Is it a requirement for a Cyprus company to set up a fully operational office in Cyprus?

This mainly depends on what is the line of business of the Cyprus company, and where it is resident for tax purposes. The Cyprus Companies Law by itself does not contain such provisions. It only requires that a Cyprus company has a registered address and a resident secretary in Cyprus. This is a service that we routinely provide for a modest fee.

However, for banking purposes and for tax purposes a more significant presence may be needed.

As far as tax residence is concerned, a standard minimum rule is that in order for a Cyprus company to be deemed tax-resident in Cyprus, majority of its directors must be located in Cyprus and must hold the board meetings in the country. In contrast, a Cyprus company may also be treated as non-resident for Cyprus tax purposes if its directors reside and hold their meetings outside Cyprus. Apart from that, a whole range of other criteria could be taken into account – where does the company generate its revenue, where its books and records are kept, where its actual managerial decisions are taken, etc. Of course, by default, it will be presumed that a Cyprus company will want to become tax-resident in Cyprus, to which extent it can simply do so by applying for and obtaining a taxpayer number in Cyprus.

Most importantly, the banks routinely seek evidence on the economic substance of its corporate client – the Cyprus company or a foreign company. In line with the binding guidelines issued by the Central Bank of Cyprus, the commercial banks of Cyprus are required to avoid business relationships with (read: not open accounts for) the so-called “shell companies”. Shell companies are defined as ones that have no physical presence in their country of registration – no actual place of operations, no established economic activity, no meaningful mind and management there and little to no independent economic value. However, these requirements differ significantly depending on the actual business objects of the company. For example, asset-holding companies of all types are effectively exempt. The actual requirements in other cases may vary significantly.

Being able to establish and demonstrate “economic substance” that satisfies the recent regulatory requirements is always a case-to-case task. There are no uniform, cheap, ‘standard’ solutions and You should be wary of any operators who offer such. Upon having sufficient knowledge about the business mechanics and objectives of each individual client, we can usually advise on the best way forward.