Tag: Ioannides Demetriou LLC

New EU Directive on improving the gender balance among directors of listed companies and related measures (EU 2022/238): Women on Boards of Listed Companies

Posted on | by Paschalis Paschali

In the context of the EU Gender Equality Strategy 2020–2025, the EU Parliament has adopted a new directive aiming to close the gender gap on corporate boards of large (the “Directive”), with listed EU companies imposing at the same time the obligation for transparent assessment procedures on the basis of the candidates’ merits, irrespective of their gender.

Pursuant to the said Directive, Member States must set an objective to ensure that at least 40% of non-executive director positions at listed companies are held by members of the underrepresented sex. If Member States choose to apply the new rules to both executive and non-executive directors, the target would be 33% of all director positions.

 Listed companies that are not subject to this latter objective, must set individual quantitative objectives with a view to improving the gender balance among executive directors. Also, Member States must ensure that listed companies which do not achieve the objectives referred to above (40% and 33% respectively), as applicable, adjust the process for selecting candidates for appointment or election to director positions. Hence, if the targets set are not being met, companies will need to explain how they intend to meet these objectives.

To ensure compliance with the requirements of the Directive, listed companies will be obliged to provide information, once a year, regarding their respective boards’ gender representation and measures being undertaken to achieve the applicable quotas. On the basis of the information provided by the listed companies, a list of those companies satisfying either of the Directive’s requirements (executive, non-executive directors, all directors) annually will be published by each Member State.

The Directive exempts from its application SMEs, i.e. companies that employ fewer than 250 persons and have either an annual turnover not exceeding EUR 50 million or an annual balance sheet total not exceeding EUR 43 million.

Finally, Member States are required to implement “effective, proportionate and dissuasive” penalties for infringements by listed companies. Τhe Directive further obliges Member States to ensure that in the performance of public contracts and concessions, listed companies comply with applicable obligations relating to social and labour law in accordance with the applicable EU law.

Key dates:

The Member States must adopt and publish the laws, regulations and administrative provisions necessary to comply with the Directive by 28 December 2024.

Listed companies in the EU must meet the targets set above by 30 June 2026.

Comment:

Generally, Cyprus enhanced its position in the gender equality field (there has been an increase in women actively involved in politics) having of course considerable room for improvement while laying solid foundations at a socio-political level. Cyprus has adopted a National Action Plan on Gender Equality 2019 – 2023 setting various measures aiming the promotion of equal participation in decision-making. It remains now to be seen how the Directive’s provisions will be implemented at national level, undoubtedly bringing about a positive effect for the country’s economy and a safeguard of equal labour opportunities especially for women’s employment in the companies concerned.

Navigating EU sanctions – overview and predictions for 2023

Posted on | by Paschalis Paschali

European Commission President Ursula von der Leyen has recently announced that the EU is preparing a 10th package of sanctions on Russia and is planning to have it in place by 24 February 2023 – the 1 year anniversary of Russia’s actions in Ukraine. The new package is said to be focusing on technology that may be used by the military of Russia and in cutting sanctions circumvention. It may further include financial sanctions against four Russian banks. Overall, the EU has progressively imposed sanctions against Russia since 2014, in light of the annexation of Crimea and the non-implementation of the Minsk agreements.

EU sanctions do not apply extraterritorially. The Sanctions Regulation applies, inter alia, to any person inside or outside the territory of the Union who is a national of a Member State, and to any legal person, entity or body, inside or outside the territory of the Union, which is incorporated or constituted under the law of a Member State.

The measures forming part of the various sanctions packages as found and developed under the two main EU regulations, namely Council Regulation (EU) No 833/2014 (a.k.a. economic or sectoral sanctions) and Council Regulation (EU) No 269/2014 (a.k.a. individual or targeted sanctions) are complex and multi-layered, and understanding their full scope and compliance is becoming an increasingly challenging exercise for the stakeholders involved.

The EU economic sanctions regime imposes prohibitions and limitations via the targeting of specific sectors of the Russian economy as a whole including inter alia prohibitions on new investments in the energy sector; prohibitions on certain operations in the aviation sector; prohibitions on imports of iron and steel; prohibitions on the financing of the Russian government and Central Bank as well as banning all those transactions related to the management of the Central Bank’s reserves and assets; prohibitions on a range of financial interactions, financial rating services and transactions with Russia; prohibitions on accepting deposits; prohibitions on trust and a number of business-related services.

