MANAGEMENT AND CONTROL

The Test of Residency in Cyprus for Taxation Purposes

In order to satisfy the test of residency in Cyprus for taxation purposes, the following issues must be taken into consideration, noting that, there is no legal requirement to have the majority of the board of directors of a Cyprus company in Cyprus:

1. For the Cyprus company to qualify for treaty protection, say, under the Cyprus Russia double tax treaty, the relevant company has to be a tax resident of Cyprus.
2. Under Cyprus local tax laws, the test of residency is where management and control lies.
3. There is no statutory definition of "management" and "control".
4. However in the case where a company has adopted standard Articles of Association, whereby the affairs of the company are managed by the board of directors, it is accepted that the test is satisfied if the majority of the board of directors are tax residents of Cyprus and board meetings take place in Cyprus.
5. However, if the Articles of Association provide for any other body to manage and control the company, such as the shareholders or an "investment committee", then the tax residency will be wherever such body is resident.
6. In the event that only some items are reserved to such other body, it is a question of fact and degree on which we cannot advise with certainty whether the list and nature of such items are such that they effectively move management and control to the said body.
7. It should also be noted that, given that, if a company is a tax resident of Cyprus, this can only result in possible taxation being paid in Cyprus, the Cyprus tax authorities are not likely to aggressivily challenge an argument of residency in Cyprus.
8. Therefore, the question of what steps should be taken to ensure tax residency in Cyprus is, to a large extent, an issue under the laws of the country where the Cyprus company will seek tax treaty protection.