As from 31/12/2022, an important development applies as to the residency of Cyprus companies and in effect their taxation under Cyprus tax laws.
As per the Law, 193(I)/2021, amending the Income Tax Law, 118(I)/2002, a company, which is established or registered pursuant to any law in force in Cyprus, will by default be considered as resident in the Republic, and in effect liable to Cyprus Taxation, on its worldwide income, provided it is not tax resident in any other country.
The following proviso of the definition of the meaning, "Resident in the Republic" in article 2 of the Income Tax Law 118(I)/2002, as from 31/12/2022, has been added as follows:
"It is provided that, a company which has been established or registered pursuant to any law in force in the Republic, of which its management and control is exercised outside the Republic, it is considered that it is resident in the Republic, unless the said company is tax resident in any other country".
In Greek: «Νοείται έτι περαιτέρω ότι, εταιρεία που έχει συσταθεί ή εγγραφεί δυνάμει οποιουδήποτε σε ισχύ Νόμου στη Δημοκρατία, της οποίας ο έλεγχος και η διεύθυνση ασκούνται εκτός της Δημοκρατίας, θεωρείται ότι είναι κάτοικος της Δημοκρατίας, εκτός εάν η εν λόγω εταιρεία είναι φορολογικός κάτοικος σε οποιοδήποτε άλλο κράτος·».
In effect, the Incorporation Rule related to residency issues, is applicable in Cyprus as from 31/12/2022 in identifying the residency of Cyprus registered companies.
In view of this amendment, all Cyprus registered companies, by default, are considered as residents of Cyprus and are liable to Cyprus Taxation UNLESS they fall within the exception of the above provision.
In effect, all Cyprus registered Companies are considered as residents of Cyprus and are liable to Cyprus tax on their worldwide income, UNLESS, they are:
- Managed and controlled from abroad,
- Are tax resident in another country.
Foreign registered Companies
The central management and control test identifying the tax residency of companies liable to taxation in Cyprus still applies for foreign registered companies.
A company is resident in Cyprus for the purposes of taxation, if,
- It is incorporated in Cyprus (subject to the above exception) or
- The central management and control of its business is exercised in Cyprus, which in effect makes liable to Cyprus taxation foreign registered companies.
With this new development applicable as from 31/12/2022, Cyprus companies which were managed and controlled from abroad and were considered as not tax residents of Cyprus and not liable to Cyprus taxation, are now considered as tax residents of Cyprus and are liable to Cyprus taxation on their worldwide income, unless they can prove that they are managed and controlled from abroad and are tax residents in another country. Real evidence of such tax residency is expected to be asked by the authorities, although no guidance on this issue has yet been issued.
As a consequence, Cyprus Companies nowhere taxable cannot exist anymore.
Our coming Seminar on Management and Control Test
For details on this issue and the taxation of Cyprus and foreign companies pursuant to the management and control test, you may participate in our seminar:
ΔΙΕΥΘΥΝΣΗ ΚΑΙ ΕΛΕΓΧΟΣ ΕΤΑΙΡΕΙΩΝ - (Management and Control Test)
Φορολογία Κυπριακών και Αλλοδαπών Εταιρειών
ΑTAD 3 – Συμβάσεις Διπλής Φορολογίας,
to take place on 27/04/2023.
For details you may visit:
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.