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Financial statements

It is a legal requirement that every Cyprus Company should keep books of account to record its transactions and enable the preparation of financial statements. As a minimum, these books must show sales and purchases, monies received and paid, the assets and liabilities of the company.

The purpose of an audit is to satisfy the needs of shareholders and the wider stakeholder community as to the accuracy of the company’s accounts which are presented to them by the directors.

The financial statements should be prepared in accordance with IFRS (International Financial Reporting Standards) and International Accounting Standards (IAS) and are not available to the public.

The accounting records must be held either at the registered office or at another place in Cyprus and must always be available for inspection by the directors.

Any reporting currency may be used. However, the Tax Returns of the company must be presented in Euros.

In addition the Cypriot Company Law, which is closely modelled on its English counterpart, requires that company accounts must include the following:
• A directors’ report, which should accompany the balance sheet and be submitted to the shareholders’ annual general meeting.
• An auditor’s report containing certain prescribed statutory information, unless the company is exempt from this requirement (small companies).
• Full financial statements as prescribed by IFRS (International Financial Reporting Standards) and Consolidated Financial Statements in the case of parent companies (unless specifically exempted in some cases).

Audited financial statements and an Income Tax Return are required for all companies, even companies with no taxable income and/or dormant companies.
Every company that has subsidiaries is obliged, in many circumstances, to prepare consolidated financial statements in accordance with IFRS and IAS and present these financial statements to members at the general meeting.

An amendment to the law was effected recently and it is now possible for “small groups” as defined in the law to be exempted from the preparation of consolidated accounts, unless:

a) they are public companies
b) the preparation of consolidated accounts is governed by other specific legislation, and
c) they exceed any two of the following three criteria:
i) total balance sheet assets of €14.600.000
ii) total turnover of €29.200.000
iii) total number of employees 250
In order to prepare the accounts of the company, auditors must receive from the client all documentation relating to the movement of funds on the bank accounts of the company. Every amount going to or coming out of the company bank account must be supported and explained by a document. Basically, this system is not, and by its nature and purpose, can not, be different from any other accounting system.

Time limits as to financial statements and annual tax returns to be submitted.

The first financial statements/annual tax returns must be presented, at the latest, within 18 months of the registration of the company and thereafter once a year. The following rules as to time limits apply:-

• If a company is registered before 30th June, (inclusive) in a current year (first six months of the year) then the first period for which financial statements and tax returns need to be prepared is from the date of incorporation until the 31st of December of the current year. Filing of these financial statements and tax returns with the Cyprus authorities has to take place by 31st December of the following year.

• For any company registered after 1st July in a current year then the first period for which financial statements / annual tax returns need to be prepared is from the date of its incorporation until the 31st of December of the following year. Filing of these financial statements / annual tax returns with the Cyprus authorities has to take place by 31st December of the subsequent year.

Returns to the Registrar of Companies
All companies with share capital are required to submit an Annual Return to the Registrar of Companies. The Annual Return must be accompanied by the audited financial statements of the company, adopting the IFRSs translated into the Greek language.
There is an obligation to notify the registrar of companies of all the changes in the structure of the company which include, non-exhaustively, the following:
1. increase in authorized share capital;
2. issuance of new share;
3. appointment, removal or change in the particulars of the directors or secretary
4. change of the registered address; and
5. transfer of shares
The company must prepare its Annual Return (HE.32) within 14 days after the Annual General Meting and needs to file the Annual Return with the registrar of companies within 42 days of the relevant AGM. The annual return filed with the Registrar of Companies must be accompanied by the full set of financial statements

Annual General Meeting

All companies are required to hold an Annual General Meeting (AGM) in each calendar year. No more than 15 months must elapse between one AGM and the next.

The first AGM must be held within 18 months of incorporation. Failure to comply makes the company and each director liable to a fine.

VAT Returns and obligation to register with Cyprus VAT authorities

Cyprus companies under certain conditions specified in the VAT Law, have an obligation to register with VAT authorities in Cyprus. In such a case they have the obligation to submit VAT returns on a quarterly basis.

VAT returns must be filed and payment of VAT must take place within 40 days after the end of the relevant VAT period.

The following are the applicable VAT rates in Cyprus:

• Zero rate (0%)
• Reduced rate of five per cent (5%)
• Reduced rate of eight per cent (8%)
• Standard rate of fifteen per cent (15%)

All supplies of goods or rendering of services with a place of transaction in Cyprus are subject to the standard VAT rate of 15% except those taxed at 8%, 5%, 0% or exempt.

Exemptions

Certain goods or services are exempt from VAT. They include:

• Rent of immovable property (the letting of immovable propertywith the right of purchase is not exempt);
• most banking and financial services and insurance services;
• most hospital, medical and dental care services;
• certain cultural educational and sports activities (including lottery tickets and betting coupons for football and horse racing;
•  supplies of real estate (except supply of new buildings before their first use) including supplies of land and of second-hand buildings;
• postal services provided by the national postal authority;
• management services provided to mutual funds.

