Originally published 14th October 2016
The changing regulatory requirements, global tax reforms and initiatives such as the Base Erosion and Profit Shifting (BEPS) action plan undertaken by the OECD raise important questions for international financial centres and companies.
Due to the new tax regulations, the business environment is becoming more challenging and companies must adopt proper structure in order to comply with the new requirements concerning tax residency. This is the reason why the importance of substance has lately increased significantly.
Substance determines the company's tax residency and if a company is found to lack substance, it could face investigations by the tax authorities, considerably higher tax burden and additional fines. Thus, substance became an extremely important element of tax planning.
Cyprus is offering a very competitive tax framework since long (the general corporate tax rate of 12,5 % is one of the lowest in the EU, the effective taxation of income from intellectual property is 2,5%) to attract foreign investors to register their companies and for tax planning purposes.
According to the Cyprus Company Law – Cap. 113., a Cyprus company is considered as a Cyprus tax resident if its effective management and control is exercised in Cyprus.
Effective management and control means that the:
- registered office address in Cyprus;
- the majority of directors are Cyprus tax residents;
- all board meetings are held in Cyprus;
- Board Decisions are taken in Cyprus.
However, due to the new regulatory changes, which many countries
are incorporating to their legislation to combat tax evasion and
tax fraud; there is no guarantee that foreign tax authorities will
consider companies as Cyprus Tax Residents if only the above
criteria of statutory substance are met.
Therefore, it is extremely important to be well prepared for the challenges of the new regulatory environment and substance requirements that might consider the company.
In view of the above we believe that companies registered in Cyprus must have a real physical substance in the country in order to support Cyprus Tax Residency status and to avoid further tax obligations in other jurisdictions.
Physical substance in Cyprus means that the company has:
- its own physical office space (rented or owned);
- telephone and fax line in the name of the company;
- preferably email address and website;
- trained employees to carry out the administrative management of the company;
- business activities mainly undertaken from Cyprus;
- accounting records must be kept in Cyprus;
- local bank account.
Shanda Consult can assist you with issues of Cyprus economic substance. Through our affiliate corporate business centre, Euroserv Business Centre we can offer:
- complete setting up and maintenance of physical business office of the company, including the staff needed;
- full-fledged modern offices and workstations;
- own phone and fax lines of the company, answering of phone calls in the name of the company,
- automatic call forwarding possible, notification via email;
- forwarding of incoming mail via email (physical forwarding is possible as well).
Euroserv Business Centre is an exclusive and modern business centre in the office building Methonis Tower, located prestigiously on the main axis of Nicosia, Makarios Avenue, in the heart of Nicosia, which is considered to be the best business area in Nicosia.
Due to its excellent location main authorities, regulatory bodies, governmental administration offices such as the Registrar of Companies and banks such as the International Business Unit of Hellenic Bank, can be reached within 2 to 10 minutes by car, or partly by walking.
EuroServ Business Centre is also in walking distance to the Hilton Hotel and many other hotels. You simply can't find a better and easier location in Nicosia!
Permanent business premises installed by Shanda Consult can be of significance with respect to physical substance and other business and taxation aspects.
We can assist you with setting up a customized infrastructure as well as with customized re-structuring of the company from the legal and tax point of view in order to be in compliance with all the regulations and to eliminate the potential challenges and liabilities.
For your custom-made Cyprus Substance solutions please contact us.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.