Cyprus – as an alternative option for nowadays economic substances requirements

Under the increasing demand for ‘economic substance’ amongst the traditional jurisdictions, it is time to consider Cyprus – the onshore jurisdiction – as an option to continue and expand your business.

Background
Following review of various jurisdictions’ tax policies, the EU expressed concerns with the lack of statutory ‘substance’ requirements in a number of traditional offshore jurisdictions.

Until now, the British Virgin Islands (BVI), the Cayman Islands, Bermuda, Guernsey, Jersey, Isle of Man, Seychelles, Mauritius and the Bahamas have taken actions to address EU’s and OECD’s concerns and get rid of their ‘tax haven’ images.

According to the OECD’s and EU’s relevant regulations and requirements, these jurisdictions have recently introduced new ‘Economic Substance’ provisions into their domestic laws which are already in force since 1 January 2019.

Requirements summary
Although the detailed terms and conditions vary, the new legislations of these 6 jurisdictions generally apply to their ‘resident company’ and carry on ‘relevant activities’ there.

The ‘relevant activities’ include banking, insurance, fund management, financing and leasing, headquarters, shipping, distribution and services centre, intellectual property and holding.

Briefly, any resident companies with relevant activities in these jurisdictions are required to fulfil the below substance requirements:

1. Have properly qualified directors and physical presence in the jurisdictions
2. Board meetings to be held regularly in the jurisdictions
3. Employ an ‘adequate’ number of qualified personnel in the jurisdiction
4. Rent physical and properly equipped offices in the jurisdictions
5. Proper and reasonable costs must occur in the jurisdiction for supporting company operations

Any companies failing to comply with these may face penalties and even, eventually strike-off.

What’s next step for offshore companies?
The establishment of ‘economic substance’ in the offshore jurisdictions, in practice, is expected to be expensive and difficult. Not to mention that the legislation is still at the exploration stage as we for in-depth guidance by the regulatory bodies.

Companies that cannot or do not want to undergo substance building in these jursidictions are now looking for alternative options such as closing these offshore entities or moving from offshore to onshore jurisdictions.

Cyprus, as a stable and mature international business centre, offers a fully compliant, practical and cost-efficient solution for such business.

Why Cyprus and how to move
One of the key benefits that Cyprus offers, is that it allows foreign companies to redomicile their startory seat into the country, and can easily facilitate any level of needed substance.
An offshore company may relocate to Cyprus and implement one of the following options:
1. Redomicile the offshore company and its tax residency to Cyprus
2. Move the tax residency of the company to Cyprus

Besides the beautiful environment and high quality of life, Cyprus offers attractive corporate, legal and tax regime for corporations and individuals. Its corporation tax rate (12.5%) is one of the lowest in the EU. Dividends, capital gains and gains from sale of shares incomes are completely tax exempt. Other types of income are entitled to certain partial tax exemption, thus significantly reducing the overall effective Cyprus tax rate.

In addition, being an EU member country, Cyprus complies with all international and EU regulations and legislations. It has all access to benefits from relevant EU directives and an extensive network of double tax treaties.

It also provides multiple choices of exceptional office facilities for all budgets, professional services and infrastructures for entrepreneurs and investors.

Thus while these new economic substance requirements are still very much unclear and many offshore companies have been left to wonder how much the implementation of substance will cost them, Cyprus remains a pratical and attractive solution for these offshore companies to consider changing their tax residency to.

Oneworld Ltd as a leading corporate services provider would be pleased to assist you with our extensive network across most of the popular jurisdictions. Contact us now to discuss how we can assist you info@oneworldweb.net

Cyprus – as an alternative option for nowadays economic substances requirements

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Cyprus – as an alternative option for nowadays economic substances requirements

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