Cyprus: Is your company eligible for a Cyprus tax residency certificate?
As the need for tax efficient structures has been magnified with the recent global economic downturn and the increased scrutiny from tax authorities worldwide, companies need to carefully select the jurisdiction they use for implementing such structures, while also being very careful about substance, so as to be able to mitigate any risks and taxes.
Cyprus is an established international business and financial centre due to the many incentives, the good infrastructure that's in place, and its extensive network of double tax treaties. Also, Cyprus' EU membership and compliance with EU and OECD standards, together with its tax regime and transparent legal system, places the island among the most favourable holding company jurisdictions.
Recent developments – The new Cyprus TRC application form
Furthermore, in light of recent global trends favouring transparency and intelligibility in the international tax era, the Cyprus tax authorities, on October 30 2015, took a new measure towards strengthening the soundness and legality of the Cyprus tax residency certificates (TRCs) by introducing a thorough Questionnaire-Checklist Form as an application for the issuing of these TRCs.
This update was announced by the Cyprus Inland Revenue through a circular presenting the launch of a new form, TD 98, necessary to be completed before the issuance of a TRC to a legal person is processed. It is also possible that the tax authorities may need to request additional clarification and in such cases the corresponding tax officers will be contacting the respective applicants.
The new questionnaire checklist form has a clear purpose of supporting the substance parameter as an underpinning foundation to Cyprus companies.
Among other things, the following information will need to be furnished to the Cyprus Tax Office, by the legal person or legal entity applicant:
Whether the company is tax resident only in Cyprus;
If the company is not only tax resident in Cyprus, documentation from the other jurisdiction where it also has tax residence;
Information as to whether the majority of the Board of Directors' meetings take place in Cyprus and whether their minutes are prepared and kept in Cyprus as well. Additionally, information regarding whether the majority of the members of the Board of Directors are tax residents of Cyprus, as well as whether the shareholders' meetings take place in Cyprus too;
Information as to whether the Board of Directors exercises control and makes key management and commercial decisions necessary for the company's operations and general policies;
Information as to whether the company has issued any general powers of attorney, and the terms and conditions thereof;
Information as to whether the company's corporate seal and all statutory books and records are maintained in Cyprus, whether filing and reporting functions are performed by representatives located in Cyprus, and whether agreements relating to the company's business or assets are executed or signed in Cyprus; and
Updates as to whether all due tax returns have been filed, and all self-assessments for the tax years that are due have been paid.
Therefore, the procedure preceding the issuing of a Cyprus TRC is not a simple matter as all the above-presented elements need to be in line with the essence of a Cyprus tax-resident legal entity.
The management and control notion and economic substance
Overall, the tax residency of a Cyprus company is determined by the underlying principles of the notion of 'management and control'. Additionally, in the absence of a formal definition regarding the establishment of the management and control, it is advisable that the parameter of economic substance in Cyprus is taken into account as well.
Indeed, economic substance has become a very important issue, too, and an increasing number of countries are looking deeper and deeper into the substance-over-form doctrine.
However it would be a rather ambitious endeavour to try to codify what actions need be taken by any company to enhance its substance as this simply cannot be an exercise of generality. What is needed, though, is careful planning and sophisticated tax advice in order to determine this parameter.
Christiana Nicolaou (firstname.lastname@example.org)
Eurofast Taxand Cyprus
Tel: +357 22 699 222