By Sergios Charalambous
Partner and Head of the Corporate & Tax Department at Philippou Law Firm
Sergios specialises in corporate, tax and regulatory matters, advising businesses and individuals on cross-border structuring, business relocations to Cyprus, holding structures and international tax planning. He is a member of both the Cyprus and Athens Bar Associations.
Cyprus has successfully positioned itself as a prime EU jurisdiction for entrepreneurs and owner-managed groups seeking to relocate part or all of their business. Yet, a competitive tax framework on its own is of limited value if the structure behind it cannot withstand scrutiny.
As interest in Cyprus has increased, so too have simplified narratives around “easy” relocation. In practice, business moves driven primarily by marketing messages or headline tax advantages tend to encounter difficulty once tested against regulatory, banking and international tax realities. The challenges that arise are rarely theoretical; they emerge precisely at the point where structures are examined by tax authorities, financial institutions and other gatekeepers of the international system.
This article focuses on the recurring issues that business owners tend to underestimate or misunderstand when relocating to Cyprus. Drawing on practical experience from corporate and tax advisory work, it highlights where relocation projects most often lose coherence, and what a more disciplined, substance-driven approach looks like in practice.
Misalignment between commercial reality and legal structure
A common weakness in relocation projects is that the legal structure is designed in isolation from the underlying business model. Too often, a Cyprus company is incorporated before there is a clear understanding of where value is generated, which functions will genuinely be performed in Cyprus, and how existing contracts, suppliers and customers will transition to the new structure.
The result is frequently a company that exists formally, but not functionally. Contracts continue to be negotiated and executed elsewhere, key individuals remain resident in other jurisdictions, and operational decisions are taken outside Cyprus. In such circumstances, it becomes difficult to demonstrate that profits should properly accrue to the Cyprus entity or that it is the true “nerve centre” of the business.
Business owners must therefore map their value chain first and build the legal structure around it—not the other way around. Structures that reverse this logic may look efficient on paper, but they rarely withstand scrutiny in the medium term.
Ignoring where control, substance and tax exposure actually sit
Another recurring weakness is the assumption that incorporation alone resolves tax residency and commercial recognition across all jurisdictions. In reality, both tax authorities and financial institutions assess where management, control and decision-making genuinely take place.
From a tax perspective, foreign authorities often apply substance-based management and control tests that go well beyond formal registration. Where key decisions continue to be taken outside Cyprus, or where principal individuals remain resident elsewhere, profits attributed to a Cyprus company may be challenged under exit tax rules, Controlled Foreign Company regimes or general anti-avoidance provisions in the country being exited.
Even where the tax analysis appears technically sound, many relocations fail at a more practical level: substance and governance. Banks, auditors and regulators increasingly expect to see directors exercising real duties from Cyprus, local decision-making, credible operational presence and financial flows aligned with the business model. If a Cyprus-based director cannot clearly explain the business model to a bank’s compliance officer during a video call, the bank account will simply not open.
In today’s environment, tax exposure, substance and operational credibility are assessed together, and weaknesses in one area are increasingly difficult to isolate from the others.
Underestimating transfer pricing — and the latent risk in many relocation structures
In many relocation projects, the Cyprus company is positioned as a central hub within the group, invoicing related entities abroad for services, royalties or financing. While such arrangements can be commercially valid, they are often treated too casually at the pricing level.
A common misconception is that intra-group pricing is flexible simply because the entities are under common ownership. In reality, Cyprus fully applies the arm’s length principle, and related-party transactions are subject to formal transfer pricing documentation requirements where applicable, aligned with OECD standards. Where applicable, businesses must be able to demonstrate, through a defensible transfer pricing study, that their intercompany charges reflect market conditions.
If pricing is not properly supported, the Tax Department may adjust taxable income by disallowing expenses or increasing revenues, with penalties and additional tax potentially imposed on a retrospective basis. In practice, transfer pricing frequently becomes a latent risk in otherwise well-structured relocation projects: the model appears efficient, but the underlying intercompany pricing has not been built on a sufficiently robust foundation.
Delegating strategy to marketing-driven intermediaries
Another feature of the current landscape is the growing role of marketing intermediaries, online platforms, “relocation packages” and influencers who promote generic Cyprus solutions. Many of these actors serve a legitimate and useful role in raising awareness and facilitating logistics.
However, their focus is typically transactional, centred on incorporation or basic administration. While useful at that level, this approach often overlooks the long-term legal, tax and regulatory exposure of a relocation. Information provided is frequently high-level and simplified, and may not fully capture the nuances of tax residency, substance or interaction with the country of origin.
The issue for business owners is not the existence of such intermediaries, but the assumption that a relocation strategy has been fully addressed when, in reality, only part of the picture has been considered.
Treating relocation as a ‘one-off’ transaction rather than a living organism
Many business relocations to Cyprus are still approached as finite transactions: a company is incorporated, bank accounts are opened, perhaps certain contracts are novated, and the project is considered complete.
In reality, a cross-border structure is a living ecosystem. What is fully compliant and commercially coherent in one year may be questioned, or red-flagged, the next. Tax rules in both Cyprus and the home jurisdiction evolve continuously, while EU and OECD substance and reporting expectations — including anti-abuse frameworks, DAC6 disclosure obligations, the global minimum tax under Pillar Two for large groups, and increasingly demanding banking and compliance standards — continue to intensify.
At the same time, businesses themselves change: ownership evolves, new jurisdictions are added, intellectual property is migrated, financing structures are adjusted, and decision-making patterns shift.
Without active monitoring, even well-designed structures tend to drift gradually into inefficiency or non-compliance, not because they were flawed at inception, but because they were left on autopilot. In today’s environment, an annual legal and tax “health check” is no longer optional. It is a necessary discipline to ensure that the structure continues to reflect economic reality, remains bankable and withstands scrutiny across all relevant jurisdictions.
Relocation, therefore, should not be seen as an event to be completed, but as a framework to be maintained. It is this continuity of oversight, rather than the initial set-up alone, that ultimately determines whether Cyprus can function as a stable, credible and sustainable base for international business.
Conclusion: relocation as re-anchoring, not re-labelling
Relocating a business to Cyprus should be understood as the re-anchoring of management, value creation and governance, not simply the re-labelling of a legal entity. When approached in that spirit, with clear commercial objectives, rigorous cross-border analysis and robust substance, Cyprus can offer a highly credible platform for long-term growth.
The challenge for business owners is to resist simplified narratives and recognise relocation for what it truly is: a complex legal, tax and operational exercise with lasting consequences. Avoiding the common pitfalls outlined above requires early and coordinated professional input, from strategy through to implementation and review.
At Philippou Law Firm, we do not simply set up companies; we engineer defensible business structures. In that sense, successful relocation is less about moving a company, and more about re-establishing where a business truly belongs.
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