreements, banking, financial regulation and corporate governance – I am widely recognised as a leading adviser to private clients on wealth management investment issues. These include corporate taxation law, domicile and re-domicile businesses, as well as acting as a financial regulatory adviser in a wide range of fields.

First of all, I would like to clarify that there are not any corporate governance codes or equivalent for privately owned companies or groups of companies.

Cyprus is a common law jurisdiction, and its justice system is based on the adversarial model. The laws applicable in Cyprus are (i) the Constitution of the Republic of Cyprus, (ii) the principles of Common Law and Equity, (ii) the laws enacted by the House of Representatives and (iv) the European Union (EU) laws. The Constitution of the Republic of Cyprus has been amended, following the accession of the Republic of Cyprus to the EU in 2004, so that the European law has supremacy over the Constitution and national legislation.

From a corporate law perspective, there are no restrictions in expanding business operations in Cyprus. Unless specifically noted in the articles or memorandum of association, an entity or establishment is free to work with trade/commercial agents and resellers.

Working capital may be provided by the shareholders by subscribing to further shares in the company. A company may also consider a loan to finance working capital loans. This could be from the shareholders, another entity within the same company group or from a third party. In addition to this, the company may consider the following options: overdrafts, revolving credit facilities, debt factoring (or invoice finance), asset refinancing, etc.

As a rule, companies are bound by strict maintenance of capital rules and can only, subject to certain exceptions, return value to their shareholders. As set out below, private companies can return value to their shareholders in several ways.

Dividends
The most common method of a company returning value to its shareholders is a dividend. A dividend is the distribution of a company’s post-tax profits to its shareholders. It is important for a company to have sufficient distributable profits that are justified by reference to relevant accounts for the company to be able to lawfully pay a dividend.

Share buybacks
A private limited company in Cyprus cannot buy and hold its own shares. Public companies can acquire their own shares if authorised by its articles of association and conditions as set out in Company Law are satisfied. Such conditions include, among others, securing corporate approvals, maintaining the share percentages prescribed by law, as well as ensuring the consideration is paid out of realised and non-distributed profits.

The primary source of legislation related to public M&A transactions in the Republic of Cyprus is the Law to Make Provision for Public Takeover Bids for the Acquisition of Securities of Companies & Related Matters, Law 41(I)/2009 (“Takeover Law”). The competent authority responsible for the supervision and application of the provisions of the Takeover Law is the Cyprus Securities & Exchange Commission (CySEC). CySEC also retains the authority to issue directives for supplementing and/or clarifying any provisions of the Takeover Law. To date, CySEC has issued four directives, which complement the provisions of the Takeover Law. In addition to the Takeover Law and the directives, the array of the legislative arsenal in relation to M&A transactions comprises the following legislative instruments:

• Companies Laws of Cyprus, Cap. 113 as amended (“Companies Law”);
• Cyprus Securities & Stock Exchange Law, Law 14(I) of 1993 as amended;
• Market Abuse Law, Law 102(I)2016;
• Transparency Requirements in relation to information about issuers whose securities are admitted to trading on a regulated market Law, Law 190(I) of 2007 as amended.

The Control of Concentrations Between Undertakings, Law 83(I) of 2014 (Merger Control Law), is the statute regulating the control of concentrations between undertakings in Cyprus. Enforcement of the Law rests with the Commission for the Protection of Competition (CPC). The CPC has the overall responsibility for implementing the Law and is the competent authority for the control of concentrations. The CPC is empowered under the Law to declare a concentration as compatible or incompatible with the functioning of competition in the market. The investigation and procedural aspects related to notifications of concentrations are performed by the civil service of the CPC (the Service). The Law applies to concentrations between undertakings resulting in a change of control on a lasting basis. A concentration of undertakings shall be deemed to arise where a change of control on a lasting basis result from:

• Merger of two or more previously independent undertakings or parts of undertakings; or
• Acquisition, by one or more persons already controlling at least one undertaking, or by one or more undertakings, of direct or indirect control of the whole or parts of one or more other undertakings, whether by purchase of securities or assets, by contract, or by any other means; or • The creation of a joint venture that performs all functions of an autonomous economic entity on a lasting basis.

The Law only requires notifications of concentrations of major importance. A concentration of undertakings is deemed to be of major importance and therefore meets the jurisdictional thresholds if:

• The aggregate turnover achieved by at least two of the undertakings concerned exceeds, in relation to each one of them, €3.5 million; and
• At least two of the undertakings concerned achieve a turnover in Cyprus; and
• At least €3.5 million of the aggregate turnover of all undertakings concerned (taken together) is achieved in Cyprus.

Corporate governance and taxation. In my experience, I am confident that these two areas shall be engaged together when advising clients for business structuring. It should be noted that the management board of a Cypriot company has the administrative, executive and managerial functions in the enterprise. The directors of a company will have fiduciary duties and statutory duties. They must act in the best interest of the shareholders and the company.

