Andreas NicolaouOne of the first questions aspiring entrepreneurs have is whether they have to register a company for their small business. It’s probably the most common question people ask their lawyer or accountant before commencing their operations.
Now, considering that there may be an inherent bias in their advice (since they probably sell incorporation services), they’ll most likely advise you to start a company. But, they might not dive deep into the reasons behind that and often won't consider your specific circumstances.
Remember, there is no one-size-fits-all in business ventures. The answer to whether or not you should register a company will be different for someone who wants to sell their handcrafted goods online as a side hustle and someone who wants to open a restaurant.
First things first, yes, you can sell products or even services without registering a company. It is perfectly legal and quite common for people in Cyprus to operate as sole proprietors without forming a company. But are they right to do so? I will expand on both options below and outline the most important things to consider before starting your business so that you choose the path that best suits your circumstances.
Simply put, a sole proprietorship is a type of business that is owned and run by one person. Sole proprietorship, also known as sole trader is the simplest way to run your small business since you’re essentially self-employed, running the business on your own without a formal business structure. But this also means that you’ll be personally liable for your business. Here’s what you need to know:
If you want to use a business name that isn’t your real name, you’ll need to register it with the Registrar of Companies. This involves submitting a relevant application to the Registrar and paying a registration fee.
You can’t escape the taxman even as a sole proprietor. You’ll need to register with the Cyprus Tax Department to get a Tax Identification Code (TIC) if you don’t have one already. And if your annual turnover exceeds €15,600, you’ll have to register for Value Added Tax (VAT) as well.
Beyond that, you’ll be subject to personal income tax on all the profits of your business. Of course, if your annual business earnings do not exceed €19,500 then you won’t have to pay any taxes. However, beyond that and as of 2024 income tax rates apply as follows:
| From | To | Tax Rate |
|---|---|---|
| €0 | €19,500 | 0% |
| €19,501 | €28,000 | 20% |
| €28,001 | €36,300 | 25% |
| €36,301 | €60,000 | 30% |
| €60,000 + | 35% |
This is arguably the biggest disadvantage of operating your business as a sole trader as there is no distinction between yourself and your business. What this means is that in case your business incurs debt or faces any legal issues, you’ll be personally liable with your personal assets potentially being at risk.
As a sole trader, you won’t have to worry about high startup costs since there is no incorporation procedure involved for which you’d have to pay a lawyer to register your company. Although you may incur some costs in registering a trade name if you don’t want to use your real name, these costs come nowhere near the costs of registering a company.
Unlike sole proprietorship, registering a company to run your business requires certain administrative tasks to be handled before you can start operations. There are different types of company structures that can be registered in Cyprus, but the most common one is a private limited liability company by shares. Here’s what you need to know:
This is arguably the greatest benefit the registration of a company has to offer and probably what makes a limited liability company so attractive to entrepreneurs. This is the existence of a separate legal personality. What this means is that there is a clear distinction between yourself and the company/business. As such, with your business operating under a limited liability company, your personal assets are protected from business debts and liabilities.
Being a registered company can definitely enhance the credibility of your business. Customers, suppliers, and investors often view companies as more stable and professional.
Companies in Cyprus enjoy several tax advantages. Cyprus has a relatively low corporate tax rate at 12.5% on company profits. You can also claim business expenses deduction through your company that you couldn’t as a sole proprietor.
Setting up a company instead of being a sole trader involves higher initial costs, which are primarily related to the registration of the company. Under Cyprus law, only lawyers licensed by the Cyprus Bar Association are allowed to prepare and sign the incorporation documents of the company. This means that even if you want to go through the administrative hurdles yourself to save money, you can’t. Thus, you’ll have to hire a lawyer to register your company, and legal fees can be expensive. Some larger law firms charge excessive fees, sometimes even reaching €4,000.
In the end, there is no clear-cut winner between operating as a sole proprietor and registering a company in Cyprus. It all depends on your specific circumstances and business goals.
Using the example I gave at the start, let's say you want to sell your handcrafted goods online and you don’t expect your sales to exceed €19,500 a year. Also, the credibility of a company is not something you care about since you’re only dealing with small clients. Then you should consider sole proprietorship as a way to save up startup costs and other administrative hurdles. Generally, for small-scale or low-risk ventures, staying as a sole proprietor might be the simplest and most cost-effective option.
However, if you're planning to grow your startup, seek investment, or prefer to have the ease of mind from limited liability, starting a company could be the better choice for you. Of course, the legal fees alone associated with company formation are enough to scare away young entrepreneurs who wish to try out their startup ideas without necessarily spending a big chunk of their capital before even they start operations.
While some service providers offer incorporation services at seemingly low prices, it's important to be cautious. Additional fees may be charged later for items that should have been included as part of the incorporation process, such as company certificates.
This is why you should make sure to request from your lawyer or service provider
their fees for incorporating your company as well as exactly what is included in
their pricing. This is exactly why we have created our online incorporation platform.
If you have read this article and believe registering a company is the best option for your business, then head over to easycorporate.com.cy to register your company. Our pricing is transparent, so you’ll know exactly what you'll be paying for and you’ll be able to start your business for a reasonable price.
