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M&A in the Cypriot and Greek banking sector

The financial downturn has caused significant problems for the banking sector in Cyprus and Greece. During this economic turmoil, M&A takes on a special significance, argue Chris Damianou and Michalis Zambartas of Eurofast Taxand.

Mergers and acquisitions have been widely used for many years in the financial and business sector as a tool of strategic growth and strengthening. M&A can provide new opportunities and rapid growth such as the entering into a new market through an already established local business. They can also offer enhanced revenues and increased market power, by the reduction of expenses, improvement of operational efficiencies and the union of the respective values of the groups. In a few words, M&A can become a powerful tool for the prosperous times for instance when a business is considering expansions, and even for the bad times as in the cases of troubled businesses being redefined and refinanced though M&A.

M&A have a special significance during an international financial downturn. Businesses that may be in financial trouble or businesses that are merely concerned by the economic climate brought about by the crisis, can use mergers to reinforce and strengthen their financial status and position in their respective business sector, while on the other hand financially strong businesses and businesses that have not been negatively affected by the financial turmoil can take advantage of the difficult economic situation and use acquisitions to expand and gain significant market power.

It is widely known that the current financial downturn has come to test the actual existence of the EU and the level of support between the member states. The recent economic turbulences that affected Greece, Ireland, Spain, Portugal and most importantly the collapse of the Greek economic system had a serious impact on Cyprus because of its strong bonds with Greece. As a result, the financial turmoil approached the doorsteps of the island. Major investments of a number of Cyprus banks in Greek governmental bonds brought an unprecedented turmoil on the economic sector of the island.

M&A and banks

During and after the 1990s, M&A in the banking sector within the EU had become a significant trend, with more than 150 such transactions completed, while a new wave of banking M&A is underway, as a strategic tool against uncertainty and increased risks.

The use of M&A as a tool against the financial downturn is not a new idea and as noted by the European Central Bank, M&A's have been widely used in cases of banks sold to the private sector, to face new market facts, such as the single market, and also during the banking turmoil in the Scandinavian countries in the early 1990s.

M&A in the banking sector have clearly shown a positive result by reducing expenses and costs. At the same time increased profits have been observed.

Banking sector in Cyprus and Greece – a new investment opportunity?

Cyprus has always been a very tax beneficial jurisdiction and retains its status as a financial business centre.

Among the most important tax advantages that Cyprus has to offer are:

  • Corporate income tax of 10% on all Cyprus companies;

  • No withholding taxes when a Cyprus company pays dividends, interest or royalties to non-Cyprus tax resident beneficiaries;

  • No corporate income tax on inbound dividends;

  • No capital gains tax, except when the sale involves immovable property in Cyprus or shares connected with immovable property in Cyprus;

  • No thin-capitalisation rules; and

  • No transfer pricing rules.

Even though the economic turmoil has knocked on Cyprus's door, primarily as a consequence of the decisions of a few banks, it is important to distinguish facts from rumours. In their majority, Cyprus banks remain strong and independent financial institutions, something which is verified with their latest financial reports which illustrate profits and not losses, with the exception of a small number of Cyprus banks that invested heavily in Greek bonds.

In the uncertainty that the financial turmoil has created, Cyprus banks can become a great investment opportunity. The fact is that Cyprus is a jurisdiction where foreign business investments are constantly increasing, corporations are using Cyprus more and more for its tax regime, high net worth individuals are using Cyprus more and more for their private banking needs.

Following the EU membership of Cyprus in 2004, the Republic adopted the provisions of Directive 90/434/EEC (Merger Directive), extended the scope of the national legislation with Council Directive 2005/19/EC and finally, further adopted Council Directive 2009/133/EC. On the other hand the Cyprus legislation on re-organisation of companies is comparatively simple and flexible. EU Directives 78/855/EEC for the merger of public limited liability companies and 82/891/EEC for the division of public limited liability companies were also adopted in the national legislation of Cyprus Companies Law Chapter 113. Mergers, transfer of assets, exchange of shares and divisions are covered as re-organisations under the legislation and any profits or gains as a result of such re-organisations fall outside the scope of Cyprus taxation. EU Directives in combination with domestic company legislation on re-organisations set the foundations for classifying Cyprus as an ideal jurisdiction for M&A transactions.

