The desired tax treatment of a Cyprus company, whether it be a top-tier holding company or a special purpose vehicle fitted in a greater multi-jurisdictional corporate structure, nowadays goes beyond being considered resident for tax purposes in Cyprus.
Practice suggests that where the ultimate beneficial interests of a Cyprus company are located outside Cyprus, their goal would be to prove to their respective national tax authorities that the Cyprus company is not considered resident for tax purposes in any territory other than Cyprus.
Managed and controlled
In principle, a company which is incorporated in Cyprus will be considered resident for tax purposes in Cyprus only if it is managed and controlled in Cyprus. The concept of “management and control” is not defined by statute but rather draws interpretation from case law. Overall it could be argued that it refers to high-level strategic decision-making rather than day-to-day management of the business of the company. The question of where management and control is exercised is a question of fact.
In order to secure and maintain its Cyprus tax residence and treatment, it is imperative that the Cyprus company adopts an operating structure that will ensure that the management and control of its affairs is being demonstrably and unambiguously exercised in Cyprus at all times.
In a nutshell, this means ensuring that all high-level, strategic and policy decisions of the Cyprus company are actually taken in Cyprus, and further that it is possible to demonstrate clearly and easily that this is in fact the case.
The board of directors of the Cyprus company must, under the constitutional documents governing the operations of the Cyprus company, be responsible for the management and control of the business of the company and must exercise that management and control in board meetings.
Board meetings must be held regularly in Cyprus, ideally on a quarterly basis. Where a matter fails to be considered by the board of directors between the scheduled quarterly meetings, a full board meeting must be convened in order to deal with the matter.
The use of written resolutions of the board of directors should be kept to a minimum if not avoided in their entirety. If, exceptionally, a written resolution of the board is required, it is imperative that each director is located outside of the territory where tax residency is attempted to be avoided (if not located in Cyprus) at the time at which he signs the resolution. The director’s location at the time of signing should be clearly noted on the written resolution.
All board of director meetings must be held in Cyprus, other than in exceptional circumstances. Where this is not possible, the meeting may be held in another jurisdiction outside of the territory where tax residency is attempted to be avoided, that would not itself attempt to impose any charge of tax on the Cyprus company solely in consequence of the meetings being held on its territory. If a board meeting is held outside Cyprus then the decisions should be ratified at a subsequent board meeting held in Cyprus for, inter alia, that purpose.
Wherever possible, all directors must attend board meetings in person. If this is not feasible, as a practical matter, a director may participate by telephone or video conference, provided that he is located outside of the territory where tax residency is attempted to be avoided.
Presence of directors
In all cases, a majority of directors must be present in person at board meetings. It is advisable that no director participates in a board meeting – whether by telephone, video conference or otherwise – while he is physically located in the territory where tax residency is attempted to be avoided.
To that end, the dates of future meetings of the board of directors should be fixed well in advance and entered into each director’s diary, so as to reduce the risk of a director subsequently finding himself unable to attend a meeting.
In order to ensure that the board of directors is able to reach decisions on a fully informed basis, an agenda for the board meeting, together with board packs containing relevant reports and other information, should, where possible, be circulated to the directors in advance of the board meeting.
The appointment of alternate directors is not desirable. However, if, in special circumstances, it is necessary to appoint an alternate director, the alternate director should have at least the same level of experience and expertise as the director he is replacing and should not be a resident of the territory where tax residency is attempted to be avoided.
Detailed minutes must be made of each board meeting and retained at the registered office of the company in Cyprus. Those minutes must contain a full record of the discussion and debate among the directors at the board meeting.
Skeleton or pre-prepared minutes that go no further than setting out a summary of the board’s decisions may be considered unsatisfactory and unacceptable due to their lack of evidencing real discussion and actual debate at the meeting, and thus their use is not advisable.
From a practical perspective, evidence must also be retained by the Cyprus company of directors’ travel and accommodation arrangements. If the Revenue & Customs department of the territory where tax residency is attempted to be avoided were to enquire into the residence of the Cyprus company, they would most likely scrutinise these records in order to confirm the physical location of directors at the time of board meetings.
Powers of attorney drafted in broad terms and affording extensive powers to attorneys to act and transact business on behalf of the Cyprus company and/or the board should be avoided.
If absolutely necessary for the completion of any given transaction, a carefully drafted and purposefully issued special power of attorney may be granted.
Nick Tsilimidos is an associate at L Papaphilippou & Co in Cyprus
2007 Strovolos, P.O. Box 28541
2080 Nicosia, Cyprus
电话 Tel：+357 22 27 10 00
传真 Fax：+357 22 27 11 11