The EU individual sanctions regime imposes the freezing of assets belonging to, owned, held, or controlled by listed persons or entities: all their assets in the EU are frozen and EU persons and entities cannot make any funds available to those listed. Both Regulations have broad anti-circumvention provisions, pursuant to which it is prohibited to participate, knowingly and intentionally, in activities the object or effect of which is to circumvent prohibitions as found under the Regulations. Additionally, any person who facilitates the circumvention of sanctions by others, may now be included in the sanctions list himself – and this includes EU natural and legal persons.

The year ahead

It seems unlikely that developments in sanctions policy and regulations will be slowing down in 2023. On the contrary, we expect to see more packages but also enforcement actions as regulators and prosecutors come under increasing pressure to show more “teeth” rather than simply introducing and drafting new policies. The controversial idea of ceasing and not only freezing assets has also been increasingly under discussion.

On 28 November 2022, the European Council unanimously decided to add violations of EU sanctions to the list of “EU crimes”. On 2 December 2022, the European Commission introduced a proposal for an EU Directive which sets out minimum rules concerning the definition of criminal offences and penalties in respect of violating EU sanctions. The willingness to introduce such a Directive is reflective of the EU’s objective for stronger harmonization in the enforcement of sanctions by Member States and for dissuading circumvention at the EU level. Of course, for the Directive to take effect, Member States will have to incorporate it via the passing of national legislation. The Commission has also recently launched an EU whistle-blower tool enabling the anonymous reporting of possible sanctions violations, including circumvention.

Additionally, a Directive on asset recovery and confiscation has been proposed with the aim to tackle “the serious threat posed by organised crime” and provide the means to competent authorities to “effectively trace and identify, freeze, confiscate and manage the instrumentalities and proceeds of crime and property that stems from criminal activities.” Should such proposal solidify further, EU member states would be required to make substantial changes to their national laws and confiscation regimes for instance, the confiscation of unexplained wealth – enabling judicial authorities to confiscate property when they are convinced it derives from criminal activities, even if it cannot be linked to a specific crime. Such confiscation measures will inevitably be raising inter alia various property and human rights considerations, which will eventually have to be determined by the member state courts.

At the moment, while EU regulations set out the prohibitions and licensing grounds with respect to sanctions, it is implementing legislation at each Member state level which imposes the applicable penalties. Cyprus currently adopts The Implementation of the Provisions of the United Nations Security Council Resolutions or Decisions (Sanctions) and the European Union Council’s Decisions and Regulations (Restrictive Measures) Law (Law 58(I)/2016) which renders violation of any provisions of such sanctions/restrictive measures a criminal offence subject to imprisonment and/or penalties.

The above information and challenges make it even more important that businesses adopt their own robust and up-to-date sanctions compliance measures. It is the individual responsibility of each person and organisation to carefully examine risks potentially arising under the EU sanctions regime and verify whether any of the listed individuals or entities are part of their business relationships or whether their activities violate sanctions.

The contents do not constitute legal advice, are not intended to be a substitute for legal advice and should not be relied upon as such. It is recommended to seek independent legal advice when considering participating in activities or transactions which may give rise to sanctions-related matters. Engaging in thoughtful due diligence at the outset of any investment/transaction will help you to prevent pitfalls further down the line.

The Evolving Cyprus Corporate Tax Landscape

Posted on | by Paschalis Paschali

Cyprus has long enjoyed a relatively stable fiscal environment, especially as far as the corporate tax regime is concerned. Changes to the tax code have traditionally been scarce and far between. Changes are however afoot mostly as a result of international developments. In this newsletter, we examine some of the recent changes and also discuss what possibly lies ahead.

Transfer pricing documentation and APA procedure

One of the biggest developments last year was the introduction of transfer pricing documentation requirements, effective from 1 January 2022. Under the new provisions, broadly, Cyprus tax resident companies and permanent establishments of non-resident companies are required to prepare on an annual basis transfer pricing documentation supporting their controlled transactions with related parties. The documentation consists of the “Master File” and the “Cyprus Local File”. Furthermore, taxpayers are required to complete a summary information table containing high-level information on related-party transactions.

There are certain exemptions to the filing requirements. For example, only Cyprus tax resident entities that are the ultimate parent (or surrogate parent) entity of a Multi National Enterprise (“MNE”) group falling under the scope of country-by-country reporting (i.e. with a consolidated revenue above €750 million), have an obligation to prepare and maintain a Master File.

