The UK Company with Cyprus branch

By virtue of section 249 of the UK Finance Act of 1994, where a UK registered company has its "place of effective management" in a country with which the UK has signed a double tax treaty and is thus not managed and controlled in the UK and where such treaty contains a "tie-breaker" clause for situations where the company could be considered as resident in both countries, then the company will be resident in the foreign country and not in the UK for tax purposes. Since the double tax treaty between the UK and Cyprus contains this clause, this means that a UK company which is managed and controlled from a branch located in Cyprus will be resident in Cyprus for tax purposes.

Clients use these structures to increase the perceived credibility of their tax planning (with lower effective tax burden than that of a UK Company that is resident in the UK) by the use of a UK company.

The regulatory framework with respect to the UK non-resident company provisions can be found in Section 249 of the UK Finance Act of 1994 dealing with the issue of 'Dual Residency'. Under the aforementioned regulation, it is possible to register UK companies, which may, in the circumstances explained below, trade or carry on business activities outside the UK free of UK corporation tax.

Under section 249, a UK company may have 'Dual Residency’, i.e. being resident in two jurisdictions at the same time:

(1) In the UK under the domestic law by virtue of the place of the legal entity's incorporation;

(2) In a country with which the UK has negotiated an appropriate Double Tax Treaty.

As a result of the application of the provisions of section 249, all UK companies that meet the conditions referred to below are regarded as resident in the country which the relevant Double Tax Treaty (DTT) provisions specify as being the country of residence thereby preventing the application of any other domestic UK law/regulation from determining the tax residency of the company.

In practice, any UK company which has its "place of Effective Management" outside the UK will be non-resident for UK tax purposes. Such a UK company will only be liable to pay UK taxes if it receives UK sourced income, although even this income may be protected from UK tax as a result of the relevant Double Tax Treaty provisions.

Cyprus has been listed by the UK Inland Revenue as having a suitable Double Tax Treaty with the UK to enable a UK company to take advantage of the section 249 provisions and, therefore, avoid its UK tax residency.

The Cyprus residency of the UK non-resident company can be easily achieved through the registration of a Cyprus branch of the UK Company. Also for a U.K. incorporated company where shareholders are residents outside of U.K. and the directors of the company are residents in Cyprus it should be possible to obtain a non-resident status from the U.K. tax authorities. Thus the company not only gets the benefit of tax exemption in U.K. but being a resident of Cyprus it will be able to take advantage of the Cyprus double tax treaties as well as being taxed at the low rate on its net profits as applicable in Cyprus.

The “place of effective management and control” may be manifested as follows:

* All or the majority of the board of directors should be residents in Cyprus. If only the majority of directors reside in Cyprus the majority should be enough to form a quorum for the conducting of the board meetings under the articles of association. The minority directors who are not resident(s) should consider traveling to Cyprus for an occasional board meeting.

* Board meetings should be actually held in Cyprus.

* General policy of the company is formulated in Cyprus.

* Company bank accounts should be controlled by the Cyprus directors. This entails that money movements in the accounts are properly documented, so that they are seen to be done under the control of the directors.

* Day to day management is actually carried out in Cyprus.

The most important factor however is to register a branch of the U.K. company in Cyprus to undertake the activity.

Learn more information on UK companies.

Our Services

1) Incorporation of UK companies;
2) Incorporation of a UK branch in Cyprus;
3) Company secretarial services;
4) Director services;
5) UK and Cyprus tax compliance;
6) Statutory accounts;
7) Book keeping;
8) Audit;
9) VAT;
10) Banking services;
11) Tax planning guidance;
12) UK and Cyprus trust services.