Recent Developments – The new Cyprus tax residency application form
In light of recent global trends favouring transparency and intelligibility in the international tax era, the Cyprus tax authorities took a step towards strengthening the soundness and legality of the Cyprus Tax Residence Certificates by introducing a thorough Questionnaire-Checklist Form as an application for the issuing of these Certificates.
This update, adopted on 30 October 2015, was announced by the Cyprus Inland Revenue through a circular presenting the launch of the New Form T.D. 98, the filing of which is mandatory before any issuance of a tax residency certificate to a legal person is processed. It is also possible that the tax authorities may request additional clarifications, and in such cases, the corresponding tax officers will contact the respective applicants.
The new questionnaire checklist form has the clear purpose of supporting the Substance parameter as an underpinning foundation to Cyprus Companies.
Amongst other things, the following information will need to be furnished to the Cyprus Tax Office by the legal person / legal entity applicant:
Therefore, the procedure preceding the issuing of a Cyprus tax residency certificate is not a simple matter as all the above-presented elements must be in line with the essence of a Cyprus tax-resident legal entity.
The Management & Control notion and the actual Economic Substance
Overall, the tax residency of a Cyprus company is determined by the underlying principles of the notion of “Management and Control.” Additionally, in the absence of a formal definition regarding the establishment of management and control, it is advisable that the following parameters be taken into account:
Indeed, economic substance has become a very important issue as well, and an increasing number of countries are looking deeper into the “substance over form” doctrine.
It would be a rather ambitious endeavour to try to codify what actions must be taken by any company to enhance its substance as it simply cannot be a general exercise. What’s needed though is careful planning and sophisticated tax advice in order to determine the extent of enhancing the substance of a company. Additionally, a number of important considerations and factors must be taken into account by an experienced tax person in this context, including the following:
Furthermore, as structures could vary from trading, to IP, intra-group financing ones or holding structures, a different approach and focus on various relevant matters is required for each.
However, as a general remark, the following are some common characteristics of substance for Cyprus companies, usually referred to by most tax consultants:
As already addressed, the above discussion includes only some general guidelines, as the exercise of enhancing substance requires a case-by-case tailored approach.
Additionally, the Cyprus tax authorities also disregard and disapprove of transactions which are not based on “substance over form” or are not in line with the “arms-length principle”.
If you believe your organisation is eligible for a Cyprus tax resident status then please contact us for additional advice.