Also, persons that engage in controlled transactions with an arm’s length value of less than €750,000 annually, in aggregate per transaction category (e.g. sale/purchase of goods, provision/receipt of services, financing transactions and receipt/payment of IP licencing/royalties) are exempt from the obligation to prepare a Local File.

There are penalties for non-compliance with the new obligations.

A formal Advance Pricing Agreement (“APA”) procedure has also been introduced. Cyprus tax resident persons and non- resident persons with a permanent establishment in Cyprus can submit to the Cyprus tax authorities an APA Request with respect to current or future domestic or cross-border transactions. The APA request could be bilateral or even multilateral involving tax authorities in other jurisdictions.

The tax authorities must examine the application and reach a decision within 10 months from the date of the application (in certain cases a longer time period of up to 24 months may be allowed).

APAs are valid for up to 4 years. The APA may be revised, upon application by the taxpayer or at the discretion of the tax authorities. Under certain circumstances, the tax authorities may revoke or cancel an APA.

In granting APAs, the Cyprus tax authorities will obviously need to take into consideration the state aid prohibition under the Treaty on the Functioning of the European Union (Art 107) and the recent high-profile litigation on over-generous tax rulings conferred to multinationals by some Member States. Taxpayers requesting an APA should also be aware that under certain circumstances set out in EU legislation adopted by Cyprus, tax authorities are obliged to automatically exchange information on advance pricing agreements issued by them to other Member States and the European Commission.

Although the new transfer pricing documentation requirements and especially the Master File are likely to affect MNEs with limited exposure to Cyprus, in general, good documentation of related party transactions is a recommended practice for transfer pricing compliance. There may also be in-scope Cypriot group companies that have to file the Local File. Affected groups could strive to have some of their overall transfer pricing documentation obligations catered for by Cypriot advisors, to benefit from lower operating costs compared to other jurisdictions.

For more information on how these changes might affect your business, please get in touch with us.

Future Developments

As part of our newsletters we shall attempt to keep you up to date on what is being discussed in the field of taxation of both businesses and individuals.

15% Minimum Effective Tax Rate

For the past few years, the international tax community has been working on the so-called Two-Pillar Solution to deal with the taxation of the digital economy (also, sometimes referred to as BEPS 2.0). Pillar One focuses on rules for taxing profits and rights, with a formula to calculate the proportion of earnings taxable within each relevant jurisdiction. Pillar Two focuses on a global minimum tax of 15% which is to be implemented through domestic and treaty-based rules. The domestic rules are also called the Global Anti-Base Erosion (GloBE) rules.

After several discussion drafts and a consultation document, a global agreement on tax reform was eventually reached in July 2021.

Following this global agreement, the OECD released the Pillar Two Model Rules which defined the scope and key mechanisms of the GloBE rules. On 22 December 2021, the European Commission published its own proposal for an EU directive on global minimum taxation for multinationals, which broadly mirrored the OECD’s GloBE rules. This draft was subsequently revised in compromise texts and eventually adopted in December 2022.

With the adoption of this Directive in the EU, it is widely thought that the much needed ‘critical mass’ for the adoption of Pillar Two by other countries has been reached. Pillar One still seems to be lagging behind, even though it was the front runner in the early discussions at the OECD/G20 level.

One important difference between the new Directive and the OECD’s rules is that the EU rules will apply to ‘large-scale domestic groups’ with a threshold of €750 million consolidated revenue in at least two of the four preceding years. The OECD rules do not apply to domestic groups.

Cyprus, as an EU Member State, will be obliged to incorporate the provisions of the new Directive into domestic legislation by 31 December 2023. There are transitional rules which delay the application of the rules for MNE groups and large-scale domestic groups at the initial phase of their international activity.

Under the system set out in the new Directive, the parent entity of an MNE located in a Member State would be obliged to apply the so-called Income Inclusion Rule (IIR) to its share of top-up tax relating to any entity of the group that is low-taxed (i.e. below the 15% threshold), whether that entity is located within or outside the European Union.

