Before relying on anything in this Blog please read the disclaimer
With the increased activity on the mergers and acquisitions side, EU cross border mergers utilizing Cyprus companies are becoming all the more relevant. The migration of a Company from Cyprus to a third country is solely up to national legislation and a matter to be regulated by each country. In contrast, the European Union passed the EU Cross Border Mergers directive in order to allow for the free movement of companies within the single market. In certain instances, I have seen that both methods are deployed. This is more frequent when the company is situated outside the European Economic Area and would like to migrate to an EU jurisdiction but such migration is not supported by national legislation.
Cyprus Cross Border Merger
The Cyprus Companies Law, Chapter 113 has adopted the provisions of the EU Cross Border Mergers Directive (2005/56/EC). More specifically a merger may occur, by:
- a company being dissolved without going into liquidation and all the assets and liabilities are transferred to an existing company;
- a company being dissolved without going into liquidation and all the assets and liabilities are transferred to a newly formed company;
- a transfer of all the assets and liabilities of the entity to its shareholder.
The parties to an EU Cross Border Merger must draft a merger plan which is agreed between them. Once agreed; the merger plan must be notified to the public by way of publication in the official newspaper of the Republic of Cyprus. The merger plan is then approved by the directors and the shareholders of the Company. The verification of the process is a two-part step. The first involving the presentation of the merger plan in Cyprus and obtaining a pre-merger certificate of approval from the Cyprus district court whereas the second relates to a final approval from the jurisdiction which the resulting company will reside. If the resulting entities jurisdiction is Cyprus then a second application is to be made in the district courts of Cyprus.
Legal Effect of Merger
The dissolving companies will cease to exists but not liquidated. Their assets and liabilities are transferred to the resulting entities. Any creditor may address a claim to the resulting entity.
Tax Effect of Merger
It is highly recommended that the following process is followed in order to mitigate any unforeseen tax risks which might arise in the future operations of the resulting entity. The absorbing company should have prepared:
- Financial Statements as close to the date of pre-merger as possible
- Audit such Financial Statements as close to the date as possible
- Submit all annual returns and annual tax returns for the previous years
- Request a tax clearance certificate from the department of taxation regarding the previous years, This should crystallize any Cyprus tax liability as well as allow the company to exit Cyprus without any issues. Please note that at the moment this article is written the Department of Taxation is have issued a public consultation on the remaining ATAD provisions relating to an Exit Tax and Hybrid Mismatch