Substance of a Cyprus company

One of the most important issues faced by a company not only in Cyprus but around the world is the issue of substance.

Substance as a tax concept is the economic presence of a company in a jurisdiction. A company must comply with the substance requirements to enjoy the tax regime of its jurisdiction.

According to OECD model, a company must be a Tax Resident in a state and is the “beneficial owner” of its income such as interest and dividends to qualify for tax treaty benefits.

To confirm the company’s substance in a jurisdiction is necessary to assess if the below criteria are met:

• physical substance – the presence of offices, personnel in its jurisdiction
• economic substance – its activities are being managed, executed by the management established within its jurisdiction.

Regarding Cyprus, although each case of a company’s substance should be reviewed in its own merits, as a general approach for Cyprus company to have a solid substance should meet the following requirements:

• Maintains offices in Cyprus that are its headquarters of operations.
• The majority of Directors are Cyprus residents.
• Appoints qualified professionals as Directors and not random persons.
• Employs people situated in Cyprus that are registered to Social Insurance and are involved in its operations.
• Avoids having transactions executed through general PoAs
• Having a corporate bank account to a local bank and a local Director to act as a signatory.
• Keeps accounting records in Cyprus.
• Prepares financial statements that are audited by an Audit firm member of the Institute of Certified Public Accountants of Cyprus
• Submits its returns, required by law, with the competent authorities in a timely manner