1. What is the difference between a company board member and a managing director (MD)?
A member of the management board is part of the body (management board of the company) authorized by a resolution to represent the company. There is a requirement to disclose personal data of the members of the management board in the National Court Register. Each member of the management board bears subsidiary liability in relation to the company. The Managing Director (MD) can be part of the company's management body. In this case, they will be authorized to represent the company. They do not bear subsidiary liability for the company's obligations, so there is no need to disclose their personal data in the KRS. They are authorized to manage the company's activities on an ongoing basis. The competencies of the Managing Director are specified in detail each time by the appointing management board. Both the member of the management board and the Managing Director are entitled to remuneration for their function. Due to changes in regulations, as of January 1, 2013, the remuneration of a member of the management board/Managing Director is no longer exempt from taxation in the case of payment of remuneration from a Cypriot company to a Polish tax resident.
2. What are the duties of a company secretary?
The secretary is responsible, among other things, for the timely submission of corporate information about the company to the relevant authorities and for administrative matters in the company, such as: preparing documents (minutes of shareholders' or board members' meetings), signing the financial statement and the accompanying documents. Of course, the secretary, if authorized by the members of the board, can perform certain transactions on behalf of the company, however, they must have the appropriate authorization for that.
3. What defines IFRS/IAS standards?
International Accounting Standards specify, among other things: - the manner of presenting financial data, - methods for valuing individual components of assets and liabilities, - the scope of information that must be disclosed in the financial statement, - the way to present the cash flow statement, - methods for presenting fixed assets. With the application of the aforementioned standards, wherever there is a difference between the statutory reporting of a given country and IAS/IFRS, there is a need to identify and determine the value of those differences.
Who can become a member of the trustee board?
Members of the board can be both natural and legal persons, depending on the regulations of the given jurisdiction. The rules for appointing and dismissing board members are defined in the Articles of Association, and in the absence of such provisions, the regulations of the commercial company code in the respective jurisdiction apply. Board members represent the company and manage its affairs.
5. How does the trustee board represent the company?
The company's representation is determined by the quorum for transaction of business, as specified in the Articles of Association. This is equivalent to the "representation method" in Polish law. Decisions regarding the transaction of business are made by board members in the form of resolutions, either during board meetings or as written resolutions. It is crucial to pay special attention to maintaining the quorum when adopting resolutions, as it directly affects the validity and enforceability of such decisions. Furthermore, the method of representation significantly impacts the company's tax residency status in a given jurisdiction. To maintain tax residency, the transaction of business must be conducted within the jurisdiction, meaning that board resolutions should be adopted within that country. Additionally, for tax residency purposes, it is advisable that decisions regarding the transaction of business are always controlled by board members who are tax residents of that jurisdiction.
6. What authority does the trust deed grant?
Upon signing the trust deed, the trustee becomes the formal (not actual) shareholder of the company, as recorded in the company register. It is essential to distinguish between the formal and actual shareholder, keeping in mind that the actual shareholder retains full decision-making authority over the company's affairs, while the trustee acts solely in accordance with the client's instructions.
7. How does the trust relationship define the relationship between the trustee and the settlor?
As a result of the asset transfer or authorization to exercise a right, the trustee exercises and utilizes that right in their own name but for the benefit of another person. However, the manner, timing, and conditions of exercising this right are strictly defined beyond what is typically granted by the legal entitlement itself. Additionally, it is stipulated that after a specified period or upon the fulfillment of a certain condition, the right (or the authorization to exercise it), along with any resulting benefits and profits, must be transferred by the trustee to the beneficiary/settlor or, alternatively, automatically pass to them upon the occurrence of the condition outlined in the legal agreement. As a result, the trustee is subject to strict limitations regarding the extent to which they are authorized to use the right they are entrusted to exercise.
8. Does a Cypriot company have to have a bank account in Cyprus?
No, there is no such requirement. A Cypriot company can open a bank account in any chosen country at the discretion of the company’s management (including the trustee board).
