The Cyprus Holding Company — A Legitimate Tool for International Expansion, Not a Cut-Rate Tax Dodge

How to Establish a Company in Cyprus

 

A Cyprus company can be a superb solution. But not as a paper shell offered online at a promotional price of nine hundred and ninety-nine euros—rather, as a genuine business structure requiring thoughtful architecture, substantial costs, and, most crucially, authentic economic substance.

The Cyprus holding structure is neither mythical Eldorado nor incarnate evil—it’s a business tool that, given appropriate scale, genuine economic substance, and proper business purpose (managing an international group, foreign expansion, succession planning), can be entirely legal and economically justified. But this isn’t a plug-and-play solution, this isn’t a “company for €999,” and this certainly isn’t a universal method for tax reduction applicable to every entrepreneur.

We advise Polish entrepreneurs in creating genuine business structures in Cyprus—with complete economic substance, compliant with Polish and international tax law.

⚠️ We do not offer “companies for €999” with nominee directors or paper offshore constructions.

If you’re seeking an inexpensive way to avoid taxes—we’re not for you.
If you’re planning genuine international expansion—this service is for you. Learn what you should know before deciding to establish a company in Cyprus.

 

 

For Whom Is Establishing a Company in Cyprus a Sound Decision?

 

If you’re considering establishing a company in Cyprus, the crucial question you must ask yourself is no longer “can I reduce taxes using a Cyprus company,” but rather:

💼 International Expansion
Do I plan international business expansion requiring a central holding company in a neutral jurisdiction?

🌍 Change of Tax Residency
Am I considering changing my tax residency and relocating to a country offering more favorable conditions for individuals—for instance, Cyprus tax residency?

👨‍👩‍👧 Succession and Asset Protection
Do I need tools for succession planning and asset protection in an international context?

💰 Economic Scale
Does my business scale economically justify the expenditure of maintaining the economic substance of a foreign holding company?

If the answer to these questions is “yes,” a Cyprus structure may make sense. If “no”—better to invest those resources in developing the business itself or utilize Polish tax planning tools: a family foundation, Estonian CIT, or simply accept the nineteen-percent dividend tax as a fair price for operating within a stable Polish legal system, without cross-border complications and the risk of disputes with the tax authorities.

 

Cyprus as “Gateway Jurisdiction”: The Golden Era and Its Decline

 

Traditionally, one of Cyprus’s greatest advantages was the absence of withholding tax on dividends paid to non-residents, regardless of their domicile or the existence of a double taxation treaty. This principle prevailed for decades and formed the foundation of Cyprus holding structures’ attractiveness.

For more than three decades, Cyprus functioned as a classic gateway jurisdiction—a portal between the world of “white” jurisdictions and the offshore world. The business model was elegantly simple and extraordinarily tax-efficient. A Cyprus holding company could receive dividends from European Union countries without withholding tax, thanks to the Parent-Subsidiary Directive, and from non-EU countries by utilizing an extensive network of over sixty-five double taxation treaties that ensured reduced withholding tax rates, often to zero. Subsequently, that same Cyprus company could distribute these funds onward—to the BVI, Caymans, Panama, Seychelles, or other classic tax havens—without any Cyprus withholding tax whatsoever. Zero. Regardless of where the money went.

A typical structure looked like this:

• Polish or German operating companies paid dividends to a Cyprus holding—zero percent withholding tax thanks to the PS Directive
• The Cyprus holding paid no tax on received dividends (participation exemption)
• It then paid them to a BVI company—zero percent Cyprus withholding tax
• From there, funds reached ultimate beneficiaries who were tax residents of some zero-tax jurisdiction

Total tax efficiency of approximately twelve and a half percent—exclusively Cyprus corporate income tax on active operating income, if such income existed at all.

This is precisely what made Cyprus absolutely exceptional. It wasn’t a classic tax haven like BVI or the Caymans, which offered zero tax but were universally recognized as offshore, faced reputation problems, limited access to the banking system, and few tax treaties.

Cyprus had been a European Union member since 2004, possessed an extensive network of tax treaties, was accepted by international banks, had a qualified professional services sector, and offered genuine business infrastructure. Yet simultaneously, it behaved like a tax haven in the most important respect—it permitted capital distribution to genuine offshores without any additional taxation.