I am able to advise clients on the structuring or restructuring of their business, including how to keep their business status in good standing. Numerous problematic cases of this nature have been transferred from other local law firms to my firm, and I have handled them successfully.

Tax planning, corporate incorporation and corporation services. Hundreds of people consider relocating to Cyprus for the tax planning scheme that the Cypriot government offers to them, as well as for the lack of restrictions applied to Cyprus as a jurisdiction.

Yes, our law firm handles 5–7 new cases monthly in this field. As one such example, a Russian company requested consultation for relocating their business to Cyprus, as well as advice on how this would affect its employees. In this matter, we provided professional, comprehensive counsel on the relevant immigration laws and, as a result, this company now operates successfully in Cyprus.

From contracts and IP to employment laws and regulatory compliance, understanding the legal landscape is crucial for safeguarding ventures and fostering their sustainable growth.

Each area – from Contract Law Essentials for Business Transactions, Employment Law and Its Impact on Hiring Practices, to Intellectual Property Rights for Protecting Innovations and Navigating Tax Obligations & Financial Regulations – plays a pivotal role in shaping the operational, financial and strategic framework of a business.

FinTech may spur efficiency gains in the financial sector, offer better and more targeted products and services, and deepen financial inclusion in the developing world. However, it may also pose risks if its application undermines competition, trust, monetary policy transmission and financial stability.

A reflection of imbalances between the supply and demand of certain goods has created headwinds for the ongoing global economic recovery. Strains in global production networks, also commonly referred to as supply bottlenecks, are a multifaceted phenomenon. The decline and subsequent recovery in economic activity during the COVID-19 pandemic have been unprecedented, reflecting the massive shifts in supply and demand triggered by the closing and reopening of economies – amid considerable monetary and fiscal stimulus, combined with high levels of accumulated savings, especially in advanced economies.

Legal networks can help our law firm interact with other firms and scholars online. This enables firms in general to advertise their expertise on a global platform – to take advantage of firms and professionals, allowing for diversification of expertise.

Another way to strengthen our firm’s legal presence and establish it as a globally recognisable name is by attending conferences and events. This is beneficial to our firm’s goodwill, as it helps us tap into high-worth clients, as well as global organisations.

Corporate Governance Rules

In 2024, Cyprus tightened the financial reporting requirements for companies. Subsequently, all companies are required to provide more detailed reports on their financial activities. This change is aimed at increasing transparency and trust in Cypriot companies from foreign investors.

The tightening of reporting requirements includes the mandatory disclosure of more detailed information on companies’ income, expenses, assets and liabilities. This allows for the cultivation of a more transparent financial system, while also reducing risks for investors. Companies doing business in Cyprus must, therefore, be prepared for more stringent audits and inspections by regulators.

Increasing Board Composition Requirements

New corporate governance rules require companies to increase the number of independent directors on their boards. This change aims to improve corporate governance and reduce the risk of conflicts of interest. According to the new rules, at least 30% of the board members must be independent.

The introduction of independent directors helps increase the level of control and oversight of the company’s activities. This helps prevent possible abuses and conflicts of interest, and ensures more objective decision-making. Independent directors play a key role in maintaining transparency and integrity in company management.

Gender Diversity in Boards

In addition, Cyprus has introduced new requirements to increase gender diversity on company boards. Companies are now required to ensure that at least 20% of board members are women. This change aims to increase inclusiveness and diversity in corporate culture. Increasing gender diversity on boards helps create a more inclusive and diverse working environment. Indeed, studies show that companies with more diverse leadership teams demonstrate better financial results and have higher employee satisfaction rates. This change helps attract talented women to leadership positions and, at the same time, promotes equal opportunities.

Anti-Money Laundering (AML) Laws

In 2024, Cyprus adopted new measures to combat money laundering that meet international standards. These measures include stricter client identification requirements, in addition to more frequent transaction checks. Companies are consequently required to conduct detailed checks on their clients (KYC – Know Your Customer) and report suspicious transactions.

Strengthening anti-money laundering measures aims to prevent the use of the Cypriot financial system for illegal purposes. Companies are required to monitor their clients and their financial transactions more closely, as well as implement effective internal control systems to detect suspicious transactions. This helps strengthen Cyprus’s reputation as a reliable financial centre.

Introduction of New Technologies to Combat Money Laundering

Cypriot companies are now required to use advanced technologies to monitor financial transactions. The introduction of AI and machine learning allows for more effective identification of suspicious activities, and also prevents money laundering. Meanwhile, these technologies make it possible to analyse large volumes of data and detect anomalies that may indicate illegal activities.

The use of new technologies to combat money laundering helps increase the efficiency of monitoring, and reduce risks for financial institutions. Companies are required to invest in modern systems and software that automate the processes of monitoring and detecting suspicious transactions. As a result, this contributes to creating a safer and more transparent financial environment.

International Cooperation

In 2024, Cyprus intensified its cooperation with international organisations and other countries in the fight against money laundering. To this end, the country signed new agreements with the EU and Interpol – allowing for more effective information exchange, as well as a coordination of efforts to prevent financial crimes.