Corporate Tax Residency in Cyprus
A Company is considered a Tax Resident of Cyprus if it is “managed and controlled” in Cyprus.
Although the term is not defined in Cyprus law and regulation; by reviewing the TAX RESIDENCY CERTIFICATE REQUEST AND QUESTIONNAIRE FOR LEGAL ENTITIES it is obvious from the questions asked what the Tax Authorities consider “management and control”
- Do the majority of the Board of Directors meetings take place in Cyprus?
- Does the Board of Directors exercise control and make key management and commercial decisions necessary for the company’s operations and general policies?
- Are Board of Directors’ minutes prepared and kept in Cyprus?
- Is the majority of the Board of Directors tax residents in Cyprus?
- Has the company issued any General Powers of Attorney?
In summary, we can say that a company is managed and control where the meetings of the Directors take place, and the majority of the powers of the Board are upon Cypriot Tax Residents.
What we recommend in order of preference:
- All the directors are Cypriot Tax Residents and all of board meetings are taking place in Cyprus.
- The majority of directors are Cypriot Tax Residents and the majority of the board meetings are taking place in Cyprus.
- The composition of the Board of Directors is 50/50 with Cypriot Tax Residents and Non – Cypriot Tax Residents, but all board meetings Cypriot Tax Residents should be held in Cyprus.
- In the case when only one member of the Board of Directors is a Cypriot Tax Resident and the majority of directors are resident outside Cyprus, all board meetings must take place in Cyprus.
- In cases 3 and 4, we wouldn’t expect any objections from the Cypriot Tax Authorities but there is a great risk that they will be challenged by foreign tax authorities.
- One should always take into consideration what the laws and regulations of the foreign jurisdiction that is likely to challenge the Tax status of company (i.e. the home country of the shareholders)
Taking into consideration all of the above we highly recommend that if a Company wants to have its Corporate Tax Residency in Cyprus, then the majority of the Directors must be Cypriot Tax residents and the majority of the meetings of the Board of Directors must take place in Cyprus, with proper documentation such as meeting minutes, major contracts prepared, signed and maintained in Cyprus.
With effect on 31 December 2022, a new Corporate Tax Residency Test based on Incorporation will be introduce.
According to this new test the definition of “resident in the Republic” is enhanced so that when a Cyprus Company has its management and control exercised outside the Republic, is considered to be a resident of the Republic, unless such company is a tax resident in any other jurisdiction.
This means that Cyprus incorporated / registered companies, with (i) management and control exercised outside Cyprus; AND (ii) not tax resident in any other jurisdiction will now (as of 31 December 2022) be considered as Cyprus tax residents and as such, taxed in Cyprus on their worldwide income.
* Always bear in mind that every Tax Planning case is unique, therefore always obtain a Tax Advice from a professional beforehand.