The Emerging Companies Market (E.C.M.) of the Cyprus Stock Exchange (CSE) is considered as a Multilateral Trading Facility (MTF) according to “the provision of Investment Services, the exercise of investment activities, the operation of regulated markets and other related matters” Law 144(I)/ 2007.
The E.C.M. operates according to the Regulative Decisions adopted by the CSE, therefore it does not come under the mandatory provisions for regulated markets. If the issue of a prospectus is needed for issuers wishing to obtain a listing in this Market, then the approval of the Securities and Exchange Commission should be given. Investors should be aware that they are investing in companies with higher potential risk and are encouraged to study carefully and evaluate the relevant risks prior to any investment.
Advantages from obtaining a listing on the CSE
- A vehicle for raising capital
The Stock Exchange provides the listed companies with an alternative means for raising the capital required, in order to finance their development and growth activities, reducing their reliance on the more conventional ways of raising capital. At the same time, the Stock Exchange offers primarily to the small investors alternative options and possibilities for their investments and can act as a channel through which savings can be directed to the most productive, effective and efficient investments of the listed companies. - The growth and development of the sphere of activities of listed companies
The predominant feature of the economy of Cyprus is the large number of small to medium sized family enterprises, some of which are very credible and promising. However, on average, such companies often have limited prospects of growth and development and they cannot benefit from economies of scale. Due to the lack of sufficient infrastructure and solid foundations, the prospect of being exposed to the strong competition to be faced as a result of the anticipated membership of Cyprus in the EU is causing serious concern to many such companies, some of which may not be able to compete in such a harsh environment. Going public and obtaining a listing may offer a way out of these difficulties in the sense that the listing can provide the necessary funds to boost their growth potential. Furthermore, the control of the companies will gradually be dispersed from their founders to a large number of shareholders and this will consequently lead to improved management which, following this line of thought, can lead to more growth. - Strengthening of the company
Local Companies are going to be exposed to fierce competition on a European and a global basis, following our joining the EC. In such an environment, there will be no safety nets. Companies will have to invest on a larger scale, making effective investment choices and striving hard for efficiency and improvement in their productivity, in order to achieve an equal status with their European counterparts. By obtaining a listing, local companies can gain strength and reach the minimum size required in order to be able to ride the waves of change. - Opportunity to invest abroad
Following the liberalisation of interest rates and the removal of restrictions in capital flows, listed companies will be able to utilise the funds raised through the Cyprus Stock Exchange in order to invest abroad in countries where finance is difficult to obtain, but where prospects are promising. In the same way, companies from abroad will be given the chance to invest in local companies, and naturally, listed companies will enjoy the lion’s share in foreign investment. At this point, it must be mentioned that, the chances of achieving such international goals are greatly enhanced if a company has a local listing and a credible record before it seeks a listing abroad. - Enhanced corporate image
Listed companies enjoy the privilege of attracting the lights of publicity, with all the positive connotations associated with this fact. Furthermore, obtaining a listing has a status factor associated with it, which often enables listed companies to obtain finance at better terms than a private company. - Greater Marketability
Investors who choose to invest in listed companies can liquidate their investments at any time, an advantage that cannot be enjoyed by those who invest their money in private companies. - A path to mergers and acquisitions
It is much easier for listed companies to proceed with a merger of an acquisition of either a company listed on Cyprus Stock Exchange or a foreign company, and enjoy the synergy from such an option. The reason for this is that access to the economic affairs of listed companies is much easier and this combined with the transparency in transactions, enables offerors for more accurate assessments of the potentials and the synergy to be gained from such a move. - Tax incentives
- a) Tax incentives for investors
According to the prevailing law, shareholders in listed companies enjoy the following tax incentives:
- 30% of the amount that is invested either by a legal person or physical person in an Initial Public Offering (IPO) can be deducted from the total amount of Income Tax payable, provided that:
- The number of shares issued, represent at least, the 80% of the issued share capital with voting rights and are listed on the CSE within 3 months from the date of issue.
- The number of shares issued, represent at least, the 80% of the issued share capital with voting rights and are listed on the CSE within 3 months from the date of issue.
- The deduction is granted for the taxable year in which the listing is made
- This amount does not exceed 25% of the taxable income, before any deductions made to it.
- If the restriction of point c, then the deduction can be forwarded for the following taxable years
- The deduction is not granted in the case of a company that undertakes, fully or partly, the activities of another company that has already listed shares on the CSE.
