REAL SUBSTANCE

‘Real Substance’ as a new reality

Cyprus as a jurisdiction is well known for its favourable tax regime with a strong transparent legal system and its compliance with the standards set up by the European Union (EU) and the Organization for Economic Cooperation and Development (OECD).
Under OECD model convention a Cyprus Company will qualify for benefiting the Double Taxation Treaties if the following criteria are met:
  • The Company is a Cyprus tax resident and can prove its real substance on the island; and
  • The Company is the beneficial owner of the income

Thus, adequate measures need to be taken proving that the company is managed and controlled in Cyprus and that substantive business operations are genuinely carried out in Cyprus.

Each company’s formal arrangements, its administrative and operational structure should be considered separately taking into account the individual features of each case.

As a minimum however, the following principles should form a starting basis for a foreign jurisdiction to treat the company as a Cyprus tax resident:

  • The majority of Directors are Cyprus tax residents.
  • The Directors of the Company are qualified professionals.
  • Management and control of the company (board meetings etc.) take place in Cyprus
  • The Company maintains its own headquarters in Cyprus.
  • There is a real economic Substance behind the Company in Cyprus.
  • The Company has its own employees in Cyprus. These employees must be registered with social insurance and are substantially involved in the operations of the Company.
  • The Company maintains a website with proper email address.
  • The Company has its own telephone, fax and internet lines.
  • One of the bank accounts of the Company must be held with a Cypriot Bank Institution with a local resident as a signatory.
  • All accounting records must be kept in Cyprus.

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Please contact us for a personalized proposal or more info on meeting the above criteria and efficiently implementing the substance requirements for your business.