Preparation of Financial Statements – Tax Return
Annual financial statements must be prepared and filed with the Registrar of Companies showing the true and fair picture of the affairs of the company and explaining its transactions. The financial statements must be prepared according to International Financial Reporting Standards and must be filed either in the Greek or Turkish language, which are the official languages of the Republic of Cyprus.
Also, based on the results of the financial statements, the annual tax returns must be prepared and filed with the income tax authorities.
Full disclosure of the operations/activities of the company for the year under consideration must be submitted to the accountants/auditors of the company in time, in order to meet the time limits for the preparation and filing of the relevant financial statements and tax returns.
B. Time limits as to financial statements – annual tax returns to be presented.
The first financial statements/annual tax returns must be presented, the latest, within 18 months from the registration of the company and thereafter once a year. The following rules as to time limits apply:-
1. If a company is registered before the 30th June, (inclusive) in a current year (first six months of the year) then the first period for which financial statements and tax returns need to be prepared is from the date of incorporation until the 31st of December of the current year.
Filing of these financial statements and tax returns with the Cyprus authorities has to take place by the 31st December of the following year. For example, a company registered jon 1.5.2007 has to prepare financial statements and tax returns for the period 1.5.2007 until 31.12.2007 and file them by 31.12.2008.
2. Any company registered after 1st July in a current year then the first period for which financial statements/annual tax returns need to be prepared is from the date of its incorporation until the 31st of December of the following year. Filing of these financial statements/annual tax returns with the Cyprus authorities has to take place by the 31st December of the subsequent year. For example, a company registered on 1.8.2007 has to prepare financial statements and tax returns for the period 1.8.2007 until 31.12.2008 and file them by 31.12.2009.
However, companies falling under category (2) above may elect to follow the provisions of the above time limits specified in category (1) above and file their first financial statements and annual tax return for the first year of their incorporation.
C. Criminal offences and liabilities
If the company does not comply with its legal obligation to prepared and file financial statements and annual returns in time, then this is a criminal offence and the company and the directors are liable to criminal prosecution accordingly.
D. Information and documentation to be provided annually to the accountants/auditors
In particular the following information and documentation must be disclosed every year for the preparation of the financial statements:
- Bank statements and credit/debits notes for the financial year under consideration
- All contracts signed
- Invoices that have been issued by the company
- Bills/invoices received by the company
- Information and documentary evidence as to subsidiaries
- Audited financial statements of subsidiaries
- Dividends received from subsidiaries
- Information and documentary evidence as to the operation and expenses, bank statements of branches and representative offices
- Titles of property, movable or immovable purchased by the company
- Any other document evidencing income or expense on behalf of the company
- Documents proving payments of tax outside Cyprus to any tax authority for tax credit in Cyprus
- Share Certificates for investments in subsidiaries or otherwise
E. Audited financial statements
The following companies must submit their financial statements to be audited by auditors duly authorized by the Cyprus Government:
- Public companies
- Any company which is obliged to prepare consolidated accounts
- Any company which is not considered to be a small company
Small company is considered to be one which at least two of its following items do not exceed the following rules:
total of assets presented in the balance sheet (and without having subtracted the liabilities) at 34,172.029 euros;
net turnover of 70,052.659 euros;
average number of employees, fifty persons;
Provided that the company which initially fulfils the above-mentioned conditions loses its accordance with the provisions in this section, shall be deemed not to have been published under subsection (4) of section 142.
It is important to note, that the Tax Department prefers that tax returns are audited and it has the right, under the provision of corporation tax law, not to accept tax returns that are not reviewed and approved by qualified auditors.
F. No – activity financial statements “Dormant accounts”
Even if the company had no operations for a particular year it is obliged to prepare and file financial statements/tax returns as specified above.
G. Registrar of Companies – Filing of financial statements
Annual General Meeting
The company must hold an Annual General Meeting each year. More than 15 months must not lapse between one Annual General Meeting and the following one.
The first Annual General Meeting may be held within a time limit of 18 months from the incorporation of the company. If a company holds its first Annual General Meeting within 28 months from its incorporation, then there is no need to hold this first Annual General Meeting during the year of its incorporation of the subsequent year.
Every company must prepare and file with the Registrar of Companies and Annual Return (HE.32) once a year which must includes, among others, information as to the:
- Registered office of the company
The company must prepare its Annual Return (HE.32) within 14 days after the Annual General Meeting and within a time limit of 28 days from that date must submit it to the Registrar of Companies. In effect, the Annual Return must be completed and filed with the Registrar of Companies within a time limit of 42 days from the Annual General Meeting of the company.
Financial Statements filed with Annual Returns
As from the year 2004, a copy of the financial statements of the previous year must be filed with the Registrar of Companies together with the Annual Return of the current year. For example, the Annual Return for the year 2007 must be accompanied with the financial statements of the company for the year 2006 otherwise the Annual Return will not be accepted by the Registrar of Companies and the company will be in default.
In this way the financial statements for the year 2003 onwards must be filed with the Registrar of Companies and will be open to public inspection. In effect, the financial statements of companies become public documents as from 2003.
Companies must be up to date with their legal obligation to prepare financial statements and annual tax returns. On the contrary, the Registrar of Companies will refuse to issue certificates connected with the Annual Returns of the company and information listed therein, as the Annual Returns will not be accepted for filing without the financial statements.