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M. Paraschou Law

Setting up a Cyprus Company? New Incorporation Test for Company Tax Residency

The Tax Residency status of a Company is undeniably an issue of great importance. It determines the country in which tax will be levied over any Corporate profits and any tax benefits available under applicable double-tax treaties.

Until now, Cyprus used the ‘Management and Control’ test to determine whether a Company should be considered a Cyprus tax resident. This provided that Companies would be considered Cyprus tax residents if management and control were exercised in Cyprus.

One of the key criteria was for the Board of Directors to include Cyprus tax residents and for decisions of the Board to be taken in Cyprus.

Now, a new, additional test is introduced for Cyprus Companies.

Where is a Cyprus Company taxed?

As of 31 December 2022, any company incorporated or registered in Cyprus and is not a tax resident in another jurisdiction, will also be considered a tax resident of Cyprus.

The new test aims to capture companies that are not tax residents of any jurisdiction.

However, given the widespread use of the Management and Control test, it is highly likely that the Company will be considered as tax resident in the country from where it is managed and controlled. As such, it is advisable for a Cyprus Companies to keep its management and control (at least 50% of their Board of Directors) in Cyprus so that its tax residency is evident. 

The existing corporate tax residency ‘management and control’ test will continue to apply so that a Company (whether incorporated in Cyprus or abroad) that has its management and control in Cyprus will continue to be considered a tax resident of Cyprus.

Corporate tax in Cyprus is currently set at 12.5% and no withholding tax is levied on dividends paid to foreign shareholders.

Looking to find out more? Contact our team at info@paraschou.com.cy.

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