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M&A in Cyprus

When it comes to M&A in Cyprus, there are a number of major laws one should be aware of, as follows:

1. Companies Law Cap. 113

(a) Sections 198-201 of Companies Law regulate mergers, divisions, partial divisions, transfers of assets and exchange of shares in two or more companies intending to merge together.

(b) Sections 201A – H of Companies Law as amended by Law 70(I) of 2003 regulate mergers of public companies in line with European practices.

(c) Sections 201I – X of Companies Law as amended by Law 186(I) of 2007 harmonized national law with EU Directive 2005/56 on cross border mergers of limited liability companies opening route for cross-border mergers between companies incorporated in Cyprus and companies in the EU.

2. The Law Relating to Control of Concentrations between Enterprises, No. 22(I)/1999 as amended by Law 107(I) of 1999, which incorporates the well-known EU policy to promote competition and fight monopolization.

3. The Law Relating to the Maintenance and Safeguarding of Employees’ Rights in the event of Transfers of Undertakings, Facilities or Parts of Business or Facilities No. 104(I)/2000, which incorporates the European Directives 82/891 EEC and 77/187 EEC that safeguard the employees’ rights in the event of transfers of undertakings, businesses or parts of businesses.



Section 198 of Companies Law regulates compromises between the majority of a company’s creditors which may then be imposed on all its creditors, and enables class rights of company members to be varied where no provision otherwise exists to vary them. It should be noted that such a scheme cannot be sanctioned by court if it is ultra vires to the company or contrary to Cyprus law. This section governs schemes of both a going concern and a company in the process of liquidation. A “compromise” presupposes the existence of a dispute, whereas the meaning of an “arrangement” is not to be limited to a compromise.

Section 200 of Companies Law provides for the reconstruction of any company or companies or the amalgamation of any two or more companies and how this can be sanctioned and approved by Court. Finally, section 201 of the Companies Law provides for the transferee company to acquire the shares of shareholders dissenting from the scheme or contract of reconstruction that has been approved by the majority. Sections 201A – H of the Companies Law govern a merger by absorption of one or more public companies by another public company, the merging of public companies by creating a new company and the division of public companies.

Section 201I – X of Companies Law, incorporates EU Directive 2005/56/EC into national law and regulate cross – border mergers, that is cross border merger of companies which have been incorporated in accordance to the laws of a member state and have their registered office within the EC under the condition that at least two of these companies are governed by the law of different member states.

Under the Companies Law, a cross border merger may only take place between companies for which merger is permitted in accordance to the provisions of the national law of the member state in which they are incorporated.

The scope of the Control of Concentration Law is to concentrations that are considered to be of major importance with respect to the aggregate turnover of the business and the commercial activities of at least of one of the participating enterprises of the concentration in question must be within the Republic of Cyprus.

The Law Relating to the Maintenance and Safeguarding of Employees’ Rights in the event of Transfers of Undertakings, Facilities or Parts of Business or Facilities N.104(I)/2000 governs transfers of businesses or parts of these businesses to a new employer as a result of the legal transfer or merger.


The Companies Law

A compromise or arrangement between a company and its creditors or any class of them pursuant to section 198 of Companies Law must be approved by ¾ in value of the creditors and sanctioned by Court, to be binding on all creditors, the company or even the liquidator as the case may be. When summoning the creditors to approve the scheme, they should receive a statement explaining the effect of the compromise or arrangement and in particular stating any material interests of the directors of the company and the effect of such compromise.

A scheme for the reconstruction and amalgamation of a company pursuant to section 200 of Companies Law also needs to be approved by Court. The Court in approving such a reconstruction may make provision for whole or part of the undertaking and of the property or liabilities of any company concerned in the scheme to be transferred to another company. The Court may also make provision about the allotment or appropriation of shares, debentures, policies and other like interests by the transferee company to any person, the continuation by or against the transferee company of any legal proceedings pending against or by the transferor as well as such incidental, the dissolution, without winding up, of any transferor company as well as consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be effectively and fully carried out.