There is also the very controversial Undertaxed Payment Rule (UTPR) which acts as a backstop to the IIR through a reallocation of any residual amount of top-up tax in cases where the entire amount of top-up tax relating to low-taxed entities could not be collected by parent entities through the application of the IIR. The UΤPR will apply in situations where a group is based in a non-EU country and that country does not impose the minimum rate. The constituent entities of such an MNE group that are located in a Member State will have to pay in their Member State a share of the top-up tax linked to the low-taxed subsidiaries of the MNE group. The calculation and allocation of the UTPR top-up tax in the Directive is based on the number of employees and the carrying value of tangible assets.

The Directive provides Member States the option to apply a qualified domestic minimum top-up tax (QDMTT). The domestic top-up tax allows the Member State in which a low-taxed entity is resident to levy the top-up tax before application of the IIR at the level of the parent company (in another jurisdiction). It is expected that most Member States will opt for such tax.

There are detailed rules on the calculation of qualifying income or loss, the computation of adjusted covered taxes and the calculation of the effective tax rate and the top-up tax. There are also special rules for mergers and acquisitions as well as distribution regimes.

Unsurprisingly, there are many reporting obligations which increase the already heavy compliance burden of in-scope MNEs. Each constituent entity of an MNE group located in a Member State must file a top-up tax information return, unless the return is filed by the MNE group in another jurisdiction, with which the Member State has an exchange of information agreement. The constituent entity might also designate another entity located in its Member State to file on its behalf. The returns must be filed within 15 months after the end of the fiscal year to which they relate. 

Member States will introduce penalties for failures to file the information return within the prescribed deadline or for making false declarations. The 5% fixed penalty which was suggested in the original version of the Directive has now been withdrawn.

Whilst the impact of this new Directive on Cypriot companies might seem minimal at first instance, the combination of the aforementioned rules (i.e. the IIR, the UTPR and the QDMTT) make it imperative that such companies continuously monitor whether or not they fall outside the scope of the rules. Cypriot constituent entities of in-scope groups could be subject to top-up taxes on the basis of a Cypriot imposed QDMTT. In addition, Cypriot constituent entities of in-scope groups would need to file a top-up tax information return. There might also be restructuring needs or acquisition/divestment opportunities, to ensure reduction or elimination of top-up taxes through jurisdictional blending. The unique structure of the new regime will lead to the creation of new valuable tax attributes that MNEs will strive for. It is important for tax advisors to identify whether a Cypriot company has such valuable tax attributes or how it could develop such attributes in order to minimise the impact of the new rules and the imposition of top-up taxes.  

For more information on how these changes might affect your business, please get in touch with us.

What lies ahead for tax in 2023

A “War” against Tax Abuse

Notwithstanding these ground-breaking developments in 2022, it is likely that there will be further developments in 2023 due to the various projects that the European Commission has in the pipelines.

The “Unshell” Proposal

One such project is the “Unshell” proposal which introduces rules on the misuse of entities. The aim of this proposal, which was first published as a draft Directive in December 2021, was to establish transparency standards around the use of shell entities, so that abuse could more easily be detected by tax authorities. The proposal introduces a complex filtering system (gateways) comprising of several substance indicators. Undertakings will need to show that they satisfy the substance indicators, otherwise they will be presumed to be “shells”. Such a finding could lead to penalties, a denial of a tax residency certificate and unavailability of exemptions under the Parent-Subsidiary and Interest and Royalties Directive.

If adopted as proposed, the Unshell proposal will introduce a heavy compliance burden of reporting, preparation of rebuttals and appeals, not just for MNEs but also for smaller undertakings involved in cross-border transactions. The European Commission is widely expected to publish a revised version of this draft Directive in 2023 to meet some of the concerns expressed by several stakeholders. However, the structure of the proposal and the reporting obligations are unlikely to change significantly.

Traditional holding company jurisdictions like Cyprus or Malta are likely to be affected by this proposal. Advisors would need to assess which undertakings may come within the scope of the rules, whether they can benefit from any carve-outs and how they can ensure they remain low-risk in order to be exempt. If reporting of minimum substance is inevitable, then diligent preparation of documentary evidence will be crucial to ensure the rebuttal of the presumption of a shell.

Once the Unshell proposal has been finalised and is expected to be adopted, we will publish a newsletter on how this will affect Cypriot companies.  

Anti-Facilitation Measures

In addition to the above, the resolve of the European Commission in fighting abuse is further evident from the fact that it is working on a follow-up initiative aimed at tackling the role of enablers in setting up complex structures in non-EU countries with the objective of eroding the tax base of Member States through tax evasion and aggressive tax planning. The proposal will likely include criteria for defining the forms of aggressive tax planning that should be prohibited. This initiative is heavily supported by the European Parliament.

