Cyprus has long established itself as a favorable jurisdiction for international business. Its tax system is one of the most flexible in the EU, with a minimum corporate tax rate of 12.5%, making the island attractive not only to large corporations but also to small and medium-sized businesses.
According to the Companies Registry, there are over 200,000 foreign organizations registered in the jurisdiction. Most of them are limited liability companies created for foreign economic activity or for operations in the IT and fintech sectors.
However, with a flexible tax model come strict rules. One of the key ones is the mandatory accounting from the moment the company is registered, regardless of whether actual business activities are conducted or not.
General Accounting Requirements: EU Standards Plus Local Specifics
Any company registered in Cyprus is automatically required to follow financial reporting rules in accordance with international standards (IFRS). Regardless of turnover, structure, or ownership form, the organization must annually submit:
- Financial statements certified by a licensed auditor.
- Annual report to the Companies Registry (Annual Return / Form HE32).
- Tax declaration (Form IR4).
It is important to understand that inactivity does not exempt a company from these obligations. Financial reports must be submitted on time, and accounting must be maintained regularly, even if the accounts are empty.
Hence, the first practical takeaway is clear: accounting in Cyprus should start from the moment the company is registered, otherwise, the business automatically violates the law and risks receiving a fine.
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Where and How to Store Documents
The law requires that all primary accounting documents be stored for at least six years from the end of the reporting period. The storage location must be the company’s registered office or another place officially designated by the director.
If accounting is done abroad, originals or copies of documents must be sent to Cyprus every six months. During audits, all documentation must be provided upon request.
The following primary documents are mandatory:
- Invoices, contracts, agreements.
- Bank statements, payment documents.
- Transport bills.
- Payroll records and social contributions.
- Inventory records and movements.
Accounting can be kept either in paper or electronic form. The main condition is that it must be accessible for inspection. Using professional software and automating accounting processes is now not just a recommendation, but a standard for Cypriot companies.
VAT in Cyprus: Registration and Reporting Nuances
The obligation to register as a VAT payer arises if the company’s annual turnover exceeds €15,600. This applies not only to local sales but also to services provided within the EU.
Features of Working with VAT:
- Registration is mandatory once the limit is exceeded.
- VAT returns are filed quarterly, even if no operations were conducted or the VAT rate is 0%.
- For trade with other EU countries, companies must register in the VIES system and submit monthly VIES returns.
- Fines for not submitting or for late submission of returns start from €50.
For companies engaged in e-commerce, it’s especially important to maintain accurate VAT accounting. Mistakes in calculations can lead not only to fines but also to account blockages.
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Tax and Corporate Reporting: Deadlines and Filing Procedures
The tax declaration (Form IR4) must be filed by March 31 of the second year after the end of the reporting period. This means the declaration for 2023 must be submitted no later than March 31, 2025.
Simultaneously, the company must submit the annual report (Annual Return — Form HE32) within 42 days of the shareholders’ general meeting. The package of documents includes:
- A copy of the current charter.
- Financial statements.
- The minutes of the meeting where the report was approved.
Failure to comply with this requirement may lead to removal from the Companies Registry. Restoring the status will be neither easy nor inexpensive.
The Myth About Dormant Companies
A common misconception is that if a company is not conducting any business, it can avoid accounting and reporting obligations. This is a mistaken and highly risky strategy.
Even so-called “sleeping” companies must comply with basic requirements:
- Prepare financial statements.
- Conduct an annual audit.
- Submit reports on time.
Ignoring these rules can result in the company being removed from the registry, licenses being annulled, and bank accounts and assets being blocked.
Why It’s Better Not to Abandon a Company
In practice, there are cases where an entrepreneur simply “abandons” a company. Without liquidation, closing accounts, or notifying authorities. A few years later, it turns out that:
- Administrative and tax debts have accumulated.
- Bank accounts have been blocked.
- The company has been removed from the registry.
Restoration is impossible without complete “clearance.”
This mistake is more expensive than properly closing a company. Moreover, if the same beneficiary or director attempts to re-register the company, they may encounter difficulties when opening bank accounts or obtaining licenses.
Additional Risks of Not Keeping Accounts
Properly prepared financial statements are impossible without accounting. Without accounting:
- You won’t be able to open a corporate account in a European bank.
- Licensing may be denied (for payment systems, brokers, etc.).
- Investors will refuse to cooperate without transparent reports.
- Questions may arise from financial monitoring authorities, leading to blocked payments.
To confirm the status of a tax resident of Cyprus and benefit from favorable tax rates, it’s necessary to prove that managerial decisions and business operations are conducted from Cyprus, which is impossible without full accounting.
What to Expect in 2025
Starting in 2024, Cyprus began gradually digitizing accounting. New reporting rules in real time (similar to e-invoicing) and further automation of tax services are being discussed.
Additionally, from 2025, updated requirements for the accounting of beneficial owners (UBO Register) and the disclosure of ultimate owners will come into force. Failure to submit information on time will result in blocked transactions.
Conclusion
At first glance, Cyprus’s tax system appears flexible and favorable. But behind its outward simplicity is strict discipline based on international standards.
Accounting is a legal obligation that cannot be avoided. It is essential not only for complying with legal requirements but also for the smooth functioning of the business: opening accounts, obtaining licenses, building trust with partners.
If accounting is not in place from the first day, the consequences can be critical. Restoring missed reports over several years is always more expensive than properly maintaining current accounting.
Do you need to set up accounting from scratch, restore your archives, or prepare reports for previous periods? Leave a request — we’ll help you without unnecessary bureaucracy.