For Polish entrepreneurs, this meant the possibility of legal tax planning—treaty-based extraction of profits from Poland into an international structure that could then freely distribute capital globally without additional tax barriers. Cyprus was that place where the jurisdiction of the “white” fiscal world ended and offshore freedom began. It was a bridge. A gateway.

 

Is a Cyprus Company a Legal Solution?

 

The answer is straightforward—yes, provided that when you wish to utilize the Cyprus tax system, you genuinely conduct your business in Cyprus.

From the perspective of the Polish tax system, the entire elegant construction described above looked completely different. It was simply massive, systematized capital leakage that should have been taxed in Poland but instead vanished into international structures practically without a tax trace.

This is precisely why the Polish tax authorities regard Cyprus with profound suspicion—the result of decades of experience with paper structures of the “company for €999” variety.

The legislature has therefore developed four separate legal mechanisms designed to prevent capital flight through ostensibly legal but actually substance-free Cyprus structures. All four mechanisms revolve around the fundamental concept of economic substance, but test it differently, at different transaction stages, and under different legal foundations.

 

 

 

A Cyprus Company and the Polish Tax Authority—Four Control Mechanisms

 

Below we analyze these conditions in detail, but fundamentally, they’re not worth reading. One need only remember this: if a company wishes to utilize the Cyprus tax system, it must genuinely conduct its business in Cyprus.

If this single condition is met, the others will arrange themselves almost automatically, according to the following guidelines—guidelines the legislature has been calibrating for nearly a decade to filter out paper shell companies from businesses genuinely conducted from other EU states.

 

First Mechanism: Beneficial Owner Upon Dividend Distribution

 

The first mechanism activates at the moment of dividend distribution from a Polish company to a foreign holding. Here, the Polish operating company acts as withholding tax payer, bearing the due diligence obligation under Article 26 of the CIT Act. The Polish payer must verify whether the foreign payment recipient is genuinely the one who economically benefits from it, or merely an intermediary transferring funds onward. The regulation’s purpose is identifying cases of paper company exploitation—shell firms that merely transmit payments onward while utilizing special benefits offered by their domicile country’s tax system.

The Polish definition of beneficial owner requires jointly satisfying three conditions: receiving the payment for one’s own benefit and independently deciding its allocation, having no obligation to transfer it to another entity, and conducting genuine economic activity in the country of domicile. These three prerequisites must be satisfied jointly; satisfying only one or two is insufficient.

The Polish tax authorities operate based on an unwritten but real presumption that every Cyprus company is assumed to lack substance until the Polish payer proves otherwise. This reversal of burden of proof stems from thousands of cases of structures serviced by the same law firms mass-registering companies for foreigners, where dozens or hundreds of companies share a single Nicosia address, and nominal directors hold positions in dozens of entities simultaneously.

When a Polish company pays a dividend to Cyprus applying the PS Directive exemption (zero percent withholding tax), in case of audit the Polish tax office will demand that the Polish payer prove the Cyprus company is genuinely the beneficial owner. If this cannot be demonstrated, consequences fall upon the Polish entity: tax liability of nineteen percent on the dividend amount, late payment interest calculated from when the tax should have been paid, plus a potential penalty of up to thirty percent of the liability amount. With a million złoty dividend, we’re discussing risk exceeding a quarter million złoty.

How to Satisfy Beneficial Owner Requirements? Three Pillars of Substance

The Cyprus company must demonstrate three elements constituting genuine economic substance.

First, economic control over funds. The company must factually control received money and decide its allocation. The Polish tax office will examine whether funds are automatically paid onward. Key questions: does the dividend from Poland arrive at the Cyprus company on Tuesday, with the same amount departing for BVI on Thursday? Does a hidden agreement exist obligating immediate transfer?

In practice, this means verifying whether genuine holding activity is conducted on the Cyprus side—capital accumulation, reinvestment decisions, making acquisitions. If the Cyprus company pays dividends to its shareholders, these must be considered business decisions made after financial situation analysis, not automatic next-day transfers. The company should demonstrate normal operating balance, make various transactions, possess diverse investments showing it manages capital.

