Cyprus Fact-File Part 1:
Business Formation for Individuals

1.8 Cyprus Family Business Ownership

Types of ownership structure for individuals in business

The attractive tax rates in Cyprus may determine what form of business structure an individual or small company might adopt. With a flat rate of corporate tax of 10%, compared with a 30% personal income tax rate on income over EUR36,000, it is worth thinking about this matter carefully. However, incorporated entities face much more in the way of bureaucracy and reporting.

A sole proprietor takes all of the risks of a business so is exposed in the event of business failure, and is liable for the debts of the business. With a partnership, the risks are shared between the partners and a partnership agreement can stipulate virtually anything that the partners agree relating to the business. There is no reason why a husband and wife or parent and sibling cannot be in business as partners. Each partner has responsibility for his or her own tax affairs, being subject to personal income tax on their share of the profits.

Where a limited company has been set up, the profits of the business entity will be subject to the low rate of corporate tax – 10%. The directors of the company will be liable for their own tax at personal income tax rates. A limited company gives the option to issue dividends to shareholders.

It is possible to employ a spouse within a small business, or for them to work in a self-employed capacity, or to be a company director within a limited company, or a partner in a partnership. The relatively favourable tax treatment of dividends in Cyprus (when compared to the personal income tax rate of 30%) may mean that the company director route may be the way to go, where this suits the business form. However, professional advice is recommended in this regard.