“… Neither the formation nor the management test are best bases upon which to build a business tax system, but a profounder understanding of actual, real and effective administration.”
The phrase fiscal residence or tax residence is commonly agreed to mean the place where a business is subject to unrestricted tax liability. Cyprus tax planning resident persons or companies are subject to tax in Cyprus on their global income although non tax local persons / companies are subject to tax only on their income derived in Cyprus.
At the corporate level there are a number of different domestic-law tests that regulate residency. Registration in Cyprus is not itself enough to get residence in Cyprus for tax purposes. A business will only be resident for tax purposes if it is managed and organized from Cyprus. Although no characterization of management and control is provided in the law, it is accepted as being the place at which major resolutions and decisions are taken and where the directors meet and most of the time reside.
It is highly suggested that in this mobile world neither the company formation nor the management test are ideal fundamentals upon which to build a corporate tax system, but a deeper understanding of real and effective administration as established in Lord Loreburn’s speech in De Beers Consolidated Mined Ltd ν Howe: A company resides where its real business is carried on and the real business is carried on where the central administration and control really abides.
To ensure the permanence of the organized operations it is vital to identify the distinction among cases where management and control of the company is implemented over its own constitutional organs i.e the directors and cases where the tasks of those constitutional organs are ‘usurped’ in the logic that management and control is exercised individualistically of or deprived of regard to those constitutional organs.
In cases which fall within the former class, it is crucial to recognize the difference between the role of an ‘outsider’ in advising and influencing the decisions which are to be taken. In that context, an ‘outsider’ is a person who is not himself, a participant in the formal process through which the relevant constitutional organ accomplishes its purpose.
About the author: PM Cyprus Law Firm has an extensive practice in supporting clienteles with the registration and management of a Cyprus international business company. Their professional corporate lawyers can take on the complete procedure of incorporating your company in Cyprus. For further information you can visit the above site.