9. What is authorized capital in a Cypriot company?
Authorized capital is the maximum amount to which a company's issued share capital can be increased without amending the company’s memorandum. The value of the authorized capital is specified in the company’s memorandum. (As a standard recommendation, we suggest that our clients set the issued share capital of a Cypriot company at 1,000 EUR and the authorized capital at 2,000 EUR. It is possible to increase the authorized capital by amending the relevant provision in the company’s memorandum.)
10. What documents are included in the registration documents of a Cypriot company?
Certificate of Incorporation – a document confirming that the company has been registered with the Cyprus Registrar of Companies on a specific date; Certificate of Directors – a certificate providing information about the company's board members and secretary; Certificate of Shareholders – a document listing the company's shareholders, including details on the number, type, and value of shares held; Certificate of Registered Office – a certificate confirming the official registered address of the company; Memorandum of Association – the company's constitutional document outlining its structure and purpose.
11. What is double taxation of corporate entities?
Double taxation of corporate entities refers to the actual double taxation of shareholder profits generated through a corporate structure. The first level of taxation occurs at the corporate level, where the company is taxed as a corporate income taxpayer (CIT). The second level of taxation happens at the shareholder level, when the company distributes its profits (e.g., in the form of dividends). If the shareholder is another corporation (and its shareholder is another corporation, and so on), this taxation process can continue multiple times until the profits reach an individual who ultimately receives the income. Example: A Polish tax resident – an individual – is the sole shareholder of a Polish limited liability company (sp. z o.o.). The company generates income in a tax year, which is taxed at 19% CIT. Later, the shareholders' meeting decides to distribute the profits as dividends. Before paying the dividend, the company, acting as a tax payer, withholds 19% PIT (personal income tax) from the dividend amount. As a result, the shareholder receives only 66% of the company’s original income, illustrating the effect of double taxation.
12. What do double taxation treaties regulate?
According to a globally accepted principle, tax residents are subject to taxation on their worldwide income, regardless of where the income originates. Conversely, non-residents are taxed only on income earned in the source country. Given these two principles, the same income can potentially be taxed twice—once in the country of residence and once in the source country where the income was generated. To prevent this, countries enter into Double Taxation Avoidance Agreements (DTAAs), which are international treaties designed to eliminate situations where the same income would be taxed twice. Key Principles of Double Taxation Avoidance DTAAs generally establish three main approaches to avoiding double taxation: Taxation based on residency – The entire income is taxed in the taxpayer’s country of residence. Taxation based on the source of income – The entire income is taxed in the country where it was earned. A mixed approach, which includes two methods: Exemption with progression – Income taxed in the source country is exempt in the country of residence but is considered for progressive tax rate calculations. Tax credit (proportional deduction method) – Taxes paid in the source country are credited against the tax liability in the country of residence. DTAAs apply exclusively to income tax and wealth tax matters, ensuring that taxpayers do not suffer from double taxation on the same income in multiple jurisdictions.
13. How is cross-border service provision subject to VAT?
According to VAT regulations, certain transactions between taxpayers from different EU member states are taxed by the recipient of goods or services. This system aims to simplify VAT settlement through the reverse charge mechanism, where the buyer calculates and reports the tax instead of the seller. When a service is provided by a VAT-registered entity in one EU country to another VAT-registered entity in a different EU country, both the input and output VAT are accounted for by the recipient of the service.
14. What is the definition of "offshore companies"? Which countries are considered harmful tax competition territories?
Offshore companies are entities registered in a country or territory that engages in harmful tax competition. The OECD maintains a special list of jurisdictions that are considered to practice harmful tax competition, commonly referred to as the "Black List". Most countries maintain their own blacklists as part of their national tax systems. Poland also has its own blacklist, defined in regulations issued by the Minister of Finance. These include: Regulation of May 16, 2005, concerning countries and territories engaging in harmful tax competition for personal income tax (PIT) purposes (Dz.U. No. 94, item 790). Regulation of May 16, 2005, concerning countries and territories engaging in harmful tax competition for corporate income tax (CIT) purposes (Dz.U. No. 94, item 791). These lists are used to identify jurisdictions that provide preferential tax regimes and may pose risks related to tax evasion, aggressive tax planning, or lack of transparency.