- The deduction is not granted in the case of an entity that acquires directly or indirectly, shares of a company for which the deduction has already be given, or for which another deduction has been given before the validation of Law Number 79(1) of 1997.
- The term “shares” that is mentioned in all of the points above does not include redeemable shares.
- Up to CYP1,200 of the income received, arising from dividend payments by public listed companies is tax deductible, provided that the recipient is a physical person. This exemption is valid for any person above 18 years of age. The deduction is not granted in the case where the physical person chooses to be taxed according to the special tax treatment for dividend payments by public listed companies. According to this special treatment, the withheld tax at source on dividend, which is 20% constitutes the final tax responsibility of the physical person.
- In the case of physical persons, up to CYP600 of income received arising from interest payments of listed bonds, is also tax deductible.
- There is no tax payable of any capital gains made from buying and selling listed securities until 2001.
b) Tax incentives for foreign investors
The tax treatment of foreign investors depends on the tax regime that each investor is bound with. In the case where a Double Taxation Avoidance Treaty between Cyprus and investor’s country exists, investor’s income is not taxed when is brought to his/her country.
In the case of physical persons, all of the above (Tax incentives for investors) are valid, provided that are going to be claimed according to the Cyprus Income Tax Legislation. Legal persons have the right to receive the dividend without the 20% tax on dividends withheld at source. In addition to this, legal persons have the right to claim back the tax on dividends withheld at source, provided they submit, within six years from the date of the dividend issue, the necessary tax return.
c) Tax incentives for companies
I the cases of IPOs, tax rates for companies were recently decreased by 50% for four years following the listing. More specifically the highest tax rate which was 25% is decreased to 12.5% and the 20% factor is decreased to 10%. This privilege is valid provided that:
shares of new IPOs will be listed until the 10th of July, 2002.
listed shares represent, at least, 80% of the issued share capital with voting rights.
the amount of tax deduction cannot be more than CYP£100,000 for each taxable year.
d) Tax incentives for offshore companies
Any income gained by offshore companies, which is derived from investments on shares listed on CSE, is tax deductible.
Disadvantages from obtaining a listing on the CSE
- Loss of Control
It is not allowed for any shareholder to control, either directly or indirectly, more than seventy per cent of the share capital and a percentage of at least twenty five per cent of the share capital must be satisfactorily dispersed to the public at large. The rationale behind this provision is to ensure that the interests of small shareholders are safeguarded. - Disclosure of information
Listed companies are required by the Cyprus Stock Exchange Law and Regulations to disclose all significant information that can may assist shareholders and the public at large, to make a better assessment of the prospects of each company. Furthermore, listed companies have the obligation to announce every important decision, and to publish semi-annual accounts. In the case of annual accounts, these have to be prepared according to the International Accounting Standards. These requirements impose extra costs in the form of information collection and auditing, and extra inconvenience on the company. - Cost of obtaining a listing
A part from the initial costs that are required for the preparation for a public offering e.g fees payable to lawyers, accountants, and underwriters etc. companies which seek a public listing have to pay certain fees, in accordance with Annex II of the Cyprus Stock Exchange Regulations. These fees include an once off application fee for the registration of a new issue, a fee for initial registration (payable at the time a new issue is made) and an annual contribution.