Second, no automatic transfer obligation. The Cyprus company cannot be legally or factually obligated to automatically transfer dividends. This eliminates constructions like: the Cyprus company has a loan from BVI, and the repayment schedule is perfectly synchronized with dates of receiving dividends from Poland. If the Cyprus company needs financing, this should be structured as equity (capital contributions), not loans. If intra-group loans must exist, their repayment cannot be obviously linked to the rhythm of dividends from Poland. Ideally, the company has diversified financing sources.

Third, genuine economic activity—substance. This is the most elaborate criterion. The Cyprus company must possess asset-and-personnel substrate adequate to the holding activity conducted. The Ministry of Finance in tax guidance from July 2025 explicitly indicates four planes of verifying this substance.

The first plane is people. The Cyprus company needs at least one, preferably two directors who are actual Cyprus residents, with experience managing capital structures, who genuinely devote time to conducting the company’s affairs. This doesn’t mean a nominated figurehead from a law firm for a thousand euros. This means a professional director with a management contract. This person should have a CV showing years of experience managing holdings, professional certifications (CFA, ACCA), and actually live in Cyprus—apartment lease agreement, Cyprus health and social insurance, utility bills at a Cyprus address. The Polish tax office will demand evidence of salary payments, declarations to the Cyprus insurance system, sometimes even airline tickets showing genuine presence in Cyprus.

The second plane is place. The company must have a genuine office in Cyprus where board meetings occur and documentation is kept. Not a virtual office—dedicated office space, with a lease agreement, electricity and internet bills, signage. The Polish tax office will verify the office’s authenticity, sometimes through site visits or demanding interior photographs.

The third plane is local decisions. Key business decisions must be made in Cyprus. Minutes from board meetings, investment decisions, due diligence analyses for acquisitions—everything documented and actually executed in the Cyprus office by Cyprus residents. If all decisions are actually made in Warsaw by the owner and his Polish advisors, and the Cyprus directors only sign prepared documents, substance doesn’t exist.

The fourth plane is local costs. The company must actually incur costs of its operations—salaries, rent, bills, professional services. These costs must be adequate to the scale of operations and show that the company bears genuine economic risk. If the Cyprus company manages assets worth ten million euros but its annual operating costs amount to three thousand euros, something is wrong. The Polish tax authorities will compare these costs with market rates for similar services in Cyprus and other comparable jurisdictions.

 

 

Second Mechanism: CFC—When the Polish Tax Authorities Tax the Cyprus Company’s Beneficiary Directly

 

The second control mechanism works entirely differently and activates not upon dividend distribution but automatically on the side of the Polish entrepreneur controlling the foreign company. These are regulations concerning controlled foreign companies contained in Article 30f of the Personal Income Tax Act, colloquially called CFC (Controlled Foreign Companies) provisions.

The logic of this mechanism is simple: if a Polish resident controls a foreign company that is either in a tax haven or achieves mainly passive income and is lightly taxed, the Polish tax authorities consider this company exists mainly for tax avoidance purposes and tax its income directly in Poland, at the level of the Polish beneficiary, regardless of whether profit was paid to the Polish controlling entity.

When exactly does this mechanism trigger? The statute provides various alternative bases. First: the company is domiciled in a country listed in the Minister of Finance’s regulation as applying harmful tax competition. Cyprus hasn’t appeared on this list for years, so this test will likely pass. Second: the company is domiciled in a country with which Poland has no double taxation treaty providing for tax information exchange. Poland has had such a treaty with Cyprus for decades, so this test poses no problem either.

The third basis is most important and most complex: the company jointly satisfies the control test, low taxation test, and passive income test. Control test—over fifty percent of shares directly or indirectly. The low taxation test means the income tax actually paid by the company is lower by at least twenty-five percent than what would be due if this company were a Polish tax resident. Cyprus’s twelve and a half percent CIT is significantly lower than Poland’s nineteen percent, so this test may also be satisfied. This test is especially satisfied when the Cyprus company lives off dividends, meaning its effective tax rate is zero.

The passive income test requires at least thirty-three percent of the company’s revenue to come from enumeratively listed sources. For a typical holding company receiving exclusively dividends from Polish operating companies, this test will be satisfied automatically—nearly one hundred percent of revenue is dividends, classic passive income.

