On 21 December 2021, an amendment to the Income Tax Law was published in the Cyprus Government Gazette (“Law amendment”) whereby an additional corporate tax residency test is introduced based on incorporation. This additional test aims to capture Cyprus incorporated / registered companies that are not tax resident in any other jurisdiction (commonly referred to as “stateless companies”).
The Law amendment will enter into force on 31 December 2022.
Existing corporate tax residency rules based on management and control
In accordance with the Income Tax Law, a company is considered to be a tax resident of Cyprus if its management and control is exercised in Cyprus.
The existing corporate tax residency test will continue to apply, so that a company that has its management and control in Cyprus will continue to be considered as a tax resident of Cyprus i.e. its tax residency status will not be affected by the Law amendment.
Additional corporate tax residency test based on incorporation
In accordance with the Law amendment the definition of a “resident in the Republic” is enhanced so that a company established or registered under any applicable Law in the Republic, which has its management and control exercised outside the Republic, is considered to be a resident of the Republic, unless such company is a tax resident in any other jurisdiction.
This means that Cyprus incorporated / registered companies, with (i) management and control exercised outside Cyprus; AND (ii) not tax resident in any other jurisdiction will now be considered as Cyprus tax residents and as such, taxed in Cyprus on their worldwide income.