REGULATED MARKET
Advantages from obtaining a listing on the CSE
- A vehicle for raising capital
The Stock Exchange provides the listed companies with an alternative means for raising the capital required, in order to finance their development and growth activities, reducing their reliance on the more conventional ways of raising capital. At the same time, the Stock Exchange offers primarily to the small investors alternative options and possibilities for their investments and can act as a channel through which savings can be directed to the most productive, effective and efficient investments of the listed companies. - The growth and development of the sphere of activities of listed companies
The predominant feature of the economy of Cyprus is the large number of small to medium sized family enterprises, some of which are very credible and promising. However, on average, such companies often have limited prospects of growth and development and they cannot benefit from economies of scale. Due to the lack of sufficient infrastructure and solid foundations, the prospect of being exposed to the strong competition to be faced as a result of the anticipated membership of Cyprus in the EU is causing serious concern to many such companies, some of which may not be able to compete in such a harsh environment. Going public and obtaining a listing may offer a way out of these difficulties in the sense that the listing can provide the necessary funds to boost their growth potential. Furthermore, the control of the companies will gradually be dispersed from their founders to a large number of shareholders and this will consequently lead to improved management which, following this line of thought, can lead to more growth. - Strengthening of the company
Local Companies are going to be exposed to fierce competition on a European and a global basis, following our joining the EC. In such an environment, there will be no safety nets. Companies will have to invest on a larger scale, making effective investment choices and striving hard for efficiency and improvement in their productivity, in order to achieve an equal status with their European counterparts. By obtaining a listing, local companies can gain strength and reach the minimum size required in order to be able to ride the waves of change. - Opportunity to invest abroad
Following the liberalisation of interest rates and the removal of restrictions in capital flows, listed companies will be able to utilise the funds raised through the Cyprus Stock Exchange in order to invest abroad in countries where finance is difficult to obtain, but where prospects are promising. In the same way, companies from abroad will be given the chance to invest in local companies, and naturally, listed companies will enjoy the lion’s share in foreign investment. At this point, it must be mentioned that, the chances of achieving such international goals are greatly enhanced if a company has a local listing and a credible record before it seeks a listing abroad. - Enhanced corporate image
Listed companies enjoy the privilege of attracting the lights of publicity, with all the positive connotations associated with this fact. Furthermore, obtaining a listing has a status factor associated with it, which often enables listed companies to obtain finance at better terms than a private company. - Greater Marketability
Investors who choose to invest in listed companies can liquidate their investments at any time, an advantage that cannot be enjoyed by those who invest their money in private companies. - A path to mergers and acquisitions
It is much easier for listed companies to proceed with a merger of an acquisition of either a company listed on Cyprus Stock Exchange or a foreign company, and enjoy the synergy from such an option. The reason for this is that access to the economic affairs of listed companies is much easier and this combined with the transparency in transactions, enables offerors for more accurate assessments of the potentials and the synergy to be gained from such a move. - Tax incentives
- a) Tax incentives for investors
According to the prevailing law, shareholders in listed companies enjoy the following tax incentives:
- 30% of the amount that is invested either by a legal person or physical person in an Initial Public Offering (IPO) can be deducted from the total amount of Income Tax payable, provided that:
- The number of shares issued, represent at least, the 80% of the issued share capital with voting rights and are listed on the CSE within 3 months from the date of issue.
- The number of shares issued, represent at least, the 80% of the issued share capital with voting rights and are listed on the CSE within 3 months from the date of issue.
- The deduction is granted for the taxable year in which the listing is made
- This amount does not exceed 25% of the taxable income, before any deductions made to it.
- If the restriction of point c, then the deduction can be forwarded for the following taxable years
- The deduction is not granted in the case of a company that undertakes, fully or partly, the activities of another company that has already listed shares on the CSE.
- The deduction is not granted in the case of an entity that acquires directly or indirectly, shares of a company for which the deduction has already be given, or for which another deduction has been given before the validation of Law Number 79(1) of 1997.
- The term “shares” that is mentioned in all of the points above does not include redeemable shares.
- Up to CYP1,200 of the income received, arising from dividend payments by public listed companies is tax deductible, provided that the recipient is a physical person. This exemption is valid for any person above 18 years of age. The deduction is not granted in the case where the physical person chooses to be taxed according to the special tax treatment for dividend payments by public listed companies. According to this special treatment, the withheld tax at source on dividend, which is 20% constitutes the final tax responsibility of the physical person.
- In the case of physical persons, up to CYP600 of income received arising from interest payments of listed bonds, is also tax deductible.
- There is no tax payable of any capital gains made from buying and selling listed securities until 2001.
b) Tax incentives for foreign investors
The tax treatment of foreign investors depends on the tax regime that each investor is bound with. In the case where a Double Taxation Avoidance Treaty between Cyprus and investor’s country exists, investor’s income is not taxed when is brought to his/her country.
In the case of physical persons, all of the above (Tax incentives for investors) are valid, provided that are going to be claimed according to the Cyprus Income Tax Legislation. Legal persons have the right to receive the dividend without the 20% tax on dividends withheld at source. In addition to this, legal persons have the right to claim back the tax on dividends withheld at source, provided they submit, within six years from the date of the dividend issue, the necessary tax return.
c) Tax incentives for companies
I the cases of IPOs, tax rates for companies were recently decreased by 50% for four years following the listing. More specifically the highest tax rate which was 25% is decreased to 12.5% and the 20% factor is decreased to 10%. This privilege is valid provided that:
shares of new IPOs will be listed until the 10th of July, 2002.
listed shares represent, at least, 80% of the issued share capital with voting rights.
the amount of tax deduction cannot be more than CYP£100,000 for each taxable year.
d) Tax incentives for offshore companies
Any income gained by offshore companies, which is derived from investments on shares listed on CSE, is tax deductible.
