Its EU membership and OECD, FATF and FSF compliance make Cyprus an excellent jurisdiction for global investors seeking to establish holding companies. This is enhanced by the Cyprus’ close vicinity to Europe and the Middle East, a robust economy comprised of many high-growth sectors, an attractive tax regime offering a number of favourable incentives, and a regulated legal framework characterised by transparency and ease of doing business.
It comes as no surprise that the island is also widely regarded as a sought after, global business and financial hub, offering a corporate tax rate of just 12.5%, and many other tax incentives across sectors. Cyprus has also entered into more than 60 Double Taxation Treaties with countries across the globe, with several more treaties under negotiation.
Further, its participation in the European Single Market means Cyprus has access to free movement of goods, services, labour and capital between EU member states, fuelling economic growth, and reducing barriers to trade within and beyond the European Union.
Key tax exemptions benefiting a Cyprus holding company:
- Payment of dividends to non-resident shareholders is not subject to withholding tax;
- Interest paid from Cyprus is not subject to withholding tax;
- Dividend income received from another Cyprus tax resident company is not taxable;
- Disposal or trading of securities is not subject to tax;
- Royalties paid from Cyprus for intellectual property utilised abroad are not subject to withholding tax;
- Profits of qualifying intellectual property subject to just 2,5% effective taxation; and,
- The introduction of new equity subject to notional interest deduction.
Other tax exemptions:
No tax on dividend income received from abroad provided that:
(1) The foreign tax liability of the company paying the dividend is not less than 6.25%;
(2) The subsidy company paying the dividend does not engage in more than 50% of activities which earns its passive income; and,
(3) The dividend income is not considered a tax deduction in the country that the foreign paying company is located.
Dividend income from a foreign permanent establishment of a Cyprus holding company is not subject to taxation unless:
(1) More than 50% of the permanent establishment’s activities, be it directly or indirectly, earns passive income; or if,
(2) The tax liability on the income of the foreign company is less than half of Cyprus’ corporate tax rate of 12.5%.
Special Defence Contribution is not applied on dividends received from abroad provided that:
(1) The company paying the dividend does not engage in more than 50% of activities which earns its passive income; and,
(2) The foreign tax liability on the profit of the company paying the dividend is not less than half of Cyprus’ corporate tax rate of 12.5%.
Requirements of Setting up a Cyprus holding company:
There are some basic requirements for establishing a holding company in Cyprus; which are:
A Cyprus limited liability company needs to have at least one director. The director should ideally be a Cyprus resident in order to satisfy the requirements for determining management and control of the company, and thereby tax residency status.
A limited liability company in Cyprus can have no less than 1 director and no more than 50. The directors can be of any nationality, and may be a natural person or legal entity. The company can by 100% owned by a foreigner, and using nominee shareholders is permitted under the Cyprus Companies Law.
A natural person or legal entity can be appointed as company secretary. The secretary must reside in Cyprus.
A Cyprus holding company must have a registered office in Cyprus.
A holding company can be incorporated with a paid, authorised share capital of as little as 1 Euro cent. This is quite uncommon as most companies are incorporated with a share capital in the amount of €1000.
A Cyprus holding company must maintain proper bookkeeping records that can be provided to the local tax authorities at short notice. The company is also required to prepare a full set of Financial Statements (as per IFRS standards), which must be audited by a licensed auditor in Cyprus.
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