What is a non-resident company?

Non-resident company is a company which is established and registered within the country A, but from the tax perspective it is not considered a local taxable entity of the country A because it is managed from country B.

Example of a non-resident (more precisely, non-tax resident) company is the LLC of the United States of America. At the incorporation phase, a settlor decides how the LLC will be viewed from the tax perspective: whether to view it as a corporation, or to disregard the entity from the tax perspective entirely. In the US, it is known as check-the-box system. If the entity is disregarded, it does not pay any corporate taxes in the US. Instead, it is considered that members of that company should pay taxes at the personal level, under the rules of their tax residency countries. As long as such company is not engaged in business activities within the US (that would constitute the fixed place of business being the US) and members of that company are not US residents, such entity may not be taxed in the United States of America. Another example is Cyprus: if the majority of directors of a Cypriot company are Cypriot tax residents, the company is considered a tax resident in Cyprus. If a more significant number of directors of a Cypriot company are not tax residents of Cyprus, then such company is not considered a tax resident. In Cyprus, it means that this company is still obliged to submit financial statements, but does not need to pay any corporate income taxes. At the end of 2022, changes of the above rule will take place: all companies will be obliged to prove that they are managed from somewhere else and will be required to submit nil tax returns.

In most other countries, the rules designed to determine company’s tax residency are more complex. For example, in Hong Kong, during the local tax audit, every invoice coming from Hong Kong or issued to a Hong Kong company is examined in order to determine the tax residency of the company.

In general, a company, which is not a tax resident, is considered to be a foreign company from the tax perspective, yet a local company from the legal perspective.

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