Since 2003, a company is deemed resident for tax purposes in Cyprus if it is “managed and controlled” in Cyprus, even if it is not incorporated in Cyprus, as the incorporation principle has not been adopted in Cyprus.
It is important to observe that in theory, this does not only apply to the situation of Cyprus incorporated companies owned by non-Cypriot residents. However, in practice the matter may be somewhat different when talking about a non-Cypriot incorporated company owned by Cypriot residents.
To date, there is very little guidance in Cyprus law and regulation in this regard. There are no clear guidelines and there is certainly no legislation or case law of relevance to the issue in Cyprus. In the absence of any such provision, what constitutes “managed and controlled” in Cyprus, follow UK law very closely for guidance.
UK tax law places great emphasis on the place where the board meets, so this can be expected to be a very influential matter in Cyprus as well. However, the real test is “the place where the decisions of the directors are made”. Formally, the decision of Cypriot and UK companies are only made by a board, either in a meeting or by virtue of a written resolution.
In theory therefore, it is acceptable to have all directors being resident outside of Cyprus – so long as at least the strategic decisions are made in Cyprus periodically. In practice, however, this is very difficult to achieve because even if the board meetings are physically held in Cyprus it could be argued by the Cypriot and/or foreign tax authorities that in fact the decisions are made outside Cyprus and that the board meeting is a merely a “rubber stamp”.
The Cypriot authorities would seem not to have challenged the residency where the majority of directors are resident in Cyprus holding a rebutable presumption that the company is in fact a Cyprus tax resident, or even, as far as we are aware where it is 50/50, i.e. where an equal number of Directors are resident in Cyprus and resident outside Cyprus.
Our recommendations and comments are as follows:
Case 1: The only director(s) is/are tax resident in Cyprus and all or the majority of board meetings are held in Cyprus.
Case 2: The majority of directors are tax resident in Cyprus – and all or the majority of the board meetings are held in Cyprus.
Case 3: The 50/50 case - all board meetings should be held in Cyprus. If not, then if more board meetings are held outside Cyprus, the higher the risk that there will be a challenge from the Cypriot and/or foreign tax authorities.
Case 4: There is at least one Cypriot director but the majority of directors are resident outside Cyprus – if all board meetings are held in Cyprus we would not expect there to be a problem but there is still the risk that it would be challenged by foreign tax authorities. If not, then the more board meetings are held outside Cyprus the higher the risk that there will be a challenge from the Cypriot and/or foreign tax authorities.
Case 5: There are no Cypriot directors - there is a reasonable risk that this will be challenged, and an even higher risk if no directors' meetings are physically held in Cyprus.
Hence, a suggestion would be for all meetings (or at least the majority of where these strategic decisions are taken) are held in Cyprus at least quarterly.
