What is economic substance?

It is a tax concept whereby for a company to enjoy the tax regime at its place of business, it is required to build an actual presence there. From January 2024 a uniform substance requirement will apply in all EU jurisdictions.

What are the economic substance requirements for Cyprus companies?

(a) To be tax resident in Cyprus; and

(b) To be the actual owner of the income the Cyprus company receives from its activities such as interest and dividends.

When is a Cyprus company, tax resident in Cyprus? Is it not enough to be simply incorporated in Cyprus?

No. Tax residency in Cyprus requires, that:

(a) company’s management and control is exercised in Cyprus and

(b) company is not tax resident elsewhere.

Is it enough just to have Cyprus directors as proof of economic substance?

Appointing a majority of Cyprus-tax resident directors is one of the requirements for building substance. To create real substance, the company’s corporate structure and way of doing business has to be elevated at the appropriate level. A few examples of what economic substance in Cyprus looks like:

• The Company maintains fully-fledged offices in Cyprus.
• The Directors are actually engaged in the company’s business and are not just a service provider’s employees.
• The company’s recorded employees to labour office and social insurance, actually work for the company and are not random persons.
• The company’s Directors and employees are reachable through the company’s dedicated email, phone, fax or social media profiles.
• The company’s bank account is operated by its personnel or Directors here in Cyprus.
• The company’s accounts are prepared in Cyprus and are audited by local audit firms applying the IFRS.

Does the cost of maintaining a company in Cyprus increase dramatically when building economic substance?

Not necessarily. Depending on the company’s activities, income stream and expected profit, substance solutions can be adjusted accordingly. There are far more cost-efficient solutions in Cyprus than other comparable EU jurisdictions.

How Solsidus Law can assist:

At first, we will evaluate your existing arrangements and suggest improvements as and if, required.

For a free consultation, drop us an email contact@solsiduslaw.com. Economic substance requirements may be fixed by law. The way they’re applied though, depends on your business realities.

Our firm can support with setting up substance in many ways, including:

• Offices and office spaces, including ethernet cabling, Wifi & VOIP telephony devices and any Cyprus or International telephone line.
• Setting up land/mobile phone lines.
• Business and Mail forwarding address.
• Administrative support.
• Personnel sourcing and employment services.
• Project administration and management services.
• Property sourcing and ongoing maintenance.