In Cyprus, there are no particularly set out guidelines in relation to the substance requirements of a Cypriot legal entity.  However, under the EU and Organization for Economic Cooperation and Development (OECD) model convention, substance of an entity is directly related to its tax residency.  Therefore, for a company to be undisputedly considered a Cyprus tax resident and be able to benefit from the tax incentives and double tax treaties that the Cyprus jurisdiction has to offer, it has to show sufficient evidence that its core economic activities and company infrastructure is based in the Republic of Cyprus.

There are several criteria which outline the substance and tax residency of an entity but for purposes of tax, a Cyprus company is defined as a tax resident of Cyprus if its management and control is exercised in the Republic.  Our qualified legal consultants have outlined below some of the key factors that need to be considered that define management and control in Cyprus for purposes of substance:

Board of Directors and Board Meetings

As the company is essentially managed and controlled by the directors of the company, it is essential that the majority of the board of directors are Cypriot tax residents, permanently residing in Cyprus and that all board meetings are held and recorded on the territory of the Republic of Cyprus.  It is also important to note that in order for the substance of the company to be perceived as solid it is vital that the directors of the company are qualified and possess background knowledge in the field of the company’s main business activities.  It is also worth noting that in order to prevent possible challenges of the company’s effective management general powers of attorney to foreign individuals should be avoided.  On the other hand, a specific or general power of attorney for all key decisions within the company, granted to a Cypriot resident, may be regarded as a solid indication of company control on the territory of the Republic of Cyprus. Where possible the Memorandum and Articles of Association of the company should include provisions relating to the requirement of record keeping in the local offices of the Company.

Please contact our legal consultants for more detailed information relating to the steps you need to take to make sure that your compliance portfolio includes the necessary documentation to support the claim that your business is managed and controlled in the Republic.  Moreover, our local office in Cyprus specializes in the provision of professional and licensed management services for Cyprus and other international jurisdictions.

Accounting and Record Keeping

It is important that all accounting and bookkeeping is prepared in accordance to the accounting standards recognized in the Republic and are maintained at the local offices of the company. Moreover, company registers, minute books, records and other significant documentation should always be kept in the local offices of the Company.  Where possible, the Memorandum and Articles of Association of the company should include provisions relating to these requirements.

Office Premises and Employees

Though it is not formally required, one of the most indicatory aspects of physical presence is the existence of a fully-equipped office space, where the management and employees of the company carry out daily business activities.  Renting or purchasing a dedicated office is not simply about presenting a rental/ purchase agreement but it is crucial that these offices are maintained and produce proof of expense such as utility bills, stationary receipts and other ongoing office disbursements.

For larger scale corporations, operational headquarters in Cyprus with employees registered with the tax authorities and social insurance in the country would be the ideal scenario for economic substance.  However, here at Arnos we understand that every business is different and where one would require a fully staffed office to operate for another a single managing director is sufficient to successfully run the business. With that in mind, we have developed a variety of packages to suit each business’s individual needs and are always available for a professional consultation on any substance queries that you may have.