Why a real office is sometimes a must for companies used in international corporate structures

International Companies used in international corporate structures some times need economic substance to reinforce their tax position and attain double tax treaties protection especially where it seems that there are no proper allocation of group risks on international company or where it seems that there are no economic reasons of registering an international company in a specific jurisdiction. One of the ways that can be achieved is by maintaining real offices and employ staff in the place where the international company is located

Double tax treaties enforceability

Like with Cyprus, in most of the countries, double tax treaties concluded with rest of the world and EU directives applicable among EU countries, will only apply provided the recipient (International Company) of income  (dividends, interest, royalties etc) is the beneficial owner of such income. Beneficial owner of the income is where recipient company’s powers may be exercised by its directors without the interference of its shareholders, sufficient economic substance is present, income is reported in recipients bank account and financial statements, there is free deal with inflow of funds by recipient, recipient has the ability to make decisions on its own and the recipient of the income maintains fully fledged offices and employ full time or part time staff

The Organisation for Economic Cooperation and Development (OECD) views

Sufficient economic substance has also been emphasised by the Organisation for Economic Cooperation and Development (OECD). The OECD states that sufficient economic substance should be present at the level of the intermediary Company and therefore allocation of risks should be consistent with the economic substance of that company.

Management and control – Effective management

Like with Cyprus, in many counties, a company is considered a tax resident if effectively managed and controlled in the country. Effective management is usually achieved if decisions are taken in the country through board meetings (backed by board minutes) and if the the majority of directors are tax resident in the country.

It is therefore evident that an international company should have a real office in the place where it is resident.

Conclusion

It is therefore sometimes a must especially where it seems that there is no proper allocation of group risks on Cyprus international company or  where it seems that there are no economic reasons of registering a company in Cyprus to maintain fully fledged offices and employ full time or part time staff in Cyprus

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This publication is for information purposes only and should not be considered as professional advice.

 

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