Substance requirements abroad: the advantages of Cyprus corporate services

“Economic substance” are the two words that concern every international entrepreneur in the 21st century. Since the formation of the OECD, such regulations have become a day-to-day consideration for companies all over the world. 

Whether we like it or not, substance requirements abroad are here to stay so there's nothing left for us to do but to find a provider that can help us comply with these regulations.

The importance of substance requirements abroad

In a way, these regulations help us because they give us a higher reputation making processes and international transactions easier. The only issue is that offshore incorporation has become more complicated, and this may be seen as an obstacle for many businesspeople. But it doesn't have to be this way. Cyprus substance, which is the main subject of this article, can bring some great benefits and, if you think about it, all you have to do from your side is to find the right provider. If you don't handle this well, you lose transparency and you can incur higher tax burdens or even tax disputes from the authorities.

This is why Mundo decided to write about substance, in this particular case, concerning offshore companies in Cyprus. If you understand the basic principles of substance you can leave your doubts aside and take the next step towards forming your company.

Key aspects of company requirements in Cyprus

• Who makes the decisions?
• Where is this person based?
• Does the corporation have a physical office?
• Does the corporation have duly registered employees?
• Does it have an e-mail address, mailbox, and telephone line?

Establishing a virtual office

Establishing a virtual office is possible for small companies that need to fulfill the substance company requirements in Cyprus but don't have a large budget to spend. Thus, they can be in compliance while reducing their costs. Your virtual office comes with some perks like complementary use of a conference area or a private office.

Establishing a physical office

The other option is to rent a physical space or executive suite. In this case, your possibilities are much wider since you can meet clients and access conference rooms with the required technology. In some cases, you can find attractive agreements that provide flexible leasing and short-term contracts.

Benefits of establishing an office for offshore companies in Cyprus

Cyprus corporate services are widely sought-after since this is one of the freest economies in the EU. Moreover, if you establish an office, whether virtual or physical, you'll have the following advantages:

• You'll be in compliance with the company requirements in Cyprus and the OECD regulations.
• You'll be in compliance with Article 5 of the Model Treaty.
• You'll be in compliance with law 118 from the Cyprus income tax legislation.
• You will be cutting down expenses by leasing flexibly or establishing a virtual office.
• You don't have to invest in real estate property.
• There are deals where you don't have to pay a deposit in advance for renting an office space.
• In many cases you can cancel the agreement as long as you give 30 days’ notice.

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Other aspects of substance requirements abroad for offshore companies in Cyprus

But readers may be aware at this point that substance requirements go beyond an office. The essence of successfully undergoing Cyprus company registration is to prove that you have a real presence. The main objective is to create consistent bonds, both personally and economically, between your company and Cyprus.

Corporate office

While a virtual office can be a good place to start, when your company is stable and operating you must establish a real office. In this regard, having a nominee address is a big risk.

Company management 

The people who run the company must have tax residency in the country. They can be foreigners but are required to spend over 180 days a year in Cyprus to keep their tax residency condition.

Corporate decisions

Managers of offshore companies in Cyprus must make important decisions being in the country, otherwise, if taken abroad, the authorities may question the tax residency.

Company employees

While there's no specific required number of employees, you must hire the amount required by your operations. In other words, you have to have enough staff to ensure that daily activities are performed. This mainly depends on what kind of operations you conduct but keep in mind that you will need a managing director or a CEO. 

Task outsourcing

Offshore companies in Cyprus can outsource certain tasks as long as the management from Cyprus controls all the processes and keeps regular communication.

Reporting and accounting

Both these tasks can be outsourced as long as the management approves all records and reports. These must be kept at the office at all times.

Corporate documents

The company's legal documents and stamps must be kept at the office. Using a cloud is allowed as long as you can access this from the office at any time.

Corporate presence

Finally, the company must have a website with its correspondent domain which can be local or international. The company and its employees must have a profile on LinkedIn and separate corporate phone lines. It always helps if you participate in the local business environment.

Company formation in Cyprus

Mundo offers Cyprus corporate services because this is one of the best countries in Europe. Besides its strategic location, near the Middle East and North Africa, the island has a vibrant business environment, and English is widely used. All of these are undoubtedly great advantages for international investors.

Advantages of Cyprus company registration

• The corporate rate is only 12.5% of profit before tax, being one of the lowest percentages of the European Union.
• Cyprus doesn't apply withholding tax on dividends paid to non-residents.
• You can get your VAT number in only 2-5 business days.
• No taxes on capital gains.*
• No taxes on employees’ salaries outside of Cyprus.**
• Treaties to avoid double taxation with over 50 countries including Spain and the United Kingdom.
• Dividends derived from income are totally exempt from taxes.
• Offshore companies in Cyprus accept income from jurisdictions like Seychelles, Belize, the BVI, Panama, and Costa Rica.***
• Bank accounts in Cyprus are accepted by major online payment platforms like PayPal.

*The CGT (capital gain tax) is applied where the disposal is not subject to income tax at a 20% rate on gains from the disposal of real estate located in Cyprus including gains from the disposal of shares in companies that own this real estate directly. Moreover, since December 17th, 2015, the shares from companies that own Cyprus real estate indirectly and at least 50% of the market value of these shares derives from such property, they are subject to capital gains. The disposal for the purposes of the CGT includes exchange, gifting, leasing, granting the right of purchase, abandoning the use of right, and any amount received from the disposals of real estate property.

Note: For more information about this subject, please contact your Mundo expert. 

**Tax residents are taxed from all their generated chargeable income (from all sources, whether in Cyprus or abroad) including employment benefits. Non tax residents are still taxed on certain income derived from Cypriot sources. 

***In some cases, banks are reluctant to receive funds from certain jurisdictions. The Mundo team recommends providing supporting documents like sales agreements, invoices, etc. 

Cyprus company registration: step by step 

Step one: fill out the form of company formation (provided by your Mundo expert) and sign it.

Step two: provide a notarized copy of the passport for all the natural persons involved in the company.

Step 3: provide a recent utility bill (which must be original) for every natural person involved in the company. It must not be older than three months.

Step 4: provide a bank reference letter which must be original and not older than three months. They must be issued in the name of each of the natural persons involved.

Step 5: provide a detailed CV for each UBO. 

Generally, we ask the client to send these documents scanned by e-mail as a previous step so that we can approve them first. However, once this stage is over, we'll need to receive original copies by post mail. Once a company is established you may need to send additional documents.

Timelines

• Getting the company name approved - approximately one week.
• Preparing the documents for the registry (HE1, confirmation letter, fusions, and acquisitions) - approximately one week.

Note: Keep in mind that timelines may change depending on the authorities’ response.

Disclaimer: all the information, documents, and regulations described in this article are purely informative and they don't constitute or replace formal professional advice. Moreover, fees, requirements, and documents may vary subject to changes in legislation. To know the exact requirements for your case, ask for a consultation with your Mundo expert.

Mundo Cyprus corporate services

Being one of the leading offshore publications out there, we not only provide interesting content but also have a specialized team offering a variety of services. Cyprus company registration is included in these services, and we, as usual, partner with the best providers.

Complying with Cyprus substance is not an easy task, and this is why you need the experience and assistance of a qualified team. Thanks to our close connection with our main partner and sponsor, which is also our parent company, we have experts with wide experience in registration, second citizenship, trust formation, bank account opening, and international investment.

Don't let substance become an obstacle, instead, turn it into an opportunity to grow and develop. For this, Mundo has your back. Contact us now.

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