Economic Substance

Overview

Cyprus does not treat incorporation as sufficient for tax residency. It asks where the company is managed and controlled, which is a question about where decisions are genuinely taken rather than about what documents exist.

There is no headcount threshold in the test and no universal checklist that satisfies it. What is required scales with what the company does, how much value it carries, how many jurisdictions it deals with, and how much relief it is claiming. A passive holding company and an operating software business face different expectations, and applying one company's arrangement to the other produces either wasted cost or an exposed position.

The work is therefore diagnostic before it is implementational. It begins by identifying the functions that generate the company's income and asking who performs each of them and where, because that is the question an examiner will ask.

What is included

• Substance assessment against the company's actual activity, value and risk profile
• Board design, including the appointment of Cyprus-resident directors with genuine authority
• Board calendar, agenda papers circulated in advance, and minutes recording deliberation
• Registered office and, where proportionate, dedicated premises and secure record storage
• Banking arrangements with Cyprus-resident signatories and defined authority limits
• Payroll, employment and contractor arrangements where local personnel are required
• Contract review so agreements are negotiated and approved in Cyprus rather than ratified there
• The evidence file: minutes, resolutions, correspondence and supporting records maintained contemporaneously
• Periodic review as the business changes, and preparation for residency certificate applications

How Doviandi approaches this

We start with the functions, not the checklist. Who negotiates the contracts that produce revenue, who sets pricing, who directs development, who accepts the commercial risk, and who authorises payments. Where most of those answers are currently outside Cyprus, the work is to move the functions rather than to add headcount around them, and identifying that early is what keeps the budget proportionate.

Directors are expected to direct. A resident director who signs whatever is presented produces a signature, not evidence that a decision was taken in Cyprus. The appointments we arrange come with papers, questions and, where appropriate, the ability to decline.

Evidence is created as it happens. Minutes written contemporaneously, recording what was considered and why, are worth considerably more than a file assembled after a request arrives. The engagement is built around that cadence rather than around an annual scramble.

Proportionality is stated honestly. Where a client's structure needs more presence than they intend to commit to, we say so rather than implementing a version that looks adequate on paper. The gap between benefit claimed and activity performed is precisely what gets tested.

Related knowledge

Background reading on the questions this service answers:

• Economic Substance on the management and control test, what it examines and what inadequate substance costs.
• How many employees are needed for economic substance? on why there is no number, and the question that produces a real answer instead.
• Can directors of a Cyprus company live abroad? on what a workable mixed board looks like and what an exposed one looks like.