To give effect to the reconstruction, a scheme is set out by the auditors of the companies who are also responsible for the scheme’s approval by the Income Tax Authorities which in turn need to confirm that there will be no tax complications with the proposed reorganization. The board of directors of each of the related companies should pass a resolution setting out the reorganization plan as prepared by the auditors. Each of the companies involved in the reorganization should then apply to the court by summons, requesting the court to convene meetings of the parties concerned.

If the absorbing company already possesses less than 90% of the shares of the absorbed company, this plan should be accompanied by a detailed written report by the directors, which explains and justifies the plan financially, and this plan should be examined by independent experts appointed by the court. The company should also provide sufficient protection to its creditors.

Every merging Cyprus company must deliver an official copy to the Registrar of Companies in Cyprus for registration and publication, whereupon the Registrar shall then remove any Cyprus companies which have been absorbed in the merger from the Register of Companies and shall refer to the date of the commencement of the cross border merger.


The Concentration of Business Law

The procedure to be followed when a concentration is classified as of major importance and therefore falling in the ambit of the Concentration of Businesses Law is for a notification of the proposed concentration to be filed with the Commission for the Protection of Competition (CPC). The CPC evaluates the concentration in question and decides if it is harmful to the competitiveness of the Cyprus market or whether it or if it dominates the market.

The notification must be filed within one week from the date of the conclusion of the agreement for concentration or the publication of the relevant purchase or exchange or the acquisition of the securities which ensures the control of the business. The notification includes detailed account of the companies’ shares in the Cyprus market, a detailed account of the concentration and argument as to why the concentration is in conformity with healthy competition principles.

Once the notification is filed, and it is determined that the concentration falls within the Law, a notice is publicized in the Official Gazette. Then, the Competition and Consumer Protection Service submits a report to the CPC as to whether the concentration in question is creating a dominant position in the Cyprus market. The CPC ought to reach its decision and to notify the participating parties of it within one month of the date of filing of the notification or the date of the filing of the additional missing documents. In case the CPC decides that the concentration in question is dominating the market, then a full investigation is undertaken.


The Maintenance of Employees’ Rights Law

The Law Relating to the Maintenance and Safeguarding of Employees’ Rights obliges the companies involved in a merger, that is the old and new employer companies, to inform the employees that are affected by the merger of the date of the merger, the reasons for merging, the legal and social consequences of such merger and the measures to be taken with respect to the employees. The Law provides for the rights of the employees to be protected and maintained by the new employer.


Which are the advantages and or disadvantages of the merger legislation, including any tax benefits?

Profits from the transfer of assets by reason of reorganization do not trigger tax implications to the transferring company. Furthermore, reorganizations fall outside the scope of VAT and there is a stamp duty exemption on agreements concluded for reorganization purposes. Lastly there is a capital gains tax exemption on profits deriving from the transfer of immovable assets in the course of reorganization as well as a transfer fees exemption on the transfer of immovable assets and mortgage fees exemption when transferring mortgaged property from a company to another in the course of reorganization.

The effectiveness of a merger from a tax prospective, however, depends upon the drafting of a reorganization plan and the issuance of a reorganization certificate by the Inland Revenue.
Considering that the above tax exemptions also apply to cross – border mergers, the advantages of having the merger directive in conformity with domestic legislation in Cyprus allows many organizations to reorganize their existing corporate and tax strategies.

As to the Concentration of Business legislation with respect to competition the thresholds in place that trigger notification are too wide in scope, forcing many parties to notify a transaction to the CPC that has absolutely no competition effect in Cyprus whatsoever. As a result, companies that have no real connection with Cyprus want to proceed with a planned concentration but first need the approval of the CPC that is often burdened by notification reviews irrelevant to the Cyprus market and take up time that would be better spent on considering concentrations that raise genuine market concerns.