The procedures to follow to form a company;
- Name check
- Preparation of Memorandum and Articles of Association
- Filing of the Memorandum and Articles of Association to the Registrar of Companies
- Appointment of the first Director by the shareholders
- Appointment of the Company Secretary
- Informing the company address to the Registrar of Companies
Citizens of TRNC are free to carry on business in their own name or under a business name registered under the Partnership and Business Names Law, Chapter 116.
Partnership is the relationship between two or more persons carrying on a business in common with a view to profit. There are two types of partnership, as described below.
In a general partnership every partner is liable severally and jointly with the other partners, without any limit, for all debts and obligations of the partnership incurred while being a partner. After a partner’s death his estate is also severally liable for such debts and obligations, but subject to the prior payment of his separate debts.
A Limited partnership consists of at least one general partner liable for all debts and obligations of the partnership and one or more limited partners who must, at the time of entering into such a partnership, contribute to the capital or property valued at a stated amount and who are not liable for the debts and obligations of the partnership beyond the amount so contributed.
The law governing partnerships is the Partnership and Business Names Law, Chapter 116.
CompaniesTRNC law recognises the following categories of companies:
- Company limited by shares: The liability of its members is limited to the nominal value of the shares subscribed by them. If the shares are fully paid they are not liable to contribute more.
- Company limited by guarantee: The liability of its members is limited to the extent to which they have agreed to contribute in the event of winding-up. Such a company is usually formed by non-profit making concerns.
Companies limited by shares are, as described below, of two types, public companies or private companies.
The main characteristics of a public company are the power to extend an invitation, through a prospectus, to the public to subscribe for its shares or debentures. Also public companies must have a minimum of seven members.
The main characteristics of a private company are:
- The prohibition of any invitation to the public to subscribe for its shares or debentures
- The existence of a minimum of two and a maximum of fifty members
- Restriction of the right to transfer its shares
A private company may, subject to conditions, be an exempt private company and enjoy the following main advantages:
- It need not annex to its annual returns copies of its accounts
- It may give loans to its directors
The conditions, which must be fulfilled by a private company in order to be considered exempt, are that:
- No body corporate holds any of its shares or debentures
- No person other than the holder has any interest in the shares or debentures
- The number of debenture holders does not exceed fifty
- No body corporate is a director of the company
The law in TRNC governing companies is the Companies Law, Chapter 113.
The constitution of a registered company consists of two documents, the memorandum of association and the articles of association.
Memorandum of association
The memorandum of every company must state
- The name of the company, with “limited” as the last word of the name
- The objects of the company
The memorandum of a company whether limited by shares or by guarantee must state that the liability of its members is limited.
The memorandum of a company limited by guarantee must also state that each member undertakes to contribute to the assets of the company in the event of its being wound up while he is a member, or within one year after he ceases to be a member, for payment of the debts and liabilities of the company contracted before he ceases to be a member and of the costs, charges and expenses of winding up, and for adjustment of the rights of the contributories among themselves, such amount as may be required, not exceeding a specified amount.
In the case of a company having a share capital
- The memorandum must also state the amount of share capital with which the company proposes to be registered and the division thereof into shares of a fixed amount.
- No subscriber of the memorandum may take less than one share
- Each subscriber must write opposite to his name the number of shares he takes.
Articles of association
The articles must contain rules governing the internal management of the company and regulating the rights of the members of the company among themselves. Companies may adopt all or any of the regulations contained in Table A in the First Schedule of the Companies Law, Chapter 113.
The articles deal with matters such as:
- General meetings of the company
- Voting rights of members
- Transfer of shares
- Appointment and powers of directors
- Accounts and audit
Name of the Company
No company shall be registered by a name which in the opinion of the Registrar of Companies is undesirable.
A minimum share capital is required. Such capital has to be expressed in Turkish Liras but it can be paid in any foreign currency. The share capital of a company can be increased at any time by an ordinary resolution, which requires a simple majority of members.
There shall be a minimum of two directors for public companies and a minimum of one director (who cannot at the same time be the secretary) for private companies. It is recommended, however, that there should be at least two directors. There is no necessity to have local directors.
The registration of a company is effected by submission to the Registrar of Companies the following documents
- Declaration of Compliance with the requirements of the Companies Law Chapter 113.
- Memorandum and articles of association
- Name, address and description of directors and secretary
- Registered office of the company
Companies subject to their own laws
The companies subject to
- Free Port and Zone Law
- International Banking Unit Law
- International Business Unit Law
- Banking Law
- Insurance Law
And their registration and supervision is made in accordance with Companies Law, Chapter 113
Foreign individuals or companies can become shareholders in a TRNC registered company after securing the approval of the Ministry of Economy. The paid up capital of such a company is determined by the Ministry and must be remitted to TRNC before incorporation.
BranchThere can be two types of branches in TRNC:
- Branch of a local company
- Branch of a foreign company
A local company may form and operate branches without any additional formalities.
Foreign companies establishing a place of business in TRNC are subject to sections 347-353 of the Companies Law, Chapter 113.
Overseas companies may establish a branch in TRNC provided they obtain the approval of the Council of Ministers, remit to TRNC as capital the amount determined by the Ministry of Economy in cash or in kind.
Free Zone Companies
Free Zone companies are subject to number 26/1983 Law on Free Zone and Port and their registration and supervision is made in accordance with Companies Law, Chapter 113.
B. Tax Exemption
The revenues generated by the operations and activities are exempt from income tax and corporation tax.