What sense, then, does maintaining a foreign holding structure make? The purpose of CFC is precisely to make such action economically unprofitable and keep capital in the country. However, there is one crucial exception, which results from the primacy of Community law over domestic law.

Crucial Exception: Genuine Economic Activity

Article 30f paragraph eighteen of the PIT Act states explicitly: “The provisions of paragraphs 1, 15a and 16 do not apply if the controlled foreign entity, subject to taxation on all its income in a European Union member state or a state belonging to the European Economic Area, conducts substantial genuine economic activity in that state.”

This provision describes in detail the criteria for assessing genuine economic activity. Article 30f paragraph twenty indicates five verification elements:

• First, whether registering the foreign company is connected with the existence of an enterprise within which it actually performs activities constituting economic activity—including whether it possesses premises, qualified personnel, and equipment used in the conducted activity.
• Second, whether the company creates a structure functioning detached from economic reasons—that is, whether rational economic reasons exist for its creation and functioning in a given location.
• Third, whether proportionality exists between the scope of conducted activity and actually possessed premises, personnel, or equipment—in other words, whether substance is proportional to the scale of operations.
• Fourth, whether concluded agreements accord with economic reality, have economic justification, and are not obviously contrary to the company’s general economic interests.
• Fifth, whether the company independently performs its basic economic functions using its own resources, including management persons present on site—which checks whether this is not an empty shell with completely outsourced functions.

But that’s not all. Article 30f paragraph twenty A adds a crucial requirement:

genuine economic activity must have a substantial character.

When assessing this substantiality, particular consideration is given to the ratio of revenue obtained from conducted genuine economic activity to the company’s total revenue.

This means that for a Cyprus holding company receiving exclusively dividends from Poland, it’s insufficient to employ one director and rent an office—one must demonstrate that the conducted holding activity (managing an investment portfolio, making strategic decisions, coordinating the group) constitutes a substantial part of the company’s functioning in proportion to its revenue. If the company has five million złoty in dividend revenue but its actual operating activity generates costs of fifty thousand złoty, these proportions will be examined very critically.

 

Differences Between Beneficial Owner and CFC Tests

 

At first glance, both mechanisms appear to require the same thing. And indeed—both the beneficial owner test and the genuine economic activity test for CFC purposes revolve around the same four foundations: people, place, decisions, and costs. However, upon closer analysis, we discern significant nuances.

Common Foundation: 4 Pillars of Economic Substance

Both control mechanisms rest on the same foundations:

✓ People—qualified personnel who are Cyprus residents
✓ Place—genuine office in Cyprus
✓ Decisions—actual business decision-making on site
✓ Costs—adequate operating expenditures

How Do They Differ? Two Distinct Emphases

The beneficial owner test places additional emphasis on economic control—examining whether the company actually decides the allocation of received funds and whether an obligation exists to automatically transfer them onward. These are elements specific to assessing whether an entity is the genuine payment beneficiary or merely a technical intermediary (conduit).

The CFC test, conversely, requires that activity have a substantial character—any activity isn’t sufficient; it must be proportional to the structure’s scale. Additionally, CFC assesses whether the company independently performs basic economic functions—which extends beyond merely possessing substance and verifies whether this is merely an empty shell with outsourced services.

 

 

 

In practice, however, these differences aren’t revolutionary. A structure that conscientiously satisfies beneficial owner requirements—has genuine Cyprus directors managing real assets, genuine office where board meetings occur, actually makes business decisions in Cyprus, and incurs appropriate costs—will very likely also be recognized as conducting genuine economic activity for CFC purposes. And vice versa.

And here we arrive at the crucial conclusion: a genuine Cyprus structure makes economic sense only for businesses of appropriate scale. This isn’t a solution for everyone. This isn’t a “company for €999” that can be purchased online and forgotten. This is a serious, costly business construction requiring continuous maintenance, professional management, and business justification.

 

Third Mechanism: Minor Anti-Abuse Clause from Art. 22c of the CIT Act

 

The third control mechanism was introduced specifically for withholding tax exemptions on cross-border payments. The provision of Art. 22c of the CIT Act constitutes protective shield against abuse regarding specific payment categories—dividends, interest, and royalties.

