European Economic Interest Grouping in Cyprus (EEIG)
European Economic Interest Grouping (EEIG) is the first supranational legal entity established in the European Union (EU). The creation of the EEIG is stipulated by the Regulation of the Council of the European Union No. 2137/85 of 25 July 1985.
Since the EEIGs themselves are not tax subjects and can withhold the earned income indefinitely, the EEIG can be an interesting structure for tax planning.
EEIG is on par with limited liability partnerships in most European countries. A European Economic Interest Grouping must consist of at least two members from two different European countries.
- EEIG members must be legally independent accordingly, however the owners can be identical.
- Consequently, subsidiaries can create EEIGs between themselves or with the parent company.
- Moreover, EEIG members do not have to be homogeneous. Consequently, EEIG can be established in any combination by freelancers and self-employed persons or by private businesses, limited liability companies or joint stock corporations, as well as associations and government bodies (for example, universities, chambers of commerce, municipalities, etc.).
- There are no restrictions on the provision of services. For example, it is possible that tax advisors, lawyers and possibly a data center (hosting accounting software) from different EU countries could establish an EEIG to offer related services to their clients.
The EEIG itself is not taxed. EEIG’s net income is taxable at the member level, with net income attributable to members based on their participation.
In this context, it is important to note that the EEIG should, in accordance with EU rules, help its members achieve their goals and should not pursue profit on its own behalf. This is due to the fact that one of the main features of the European Union for an Economic Purpose is the fact that it does not accumulate profits on its own behalf and, therefore, is not subject to taxation.
Individuals working for EEIG must pay income tax and insurance.
EEIG can register as a VAT payer and are responsible for paying VAT.
The EEIG’s goal is to fulfill the common goals of its members. Thus, the line of business should always ensure the cooperation of the participants.
Advantages of the European Economic Interest Grouping:
- EU-wide standardized legal form, therefore no discrimination.
- Changing the location of a business is possible within the entire single European market (as opposed to, for example, a local limited liability company).
- EEIGs are particularly attractive to small and medium-sized businesses because the EEIG is built in a simple and flexible manner and because no share capital is required to establish an EEIG.
- Simple formal requirements for registration: written agreement of incorporation and registration of the company (exceptions in some countries).
- EEIG’s profits are distributed equally or proportionally to the shares of the participants; the same applies to taxation.
- It is also possible: postponing reserves; this model as a whole is an interesting concept with regard to taxation (profits earned at the EEIG level and on behalf of the members can be converted into reserves of the EEIG and thus not distributed among the members. Result: no taxation of reserves at the member level.
- EEIGs are not required to draw up balances.
- EEIG is under no obligation to publish results.
- Members decide for themselves how they want to distribute their responsibilities and risks associated with cooperation.
- Members retain their economic and legal autonomy, but at the same time EEIG retains legal capacity.
- Legal responsibility lies primarily with the EEIG itself.
Disadvantages of EEIG:
- Limited suitability for new entrepreneurs.
- Unlimited legal liability of participants (but only subsidiary). However: the liability of limited liability companies as members of the EEIG is limited to their capital.
- Finding suitable partners for cooperation is often time consuming.
- In some cases, problems arise with the allocation of deficits or the allocation of additional contributions if this was not properly resolved prior to such an event.
- EEIG cannot be a shareholder of any of the member companies.
The above is for informative purposes only. Further professional advice should be sought for each particular case. Our firm does not accept any responsibility for any loss or damage occurring by acting on the basis of this information.