There is today an ongoing and progressive demand for more management & control and substance with regards to corporate business, i.e. in Cyprus the EU and further, following new rules & amendments initiated by the OECD Global Forum and monitored through national governments and tax administrations with full backing of the EU Commission and the G20 in order to justify tax optimization.
These new rules & amendments refer to transparency, EOI (Exchange of Information), CRS, BEPS and the EU AML 4th Directive (Anti-Money Laundering) as well as the ATAD (Anti-Tax Avoidance Directive) and a possible CCCTB (Common Consolidated Corporate Tax base).
Our Law Firm provides assistance on a ‘case to case’ basis to clients who wish to enhance their presence in Cyprus either by securing substance by establishing themselves in Cyprus with a fully-fledged office and employees relocating, or by building up substance through other relevant means in order to adopt best practices, justify their tax-optimisation and eliminate any potential anti-avoidance rules.
- Securing ‘substance’ in Cyprus
All issues mentioned in paragraph (ii) below apply to paragraph (i).
a. Incorporation of the relevant structure i.e. Cyprus Company
b. Office rental. Professional assistance from an estate agent according to the average rental cost per sq. meter in the relevant Cyprus city & legal assistance from our Law firm.
c. Employees / staff
The salary per month for a director ranges from a legal minimum of € 3000 to € 10.000 and more. The salary per month for a secretary ranges from a legal minimum of € 1000 to € 2500. Directors should have the adequate academic qualifications and experience to justify that decision-making takes place in Cyprus. Non-EU staff can only be employed if the job cannot be done by a local candidate.
d. Immigration – Legal assistance in order to obtain the relevant resident and work permits for the client and his employees, a service is necessarily provided in cooperation with an immigration agent for reasons of time efficiency. Social Security and relevant insurance policies must be secured for every individual. Please note that for non-EU citizens, there are high cost capital requirements.
e. The 60 days Tax-Residence, see relocating
f. The Non-Domicile tax exemption concept for Cyprus Tax-Residents, see relocating
- Building-up ‘substance’ in Cyprus
The most preferable solution is always a Cyprus company with fully-fledged offices and its own directors and employees, however if it is not possible, on a ‘case to case’ basis we suggest the following to enhance substance and management & control in Cyprus against potential anti-avoidance rules:
The directors should have the adequate academic qualifications and experience to justify that decision-making takes place in Cyprus.
If the client does not have the budget for a fully-fledged office, a less expensive way is to rent a small office with a one person director, rental is provided in Cyprus both by locals or well-known firms such as Regus.
The client should at least have a Cyprus fix and/or mobile telephone line for the Cyprus Company enhancing substance/presence in Cyprus. Our office can provide this service to the client.
The client should create a website for the Cyprus Company enhancing substance/presence in Cyprus. Our office can sub-contract this service for the client.
If the client does not have the budget for a fully-fledged office, a less expensive way is to rent a small office space with a one person director. Again, our office can provide this service or sub-contract if to well-known firms such as Royce, Clarion or Regus.
Further to the above, the client should think of other reasons than tax saving for justifying being in Cyprus, i.e. an iinvestment in Cyprus/the region can justify the use of a Cyprus company.
Whether or not any of the above can be applied, the client should try to apply the paragraphs below:
The absence of fully-fledged office should be justified by the nature of the activity, i.e. limited number of transactions.
The Cyprus Company cannot exist only for tax avoidance, it must have a an economic purpose.
The Cyprus holding company should have subsidiaries to justify its purpose.
Management & Control, decision-making & business correspondence
An unofficial service agreement between our Law firm and the client must list the way of working/doing business, being:
The company must have a service of genuine value.
The company must have one or more directors with qualifications related to the nature of the business.
The key decisions must be taken in Cyprus: the Cyprus company’s beneficial ownership will not be considered to be in Cyprus if the powers & decision making within the company lie in another country or if the company does not own the profit it receives and receives it on behalf of another person.
The majority of directors must be Cypriot.
The GM of Shareholders and BODs must be in Cyprus.
The client should travel for the GM of Shareholders.
The non-resident directors should travel for the BOD meetings.
The correspondence between the client and our Law Firm should not include instructions or orders to the Cyprus resident directors of the company; instead they should provide suggestions and leave the decision-making in the hands of the resident directors.
Further to the above, the client should send, in a separate e-mail if possible, the elements justifying his decision, so that the resident directors can insert this justification together with the Board of Directors Resolution, and the Shareholders Resolution when necessary, provided by the directors for every decision/transaction/agreement/contract of the company.
The dividend channeling via Cyprus holding company can be avoided with a direct payment from the active company to the final beneficiary company with the local withholding tax, thus avoiding raising the CFC rule issue in dividends and using the middle Cyprus holding company for another purpose, i.e. sale of shares.
Give up tax residency
The client, when corporate tax in his own jurisdiction is close to the Cyprus 12,5%, may give up Cyprus tax residency to avoid any anti-avoidance rule, and use the Cyprus company for advantages such as the absence of tax on disposal and withholding tax or use of the Cyprus Double Tax Treaty network and EU Directives. The client will pay local tax on dividends received. This option is strongly suggested in the event the client decides not to take dividends but to re-invest the money.
Cyprus international Trust
The client can make the use of a discretionary irrevocable trust to protect his assets from tax authority claims.
AIF (Alternative Investment Fund)
The client may invest his money through a Cyprus alternative investment fund which by itself requires substance in order to do business.
Liquidation of company
Liquidation of company and contribution of assets to a new company in exchange of shares i.e. does not trigger tax in Russia.
Private Life insurance, Fund, Public listed Co
Finally, the client can verify whether he can avoid anti-avoidance rules in his jurisdiction by using a Private life insurance or Fund or Trust to hold the shares of the Cyprus company or by incorporating a Cyprus Public listed Company.