A Cyprus company that has its management and control entirely outside Cyprus will be considered non-resident for Cyprus tax purposes. Such company will only be subject to taxation in Cyprus on the part of in its income that is derived directly from Cyprus (if such income exists at all). Thus, under certain conditions, a Cyprus non-resident company could effectively be tax-free on its global income. While this would technically be similar to the International Business Companies in offshore tax havens, such as Belize or Seychelles, the place of registration in Cyprus would certainly represent a clear reputational advantage.
As per Cyprus Tax Authority Circular 2014/3 the Cyprus non tax resident company still must register with the Cyprus Tax Authority and submit yearly tax returns. This enables the company to have a tax number – which is something that nearly all banks and business partners require nowadays. The Cyprus non-resident company must also produce annual financial statements and audit them. While this a certainly a cost, it is also a significant benefit to the perceived status and reputation of the business.
Given that a Cyprus non-resident company is not deemed tax-resident in Cyprus, it of course won’t be able to claim any benefits under any of the double-tax avoidance treaties that Cyprus has signed.
As a general principle, a Cyprus non-resident company will be supposed to become tax-resident in the jurisdiction where it’s effectively managed and controlled, or where it has a physical establishment. Normally, that would be the location where the majority of directors reside and/or where the actual managerial decisions in respect of its business are carried out. So, business owners who consider to set up a Cyprus non-resident company should be aware and wary of this aspect, in case they themselves live in a well-regulated high-tax country. Actually, when submitting its tax returns in Cyprus, the Cyprus non-resident company must state in which country it will be taxed.
A number of countries worldwide do not have income tax per se. The most prominent of such countries are Monaco, Quatar, Oman, Bahrain, Kuwait, UAE, the Bahamas, BVI, Cayman Islands, Turks & Caicos, St Kitts & Nevis and a few other. Thus, in theory, if the control and management (read – at least the residence of the directors) of a Cyprus company can be located in one of those countries, this may “close the loop” and render the global income of such Cyprus company effectively and legally tax-free.
At this time and age, it’s certainly an attractive proposition. However, the devil may be in the details and this solution, while indeed quite effective, requires careful planning and advice.