The recent implementation and increasingly stringent tax developments globally can affect companies with offices in different countries; rendering them non-viable if certain factors are not carefully considered.
Whilst remaining fully compliant with the OECD recommendations and EU regulations, Cyprus has addressed challenges to its tax structure through strong legislative updates.
We will look at these developments and how they facilitate the creation of suitable business substance regarding:
- CFC legislation.
- Establishing local effective management & business control.
- Being the beneficial owner of income received.
These elements are fundamental to protect the use of a foreign controlled company from any potential challenges from another jurisdiction looking to classify it as a tax resident of that country or refuting tax treaty or EU benefits.
Establishing Local Management & Control
When setting up a local office in Cyprus and other substance elements such as renting an office space and employing local Directors, Cyprus has relatively low maintenance costs compared to other jurisdictions within the EU.
Cyprus also offers legal framework based on common-law, which is often viewed favourably with international investors & potential shareholders. Furthermore, non-Cypriot nationals who move to Cyprus make significant tax savings on employment income including tax savings through the introduction of the non-domiciled status for Cyprus resident tax purposes, which effectively relieves such individuals from tax on interest, shares and other assets.
Beneficial Owner of Income Equity
The use of a Cyprus company’s own equity helps to demonstrate that it is the true beneficial owner of any income received during a financial year. Due to the acquisition of an investment, intellectual property or a loan provided by the Cyprus company is financed via own funds. Other provisions are examined more carefully when seeking tax treaty or EU Directive benefits, whereas the use of own company funds demonstrates the true beneficial ownership of income in a more simple way.