According to Art. 22c paragraph 1 of the CIT Act, provisions on withholding tax exemption for dividend distribution (Art. 20 para. 3, Art. 21 para. 3, Art. 22 para. 4) do not apply if benefiting from the exemption was:

1. contrary in given circumstances to the object or purpose of these provisions;
2. the main or one of the main purposes of executing the transaction or other activity or multiple transactions or other activities, and the method of action was artificial.

This mechanism differs from the beneficial owner test. The beneficial owner test examines whether the payment recipient is the genuine owner—whether it actually controls funds and isn’t obligated to transfer them. The clause from Art. 22c goes deeper—it examines whether the dividend distribution transaction itself constitutes abuse of the treaty exemption system.

Contradiction with the Provision’s Purpose

What is the “object and purpose” of the provision on dividend exemption paid within a capital group (Parent-Subsidiary Directive)? The Directive’s purpose is eliminating double taxation of income earned by capital companies operating in different member states and facilitating cross-border cooperation and capital group creation in the EU. Its purpose is not, however, enabling capital transfer to classic tax havens.

If, therefore, the Cyprus company actually performs the function of managing an international group of companies operating in various EU countries, coordinates their activity, makes decisions about reinvestments and acquisitions, accumulates capital for future investments—then utilizing the exemption accords with the Directive’s purpose. But if the Cyprus company is merely a technical intermediary through which funds flow from Poland to BVI within several days, and its sole function is converting “white” euros to “offshore” dollars—this is obvious contradiction with the provision’s purpose.

Artificial Method of Action in the Context of Dividend Distribution

Article 22c paragraph 2 of the CIT Act defines when a method of action is not artificial: “if based on existing circumstances one should assume that a reasonably acting entity guided by lawful purposes would apply this method of action predominantly for justified economic reasons.” The purpose of achieving tax benefit is not a justified economic reason.

In the context of dividend distribution to a Cyprus company, key questions are:

• Does dividend distribution to Cyprus occur within normal capital group management, or exclusively for tax avoidance?
• Does the dividend reach a company actually managing the group and making investment decisions, or a paper company serving only as a tool for financial transfers?
• Do justified economic reasons exist for locating the holding company in Cyprus (proximity to target markets, access to qualified staff, business development in the region), or is this exclusively tax justification?

Typical artificiality symptoms in the context of dividend distribution:

• Payment timing—the dividend arrives at the Cyprus company on Tuesday, and on Thursday the same amount is transferred to the next entity in the chain. Such flow rhythm suggests the Cyprus company doesn’t actually decide the funds’ allocation.
• Financial proportions—the Cyprus company channels five million złoty of dividends annually, generating tax savings for the structure of nine hundred fifty thousand złoty, but its own operating profit (after substance maintenance costs) amounts to fifty thousand złoty. The ratio of tax benefit to genuine economic profit is 19:1—a classic warning signal.
• Lack of economic functions—the Cyprus company makes no business decisions, doesn’t manage the group, conducts no operating activity. It is exclusively a transit point for funds flowing from Poland onward to offshore.
• Legal connections—existence of hidden obligations (e.g., a loan from the Cyprus company’s shareholder, whose repayment is synchronized with receiving dividends from Poland), which actually eliminate the Cyprus company’s decision-making freedom regarding received funds’ allocation.

 

Fourth Mechanism: General Anti-Tax-Avoidance Clause from Art. 119a of the Tax Ordinance

 

The fourth control mechanism is the general anti-tax-avoidance clause contained in Article 119a of the Tax Ordinance. It functions as a safeguard for the entire system—even if the Cyprus structure formally satisfies beneficial owner requirements, isn’t subject to CFC provisions, and passes the minor anti-abuse clause test from Art. 22c, it can still be challenged if the holistic assessment of the construction indicates its artificial character.

According to Article 119a of the Tax Ordinance, an activity does not result in achieving tax benefit if three prerequisites are jointly satisfied:

• First—tax purpose as main or one of main purposes. Achieving tax benefit was the main or one of the main purposes of executing the activity. It need not be the sole or even dominant purpose—it’s sufficient that it constitutes one of the main action motives.

