The law pertaining to partnerships is regulated under the General and Limited Partnership and Business Names Law (the “Law”) which is based on the English Partnership Act 1890 and the Limited Partnership Act 1907. The Law allows for general and limited partnerships although as of October 2015 the amending law N.114(I)/2015 provides for partnerships limited by shares. This vehicle is a great innovation in the corporate system of Cyprus as it allows limited liability partnerships with share capital, bringing Cyprus in line with other jurisdictions which have adopted this form.
A partnership is defined under the Law as a relationship between personswhich carry out business together for a view of profit.Albeit the fact that the Law recognizes the legal relationship between the partners, a partnership is not recognized as an entity with a personality separate and distinct from its partners. Partnerships are not considered as legal entities separate from their members in the eyes of the law and the tax authorities.In essence the actions of a partnership is the actions of its partners acting in their personal capacity.
Types of partnership
There are two types of partnerships regulated under the Law; general and limited partnerships. In a general partnership, all partners are equally and jointly liable towards all the debts and obligations of the Partnership. On the other hand, in a limited partnership, one of the partners (the general partner) is liable for all the debts and obligations of the Partnership whilst all the other partners (the limited partners) are responsible up to the amount they contributed to the Partnership.
Registration of a partnership
There are three conditions to be satisfied for a partnership to exist, these being:
- the partnership must carry out a business i.e. trade, occupation or profession;
- the partnership must have at least two partners, who may be either natural or corporate entities or both. However an entity with more than twenty persons cannot be considered as a partnership save for lawyers and accountants;
- the partnership must be established with a view to generate
A partnership must file with the Registrar of Companies a written statement executed by all the founding members in order to be registered and must include therein, inter alia, the name, the nature of the business, details of the partners and contribution of each of the partners.
Partnerships must comply with sections 118 to 122 (both inclusive0 of the Cyprus Companies Law and are obliged to keep books of accounts and for this purpose partners personally (except for LLP partners) must keep proper accounts. Specifically, when the taxable income of the partner is above €70.000 then audited accounts must be prepared.
Moreover, at the end of each financial year Partnerships must comply with the requirements of the above mentioned sections and must submit the relevant form with the ROC together with the financial statements of the partnership.
From a Cyprus Tax perspective, a Cyprus Limited Liability Partnership is not considered as a legal entity with separate legal personality and as such the partners are subject to taxation and not the partnership per se.
There are a lot of advantages inin establishing a Cyprus Limited Partnership; there is a clear segregation of duties and responsibilities between the parties, there is a considerably low tax expense (ie in case the aggregate personal taxable income of each partner is within the region of EUR 60,000), and the partnership has no obligation to proceed with statutory audit unless the turnover exceeds EUR 70,000. Furthermore the use of such structure is advantageous when flow through entities are required for tax optimization purposes.