Setting up a SPV Company in Cyprus

SPV COmpany in Cyprus

Special Purpose Vehicles, subsidiaries of companies that are set up with the intention of protecting the parent companies from financial risk, have gained traction over the last couple of decades. Many investors and businesses use SPVs today for various types of reasons. International accounting standards including the International Financial Reporting Standards (IFRS) and U.S. Generally Accepted Accounting Principles (U.S. GAAP) have searched for ways to minimize the potential risk of the so called SPVs since companies such as Enron used SPVs to hide their liabilities by not incorporating liabilities transferred to SPVs in their balance sheets. Nonetheless, SPVS still play an important role in protecting companies from credit risk and providing various other benefits to investors.

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    What are the benefits of setting up a SPV?

    As highlighted in the previous segment, one of the primary benefits of setting up a SPV is the ability it provides a company to keep liabilities off balance sheet. For example, a company can set up a SPV to produce a lease that is expensed on the company’s income statement rather than reporting as a liability on the balance sheet.

    Next, many landlords across the world, especially in high income tax paying regions, decide to set up SPVs to hold real estate and other types of assets under the name of the SPV as the income generated from these properties would then be taxed at the corporate tax rate, which is often lower than the tax rates paid by the high-income earning category in these countries.

    In addition to these benefits, a SPV provides a parent company the opportunity to pursue high growth – high-risk opportunities through the SPV, without endangering the total asset base of the entire entity. This is a strategy often used by company managements and investors around the world to ensure they focus on the correct types of investments that could turn out to be value accretive to the firm, without exposing the total company to the downside risks associated with such investments.

    Why choose Cyprus to set up a SPV?

    Cyprus is continuing to attract foreign investors rapidly due to a plethora of benefits associated with setting up a company in this European Union member country.

    Cyprus is ranked number 57 among 190 countries for the ease of setting up a business, as per latest data released by the World Bank.

    ease of doing business in cyprus
    Ease of doing business in Cyprus (world ranking) - (Source -Trading Economics/World Bank)

    Even though Cyprus has gone down in rankings over the last several years, Cyprus still is a leading business destination for many foreign investors from different parts of the world.

    In calculating the ease of doing business ranking, the World Bank considers a plethora of factors such as the time, number of days, the ease of process of dealing with construction permits, getting electricity, registering a property, obtaining credit facilities, protection provided to minority investors, and the tax environment in the country. A ranking of 57 out of 190 countries provides an insight into these underlying factors considered by the World Bank when determining a country’s rank.

    Cyprus has maintained its corporate tax rate at 12.5% since 2013, and this is one of the biggest reasons for investors to consider setting up a SPV in Cyprus. The corporate tax rate of 12.5% is significantly lower than that of developed countries.

    CountryCorporate tax rate
    The United States of America21%
    The United Kingdom19%
    Germany29.79%
    Australia 30%

    In addition to being tax friendly, Cyprus has double-tax treaties with many countries to avoid double-taxation of corporate earnings. These treaties will come in handy for investors as well.

    The minimum monthly salary in Cyprus is significantly lower than that of other EU member countries and developed countries for that matter, which is another reason to set up a SPV in Cyprus. With low minimum wages, an investor can expect to manage operating costs of the SPV better.

    distribution of salaries in cyprus
    (Source – Salary Explorer)
    In conclusion, Cyprus is a great country to invest in as an entrepreneur, and Cyprus is a go-to option of many investors looking to set up offshore companies.

    How to set up a SPV in Cyprus?

    A Special Purpose Vehicle falls under non-regulated investment vehicles in Cyprus. The set-up procedure that should be followed by investors is similar to that of setting up a limited liability company in Cyprus. A SPV can be set up as a limited liability company, which is the most common form of SPVs around the world, but the regulators in Cyprus allow a SPV to be set-up in any valid legal form of a business as well.

    Following documents are required to initiate the process of setting up a SPV in Cyprus.

    1. Copies of the passports of each investor
    2. An approval of the chosen company name by the Trade Register
    3. The memorandum of association and articles of association
    4. Information about company directors and secretaries
    5. Bank statement indicating the deposit of the share capital of the business
    6. The tenancy agreement or the property title indicating the legal address of the company in Cyprus.

    Cyprus continues to welcome both foreign and local investors to set up SPVs and other types of investment companies in the country, and the business registration process is hassle free as noted by many existing investors in the country.

    However, it’s a universal truth that the company set up process could be a daunting task for an investor to complete all by himself, and there are certain perks of hiring an experienced business consultant to set-up a SPV in Cyprus.

    Among other things, a business consultant would be able to help an investor by helping the investor choose the best legal form of a business that addresses the concerns and requirements of the investor, file regulatory documents effectively and efficiently, and provide advise related to the underlying tax and accounting requirements.

     

    Related: Taxes Paid by Permanent Foreign Residents in Cyprus

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