If this proposal goes ahead, it will impose more onerous due diligence obligations on tax intermediaries (lawyers, accountants, general tax advisors). Non-legally trained intermediaries would likely need legal advice to navigate the new rules.

BEFIT Measures – A Proposal for a New Framework for Business Taxation in the EU

Another major initiative to watch out for is the new proposed framework for business taxation in the EU: the ‘Business in Europe: Framework for Income Taxation’ (or BEFIT). This will replace the previously proposed Common Consolidated Corporate Tax Base and will provide a common corporate tax base for group companies and consolidation. The European Commission recently published a call for evidence for an impact assessment and asked for public feedback. A legislative proposal for a new corporate tax system is expected later on this year.

We are closely monitoring these and other international developments to ensure our clients are in the best position to comprehend and comply with any new obligations whilst at the same time continuing to benefit from efficient and legitimate tax structuring.  

Court of Justice (EU) ruling on accessing information of beneficial owners (AML Directive)

Posted on | by Paschalis Paschali

On 22 November 2022 the Court of Justice of the European Union (“CJEU”) ruled that the provision of Directive (EU) 2015/849, as amended (“AML (EU) Directive”) providing that Member States must ensure that information on the beneficial ownership of legal entities is accessible in all cases to any member of the general public is invalid.

In addition to granting access to the public on beneficial owner information, the AML (EU) Directive also allows Member States to provide for an exemption to the public’s access on a beneficial owner’s information where the access would expose the beneficial owner to “disproportionate risk, risk of fraud, kidnapping, blackmail, extortion, harassment, violence or intimidation, or where the beneficial owner is a minor or otherwise legally incapable”. This exemption for restricting access “in exceptional cases” and on a “case-by-case basis”, did not prevent the CJEU from ruling that the provision for granting the right to such access is invalid.

The judgement concerned CJEU’s joined Cases C-37/20, Luxembourg Business Registers and C-601/20, Sovim. The two cases were referred to the CJEU following a request for a preliminary ruling from the tribunal d’arrondissement de Luxembourg (Luxembourg District Court) pursuant to Article 267 of the Treaty on the Functioning of the European Union.

The concerned provision

The question referred to the CJEU concerns, inter alia, the provision of Article 30(5)(c) of the AML (EU) Directive which reads as follows:

Member States shall ensure that the information on the beneficial ownership is accessible in all cases to:

(a) […]

(b) […]

(c) any member of the general public.

The persons referred to in point (c) shall be permitted to access at least the name, the month and year of birth and the country of residence and nationality of the beneficial owner as well as the nature and extent of the beneficial interest held.

[…]

Conflict with the EU’s Charter of Fundamental Rights

In declaring invalid the provision permitting the general public’s access to information on beneficial ownership, the CJEU stressed in its decision that the concerned provision constitutes a serious interference with the fundamental rights enshrined in Article 7 (Respect for private and family life) and Article 8 (Protection of personal data) of the EU’s Charter of Fundamental Rights.

Effect on Cyprus AML legislation

The Cyprus AML Law transposing the respective AML (EU) Directive includes a similar provision permitting members of the general public to have access “in all cases” to information on the beneficial owner’s name, the month and year of birth, the nationality, the country of residence and the nature and extent of the beneficial interest held.

The CJEU’s decision is expected to impact the general public’s access “in all cases” on information concerning beneficial owners. It remains to be seen whether the AML (EU) Directive will provide express grounds for the public’s access to such information or whether such grounds will be left to the discretion of each Member State, however, such grounds must be based on a proportionate and balanced approach without violating the Charter’s rights.

In the meantime, the Cyprus AML Law will need to be amended so that access of the public to information on beneficial owners is subject to grounds which are aligned with the EU’s Charter on Fundamental Rights and specifically Article 7 (Respect for private and family life) and Article 8 (Protection of personal data).

As of 23 November 2022, the Cyprus Department of Registrar of Companies and Intellectual Property suspended the access to the register of beneficial owners for the general public, in response to CJEU’s decision. Obliged entities will continue to have access to information maintained in the beneficial owner’s register by submitting a solemn declaration confirming that the information is requested within the context of performing customer due diligence.

Our services

Ioannides Demetriou LLC advises on matters concerning regulatory AML compliance and the protection of fundamental rights such as your right to the protection of personal data and your right for private and family life.

