Cyprus Tax Residency & Non-Dom Rules
In accordance with Cyprus law, a company is considered to be tax resident in Cyprus and thus in a position to avail itself of the favourate Cyprus tax Regime, if its “management and control” is situated in Cyprus. There is no express definition of the term “management and control” in Cypriot legislation, however, a series of Court Decisions explain that the term in practice signifies the ultimate level of policy decision making or superior control within the company (e.g. board of directors).
As a result, for effectively maintaining the “management and control” of the company in Cyprus, thus establishing its tax residency in Cyprus, the following measures and recommendations must be followed:
- The Board of Directors of a Cyprus company consists of majority Cyprus resident directors. If there are no Cypriot directors, there is a reasonable risk that the tax residency of the company will be challenged, and even higher risk if directors do not physically hold their meetings in Cyprus;
- All board meetings in which issues pertaining to the strategic and operational management of the company are discussed and resolved to take place in Cyprus. The more board meetings are held abroad the higher the risk for the tax residency of the company to be challenged by the tax authorities;
- The Directors should maintain an active role in the Company and be accountable for their actions. They should not act passively in accordance with the instructions of the Ultimate Beneficial Owner;
- The accounting is important to be carried on in Cyprus; hard copies of documentation should be kept in Cyprus;
- Avoid granting general powers/authorities to non-Cypriot resident persons;
- Bank accounts are operated from Cyprus.
The above are just some of the measures which should be followed in order to better combat any possible challenges from an operational management perspective.
Under Cyprus Tax Law, if a company has no activities in Cyprus and the management and control is not in Cyprus (non-resident Directors) nor does the company have an office or activities in Cyprus, then the company when preparing its accounts and tax returns will state that it is not resident. In this case the company does not pay any taxes nor does it have to register for VAT – in fact it cannot register for VAT.
In addition the company will not be able to obtain a tax residency certificate from the tax authorities should the company need any proof of residence in Cyprus.
Furthermore, it is not necessary for such company to prove to the authorities in Cyprus that the company is paying taxes in another country so that it is considered non-resident.