National and European legislation on merger or transfer of business of credit institutions in Cyprus and Greece


The various legislative provisions on the M&A of banks in Cyprus, provide primarily that such mergers or transfers of business in any other way, will prerequisite the written approval of the Central Bank of Cyprus. Similarly, a person (or a person with its partner/s) having the control of a bank (with a certain percentage) needs also to acquire the written approval of the Central Bank of Cyprus. If the person that has the intention to acquire the control of a bank in Cyprus (with a certain percentage) is a credit institution, insurance or reinsurance business, investment firm or asset management company (or parent company, physical or legal person that controls such institutions and businesses) that has a license in another member state, then the Central Bank will also need to consult the relevant authorities of that member state.

According to the Cyprus Law for the Transfer of Banking Business and Collateral of 1997 64(I)/97, the acquiring bank must promptly notify the Registrar of Companies, which, with the consent of the Central Bank of Cyprus, must publish a notification in the Official Gazette regarding the transfer and the time of the transfer. Following the notification, the transferred operations and businesses of the acquired bank are transferred and acquired by the acquiring bank. The depositors have the right to request the immediate repayment of their deposits in the acquired bank. The acquiring bank replaces the acquired bank and any right on collaterals for the repayment of debts or obligations are transferred to the acquiring bank. At the same time the acquiring bank enjoys and is subject to the same rights and priorities of the acquired bank. Any claims or procedures of the acquired bank will not be interrupted but continued against or in favour of the acquiring bank.


The mergers of credit institutions in Greece are regulated under Law 2515/1997. The legislation provides that an assessment of the assets of the credit institutions to be merged must be submitted to the general meeting of the shareholders.

It goes further and clarifies in Article 9, from a tax perspective, that the merger agreement, the contribution and transfer of assets of the merged credit institutions and other related actions for the merger are exempted from any tax, stamp duty or any other duty, from any payments to the public or any other third party. The fees of the notary for the drafting of the merger agreement and others cannot go over the prescribed maximum fee, as defined in the legislation. The merger will not create any tax obligation for the merged credit institutions or for their shareholders except if subject to the provisions of article 18 of Law 1676/1986, regarding the tax of fundraising.

The above are also applied in the cases of division of credit institutions.

Credit institutions to be merged must apply to the Bank of Greece for the merger, and after it has been approved (the Bank of Greece shall reply within two months), the minister of development issues the decision by which the merger is approved. This procedure is also applied in the cases of division of credit institutions, provided that the assets of the receiving credit institution are increased by more than 10% or the total of its branches is increased, or in the cases where a credit institution acquires a branch of the activity or one or more of the branches of another operating credit institution, provided that this acquisition results in the increase of the acquiring credit institutions' assets by more than 10% or in the increase of its total number of branches.


The EU has also issued a specialised Directive for the taking up and pursuit of the business of credit institutions, to harmonise the mutual recognition of authorisation and supervision systems, as well as to achieve safeguards for the savers. According to Directive 2006/48/EC, that has been implemented by the Cyprus legislation, in certain circumstances and after the consent of the competent authorities, merged credit institutions' own funds, institutions that were in existence on January 1 1993, may not fall below the funds of the merged credit institutions at the time of the merger, if the appropriate levels as specified in the Directive have not been reached.

It is important to highlight here that the Directive noticeably states that clear attempts of credit institutions to opt for legal systems of member states which do not have very strict rules are not to be encouraged. In the cases where any such authority has indications that a credit institution intends to carry on the greater part of its activities in another member state only on the basis of the different standards set by the member states for giving such authorisation then the authorities are instructed not to grant or withdraw such authorisation. Nevertheless, in the cases where the majority of the total assets of such institution are located in a different state from the member state in which it has authorisation, then the responsible authorities should be changed only if they reach a mutual agreement. The Directive goes even further and provides more specific guidance to credit institutions that are legal persons in obtaining their authorisation where their registered office is or which are not legal persons where their head offices are situated.

Merger Directive

In a nutshell the Merger Directive provides that capital gains tax (CGT) shall be abolished in the case of mergers, division and partial divisions. However, article 1 of the Merger Directive provides that the said directive is applicable in the case of mergers, divisions, partial divisions, transfers of assets and exchanges of shares in which companies from two or more member states are involved.