Reach out to our team to ensure that your regulatory obligations are protected in a manner that respect and safeguard your fundamental rights.

You can contact us directly by calling + 357 22 022 999 or by email at [email protected]

The information provided in this article does not and is not intended to constitute legal advice; instead, all information contained in this article is for general informational purposes only. If you require assistance with any legal matter, including a matter referred to in this article, you should contact one of our attorneys to obtain advice tailored to your specific circumstances.

Introducing the Cyprus Shipping Limited Liability Company (SLLC)

Posted on | by Paschalis Paschali

With an attractive location lying just a few miles from the Suez Canal and in the crossroad of the European – African and Asian markets, Cyprus grew to one of the main maritime players of the world with the 3rd largest fleet in the European Union and the 11th largest worldwide. The country’s business minded policy coupled with the evolving needs of the shipping industry led to the creation of the Shipping Deputy Ministry in 2018.

In 2021, the Ministerial Counsel approved the Strategic Vision for Cyprus Shipping dubbed “Sea Change 2030” which included the development of a regulatory and administrative framework for the incorporation of shipping entities. As a result of this strategy, the Cypriot parliament voted in favour of the Cypriot Shipping Limited Liability Company Law (the “SLLC Law”).

The SLLC Law was published in the Official Gazette of Cyprus, issue no. 4916 on 27 October 2022 and was shaped after the Cypriot Companies Law, Cap.113 (the “Companies Law”), thus offering shipping entities a familiar regulatory framework and corporate environment.

Shipping Limited Liability Company

The purpose of the SLLC Law is to simplify the procedures and operation of shipping companies for the ownership and exploitation of ships. To that effect, the SLLC Law introduces a new type of legal entity, the Shipping Limited Liability Company (“SLLC” or «ΝΕΠΕ – Ναυτιλιακή Εταιρεία Περιορισμένης Ευθύνης») which is the equivalent of a limited liability company.

The SLLC Law applies to newly incorporated SLLCs and to shipping companies incorporated under the Companies Law that wish to transfer on the SLLC register under the SLLC Law.

Administration and management of SLLCs

The objective of the SLLC Law is the creation of a “one-stop-shop” within the Shipping Deputy Ministry for the servicing of shipping companies and their shareholders, and the handling of matters which were previously under the responsibilities of the Registrar of Companies. In effect, SLLC Law maintains the advantages and flexibility offered under the Companies Law as it includes provisions for the administration and management of SLLCs and provisions regulating matters which concern SLLCs from their incorporation up to their liquidation.

Features of the SLLC Law

The SLLC Law mirrors a number of functions exercised by the Registrar of Companies. The following list outlines some of the matters regulated under the new law:

  • The creation of the Registrar of SLLCs as the competent authority for the registration of SLLCs and any other corporate matters relating to SLLCs, for the promotion of a “one-stop-shop”;
  • The creation of the SLLC register;
  • Provisions on the incorporation of SLLCs, their share capital and other management arrangements;
  • The appointment of a secretary of the SLLC who, as per the SLLC Law, must be a lawyer;
  • Provisions for the transfer of companies registered in the register of the Registrar of Companies under the register of the Registrar of SLLCs;
  • The power of the Registrar of SLLCs to approve the use of electronic signatures in relation to documents submitted to or issued by the Registrar of SLLCs;
  • The power of the Registrar of SLLCs to impose administrative fines.

Why incorporate or convert into an SLLC?

Despite the seemingly identical legal frameworks between a limited liability company (incorporated under the Companies Law) and a SLLC (incorporated/transferred under the SLLC Law), the SLLC Law contains small but rather significant differences which are tailored to the operations of SLLCs:

Simplified procedures for the increase and reduction of share capital

The Companies Law requires a court approval for the reduction of a company’s share capital.

On the other hand, the reduction of share capital for SLLCs does not require a court order and is achieved under a simpler and time-effective manner.

Simplified procedures for amending the SLLC’s memorandum

Under the Companies Law, a change in the memorandum of association is not effective unless approved by the court following a related application.

In contrast, the memorandum of SLLCs is based on a template prescribed under a notification of the Registrar of SLLCs and its amendment is permitted only in circumstances specified under the LLC Law.

