Unlocking Value: EU Cross-Border Mergers for Business Restructuring and Optimization

Companies in the EU embark on cross-border mergers for a variety of reasons, such as optimization of business, rationalization of internal procedures, realization of cost savings in management, to simplify accounting and tax compliance procedures, to diversify or expand geographically, or to gain new resources or assets.

An EU cross border merger is defined as the merger of two or more Limited Liability Companies which have been incorporated in a member state of the European Union, provided that at least two of them are governed by the Law of a different member state.

Benefits of Using the Cyprus Merger Regime

Cyprus boasts an attractive cross-border merger regime, that offers multiple benefits:

• Mergers and acquisitions are not subject to VAT in Cyprus
• 0% taxation on dividends
• 5% corporation tax (amongst the lowest in Europe)
• Wide network of Double Tax Treaties
• Reduced administrative costs
• Excellent geographical position of Cyprus between Europe, Asia and Africa

Ways to Merge

Cyprus has fully adopted the Directive 2005/56/EC on cross border mergers of limited liability companies and enacted specific Regulations N.186(I)/2007 under Cyprus Companies Law, Cap. 113, sections 198-202. The Regulations allow three different types of cross-border mergers:

• By Absorption: One or more companies are dissolved without entering into liquidation and during their dissolution they transfer to another, pre-existing company (usually referred to as ‘absorbing company’) all their assets and liabilities, in exchange of shares in the absorbing company and possibly cash not exceeding the 10% of the nominal value or in the event of non-existence of nominal value the accounting value of said shares.
• By Incorporation: Two or more companies are dissolved without entering into liquidation and during their dissolution they transfer to another, newly incorporated (also known as ‘the new company’), all of their assets and liabilities in exchange for? shares of the new company and possibly cash not exceeding the 10% of the nominal value or in the event of non-existence of nominal value the accounting value of said shares.
• By acquisition: One company is dissolved without entering into liquidation and during its dissolution transfers all of its assets and liabilities to the company that possesses all of its shares (referred to as ‘mother company’).

Results of the Cross-Border Merger

• The companies being merged that cease to exist will have a certificate of dissolution by way of merger issued for them.
• Any assets or liabilities of the merged/absorbed companies are transferred to the surviving /absorbing company.
• The members of the merging companies, become members of the new merged company.

Necessary Steps to Complete a Cross-Border Merger

• Drafting and submission of the common terms of the cross-border merger, also known as merger/amalgamation plan.
• Preparation of a report by the Board of Directors of the companies detailing the economic and legal aspects, and impact on the companies and on their employees (if applicable). Any employees and related employee rights are either transferred to the merged company according to the requirements of local legislation , or are appropriately compensated prior to the cross-border merger taking effect.
• Preparation of an independent expert report on the implications of the merger, drafted by an independent tax advisor.
• Approval of the merger /amalgamation plan during the general meeting of all the limited liability companies involved and issuance of a pre-merger certificate by the designated authority confirming that the pre-merger formalities have been completed.
• Filing of the court order approving the completion of the cross-border merger, if required by the local Authorities such as in Cyprus. In certain member states, the procedure is done through notaries.
• The Registry of the resulting merged company must inform the Registries of the other companies involved of the finalisation of the procedure.

How we can help

Our experienced team in Cyprus has acted or advised in relation to numerous mergers and acquisitions, of both local and international character. We can assist and provide guidance with regards to all aspects of mergers. In particular, we can:

• fully undertake the cross-border merger on the Cyprus side including the drafting of the merger /amalgamation plan, the Directors resolutions, shareholders EGM minutes, Management reports, creditors consent letters, etc.
• liaise with the designated lawyers /advisors in other member states for the coordination of the matter.
• liaise with all the other parties including the auditors, the Ministry of Labour (for employee terminations if applicable), translators to arrange the translations of all documents in English or any other EU language.
• undertake all necessary filings with the Registrar of Companies and any necessary liaising thereof as well as the Gazette Publications required by Law.
• apply to the Cyprus Courts and obtain the necessary court order.

If you have any questions or want to know more about how we can assist you, please contact Dina Lophitou in our Cyprus team at dlophitou@tridenttrust.com