Cyprus: Tax residence and permanent establishment in Cyprus due to the COVID-19 pandemic.

The Organization for Economic Co-operation and Development (OECD) has issued guidelines on tax residence and permanent establishment. These guidelines are applied at the choice of the taxpayer. In any other case, the current legislation of Cyprus will be applied.

The period from 21 March 2020 to 9 June 2020 is defined as the period of objective inability to move due to the pandemic and is therefore not taken into account. In cases where the period may extend before March 21, 2020 or after June 9, 2020, as the case may be, the taxpayer is required to invoke and provide relevant evidence proving his objective inability to move due to the Covid-19 pandemic.

In particular, activities carried out in Cyprus that remain in Cyprus solely due to pandemic-related emergencies (COVID-19) will not be considered as activities establishing a permanent establishment in Cyprus, except for temporary activities caused by undesirable factors.

It is clarified that the presence of persons in Cyprus, if it has a temporary character and is due to work restrictions arising from government and have been put in the context of combating the Covid-19 pandemic, such as persons working remotely (employees, managers, etc.). .) will not create new permanent establishment for their employer.

Similarly, when business employees enter into agreements in the name of the business in a state other than their normal work due to the limitations of the Covid-19 pandemic, they do not contribute to the establishment of a permanent establishment for the business in that state. The above also applies in the case of agents.

In addition, there are cases where persons who remained abroad due to restrictions related exclusively to the pandemic (COVID-19) and who in any other case would be in Cyprus to provide their services or in general to carry out their activities. In these cases, this period of days that the person remained abroad for the purpose of establishing a permanent establishment in Cyprus will not be taken into account. In essence, it will be considered that these persons carried on their activities from Cyprus.

Also, the tax residence of a company in Cyprus will not be affected by the inability of a director to travel to Cyprus to attend a meeting of the Board of Directors, when the reasons for not being able to travel to Cyprus are exclusively related to the pandemic (COVID-19),

Tax residence of natural persons in Cyprus (rule 183 days, rule 60 days):

For a natural person who is already in Cyprus and his presence, as well as his stay in Cyprus is due exclusively to reasons related to the pandemic (COVID-19) and the relevant travel restrictions, then it will not be taken into account.

In addition, if a natural person remains abroad due to the pandemic (COVID-19), then for the purposes of determining his tax residence and for the purposes of personal taxation he will be considered according to the legislation that the natural person was in Cyprus; that is, the days abroad are ignored / will not be taken into account for the period from March 21, 2020 to June 9, 2020, which may be extended depending on the case and the circumstances .

The above also applies in the case of natural persons who are tax residents according to the rule of 60 days

In each case, the facts and circumstances will be taken into account before a final decision can be made. All the necessary information for documentation of any situation must be observed.

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