Article 30 of the Income Tax Law Cap 118(I)/2002 (as amended), hereinafter referred to as the Income Tax Law deals with reorganisation of companies. The said article provides an interpretation of the term "merger" in an identical way to the Merger Directive. So, for the purposes of the Income Tax Law, a merger would include the following:

  • One or more companies, on being dissolved without going into liquidation, transfer all their assets and liabilities to another existing company in exchange for the issue to their shareholders of securities representing the capital of that other company, and, if applicable, a cash payment not exceeding 10% of the nominal value, or, in the absence of a nominal value, of the accounting par value of those securities;

  • Two or more companies, on being dissolved without going into liquidation, transfer all their assets and liabilities to a company that they form, in exchange for the issue to their shareholders of securities representing the capital of that new company, and, if applicable, a cash payment not exceeding 10% of the nominal value, or in the absence of a nominal value, of the accounting par value of those securities; and

  • A company, on being dissolved without going into liquidation, transfers all its assets and liabilities to the company holding all the securities representing its capital.

We have illustrated two structures to show how a merger may take place in practice between credit institutions. Diagram 1 illustrates the transfer of assets to an existing bank. It goes without saying that procedural requirements of the UK should also be followed. Diagram 2 illustrates the transfer of assets of two banks to a newly-formed bank.

Diagram 1 Transfer of assets to an existing bank


Diagram 2: Transfer of assets of two banks to a newly-formed bank


The Companies Law Cap 113, hereinafter referred to as Companies Law contains the relevant provisions which shall regulate the aforementioned merger. Articles 198-201 of Companies Law, contain the provision relating to mergers of companies in Cyprus. Specific requirements are also imposed for public companies under articles 201 A to G.

A resolution needs to be passed by the board of directors of the company which shall include the reorganisation plan of the company. An application will then be filed with the district court which will call for a meeting of the members of the company and/or the creditors (if applicable). A general meeting or another meeting, as the court may order, will be held whereby the majority of three quarters of the members voting must agree. The approval of the reorganisation (merger for the purposes of this article) must be petitioned with the court for approval. Once the court approves the merger it will issue a decision ordering the transfer of assets to the newly formed company (new co) and the issue of shares to the existing shareholders and if applicable the payment of an amount that does not exceed 10% of the value of the shares.

In the cases of certain public companies, other than the provisions of articles 198-201, the provisions of articles 201A-G also have applicability. These provisions concern the merger through absorption of one or more public companies, the merger of public companies by the incorporation of a new public company and the division of public companies. There is an obligation cast upon the directors of such companies to prepare a reorganisation plan, which in certain cases is accompanied by a detailed report of the directors of every company which is participating. Any such reorganisation plan is published at least 30 days before the general meeting which is called upon to decide on the reorganisation.

Cyprus is fully harmonised with the EU legislation and the domestic procedure is straightforward.

Chris Damianou



Eurofast Taxand

Tel: +357 22 699 222


Chris is a director of international tax at Eurofast and specialises in international tax structuring and planning, including real estate structuring. Chris has more than 25 years of working experience in tax consulting, working with local as well as multinational companies. Previously in his career he has served as the European chairman of the sixth largest international accounting organisation in the world in Europe, Middle East and Africa as well as president of the Junior Chamber International of Cyprus. He is the Honorary Consul of the Republic of Montenegro in Cyprus (except Limassol).

Chris is a holder of a bachelor's degree in business administration from Southern Illinois University and a US CPA. He has extensive general experience in the countries of South East Europe and CIS, as well as specific cross-border structuring, joint ventures and M&A experience involving most of the countries in the region.

He is a regular speaker at international tax conferences and events, and he is the author of numerous taxation articles published in international press and magazines. He has also conducted more than 200 presentations on international tax planning, accounting and management consulting in conferences and meetings all over the world.

Michalis Zambartas



Tax and legal associate

Eurofast Taxand

Tel: +357 22 699 222



Michalis Zambartas is a tax and legal associate at Eurofast Taxand. He focuses on international tax planning and international trusts for multinational companies. He also advises on tax related issues for liquidations, joint ventures, mergers & acquisitions and re-organisations.

Michalis has extensive experience in corporate law, in the fields of company law, contract law and maritime law. An indicative list of the clients he advises includes real estate funds, private banks, and high net worth individuals.

In addition to his LLB from the University of East Anglia, Michalis has completed an LLM from the University of Wales in maritime and commercial law, as well as an LLM from the University of Lancaster in European and international law.

Michalis was admitted to the Cyprus Bar Association in 2004 and is fluent in Greek, English and French.

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