Forming a Company in North Cyprus as a Foreign Investor

Foreign investors ask about TRNC companies for one of two reasons: they want to trade here, or they want to hold property and have been told a company is the answer. Those are different questions with different answers, and the second one is asked far more often than it is examined.

The legal framework

Companies in Northern Cyprus are governed by legislation derived from the English statutory model. Anyone who has incorporated in a common law jurisdiction will recognise the architecture: a memorandum and articles of association, a share capital divided into shares, directors owing duties to the company, a registered office, statutory registers, and annual filing obligations.

The unfamiliar parts for an overseas investor are the approval requirements that attach to foreign shareholding, and the sector-specific rules that apply to certain licensed activities.

Should you hold property through a company?

This is the question most people actually mean when they ask about incorporation. The honest answer is that it depends on how many properties you intend to hold and what you intend to do with them.

The case for a company

• An individual non-citizen is subject to restrictions on how much immovable property they may hold in their own name. A TRNC company is not subject to those limits in the same way, which is why investors acquiring multiple units commonly incorporate.
• Onward sale can be structured as a transfer of shares rather than a transfer of land, which in some circumstances is simpler.
• Succession can be dealt with at the level of the shares, which for some families is easier than dealing with the land itself across jurisdictions.
• Where several people are investing together, a company provides a ready-made framework for recording who owns what and how decisions are made.

The case against

• Formation costs, and then annual costs that do not stop: registered office, accounting, audit where required, and filing.
• Foreign shareholding approval requirements add a step and a timescale.
• Administrative failure has consequences. A company that stops filing can face penalties or strike-off — a serious matter when the company is what holds your house.
• Tax treatment in your country of residence may be materially worse for a foreign company holding a foreign property than for personal ownership. This is the point most often overlooked, and it is not a TRNC question — it is a question for your advisers at home.

Incorporation: what is involved

1. Name approval. The proposed name is checked and reserved.
2. Constitutional documents. The memorandum and articles are drafted, setting out the company's objects and the rules governing shares, directors and meetings. Off-the-shelf articles are common and are usually a false economy where more than one person is involved.
3. Shareholders and directors. Identity documentation, and the approval process applicable to foreign shareholders.
4. Registered office. A local address at which the company can be served.
5. Registration with the Registrar, followed by tax registration and any sector-specific licensing.

Incorporation itself is relatively quick once the name is approved and the documents are settled. Where foreign shareholder approval is required, that step governs the overall timetable.

Getting the shareholder arrangements right

Where two or more people are investing together, the articles alone are rarely enough. A shareholder agreement should deal with the questions that cause disputes:

• Who makes which decisions, and what requires unanimity.
• How money comes out — dividends, salaries, loans — and on what basis.
• What happens if the shareholders deadlock.
• How a shareholder exits, who may buy, and how the shares are valued.
• What happens on the death or incapacity of a shareholder.
• Whether shareholders may compete with the company.

Almost every corporate dispute we litigate began as an arrangement between people who trusted each other and did not write down what would happen if they stopped. The agreement is cheap at the start and expensive to do without.

Ongoing obligations

A TRNC company must maintain a registered office, keep its statutory registers, file annual returns and accounts, and meet its tax registration and reporting obligations. Where audit is required, it must be arranged. None of this is burdensome for a small company, and all of it is mandatory.

We act as registered office for client companies and keep filings current, which for an overseas shareholder removes the risk of a company quietly falling out of good standing while nobody is watching.

What we do

Advice on whether a company is the right vehicle at all; incorporation and foreign shareholder approval; drafting of constitutional documents and shareholder agreements; registered office and ongoing compliance; and restoring the position where a company has fallen behind. See our corporate practice.

Questions people ask