Cyprus is and has been for many years now an established International Business and Financial Centre because of the incentives, the good infrastructure, and its considerably extensive network of Double Tax Treaties (DTTs). Cyprus EU membership and compliance with EU and OECD standards, in line with its most favourable tax regime and transparent legal system, places Cyprus amongst the most favourable jurisdictions.
Cyprus standard Corporate Tax rate of 12.5%, which is one of the lowest tax rates in the European Union, makes the island ideal for international tax planning purposes.
As it is well known, and as a general principle of international taxation, a Company is primarily subject to tax in the country where it is considered tax resident. Therefore, in Cyprus, a Company is considered to be tax resident in Cyprus if its management and control is exercised in Cyprus.
In the absence of a formal definition regarding the establishment of management and control in Cyprus, Companies take these parameters into account:
- The majority of the Directors of the Company are residents in Cyprus,
- All major Company decisions for the operations of the Company are taken in Cyprus by the local Directors,
- The headquarters of the Company are maintained in Cyprus, and
- The Company has an economic substance in Cyprus
Nowadays, economic substance has become an extremely important issue, following the announcement of the Cyprus Tax Authorities, in October 2015, where a new measure towards strengthening the soundness and legality of the Cyprus Tax Residence Certificates was taken by introducing a thorough Questionnaire – Checklist Form as an application for the issuing of the Certificates.
Although, the actions that have to be taken by each Company to enhance its substance is not an exercise of generality, and it needs careful planning, as an all-purpose note, the following are some common elements of substance that a Cyprus Company must have:
- Real physical presence in Cyprus, whether through an owned distinct office or via leasing space at a serviced business centre,
- People working either part-time or full-time at the Company's offices,
- Dedicated telephone, fax, internet lines, as well as a website and electronic mail (email),
- Owing at least one Bank Account opened with a Cyprus bank, and operated by a Cypriot member of the Board of Directors,
- Maintaining proper accounting books and records in Cyprus, prepared on-time without delays and submitted with their Annual Audited Financial Statements, as well as promptly submitting all Annual Tax Returns and settling all relevant tax amounts due, and
- A properly capitalised Company, with any share purchase agreements prepared in Cyprus and in accordance with the Cyprus Law.
Having said the above, and since physical presence of a Company claiming to be a Cyprus Tax Resident Company in the Republic will now be a safeguard against future challenges, we will be delighted in advising and assisting you with the setting of new structures as well as determining the extent of substance.
Our Firm's services, with regard to the above, are specifically the following:
- Consulting as to the appropriate level of substance,
- Management and Administration Services,
- Office space licensing and Office rental,
- Supply of staff and payroll services,
- Dedicated phone and fax line,
- Email set up and hosting,
- Creation of corporate website, and
- Insurance services
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.