15. What is the ownership function in intergenerational succession?
Every owner of an asset or right has the authority to transfer it (e.g., through sale), provided it is transferable, and to benefit from the economic advantages it generates (e.g., rental income from real estate or proceeds from selling a vehicle). In the context of intergenerational succession, the transfer of ownership of assets or rights involves passing on these two fundamental entitlements—the right to dispose of the asset and the right to derive economic benefits from it. Consequently, the original owner loses these rights once the transfer is completed.
16. What is the management (controlling) function in intergenerational succession?
The management (controlling) function in intergenerational succession primarily applies to businesses, including corporations. In many cases, the owner of a company also manages it or has the authority to appoint the management board, such as in a limited liability company (LLC). Often, a senior family member wishes to transfer management responsibilities while, for various reasons, retaining ownership rights. The management function defines the methods of controlling and overseeing the business while keeping ownership separate. This allows for a structured succession process where management authority is passed on without immediately relinquishing ownership rights.
17. What is the maintenance (support) function in intergenerational succession?
This function is based on the ability to guarantee financial benefits—most often in the form of monetary payments—to designated individuals who may not be capable of assuming ownership or management roles but should still be provided with a decent standard of living. It particularly applies to children, individuals with illnesses or disabilities, and family members who may not wish to engage in the management and oversight of family assets but are, according to the senior's wishes, meant to be financially supported by them. The maintenance function ensures that such individuals receive financial security without being directly involved in business operations or asset management, helping maintain stability and fairness in the succession process.
18. What does the cross-border merger procedure enable?
A cross-border merger allows for the synergistic integration of two commercial companies from different European Union countries, enhancing the competitiveness of the business in the European market and optimizing operational costs. Through this merger, the assets of a company (including ongoing contracts) can be transferred from one country to another without the need to undergo a liquidation process for the transferring company. This facilitates business continuity while enabling strategic restructuring at the international level.
19. What is the procedure for cross-border company seat transfer?
When a company transfers its registered seat to another jurisdiction, it becomes fully subject to the legal framework of the host country. This includes potential tax advantages, which can be leveraged for tax planning purposes. Another key benefit of this procedure is the ability to access the network of Double Taxation Avoidance Agreements (DTAAs) of the new jurisdiction, which can be particularly advantageous if legal changes in the company's original country negatively impact its operations. Importantly, a company undergoing a cross-border seat transfer retains its business history while only changing its registered office and the legal system under which it operates.
20. Is it necessary to prepare a separate financial statement for a branch established in Cyprus by a foreign entrepreneur?
A foreign entrepreneur who has established a branch in Cyprus is required to submit annual financial statements for the branch to the Cyprus Registrar of Companies, along with a certified Greek translation. However, companies registered in EU member states, whose annual financial statements are subject to statutory audit in their home country, are exempt from submitting separate financial statements for their Cypriot branch. Instead, they must provide the parent company's financial statements to the Registrar of Companies.
21. How does management function in LLCs?
In an LLC (Limited Liability Company), the company's affairs can be managed directly by the members (owners) or delegated in full or in part to managers, who serve as the equivalent of corporate board members. The management structure is entirely at the discretion of the members. The operating agreement, which is a contract between all LLC members, should clearly define the management structure and allocation of responsibilities. A key aspect of Delaware LLC law is that it provides strong liability protection for managers. Managers are not personally liable for the company’s debts to third parties and can only be held accountable by the LLC members. This makes Delaware a popular jurisdiction for LLC formations due to its robust legal protections for company managers.
22. What is the role of a Registered Agent in an LLC?
Entities that do not have a physical presence or residence in Delaware must appoint a Registered Agent to form an LLC in the state. The Registered Agent acts as the initial incorporator, files the required formation documents, and remains the company’s official agent throughout its existence. The members of the LLC can change the Registered Agent by formal decision. The Registered Agent has the authority to make changes to the company’s registration documents and is also responsible for receiving and forwarding legal documents on behalf of the LLC. This includes official notices, such as lawsuits or notifications of overdue state taxes.
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