The issue of being offshore
Legislation comes into force in the new year 2020 in the BVI which is designed to address concerns that companies could be used to artificially attract profits that do not correspond to their activities and economic presence.
The issue is not new. The European Union has been closely monitoring zero or low-tax jurisdictions for years. It has issued guidelines and has adopted “grey” and “black” lists with an aim to end “preferential tax treatment”. The new BVI legislation that comes into force in January 2020 reflects the EU’s new guidelines which have been implemented as a result of OECD guidance and concerns from the EU Code of Conduct Group (COCG). Similar laws were passed also in other zero- or low-tax jurisdictions such as Belize, Seychelles, Mauritius and Guernsey.
It is not the purpose of this article to analyse the new BVI substance requirements, but rather to draw a general picture. The new requirements impose a “substantial activity obligation” with a view to aligning taxation with substance. The new obligations, which are to be met by companies affected, include the following main headings: a) companies must be directed and managed in the BVI, b) they must conduct Core Income Generating Activities in the BVI and c) they must have adequate people, premises and expenditure in the BVI. Notably, the new law also requires corporate services providers to know where companies are tax resident and to be in a position to inform accordingly the BVI’s competent authorities.
Time to redomicile onshore?
Owners of businesses in the BVI and in the “Crown Dependencies” should take action. They should either take measures to achieve the necessary level of “substance” to satisfy the new requirements, or make the decision and leave the “offshore winds” and go back onshore.
The decision to disassociate with an offshore jurisdiction may mean transferring to another entity the business and assets of the offshore company and then liquidate it. However, moving assets or liquidation cannot always be a solution. Companies usually are party to arrangements that they need to continue to abide by. Also, they may have committed to contracts to stay “alive” or may simply desire to maintain their history.
In these instances, migration to another onshore jurisdiction seems to be a suitable solution.
Redomiciliation to Cyprus
Cyprus Law permits re-domiciliation to Cyprus provided that the company’s constituent documents and the law of the foreign jurisdiction also permit it. BVI law does so permit.
To start the redomiciliation process, an application is first made to the Cyprus Registrar of Companies to obtain approval and to temporarily register the company. Then, the company is deregistered in the BVI, and the deregistration is filed in Cyprus. The process is completed when the Cyprus Registrar issues a final certificate.
The registration of a company as “continuing in Cyprus” does not bring the company to an end. The company continues to exist as registered in Cyprus and the ownership of its assets remains unaffected.
In the context discussed here, the apparent reason for a company to decide to redomicile to Cyprus is to cease to be offshore and continue in Cyprus, an onshore jurisdiction.
However, there is much more to be gained for a company from redomiciling to Cyprus. Cyprus is an EU country, with a corporate tax rate of 12,5% and is part of an extensive double tax treaties network. Under Cyprus tax law, dividend income, profits from sale of securities, and profits from a permanent establishment maintained outside Cyprus are exempt from corporate income tax in Cyprus. There are no withholding taxes applied on payments of dividends, interest and royalties to non-resident recipients.
The multilingual workforce with excellent level of education in Cyprus safeguards a high quality of service. The great airport links, its strategic location and the sunny days throughout the year render Cyprus a most attractive option. Perhaps now is the time to decide about migration.
How we can help
We can advise on the process and requirements of redomiciliation to Cyprus, as to preparatory steps that may need to be taken and can offer full support to implement the migration to Cyprus.
For more information please contact Mr. Charles Savva at email@example.com who will be happy to further assist you.