An individual or legal person is liable to register for VAT purposes if:

• at the end of any month, the value of the taxable supplies including those subject to 0% and/or 5% and/or 8% and/or 15% in the 12 month period then ending has exceeded €15.600 or

• at any time, there are reasonable grounds for believing that the value of the taxable supplies will exceed €15.600 in the next 30 days.

Voluntary registration

Individuals or legal persons with a turnover of less than €15.600 can be registered voluntarily.

A person who has a business establishment in Cyprus or the usual place of residence is in Cyprus and makes supplies outside Cyprus but would be taxable if made within Cyprus, has the right to voluntary registration.

Intra-community transactions

Each person performing transactions with companies within the EU deal with such operations as intra-community supplies and intra-community acquisitions.

Intra-community supplies are VAT-exempt with deduction right, provided that certain conditions are fulfilled, whereas intra community acquisitions are subject to VAT under the reverse charge mechanism. Persons performing intra-community transactions have the obligation to submit the following returns to the VAT authorities:

- INTRASTAT – Acquisitions
- INTRASTAT – Supplies
- VIES

INTRASTAT forms should be submitted not later than 10th day following the end of the month in which the INTRASTAT form relates. VIES form is submitted within 40 days from the end of each calendar quarter.

Penalties and interest results for Late submission of VAT return results:

• Late submission of VAT return results in a fixed penalty of €51.
• Late payment of VAT results in the imposition of 10% additional tax and interest at the rate of 8%.
• Late submission of VIES results in the imposition of a penalty of €51 for each late month up to 3 months.
• Late submission of INTRASTAT results in the imposition of a penalty of €8 for each working
• day, up to 30 working days.

Tax Diary

Penalties and interest results in case of non compliance with the below deadlines are specified in red.

End of following month

- Payment of tax deducted from employees salary (PAYE)

Late payment results in the imposition of interest at 8% p.a. and an additional penalty 0f 1% per month of delay.

- Defence contribution deducted from dividends and interest paid for the previous month

Interest at the rate of 8% p.a. is imposed from the due date.

30 January

- Final deadline for the avoidance of penalty of 5% for the payment of corporation tax based on the tax return of the penultimate year, if not paid on 1 August of previous year.

31 January

- Submission of declaration of deemed dividend distribution (IR623) for the year ended 31 December two years ago.

30 April

- Submission of Income Tax Return by employees (IR1) Submission of Employer’s Return (IR7) (1)

Late submission results in the imposition of a fixed penalty of €51.
If the tax is not paid by the due date, interest at the rate of 8% p.a. is imposed.

30 June

June 30 Submission of Income Tax Return by self employed without audited accounts (IR1)

Late submission results in the imposition of a fixed penalty of €51.
If the tax is not paid by the due date, interest at the rate of 8% p.a. is imposed.

Payment of tax balance for the previous year by self employed without audited accounts

If the tax is not paid by the due date, interest at the rate of 8% p.a. is imposed.

Payment of Defence Tax on rental income received during the first half of the current year

Interest at the rate of 8% p.a. is imposed daily from the first day after the end of the six month period.

1 Αugust

- Submission of provisional tax declaration and payment of first instalment of provisional tax for the year

Penalty is imposed equal to 10% of the difference between the actual tax and the provisional tax if the provisional tax is less than 75% of the actual tax.

Interest at the rate of 8% is imposed for late payment of any provisional tax instalment.

- Payment of previous year’s income tax under the self assessment method by individuals preparing audited financial statements (2)

If the tax is not paid by the due date, interest at he rate of 8% p.a. is imposed.

Any outstanding tax due is liable to an additional penalty of 5% in the case where the tax return is not submitted within 30 days after the deadline and payment of the tax due is not made.

30 September

- Payment of provisional tax - second instalment for the year

A penalty is imposed equal to 10% of the difference between the actual tax and the provisional tax if the provisional tax is less than 75% of the actual tax.

Interest at the rate of 8% is imposed for late payment of any provisional tax instalment.

- Payment of immovable property tax for the year

Interest at the rate of 8% p.a. is imposed from the due date.

31 December

- Submission of previous year tax returns (2)

Late submission results in the imposition of a fixed penalty of €51.

If the tax is not paid by the due date, interest at the rate of 8% p.a. is imposed.

- Payment of provisional tax - third and last instalment for the year

A penalty is imposed equal to 10% of the difference between the actual tax and the provisional tax if the provisional tax is less than 75% of the actual tax.

Interest at the rate of 8% is imposed for late payment of any provisional tax instalment.

- Payment of special contribution for defence for the last six months of the year

Interest at the rate of 8% p.a. is imposed daily from the first day after the end of the six month period.

Notes:
(1) Physical persons submit returns only when their gross income exceeds €19.500.

(2) A physical person is obliged to submit audited financial statements if his/her turnover exceeds €70.000 annually.

Disclaimer

In writing this reference our goal was to give a general picture of the legal framework within which Cyprus has developed its policy on the subject matters. The materials contained in this reference are provided for general information purposes only and do not constitute legal or professional advice. Each transaction must be handled according to all the circumstances. Neither the author of this publication and/or Symeou, Konnaris & Co. LLC nor any of its partners or employees accepts any responsibility for any loss which may arise by acting or refraining from acting on the basis of this publication.