A law tailored to SLLCs

SLLCs have the opportunity to benefit from a legal framework distinct from other entities. The SLLC Law is tailored to their business activities and creates a sustainable environment for SLLCs by setting the ground for further targeted improvements in the shipping industry.

Our services

  • Incorporation and administration of SLLCs;
  • Advice on Environmental, employment and safety requirements;
  • Acquisitions and financing services;
  • Sanctions and export control advice;
  • Ownership, acquisition, chartering and selling of superyachts.
  • Corporate and commercial advice.

Get in touch for a free consultation with our team.

The information provided in this article does not and is not intended to constitute legal advice; instead, all information contained in this article is for general informational purposes only. If you require assistance with any legal matter, including a matter referred to in this article, you should contact one of our attorneys to obtain advice tailored to your specific circumstances.

The New Cyprus Commercial Court: An “Internationalisation” of Cyprus Civil Justice?

Posted on | by techlink

On 2nd June 2022 the Cypriot parliament passed law 69(I)/2022 for the establishment of a Commercial Court and an Admiralty Court (“the Law”).

Introduction

Many readers will be aware that Cyprus is an island in the eastern Mediterranean and the eastern most outpost of the European Union. Its geographical location being at the crossroads of Asia, Europe and the Middle East has shaped its history. Previously seen as a strategic location for would be conquerors of which there were many, the location of Cyprus, its Common Law background, large number of Double Tax Treaties, business friendly climate and highly effective and efficient services sector have been key drivers in making Cyprus a favoured business destination for many Europeans especially Dutch, for Canadians, nationals of the states of the former Soviet Union and latterly Chinese and Israeli investors. This has established Cyprus as a major international business hub which has a reach that belies its size.

The growth of Cyprus as a business centre has placed great pressure on its civil courts, resulting in delays that are amongst the worst in the European Union. The reasoning behind the establishment of the Commercial Court is the creation of a specialist Court where the judges will specialise in commercial disputes in the same manner and with the same efficiency as specialist courts such as commercial courts, construction and technology courts operate in other jurisdictions.

Characteristics of the Commercial Court

One unique aspect of the Commercial Court which demonstrates the desire of the legislature to ease the administration of justice in international commercial disputes is the permissibility of using the English language. This mirrors recent initiatives in some EU jurisdictions, most notably Holland which have established similar international commercial courts to cater for the foreign business community that conducts business in or through these jurisdictions.

Jurisdiction of the Commercial Court

The Commercial Court will hear commercial disputes which are defined in the law as disputes relating to:

(a) Business documents or contracts.

(b) Purchase, sale, import and export of goods.

(c) The carriage of goods by land, air or pipeline.

(d) The exploitation of oil, natural gas or other natural resources.

(e) Insurance and reinsurance.

(f) The functioning of markets or the exchange of shares, stock or other monetary credit or investment vehicles or goods (which is clarified to mean every kind of moveable property save for choses in action and money and includes bonds and shares.

(g) The provision of services excluding medical, quasi medical, dentistry services or services that are provided within an employment contract.

(h) Manufacture of vehicles.

(i) Commercial representations.

(j) The application of the provisions of the law relating to Compensation for Breaches of competition law.

(k) Disputes between shareholders in entities that are regulated by any regulatory authority within the Republic of Cyprus.

(l) Matters relating to copyright and related rights within the ambit of the law for the Protection of Copyright and Related Rights law and the Certificates of Inventions law.

(m) Arbitration Issues.

Minimum Monetary Value of Disputes

The Law sets the minimum value of disputes that will be heard by the Commercial Court at €2 million excluding interest claimed. In the event of a dispute as to the value of the dispute, and by extension the jurisdiction of the court the objecting party may apply to the court of a determination.

In the event that the court determines that the value of the commercial dispute is below €2 million the Law allows the Commercial Court to refer the dispute to the District Court.

Geographical Jurisdiction

(a) The cause of action arises in whole or in part in the district where the Court has jurisdiction.

(b) The defendant or any one of the defendants at the time of the filing of the action resides, carries on business, or in the case of a legal person has its registered office in the district where the court has jurisdiction.

(c) The parties jointly agree between themselves by written agreement to refer the commercial dispute to the Commercial Court, in such a case if any one of the parties resides outside Cyprus, or carries on business outside Cyprus, or in the case of a legal person has its registered office outside Cyprus. In such a case the Commercial Court sitting in Nicosia shall have jurisdiction

(d) The jurisdiction of the Commercial Court derives from community law, international treaty or any rule of private international law. In such a case the Commercial Court sitting in Nicosia shall have jurisdiction.