In practice, this means that even if the beneficiary has authentic business reasons for creating the Cyprus structure—planned regional expansion, future acquisitions in Eastern Europe, preparation for IPO on the Cyprus market, group management optimization—but simultaneously one of the significant motives was also tax savings, this first prerequisite may be satisfied.

• Second—contradiction with the provision’s object or purpose. The achieved tax benefit is contrary in given circumstances to the object or purpose of the tax statute or its provision. This is an extremely important but also extremely difficult requirement in practical application.

In the context of the entire Cyprus structure construction, this concerns something more than merely the purpose of WHT exemption for dividend distribution (which the minor anti-abuse clause from Art. 22c examines). Here we assess the purpose of the entire capital income taxation system. Does the construction lead to a situation where profits earned in Poland and subject to Polish taxation completely evade fiscal burden through utilizing an international structure?

• Third—artificial method of action. Article 119c of the Tax Ordinance defines when a method of action is not artificial: if a reasonably acting entity guided by lawful purposes would apply this method of action predominantly for justified economic reasons (with the purpose of achieving tax benefit not being a justified economic reason).

The provision then provides an open catalogue of circumstances indicating artificiality. For the entire Cyprus structure, most essential are:

Engaging intermediary entities despite lack of economic or business justification—does the Cyprus company actually perform economic functions in the group (strategic management, coordination, treasury, IP holding), or is it merely a technical transmitter of funds between Poland and further offshores?

Situation where the achieved tax benefit has no reflection in the entity’s borne economic risk or its cash flows—does the Cyprus company bear genuine economic risk (investment risk, operating risk, currency risk), or does it only formally channel funds through itself without actual risk?

Pre-tax profit that is insignificant compared to tax benefit—if the Cyprus company channels five million złoty of dividends, generates tax savings of nine hundred fifty thousand złoty, but its own operating profit (after substance costs) amounts to fifty thousand złoty, the proportion looks bad.

Engaging an entity that doesn’t conduct genuine economic activity or doesn’t perform a substantial economic function—and again we return to the fundamental question about substance, but this time in the context of the entire construction, not merely a single dividend distribution.

It’s worth emphasizing that from the tax authorities’ perspective, it isn’t easy to effectively apply the law circumvention clause. Crucial is that satisfying the three prerequisites must occur jointly. It’s insufficient that the owner had a tax motive or that the structure looks artificial—the authority must demonstrate all three elements. But if it demonstrates them, consequences are severe: the activity’s tax effects are determined as if an “appropriate activity” had been executed—that is, one that a reasonably acting entity not aiming at tax circumvention would execute. In practice, this would mean recognizing that the dividend was paid directly to the beneficiary, bypassing the Cyprus structure, and imposing nineteen percent withholding tax along with interest.

 

 

How Do These Four Mechanisms Work Together and Complement Each Other?

 

We return again to the fundamental thesis—if the company satisfies the beneficial owner tests for dividend purposes and genuine economic activity for CFC purposes, then likely the entire construction will also defend against artificiality allegations both at the dividend distribution level (Art. 22c of the CIT Act) and at the holistic structure assessment level (Art. 119a of the Tax Ordinance). And vice versa—if the company doesn’t satisfy criteria of control over received dividends and genuine economic activity within the meaning of CFC provisions, then likely one can establish that the method of action is artificial—both for specific dividend distribution and regarding the entire construction.

Differences in Application Scopes and Burden of Proof

The beneficial owner test operates at the transaction level—it verifies specific dividend distribution. The question is: is the recipient of this specific payment its genuine owner? The test is relatively narrow—it concerns only distributions covered by WHT exemption. Burden of proof rests with the Polish company as payer.

The CFC test operates at the ownership structure level—it verifies whether the controlled foreign company is a vehicle for tax avoidance. The question is: does this company have genuine economic substance sufficient to justify its existence? The test is broad—it concerns the foreign company’s entire income, regardless of whether it’s distributed. Burden of proof rests with the Polish company owner.

