This articles discusses certain matters related to the appointment of directors of Cyprus companies, its general rights and obligations as well as procedure of dismissing Cyprus directors. Additionally, we consider some tax issues, in particular tax consequences when the director is a non-Cyprus resident.
How many directors are in Cyprus companies?
Cyprus public companies have at least two directors. Private companies that have only one member can appoint a sole director. The Cyprus Companies Law does not restrict the maximum number of directors of a Cyprus company, but the amount of directors has to be specified in the Articles of Association of the Company. It is not allowed to appoint directors beyond the limit set out in the Articles of Association.
Can a director be appointed as the secretary of Cyprus company?
Every company incorporated in Cyprus shall have a secretary, provided that a sole director cannot be appointed as a secretary. In the meantime, LLCs that have only one member can appoint a sole director who may also be the secretary.
Who can be appointed as a director of Cyprus company?
Any individual or legal entity may be appointed as director of Cyprus company. There are no nationality or residency requirement for directors as well as other formal requirements for the appointment of directors. The director of a Cyprus company cannot be shareholder of that company.
It is vital to carefully consider a candidate for director. Individuals are prohibited to be directors if they have a bankruptcy order against them or they have been convicted for an offence connected to his or her activities as a company director. Such directors may have orders prohibiting them to serve in this position for a specific number of years.
What are the main duties of directors of Cyprus companies?
The board of directors of a Cyprus company is an administrative body that manages day-to-day activities of the company, carries out fiduciary duties, duties to exercise skill and care, statutory duties.
Fiduciary duties refer to the obligation of the director to act honestly and in the best interest of the company. Directors may not act in its private interests (for instance, to seek for financial profits for its family), but instead must act to exercise its powers in the interest of shareholders, their profits and compliance with law. In particular, directors must minimize potential loss of the company; avoid taking unnecessary credits and avoid having conflict of interests, etc.
Duties to exercise skill and care mean that a director has to have all necessary experience, skills and knowledge in order to perform its powers. Since the definition of these duties can be considered as subjective, it is wise to clearly describe the powers that have to be exercised by the director and what experience and skills the director has to have. For an instance, the members may clearly define that the director has to perform financial duties and is appointed as a financial director. Or a director is appointed for development of the company in particular region, etc.
In addition, directors carry out statutory duties meaning that the director is responsible for ensuring compliance with laws by the company. It is of director’s liability to avoid any actions (or inactions) that result in administrative, criminal or civil liability. Thus, the director has to have sufficient knowledge of applicable law to exercise its powers (e.g. tax law, consumer protection law, health and safety work law, labour law, environmental law, etc).
When meetings of BoD are held?
Meetings of the board of directors are held annually or as convened in accordance with the articles of association. The articles of association include provisions regulating the period of notice, the quorum of the meeting and votes for making a decision. Meetings can be held in Cyprus or in other country, by electronic means (telephone, Skype, etc.). A shareholder may appoint a proxy at the meeting.
What is the procedure of dismissing a director?
Shareholders may vote for dismissing and appointing a new director of the board of directors. The articles of association specify the number of votes in order to dismiss and appoint a new director. The Cyprus Companies Law states that any member of the board of director can be removed from office by an ordinary resolution of the company, notwithstanding anything in the articles of association.
Is it required to pay salary to a director of Cyprus companies? What are the tax consequences for paying salary?
Director that is hired as an employee (on the basis of the employment agreement) is paid with the salary. If director is an elected official, then there is no obligation to pay salary. As a result, there are no tax consequences for paying salary.
Taxes on salary are paid in the country where the director is physically employed. A director residing in Cyprus for more than 183 days per year is taxed in Cyprus on its worldwide income. If the director resides less than 183 years per year, he/she is taxed in the country of residence unless any applicable double taxation treaty exists. If the salary is recognized and taxed as taxable income in the country of residence of director and local tax laws are applied, then there is a risk that it will be recognized that the Cyprus company has a permanent establishment in the country of director’s residence and all profits of Cyprus company originating as a result of transactions performed by director will be taxed in the country of director’s residence (especially if there is no office with substance and employees in Cyprus).
If non-EU foreign national director wishes to work within the territory of Cyprus, then he/she needs to obtain a work permit.
EU nationals may work in Cyprus without the work permit but they need to obtain residence permit if they intend to stay for more than 3 months in Cyprus. EU citizens need to apply for the Alien Registration Certificate (ARC) for the residence permit within such 3 months. Such application is submitted to the Civil Registry and Migration Department. The applicant submits all documents in person. Besides, it is necessary to apply for a social security number and residence permit. Non-EU citizens also apply for the Alien Registration Certificate at the Civil Registry and Migration Department and must obtain residence permit, after which it is allowed to get a social security number and work permit.