In today’s environment, substance is no longer optional — it’s essential.
As global tax transparency and compliance standards evolve, economic substance has become a cornerstone of international business structuring.
For companies operating in or through Cyprus, understanding and demonstrating economic substance is essential for corporate credibility.
What is economic substance?
In practical terms, economic substance means that a company’s core management, decision-making, and income-generating activities are genuinely carried out in and from Cyprus, supported by adequate people, premises, and expenditure relative to its operations.
Economic substance requirements are usually encountered in:
- Banking due diligence
- Tax residency assessments
- Transfer pricing compliance
Why economic substance matters?
Banking
Opening or maintaining a corporate bank account in Cyprus is nearly impossible without showing local substance. A registered address alone no longer satisfies due diligence requirements. Financial institutions expect companies to show that they operate from a tangible, functional business base.
Tax residency
A company is considered tax resident in Cyprus if its management and control are exercised in Cyprus. Typically, this means that i) the company maintains physical offices in Cyprus, ii) the majority of directors are Cyprus tax residents, iii) board meetings, especially for strategic decisions, are held in Cyprus, iv) minutes, resolutions, and corporate records are maintained locally, v) the main bank accounts of the Company are in Cyprus, vi) all contracts and key agreements are executed within Cyprus.
Since 2023, a company incorporated in Cyprus is automatically deemed Cyprus tax resident, unless it is both managed and controlled abroad and considered tax resident in another jurisdiction.
However, mere incorporation is not enough in practice. If another country’s tax authority questions your residency, real economic substance in Cyprus — demonstrable through physical presence and operational activity — becomes critical to defending your tax position
Transfer Pricing
Under the OECD BEPS framework and Cyprus Transfer Pricing Regulations, profits must reflect actual business functions and risks performed in Cyprus. Without sufficient substance, tax authorities can adjust profits and there is a risk of denial of treaty benefits.
STELMACO Substance Solutions
We help clients build and maintain economic substance in Cyprus.
We offer physical office space within a designated area in our main building in Limassol, situated in a prime location easily accessible from all main cities, that is independent from our main office area and is designed specifically for supporting our client’s substance needs & business growth.
We also provide:
- Support in setting up your business space (arranging any special furnishing and equipment)
- Internet connection & dedicated telephone line
- Business mailing address where your mail is collected, sorted, forwarded or dispatched as per your requirements
- Administrative support (including for example printing, copying, scanning)
- Access to common meeting rooms for convening your company’s general meetings (including AGMs) or other board / business meetings
- Assistance with bank account applications
- Management of migration and relocation procedures
- Recruitment support (including qualified dedicated directors)
- Drafting and preparation of employment contracts
- Bookkeeping, accounting & audit services through our associates in Cyprus
Establishing a credible presence in Cyprus through real people, real decisions, and a real office is key to sustainable and compliant international operations —and we’re here to help you every step of the way.
Please feel free to contact us for further information on how we can assist you to set up your business in Cyprus.