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Substance Requirements for Companies in Cyprus: Key Aspects for Successful Business Operations
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The Republic of Cyprus has rightfully earned its reputation as the “Most Convenient Jurisdiction for European Business.” Cyprus is an ideal choice for entrepreneurs, offering unique conditions and advantages. Low tax rates, a wide range of international agreements, and excellent business infrastructure provide optimal conditions for growth and development on the international stage. For more details, read:Why Cyprus is the Best Choice for Business in Europe in 2024.
However, to fully benefit from conducting business in Cyprus, companies must pay particular attention to meeting substance requirements.
What is Substance?
Substance refers to the concept of having genuine economic activity and presence in the jurisdiction where a company is registered. It means proving that registered companies genuinely operate and conduct business in Cyprus, rather than merely using it for tax benefits.
As a member of the European Union, Cyprus strictly adheres to all EU regulations and substance requirements. Cyprus’s absence from the EU and OECD “black” or “grey” lists confirms its compliance with international standards and regulatory requirements. This guarantees stability and predictability for international businesses operating in Cyprus.
Why is Substance Important?
Legal Compliance: Companies that do not meet substance requirements may face legal issues, including fines and removal from the company registry.
Tax Benefits: Only companies that comply with substance requirements are eligible for tax incentives offered in Cyprus. This includes the application of double tax treaties and low corporate tax rates. Additionally, if your company meets substance requirements, you can qualify for the favorable tax status of a “non-domiciled resident.”
Banking Operations: Banks are increasingly strict with their requirements for opening corporate accounts and conducting transactions. Without proof of substance, opening a bank account is nearly impossible. If a bank has doubts about a company’s actual presence, it has the right to deny further services, block the account, or reject transactions.
Key Substance Requirements in Cyprus
Each case should be assessed individually based on the type of business, and there is no universal solution. However, companies are advised to meet the following key requirements to confirm their economic presence in Cyprus:
1.Physical Presence
The company must have an office in Cyprus used for conducting its activities. Having a physical office with rent expenses confirms the company’s real presence and management in Cyprus. The management of the company (holding shareholder meetings and board of directors meetings) should take place in Cyprus.
2. Cyprus-Resident Director
To meet the requirements, the company’s director must be a resident of Cyprus and possess the necessary qualifications for the position (relevant or similar experience).
3. Contact Information
The company should have valid contact details, including a phone line, email, website, and social media pages.
4. Employees
The company needs to have employees in Cyprus who are registered in the social insurance system and actively participate in the company’s operations. Employees should receive real salaries, with actual payments made through Cypriot banks.
The company must be registered as an employer with the Department of Labor and maintain payroll records showing contributions to social insurance and the General Healthcare System (GESY).
5. Economic Activity
The company must demonstrate real economic activity, documented by valid contracts, transactions, and business operations directly related to its core activities.
6. Corporate Bank Account
The company should open a corporate bank account with a local Cypriot bank, and a local resident/director should act as a signatory.
7. Accounting in Cyprus
The company needs to keep accounting records in Cyprus that accurately reflect all financial transactions and activities. This includes tracking income, expenses, assets, and liabilities. Accounting records must be accurate, up-to-date, comply with local standards and regulations, and be available for audit and tax inspection.
Adhering to substance requirements is crucial for successful business operations in Cyprus. It ensures legal protection, tax advantages, and enhances your business reputation.
Our company offers comprehensive services to ensure your business in Cyprus meets substance requirements!
✔️ Legal support for registering companies in various organizational forms
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In 2013, she graduated in law from the National University «Odessa Law Academy» with honors and received a Master of Law degree. Anastasia Taran has experience in international and contract law, as well as corporate and tax law in Europe. Within the framework of Feod Group, she specializes i...
In 2013, she graduated in law from the National University «Odessa Law Academy» with honors and received a Master of Law degree. Anastasia Taran has experience in international and contract law, as well as corporate and tax law in Europe. Within the framework of Feod Group, she specializes in immigration and corporate law of European countries, particularly:
