Key Takeaway: As from 31/12/2022, every Cyprus Company upon incorporation will be considered Cyprus Tax Resident by default, unless the said Company is tax resident in another jurisdiction.
This legislation was passed on 21 December 2021, as an amendment to the Income Tax Law. As per the Law, 193(I)/2021, amending the Income Tax Law, 118(I)/2002, a company, which is established or registered pursuant to any law in force in Cyprus, will by default be considered as resident in the Republic, and in effect liable to Cyprus Taxation, on its worldwide income, provided it is not tax resident in any other country. This additional test aims to capture Cyprus incorporated / registered companies that are not tax resident in any other jurisdiction (commonly referred to as “stateless companies”) and is applicable from 31/12/2022.
Existing corporate tax residency rules based on management and control
In accordance with current the Income Tax Law, a company is considered to be a tax resident of Cyprus if its management and control is exercised in Cyprus.
The existing corporate tax residency test will continue to apply, so that a company that has its management and control in Cyprus will continue to be considered as a tax resident of Cyprus i.e. its tax residency status will not be affected by the Law amendment.
Additional corporate tax residency test based on incorporation
In accordance with the Law amendment the definition of a “resident in the Republic” is enhanced so that a company established or registered under any applicable Law in the Republic, which has its management and control exercised outside the Republic, is considered to be a resident of the Republic, unless such company is a tax resident in any other jurisdiction.
This means that Cyprus incorporated / registered companies, with (i) management and control exercised outside Cyprus; AND (ii) not tax resident in any other jurisdiction will now be considered as Cyprus tax residents and as such, taxed in Cyprus on their worldwide income. Real evidence of such tax residency is expected to be asked by the authorities, although no guidance on this issue has yet been issued.
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This article is provided for general information purposes only and is not intended to cover every aspect of the topic with which it deals. It is not intended to amount to advice on which you should rely and we recommend you to take advise from professionals before proceeding.