Accounting & Audit Services for Companies in Cyprus

Statutory Audit Requirements in Cyprus

The Companies Law, Cap.113, which governs the incorporation and operation of companies in Cyprus, mandates that every company registered in the Republic must prepare audited financial statements for each financial year. Unlike many other EU jurisdictions that exempt micro-entities or small companies from statutory audit obligations, Cyprus requires all companies without exception to undergo an annual audit conducted by a licensed statutory auditor or audit firm approved by the Cyprus Public Oversight Board (CyPOB).

This universal audit requirement underscores the importance of maintaining accurate, complete, and up-to-date accounting records from the moment a company commences trading. Failure to comply with the audit requirement can result in administrative penalties, difficulties in filing annual returns with the Registrar of Companies, and potential issues with the Tax Department.

International Financial Reporting Standards (IFRS)

Companies in Cyprus are required to prepare their financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. This applies to all companies, regardless of size, including private limited companies that are not publicly listed. The adoption of IFRS ensures that Cyprus financial statements are prepared to the highest international standards, which is a significant advantage for companies with international shareholders, lenders, or business partners who require financial information that is comparable across jurisdictions.

Small and medium-sized entities (SMEs) that do not have public accountability may elect to apply the IFRS for SMEs standard, which provides simplified recognition, measurement, and disclosure requirements while still maintaining the rigour and transparency expected under international standards. The choice between full IFRS and IFRS for SMEs should be made in consultation with your auditor and should take into account the needs of the company's stakeholders.

Bookkeeping Services

Maintaining accurate and timely accounting records is not only a legal obligation but also a critical business management tool. Under the Income Tax Law and the VAT Law, companies in Cyprus are required to maintain sufficient records to enable the accurate determination of their tax liabilities. These records must be retained for a minimum of seven years from the end of the relevant tax year.

Our bookkeeping services include:

• Day-to-day transaction recording: Processing of invoices, receipts, payments, and bank transactions using industry-standard accounting software.
• Bank reconciliations: Monthly reconciliation of all bank accounts to ensure accuracy and identify discrepancies promptly.
• Accounts receivable and payable management: Tracking outstanding invoices, managing supplier payments, and maintaining aged debtor and creditor reports.
• Payroll processing: Calculation of salaries, social insurance contributions, PAYE income tax withholding, and GHS contributions, along with preparation of monthly payroll returns.
• Fixed asset register: Maintaining records of all fixed assets, including depreciation calculations in accordance with IFRS and tax depreciation allowances under the Income Tax Law.
• Intercompany accounting: For companies within a group structure, we manage intercompany transactions, loan accounts, and transfer pricing documentation.

VAT Registration and Compliance

Value Added Tax (VAT) in Cyprus is governed by the VAT Law (Law 95(I)/2000, as amended) and is applied at the following rates:

Mandatory VAT registration is required when a company's taxable supplies exceed the threshold of €15,600 per annum, or when the company expects to exceed this threshold within the next 30 days. Voluntary registration is also available for companies below the threshold, which can be advantageous for businesses that wish to recover input VAT on purchases and expenses.

Our VAT compliance services include initial registration, preparation and submission of quarterly VAT returns, VIES declarations for intra-EU transactions, Intrastat returns for goods movements, and advisory services on the correct VAT treatment of complex transactions including cross-border supplies, triangulation arrangements, and reverse charge scenarios.

Management Accounts and Financial Reporting

Beyond the statutory requirements, many businesses benefit from regular management accounts that provide timely financial information for decision-making. We prepare monthly or quarterly management accounts that include:

• Profit and loss statement: Detailed income and expenditure analysis with comparisons to budget and prior periods.
• Balance sheet: Current snapshot of the company's assets, liabilities, and equity position.
• Cash flow statement: Analysis of cash inflows and outflows to support liquidity management and planning.
• Key performance indicators (KPIs): Tailored metrics relevant to the specific business, such as gross margin, debtor days, and working capital ratios.
• Variance analysis: Identification and explanation of material variances from budget or forecast, enabling management to take corrective action promptly.

Annual Returns to the Registrar of Companies

Every company registered in Cyprus must file an Annual Return (Form HE32) with the Registrar of Companies within 28 days of its annual general meeting. The annual return must be accompanied by the company's audited financial statements. Additionally, companies are required to pay an annual levy of €350 to the Registrar by 30 June of each year. Failure to pay the annual levy on time incurs a penalty of 10% if paid within two months of the deadline, increasing to 30% thereafter.

Companies that fail to file their annual return or pay the annual levy for consecutive years may be subject to striking-off proceedings, which can result in the company being dissolved and its assets vesting in the Republic. We ensure that all annual filings are completed accurately and on time, protecting our clients from penalties and the risk of involuntary dissolution.

Tax Computation and Filing

The preparation of accurate tax computations is an integral part of our accounting service. We compute corporate income tax based on the company's audited financial statements, making the necessary adjustments for non-deductible expenses, exempt income, capital allowances, and other items as prescribed by the Income Tax Law. The corporate tax return (Form TD4) must be filed electronically within 15 months of the end of the tax year.

Companies must also self-assess their expected tax liability for the current year and make advance payments through the temporary tax assessment system. Two equal instalments are payable on 31 July and 31 December of the tax year. If the final tax liability exceeds the temporary assessment by more than 25%, a surcharge of 10% is applied to the underpaid amount. Accurate tax planning and estimation is therefore critical to avoid unnecessary surcharges.

Penalties for Non-Compliance

The consequences of failing to meet accounting, audit, and tax obligations in Cyprus can be significant:

• Late filing of tax returns: Penalty of €100 per return, increasing to €200 for returns more than three months late, plus 5% interest per annum on unpaid tax.
• Failure to submit audited accounts: May result in rejection of the annual return by the Registrar and commencement of striking-off proceedings.
• Late payment of annual levy: 10% surcharge if paid within two months, 30% thereafter.
• Underpayment of temporary tax: 10% surcharge on the amount by which the temporary assessment falls short of the final liability by more than 25%.
• VAT offences: Penalties for late submission of VAT returns and late payment of VAT, including interest and potential criminal prosecution for deliberate evasion.

Our Full-Service Accounting Packages

Philippou Law Firm offers comprehensive accounting packages tailored to the needs of Cyprus companies at every stage of growth. Our packages include:

• Start-up package: Bookkeeping, VAT registration and compliance, payroll processing, preparation of annual financial statements, statutory audit coordination, tax computation and filing, and annual return submission.
• Growth package: All services in the start-up package, plus monthly management accounts, cash flow forecasting, budgeting support, and transfer pricing documentation for companies with related-party transactions.
• Enterprise package: Full-service accounting and advisory, including consolidated group accounts, multi-currency accounting, IFRS advisory, tax planning and optimisation, and dedicated account management.

Whether you are a newly incorporated company requiring basic bookkeeping or an established business with complex international operations, our team of qualified accountants and tax advisors is here to ensure that your financial affairs are managed professionally, efficiently, and in full compliance with all applicable laws. Contact us today to discuss your requirements.