SUBSTANCE ESTABLISHMENT AND MAINTENANCE IN CYPRUS


Cyprus company substance

In course of the Base Erosion and Profit Shifting (“BEPS”) project managed by the Organisation of Economic Cooperation and Development (“OECD”), new measures were introduced in an effort to develop new stringent standards concerning international tax systems. Accordingly, a “nominal” presence is not any longer suitable for conducting all activities for legal entities to be considered Cyprus tax residents.

Thus, for a foreign entity registered in Cyprus is vital to demonstrate enough substance in the region to argue that it is located and operates in the country for reasons other than tax avoidance.

In this sense for a Cyprus company to be considered a Cyprus tax resident the following conditions must be met:
(i) Conducting the core income-generating activities from Cyprus;
(ii) Presence of an adequate number of full-time employees with necessary qualifications to be able to run and manage the company’s business in Cyprus;
(iii) An adequate number of operating expenditure incurred by such entity in course of its activities or within Cyprus
(iv) The majority of the Board of Directors of the Company must be Cyprus residents
(v) The Annual General Meetings of the company must be held in Cyprus.

It is therefore important to avoid professional fiduciary relationships where you pay for nominee services which are not useful any longer in a sense of keeping tax residence (and therefore to keep operable bank accounts) for a company but for services that create benefits for you with the presence of your business and its management by a qualified employee representing your interests here in Cyprus.

Substance main benefits

1. An active business presence in Cyprus with an active company’s business running from Cyprus, does qualify your company as a “local company” and the board can avoid additional anti-money laundering bureaucracy when opening a bank account in EU countries.

2. Applicability and use by your company of relevant double tax treaties which requires regular presence and major decision making in Cyprus (or in some cases in countries with lower tax and costs).

3. Use a highly educated and qualified international workforce that will benefit your company by professional management of your company affairs and activities here in Cyprus.

4. Cost-effective management of your business from Cyprus will minimize expenses and taxation of your company providing on par complete compliance with active legislation and international business standards.

Our relevant business advice

1. We advise that your company have at least two bank accounts in different jurisdictions which will reduce dependencies and increases flexibility in course of running your business.

2. Keep your accounting books up to date by conducting daily records on your company’s financial activities, (it is cheaper to pay already managed accounts than to pay accounts managed by audit firms; further information/explanation on this point will be provided upon request and on a case by case basis)).

3. Make a foreign holding for legal and efficient generation of your company profits: organize an exit for your profits to a holding in a country with zero or minimum withholding tax or create a foreign company with a Cyprus branch.

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