Tailored Economic Substance Solutions for Ensuring Compliance in Your Business

The international tax scene has transformed dramatically and will evolve as global authorities crack down on tax evasion. Changes in Cyprus law and EU and international shifts highlight the crucial need for legal structures to have genuine economic substance.

The law on economic substance is still evolving in developed and developing countries. A lack of economic substance where a company is registered now signals potential tax avoidance.

Establishing substance in Cypriot legal structures is crucial to avoid disputes with foreign tax authorities over corporate tax residency.

A company that aims to establish economic substance in Cyprus shall be able to demonstrate that it has an economic purpose and the relevant and necessary infrastructure to operate its business and not only be registered with the Cyprus tax authorities to obtain tax benefits.

In addition to tax-related considerations, the absence of substance in Cyprus may restrict a company’s ability to open a bank account, following guidance issued by the Central Bank of Cyprus. 

From a Cypriot tax perspective, a company is considered a tax resident of Cyprus if its “management and control” are exercised within the Republic. While no additional substance requirements are formally mandated, international court cases and global trends highlight the critical need to align form and substance in arrangements. It underscores the importance of companies genuinely managing from their claimed tax residence.

When analyzing substance requirements, the critical focus is on the company’s management composition, usually evident in the Board of Directors.

The appointment of directors requires thorough planning. The physical presence in Cyprus of the directors of a company claiming to be a Cyprus tax resident company in the Republic and evidence that the major board decisions have been taken from Cyprus would safeguard against future challenges. As a result of these local and international developments, we strongly urge all clients to consider adding substance to their Cypriot structures.

Each structure is unique, and so are the substance requirements of each client – this is the simple approach we take. With this in mind, we have developed a proposal outlining the numerous possibilities for creating substance in Cyprus. Our proposal is a solid starting point for the wealth of existing options for clients wishing to build and maintain a strong presence in Cyprus.

Substance Solutions for Companies

Leverage Cyprus’s economic and tax benefits by establishing your regional administrative and headquarters functions on the island. Benefit from Cyprus’s strategic location, EU membership, low operating costs, and high quality of life.

Are you curious about how we can help you? Our team is committed to delivering professional service and customized solutions for your unique needs. Contact one of our managers today for a free consultation.