The minor anti-abuse clause from Art. 22c operates at the specific payment category level—it verifies whether applying WHT exemption for dividend distribution is system abuse. The question is: is the method of dividend distribution and exemption utilization consistent with the provisions’ purpose or does it constitute their circumvention? The test concerns only transactions covered by exemption (dividends, interest, royalties). In case of tax audit, burden of demonstrating economic reasons rests with the taxpayer.

The general anti-tax-avoidance clause from Art. 119a of the Tax Ordinance operates at the holistic construction level—it verifies whether the applied action scheme is artificial law circumvention. The question is: would a reasonably acting entrepreneur apply such method of action for justified economic reasons, viewing the entire structure? The test is holistic—it assesses the entire construction and its creation motives, not only individual transactions. Burden of proof rests with the tax authority, but the taxpayer must prove economic reasons.

 

Practical Interdependence of Control Mechanisms

 

In practice, this means that an effective Cyprus structure must be designed with all four mechanisms simultaneously in mind. Employing a Cyprus director and renting an office isn’t sufficient—one must design the group’s operational functioning so that:

1. At the dividend distribution level (beneficial owner + Art. 22c)—the Cyprus company is actually the genuine owner of received funds, decides their allocation, isn’t obligated to automatic transfer, and the distribution itself has economic justification consistent with exemption provisions’ purpose.
2. At the company functioning level (CFC)—the Cyprus company conducts substantial genuine economic activity, possesses appropriate substance, independently undertakes basic economic functions.
3. At the entire construction level (Art. 119a of the Tax Ordinance)—the entire structure has clear economic justification independent of tax benefit, the method of action isn’t artificial, and utilizing the Cyprus company corresponds to what a reasonably acting entrepreneur guided by lawful purposes would do.

In essence, we stop speaking here about “tax optimization” via Cyprus company, but rather about genuine business entry into the Cyprus market, which may bring additional tax benefits.

 

Is a Cyprus Company a Secure Long-Term Solution?

 

What’s Next: The Future of International Structures in the Transparency Era

 

The landscape of international tax planning has changed fundamentally over the past fifteen years. Automatic tax information exchange between countries, common OECD reporting standards, beneficial owner registries, anti-abuse clauses in Parent-Subsidiary and Interest and Royalties Directives, tightening of controlled foreign company provisions worldwide—all this means the era of cheap, paper offshore structures has irrevocably ended. What remains for serious entrepreneurs are business structures with genuine substance, requiring actual investments, real people, genuine decision-making, and authentic economic justification.

International tax planning in 2025 isn’t a simple alternative between “tax havens” and “white jurisdictions,” but rather a thoughtful business strategy combining into a coherent whole the place of conducting economic operations, location of central management and asset control, and place of owner’s personal residence—with full consideration of genuine costs of building and maintaining substance in each of these places and with realistic assessment of economic benefits versus legal and reputational risk. Cyprus can be an element of this puzzle—but only when all remaining elements also fit together, creating a coherent and justified economic construction.

 

How Can We Help in Establishing a Company in Cyprus?

 

OUR APPROACH

How we create Cyprus structures—transparently and in compliance with law.

STEP 1: Preliminary Audit and Feasibility Analysis (4-6 weeks)

• Analysis of business scale and shareholding structure
• Verification of business objectives (expansion, acquisitions, succession)
• Cost vs. benefit forecast
• Assessment of tax risks in Poland
• Result: Clear recommendation—YES or NO for Cyprus structure

STEP 2: Architecture Design (6-8 weeks)

• Selection of optimal legal and tax structure
• Planning of genuine economic substance
• Preparation of business functions for Cyprus company
• Development of compliance strategy
• Result: Complete structure project with legal and tax analysis

STEP 3: Implementation and Substance Building (3-6 months)

• Company registration in Cyprus
• Recruitment of Cyprus directors (professionals, not nominees)
• Lease of genuine office and infrastructure
• Opening of bank accounts
• Implementation of compliance procedures and documentation
• Result: Operating company with full economic substance

STEP 4: Ongoing Management and Compliance (ongoing)

• Accounting maintenance in accordance with IFRS
• Coordination of board meetings in Cyprus
• Preparation of documentation for Polish tax authorities
• Monitoring of regulatory changes
• Representation in case of tax audits
• Result: Continuous legal and tax security

 

Why Entrepreneurs Trust Us