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MANAGEMENT AND CONTROL
The most common criterion that is used to determine the residence of a company is management and control. There is not one predefined set of rules that will determine black and white where management and control is exercised. Ideally, all functions that make up management and control should be present in the country where the company claims to be resident.
A non-exhaustive list of these functions could be as follows:
All meetings of the board of directors take place in Cyprus.
- Cyprus residency
Ideally all the directors of the company should be resident of Cyprus. If this is not possible then the majority of the directors should be resident in Cyprus. If the majority of the directors is to be abroad then they should not constitute a quorum. If the majority of the directors is to be abroad and they do constitute a quorum they should not be resident in the same country.
- Directors’ qualifications and experience
The appointed directors should have adequate qualifications and experience, so that they are not considered as mere powerless representatives of the beneficial owner. This feature is very important and depends on the company's activities. Some non-exhaustive examples are
- A holding or investment company that may own valuable assets should have directors on its board, with demonstrable experience in acquiring, valuing and managing similar assets (e.g. a company with substantial investments in real estate should have at least some directors with experience and qualifications in real estate valuations and a history of dealings in such transactions).
- An active trading company should have at least some directors with demonstrable experience and expertise in the same or similar sector of trading.
- A construction company should have at least some directors, with the background and experience of an architect or a civil engineer, or chartered surveyor.
- A digital sales or internet company should have at least some directors with experience in IT, software development, internet marketing etc.
- A financing company should have at least some directors with a background in banking, treasury etc.
The appointed Directors should have the time to carry out their duties. A Director with a large number of appointments (unless for a group) is not recommended.
- Board meetings
Annual General Meetings, company resolutions and directors’ meetings of the Cyprus company to be held in Cyprus. All important decisions should be taken by high caliber directors appropriate for the business activities of the company and evidenced in relevant documentation. Technology permits participation from a distance but this should be avoided particularly when the majority of directors that are also shareholders, are abroad.
Ideally all contracts and agreements of the company should be drafted in a language in which the directors are fluent. They should be signed in Cyprus.
- Power of Attorney
The location of the individual that binds the company into its contractual agreements may be important in determining the company's place of effective control and tax residency. For this reason the company should not issue general powers of attorney to individuals residing outside Cyprus.
- Bank account signatories
Ideally, all the bank account signatories (the officials of the company that control the bank accounts and the company funds) should be resident in Cyprus as their location may be important in determining the company's place of effective control and tax residency.
The following factors should be considered as necessary for adequate substance in Cyprus.
- Office space
Availability of office space with all relevant characteristics for running a business (telephone, emails, faxes, furnished and functional office)
Availability of high calibre employees necessary to carry out the day to day activities of the company. Administrative functions can be outsourced.
Management activities of the company to be carried out in the country of residence.
All accounting, audit, tax and legal service providers should be in Cyprus and not in the country of residence of the company's beneficial owner.
- Bank account
The company should have a bank account in Cyprus, even if it has a bank account in another country, as well. The company should avoid having a bank account in the country of residence of its beneficial owner.
- Accounting records
Complete accounting documentation in Cyprus. The accounting records in Cyprus should be complete and all transactions and assets of the company should be properly included and reflected in the Cyprus financial statements of the company. Accounting books should be kept in the country of residence.
- Diversified Investments, Assets and Activities
The more investments, assets, operations and activities the Cyprus Company has outside the country of residence of beneficial shareholders, the easier would be to prove adequate substance in Cyprus. A diversified investments portfolio with income streams from different activities substantially reduces the risk of the company being deemed as “artificial”.