Corporate Taxation in Cyprus
Cyprus – Full Tax Exemption
Non-Tax Resident Companies

In case a Cyprus company has non-resident shareholders and directors, business management is not based in Cyprus, and all business income is generated overseas, the company’s tax liability in Cyprus depends on whether it is considered tax resident in Cyprus. This classification is critical for determining whether the company can claim tax exemptions or will be subject to Cyprus tax laws.

Tax Residency of the Company

In Cyprus, a company is considered tax resident if it is managed and controlled from Cyprus. This typically means that the major decisions of the company, like board meetings and strategic decisions, should occur within Cyprus. If management and control are exercised outside of Cyprus, the company will not be considered tax resident in Cyprus.

Corporate Tax Liability for Non-Resident Companies

If the company is not tax resident in Cyprus (because management and control are outside of Cyprus), the following rules apply:

Non-resident companies are generally not subject to Cyprus corporate income tax on their foreign-sourced income.
Cyprus only taxes non-resident companies on income that is derived from sources within Cyprus, such as:

Profits from a permanent establishment (PE) in Cyprus (e.g., a branch, office, or any fixed place of business in Cyprus).
Income from immovable property located in Cyprus.
Any other Cyprus-sourced income.

Moreover, and since:
Business management is not based in Cyprus (management and control are overseas).
Shareholders and directors are not Cyprus residents.
All income is generated overseas (no Cyprus-sourced income).

The company would likely be considered non-tax resident in Cyprus and would therefore be exempt from Cyprus corporate tax on its worldwide income.

Other Taxes and Compliance Requirements

Even though the company may be tax exempt on its foreign income due to its non-resident status, the following should be considered:

VAT: If the company engages in activities that are subject to Cyprus VAT (Value Added Tax), it may need to register for VAT and comply with VAT obligations. However, if it only conducts business outside Cyprus, VAT obligations may not apply.

Reporting: The company may still be required to comply with certain reporting obligations, such as filing a nil tax return or maintaining statutory records depending on the nature of its operations.
Withholding Tax: Cyprus generally does not impose withholding tax on dividends, interest, and royalties paid to non-residents, which can be advantageous if the company distributes profits to non-resident shareholders.

International Tax Considerations

Although the company may not be taxed in Cyprus, it is important to consider:

Tax residency rules in the countries where business activities are managed or where income is generated. These jurisdictions may assert the company is tax-resident or subject to tax under their own laws.
Double Tax Treaties: Cyprus has an extensive network of double tax treaties, which can provide tax relief or reduced withholding tax rates on cross-border income flows (though these benefits typically apply to Cyprus tax-resident companies).

Summary

Since the company’s management and control are outside of Cyprus, and its business income is generated entirely abroad, it is likely to be classified as a non-tax-resident company in Cyprus.

As a result, it would typically be exempt from Cyprus corporate income tax on its worldwide income. However, this exemption applies as long as the company does not have any Cyprus-sourced income or a permanent establishment in Cyprus.

The company should still ensure compliance with any local tax obligations in the jurisdictions where it operates or is managed.