Transfer of Cases from the District Court to the Commercial Court

Any party may apply to either the Commercial Court or to the District Court for a case that is before the District Court to be transferred to the Commercial Court provided that the hearing of the case has not commenced.

Transfer of Cases from the Commercial Court to the District Court

A judge of the Commercial Court may transfer a case to the District Court where:

(a) the Commercial Court lacks jurisdiction, or

(b) where upon the application of any party that it is appropriate for the case to be tried before the District Court.

Sittings of the Commercial Court

The Commercial Court shall sit in the district capitals of each administrative in buildings that will be specifically prescribed and published in the Official Gazette. Given that there are four administrative districts one can assume that two judges will sit in Nicosia one in Limassol, one in the Larnaca-Famagusta District and one in Pafos.

The Commercial Court will have its own separate registry and registrars.

Judges of the Commercial Court

The Commercial Court will be manned by five judges to be appointed by the Supreme Legal Council.

As the Law prescribes that the number of judges shall be five. This number will effectively and for all intents and purposes be limited to five as a change of law is required for the increase in the number of judges.

The judges of the Commercial Court shall have the standing and shall have the same powers as those of a President of the District Court. (Hitherto the highest tier of judges of first instance in the civil justice system of Cyprus).

The powers derive from the Courts of Justice Law and the Civil Procedure Law.

Procedure Before the Commercial Court

The Courts of Justice Law applies to the following extent:

  • Section 29 relating to the law to be applied (the Constitution, Statute law, Common Law and Equity, Vakouf (Turkish Cypriot trusts and immoveable property) law;
  • Part 4 – relating to the powers of the Court;
  • Part 5 – relating to the witnesses and evidence;
  • Part 7 – relating to the transfer of cases from a court to another court having jurisdiction by order signed by the President of the Supreme Court*.

Procedure before the Commercial Court shall be regulated by procedural regulations specially formulated for the requirements of the Commercial Court. For this purpose, the Supreme Court* has power within the Law to issue a procedural order for the better implementation of the Law and for the regulation of any matter capable of regulation by way of procedural rules.

Use of English Language

A judge of the Commercial Court may where the interests of justice demand allow for the hearing of the case and the filing of pleadings to be in the English language following an application of one of the parties. In such a case the court prescribes that the English language as the language in which the procedure shall be carried out and shall issue its judgment in English.

Appeals from the Commercial Court

Each judgment or order of the Commercial Court is subject to appeal before the Supreme Court.

A decision of the Commercial Court for the pre-trial referral of a question to the ECJ or a decision of the Commercial Court dismissing an application for the pre-trial referral of a question to the ECJ shall not be subject to appeal.

As with other courts in Cyprus the Law establishing the Commercial Court does not contain any provisions for leave to appeal or any restrictions as to the grounds of appeal.

In the case of an appeal, the Law states that the Supreme Court* shall not be bound by any findings of fact made by the Commercial Court and shall where the circumstances so demand shall have power to review and re-examine evidence and reach its own conclusions and shall further be entitled examine further evidence and to rehear witnesses and to issue any order of judgment that is justified under the circumstances including an order the rehearing of the case by the Commercial Court or other court having jurisdiction to hear the case.

Conclusions

The establishment of the Commercial Court is a reaction to commercial pressure for a quicker and more specialist trial court for larger commercial disputes many of which run into hundreds of millions and indeed some into billions of Euros.

Specialist commercial judges will in time gain the experience and specialised knowledge so as to be able to deal with complex commercial cases effectively and speedily.

The ability of the court to conduct proceedings in English will expand and enhance cooperation with foreign lawyers and make justice more accessible to a large number of potential litigants who conduct their commercial businesses within and through Cyprus.

The wide jurisdiction given to the Supreme Court* may appear daunting at first. It is however to be seen as an attempt to give finality to the proceedings at the level of the appeal. This should eliminate the need for retrials in all but the most unavoidable circumstances.

On the whole, the legal and commercial community of Cyprus has greeted the creation of the commercial court with an open mind and a cautious optimism. 

Andrew Demetriou

Ioannides Demetriou LLC  

*It should be noted that the current Supreme Court will be re-organised into an Appeals Court and a Constitutional Court. The appeal from the Commercial Court will be to the civil division of the Appeals Court.