The Tax Directorate clarifies the tax status of permanent establishments and legal persons during the COVID-19 pandemic – Commentary


The COVID-19 pandemic has resulted in the imposition of various measures globally that have inevitably placed restrictions on the physical presence of people in their workplaces. This has raised concerns about the permanent establishment of businesses and the tax residence status of legal persons.

The Organization for Economic Co-operation and Development (OECD) recently issued general guidelines for interpreting possible tax problems caused by the COVID-19 pandemic.

Problems with permanent establishments

The circumstances created by COVID-19, where people work remotely and reside in a country other than where their employment is based, raised concerns about the establishment of permanent establishments and the relevant tax obligations that flow from them. However, the OECD guidelines indicate that such conditions will not change the definition of a “permanent establishment”.

In particular, any activity carried out in Cyprus by persons remaining in Cyprus solely because of the exceptional circumstances created by the pandemic, will not be considered as an activity creating a permanent establishment.

The OECD has clarified that such a presence of people in Cyprus will not create permanent establishments for their employers provided that such presence is of a temporary nature and is due to work-related constraints resulting from government directives introduced to combat the COVID-19 pandemic. Likewise, when agents or employees enter into contracts on behalf of their company in a country other than their usual working base due to travel restrictions related to COVID-19, this will not constitute proof of a permanent establishment. for the company concerned in that country. .

Any period that a person has been abroad, due to travel restrictions related to COVID-19, but would otherwise have been in Cyprus will not be considered for the purposes of establishing a permanent establishment in Cyprus. . In such cases, it will be considered that these persons were carrying out their activities from Cyprus.

Tax residence of legal persons

Companies which are not tax resident in Cyprus will not be deemed to acquire tax residency there due to the fact that the staff, directors, representatives or employees under a service contract of that company are located in Cyprus. when the reason for such a stay relates solely to COVID. -19 pandemic.

Likewise, the fact that a director does not travel to Cyprus to attend a board meeting, when such failure is due to the pandemic, will not affect the tax residence of the company in Cyprus. .

For more information on this topic, please contact Elena Christodoulou Where Andrea Constantinou at Elias Neocleous & Co LLC by phone (+357 25 110 110) or by email ([email protected] Where [email protected]). The Elias Neocleous & Co LLC website is accessible at

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