The international, political and business environment is constantly changing, the needs of investors, entrepreneurs and society in general are different. At the same time, international competition in the professional services sector is growing.
It is noted that Cyprus is fully in line with European directives on anti-money laundering procedures, exchanges information on financial accounts, with information provided by financial and other similar institutions, such as insurance companies and organizations. providing investment services to the tax authorities.
In addition, Directive DAC 6 applies, which essentially requires service providers / intermediaries and in some cases taxpayers themselves, cross-border arrangements and corporate schemes that are potentially considered aggressive tax planning.
Towards the end of last year, the European Commission presented its new initiative to prevent the creation of companies without substantial business activity in a jurisdiction, with the primary aim of exploiting the tax system. Therefore, three criteria are set based on which company vehicles can be considered as shell companies.
The first criterion examines the activities of companies based on the income they receive, ie if more than 75% of the total income of a company in the previous two tax years does not come from its business activity (therefore it is passive income such as dividends, rent and interest ) or if more than 75% of its assets are real estate or other private property of particularly high value (not used for business).
The second criterion examines whether the company receives most of its revenue through transactions related to another jurisdiction or transfers this related revenue to other companies located abroad.
The third criterion concerns the corporate management and administration services of the company, ie whether they are performed internally or outsourced.
A company that meets all three criteria should provide specific information in its tax regarding its substance. This information includes details on whether the company has its own facilities through which it operates, whether it has a bank account within the European Union, the directors' tax residence, and whether they actually carry out their duties for the company. as well as their employees. It is noted that all statements must be accompanied by evidence.
If a company is considered a shell company, it will not be able to access the tax breaks and benefits of its Member State tax network and / or will not be entitled to withholding tax under the Parent and Subsidiary Companies Directive. dividends and that relating to royalties and interest. In addition, such companies will not be issued a tax residence certificate, or the certificate will indicate that the company is a shell.
It is pointed out that even if a company meets the criteria to be judged as a shell company, it has the right to present evidence to the tax authorities to the contrary and to be excluded. It is noted that the directive is expected to enter into force in 2024.
It is understood that with the above we move even more to the need for companies to create a real basis to be able to “enjoy” the tax benefits of a jurisdiction.
In addition, this year we are expected to see the promotion of the so-called tax reform which will include green taxes, the improvement of the collection of the Tax Department through the adoption of technologically upgraded procedures, change of tax rates (tax rate increase is expected to increase. special contribution rate) and incorporation into the legislation of the incentives that have already been announced for attracting companies to operate or strengthen them in Cyprus.
With the technological development and the consolidation of the financial services, the change of the headquarters of a group becomes easier, especially for companies that are active in the field of services. The choice of country of residence is decided if many factors are taken into account such as geographical location, financial, tax and legal system, the ease with which one can travel to and from the country, lifestyle, health system and education system.