Cyprus Forex License

Access to the EU market.
By the EU 2004 Markets in Financial Instruments Directive (MiFID), the licensee has the right to provide financial services throughout the EU area.

Favorable tax rates.
The adopted taxation system is one of the most attractive for doing business in the EU: corporate tax – 12.5% (24% in Italy), 0% for out-of-country operations.

Cyprus Legislation.
Accession to the EU has contributed to the fact that the regulations of the legal system of Cyprus are regulated with clear directives and EU standards. Also, several double taxation agreements have been signed.

Quick procedure for obtaining a forex license.
CySEC, based on a decade of experience in issuing licenses, has developed clear Cyprus forex license requirements, as well as for conducting forex activities.

Banking system.
Developed a banking system with more than 20 banks (15 foreign). Since 2014 the Main Bank of the country has been included in the European System of Central Banks, accordingly the whole system is subject to the regulatory requirements and standards of the EU.

The Cypriot government was the earliest in Europe to develop the forex market, so over the years the requirements for licensees have been developed and clearly defined.

Companies that plan to obtain a forex license in Cyprus must:

• Register the company (CIF) with the Cypriot government authority.
• To obtain a license STP (trading operations, investment advice, client portfolio management), a minimum authorized capital of EUR 125 thousand, for Market Making (trading on the stock exchange) – EUR 730 thousand, for investment consultant – EUR 50 thousand.
• Have an office in Cyprus, where the main activity will take place.
• Open an account in a local bank.
• There must be at least 1 founder (can be a physical or legal person, with no citizenship requirements).
• Hire staff: AML specialist, KYC officer, risk manager, external and internal auditors (must be residents of Cyprus), accountant, traders (certified), IT specialists, secretary (there is a possibility of combining positions).
• The Board of Directors should consist of 4 directors (3 must be Cyprus residents), each with relevant experience in banking or finance.
• Draw up a business plan.
• Develop a KYC/AML policy.
• Contribute to the Investor Compensation Fund (ICF).
• Have a website for online activities.

The main disadvantage of operating in Cyprus is the cost of mandatory office maintenance, technical equipment, rent, salaries for key personnel, and auditors’ fees.

A U.S. investment company (not related to banks or insurance companies) in Cyprus must be registered under the Investment Services and Activities and Regulated Market Law, L. 144(I)2007, to obtain a Cyprus Forex brokerage license.

U.S. activities are regulated by the Investment Services and Activities and Regulated Markets Law of 2007, as amended in 2009.

Advantages for a company in Cyprus:

• Location. Mediterranean, access to markets in Europe and Africa
• Tax regime. The lowest rate in the EU on corporate tax -12.5%, no tax on dividends, interest, capital gains, income from the sale of securities
• Access to the EU single market, payment system, and banking sector.

Setting up a Cyprus corporation consists of these steps:

• Drawing up a business plan (describing the management plan, organizational structure, marketing plan describing the market for services and type of operations )
• Detailed description of AML/KYC procedure
• Preparation of financial forecast for 3 years
• Fulfillment of capital requirements (by type of activity)
• Rent an office or purchase real estate in Cyprus
• Appoint 4 managers (must have appropriate qualifications and experience, residency)
• Shareholders, beneficiaries, founders, and directors fill in an application form and provide copies of passports, certificates of absence of criminal record, and bankruptcy.
• Hire employees – compliance specialists (must be registered in the CySEC public register) and risk manager (can be one person), 2 traders (as well as accountants, IT specialists, secretaries, etc.).
• Open a bank account
• Create a website
• Apply to the Cyprus Registrar of Companies (RCOR).

Government fees start from €9,000.

The banking system of Cyprus is integrated with the EU legislation, there are more than 20 banks with a large system of branches and ATMs.

Before applying for documents for obtaining a license to CySEC, it is necessary to open a bank account to deposit the authorized capital (€ 125 000 for a broker, € 725 000 – for a market maker). After payment of the entire amount, it is necessary to obtain a certificate confirming the presence of the amount on the account. This amount will be frozen for the duration of the license.

To open a corporate account, documents must be submitted in English:

• Constituent documents (articles of association/contracts/memorandum, certificate of incorporation)
• Documents confirming the legal address (lease agreement, etc.).
• Description of the company’s activities, its structure, link to the website
• Certificates for directors, secretaries
• Documents according to which will confirm the legality of the origin of funds
• Passports/documents of founders, beneficiaries, and managers of the company.

The process of account opening may take from 10-15 days.

In general, the package of documents to CySEC to obtain a license will consist of:

• Application
• A business plan;
• A financial forecast for three years;
• AML, risk management guidelines, anti-financial fraud KYC procedures;
• Questionnaires with completed details of each shareholder and director and their documents (passports);
• Certificate of no criminal record and no bankruptcy for shareholders and employees.

Several employees also need to be appointed:

• 4 directors (the 3rd must be domiciled in Cyprus);
• Risk Manager and Compliance Officer (to be certified by CySEC);
• Internal auditors (Cyprus residents, certified) and external auditors.

Organizational Structure Requirements:

• Have risk management procedures in place
• Establish customer identification procedures
• Keep records of all financial transactions
• Have sufficient technical capacity to store customer data.

Once the license is issued, CySEC will continue to monitor the CIF’s activities. If violations are found, the license may be revoked.

CySEC, based on Law 87(1)/2017, issues these types of licenses: basic, standard, and full.

Basic license – the capital amount is 50,000 euros, it is allowed to provide investment advice and execute orders, but preservation of capital or other financial instruments is prohibited.

Standard license (STP), capital size – 125,000 euros, the broker keeps clients’ money, provides investment advice, executes trade orders from clients, uses the straight-through processing model (STP), and keeps investors’ money.

Full license (market maker) – the company’s capital of €730,000, the broker can carry out trading operations on the exchange, execute orders from clients, act as counterparties, and hold money and other financial instruments.

Investment firms in Cyprus are regulated by the Investment Services and Activities and Regulated Markets Law of 2007 (as amended in 2009).

CySec bases its requirements on:

• Directive No. 144-2007-03
• Directive No. 144-2007-04
• The Markets in Financial Instruments Directive (MiFID).

These directives state that forex companies must segregate client funds from firm funds and place them in separate accounts. In addition, forex companies must segment their clients into retail and professional traders and investors.

The Investor Compensation Fund (F) deals with the payment of compensation according to insurance in case of bankruptcy of a forex broker.

The interest of business in this economic zone can also be explained by the loyal tax regime, where the company is subject to:

• -12.5% income tax (the lowest tax in the EU zone, Italy -24%, Spain -15%)
• 20% capital gains tax (if income is received from real estate transactions)
• 0% tax on income from the sale of securities, dividends received, and income from exchange rate differences.

Also, the company that has employees is obliged to pay insurance contributions:

• 2% – social fund
• 1.2% – reserve fund
• 0.5% – personnel development fund
• 8% – vacation fund

The tax year in Cyprus corresponds to the calendar year.

CIF companies are subject to the types of fees outlined in CySEC Consolidated Directive DI 87-03, (A), (B), (C), and (D).

The CySEC fee for license application is €7000, if the broker plans to trade cryptocurrencies another €5000 is added.

License fees depend on the company’s turnover: 0% turnover less than €500,000 to 0.75% turnover from €500,001 to €1 million. These amounts are calculated based on the annual financial report.