Cyprus Introduces Additional Corporate Tax Residency Test

At the end of December 2021, an amendment to the Income Tax Law was published in the Cyprus Government Gazette. The point is that an additional test of companies for tax residency based on registration will be carried out.

This additional test aims to identify companies incorporated in Cyprus that are not tax residents of any other jurisdiction (commonly referred to as “stateless companies”).

According to the existing rules and the law on income tax, a company is considered a tax resident of Cyprus if it is managed and controlled in Cyprus.

The existing test for corporate tax residency will continue to apply so that a company that is operated and controlled in Cyprus will continue to be considered tax resident in Cyprus, i.e. tax residency status will not be affected by the amendment to the Law.

According to the amendment to the law, the definition of "resident in the Republic" has been expanded. That is, a company is considered as such if it is created or registered in accordance with any applicable legislation in the Republic, the management and control of which is carried out outside the Republic and it is not a tax resident of any other jurisdiction.

This means that companies are established/registered in Cyprus, with (i) management and control exercised outside Cyprus; And (ii) persons who are not tax residents of any other jurisdiction will now be considered tax residents of Cyprus and, as such, will be taxed in Cyprus on their worldwide income.

The amendment to the Law will enter into force on December 31, 2022.

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Source: kpmg

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