Tax exemptions shall not apply to the revenues generated by the export to the TRNC of products or services, except for the products manufactured in the Free zone and exported to TRNC.
C. Share Capital
Companies having foreign investors as shareholders must have a minimum of USD100,000 paid up share capital.
D. Accounts andAudit
Accounts shall be open for all types of examinations to be conducted by the government. Accounts which are audited by independent auditors must be submitted to the Tax Office.
The following fees are payable to the Free Zone Directorate
USD200 Application fee
USD2,500 Registration fee and
USD50 for each set of certified documents of the company.
F. Activities and Operations
The following activities and operations can be undertaken at the Free Zone for import and export purposes:
- Bring merchandise from within or from the outside of the boundaries of the State; store such goods; export the whole or part of such merchandise as they are or after processing them; use such merchandise in all sorts of manufacturing, construction and repair work that will take place within the boundaries of the Free Zone.
- Undertake assembling, deassembling or repair work on the merchandise brought into the Zone.
- Undertake all types of industrial, manufacturing and production activities.
- Conduct all types of commercial survey services.
- Banking and insurance services.
- Undertake construction, maintenance, assembling and deassembling of all types of sea vehicles.
- Undertake Free Port and Zone operation.
- Other tasks and services to be specified by the Council of Ministers.
International Business Companies
International Business Companies are subject to number 38/2005 International Business Companies Law and their registration and supervision is made in accordance with Companies Law, Chapter 113.
- International Business Companies, shall be subject to %1 (one percent) tax on their taxable income determined in accordance with the regulations in the Corporation and Income Tax Laws. The Corporation Tax is paid to Inland Revenue within 5 (five) months following the end of the financial period. Overseas operations of the International Business Companies are, notwithstanding any provisions stated in any other law, not subject to any other tax, duty and fee.
- International Business Companies can open any kind of account including a deposit account in the banks operating in the Turkish Republic of Northern Cyprus. The withholding tax on the interest arising on the transfers or lodgements to the bank accounts in the ordinary course of business, cannot exceed the International Business Companies tax rate of 1%. The withholding tax form the final tax liability of the interest income of the International Business Companies and in case of losses or in any other way this tax cannot be offset or refunded.
- No tax is payable on dividends paid by International Business Companies.
- Payments to real and legal entities operating outside the Turkish Republic of Northern Cyprus in respect of interest, copyrights and any kind of fees and service charges by International Business Companies are not subject to withholding tax, VAT and/or any kind of other tax.
- International Business Companies are not subject to immovable property tax; International Business Companies’ shareholders and/or their trustees are not subject to inheritance, income and/or corporation tax on transfer of shares.
- The income arising from buying and selling of movable properties (securities) by the International Business Companies is exempt from tax.
C. Customs Duty Exemption
Notwithstanding any provisions stated in any other Law, International Business Companies are not subject to customs duty in respect of the products listed below, except for the contributions to Defence Fund:
- Motor vehicles (buses, motorcycles, minibuses and caravans are not included).
- Office equipment (air conditioners and consumer goods are not included).
- Household goods (Furniture and air conditioners are not included).
- Yachts and similar marine vehicles.
D. Share Capital
Paid up share capital cannot be less than 20,000 € (twenty thousand Euros).
E. Account and Audit
Books of account are kept in accordance with Companies Law Chapter 113 and Tax procedural Law number 27/1977.
International Business companies are required to submit to the Inland Revenue their financial statements audited by Auditors, registered and licensed in the Turkish Republic of Northern Cyprus, within four months following the end of the financial period in Turkish.
The following fees are payable to the Tax Office:
500 € Application Fee
5,000 € operation fee-every year
Half of the Share Capital fee upon incorporation and increase of capital.
G. Activities and Operations
- All kinds of activities of International Business Companies stated in their memorandum of association shall be foreign oriented (Off-shore) and their income derived from abroad.
- International Business Companies cannot engage in gaming and betting. Gaming and betting has the same meaning as stated in the Physical Education and Sports Law number 67/1999.
- The International Business Companies cannot obtain loans from the Government or from any local bank and/or investment Companies operating in the Turkish Republic of Northern Cyprus and/or from Turkish Republic of Northern Cyprus Citizens for financing their investment projects.
This restriction does not apply to the International Banking Units established in accordance with International Banking Units Law number 41/2008.
Reporting RequirementsAnnual Return
Every company having share capital must at least once in every year file with the Registrar of Companies a return containing information as to directors, shareholders, registered office, share capital, etc.
Preparation and audit of accounts
Form and contents of annual accounts
- Every balance sheet of a company shall give a true and fair view of the state of affairs of the company as at the end of its financial year, and every profit and loss account of a company shall give a true and fair view of the profit or loss of the company for the financial year.
- A company’s balance sheet and profit and loss account shall comply with the requirements of the Companies Act, Chapter 113. Eighth Schedule, so far as applicable thereto.
Every company must have authorised auditors who are required by law to express an opinion on the annual accounts prepared by the company.
Every company shall at each annual general meeting appoint an auditor or auditors to hold office from the conclusion of that, until the conclusion of the next, annual general meeting.
Auditors must hold an authorised accountant-auditor Certificate issued the Ministry of Finance.
None of the following persons shall be qualified for appointment as auditor of a company
- An officer or servant of the company
- A person who is a partner of or in the employment of an officer or servant of the company.
- A body corporate.
Banks are governed by the Banking Law and have different reporting and auditing requirements in addition to those in the Companies Law, Chapter 113.