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Cyprus introduces additional corporate tax residency test

The epilogue of Cyprus stateless companies


1. Introduction


As of 31 December 2022, a major development relating to the Cyprus corporate tax residency test came into force in Cyprus, affecting Cyprus incorporated/registered companies which have their management and control exercised outside Cyprus and are no tax residency in any other jurisdiction, bringing the epilogue of Cyprus stateless companies.


2. Previous corporate tax residency


Before 31 December 2022, the only corporate residency test was the management and control test – a company would be considered as a tax resident of Cyprus if its management and control were exercised in Cyprus.


The above corporate tax residency test will continue to apply along the addition below - a company that has its management and control in Cyprus will continue to be considered as a tax resident of Cyprus, i.e. its tax residency status will not be affected by the Amendment Law.


3. Additional corporate tax residency test


The amendment 193(I)/2021 (the “Amendment Law”), introduced in the Income Tax Law, 118(I)/2002 (the “Law”), an additional corporate tax residency test by amending the definition of the meaning, “Resident in the Republic” in section 2 of the Law, introducing:


“It is provided that, a company which has been established or registered pursuant to any law in force in the Republic [of Cyprus], of which its management and control is exercised outside the Republic [of Cyprus], it is considered that it is resident in the Republic [of Cyprus], unless the said company is tax resident in any other country”.


In essence, introduced the Incorporation Test for corporate tax residency in Cyprus i.e. any company incorporated/registered in Cyprus will, by default, be considered a tax resident in Cyprus, unless it is (a) managed and controlled outside Cyprus; and (b) it is a tax resident in another jurisdiction.


4. Our Comment


The application of only the management and control test gave rise to the creation of what is commonly referred to as “stateless companies”.


Whereas a Cyprus-incorporated company, which had its management and control in another country, would not have been regarded as a Cyprus tax resident - thus outside the scope of Cyprus tax. A lacuna would thus be created, if the country in which the Cyprus company had its management and control applied only the incorporation test, such as the U.S. or Sweden, resulting in the company not being within the charge to foreign tax as it was not incorporated in that jurisdiction.


This mismatch resulted in a company not being liable to tax in either country - thus becoming a stateless company.


The Amendment Law seeks to remedy the above lacuna. The addition of the new test ensures that a Cyprus-incorporated company must be considered tax-resident in a jurisdiction and cannot remain stateless. This move indicates Cyprus’s commitment to be in line with the OECD on Base Erosion and Profit Shifting (BEPS) in countering international double non-tax arrangements.


The above will impact Cyprus companies that are currently managed and controlled in a country, such as the U.S. or Sweden, and not tax residents there due to the incorporation test of residency in that state.


5. Our Services - Lytras & Associates LLC


Lytras & Associates is an independent conflict-free boutique law firm based in Cyprus that specialises in cross-border corporate & commercial work. We approach each case meticulously and devotedly by having specialised tight-knit teams with internal and external specialists in international tax law for each project allows. Please contact us if you are interested in the following:

  • Advice on tax optimisation within your business or private wealth planning;

  • Advanced structuring to ensure eligibility for tax relief under domestic laws, double taxation agreements and EU directives;

  • Restructurings, including mergers and acquisitions, takeovers, and transfers of seat from and into Cyprus; and

  • Tax Rulings & Compliance.


Contact us at info@lytrasllc.com for a complimentary consultation or fill in our form at Contact Us.


The content of this article is valid as of the date of its first publication. It is only intended to provide a brief introduction to the particular subject matter. Detailed specialist advice should be taken prior to taking or refraining from taking any action as a result of the information contained in this article.




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