European Holding Companies

Cyprus Holding Company Information

» Cyprus Holding Company Overview
» Cyprus Key Elements

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Cyprus Holding Company Overview


Definition

There is no legal definition of holding company in Cyprus, hence there are no restrictions as to its activities. Its trading income is taxed in Cyprus while investment income is tax free.

Legal Form

A Cyprus Holding Company (CHC) can be constituted either as a private limited company (Ltd) or a public limited company (Ltd).

Formation

There is no minimum share capital requirements for Cyprus companies unless they are wholly or partly owned by non EU residents and therefore requiring a permit from the Central Bank.
If that is the case, then a minimum shareholder capital of CY£1.000 is applied but there is no need to be fully paid up.

Taxation

A resident CHC is a company fully subject to tax at a normal rate of 10% on its worldwide income. A CHC is deemed resident in Cyprus if its control and management are located in Cyprus.
A non-resident company is taxed only on income derived from a permanent establishment in Cyprus and on rental income from property located in Cyprus.
A credit for tax on profits and gains of a CHC may be offset against tax payable in Cyprus for the same income unilaterally under domestic law, even in the absence of a double taxation treaty.

Income

The taxable income of a CHC is based on the annual financial statements prepared in accordance with international financial reporting standards subject to adjustments and provisions. Expenses incurred exclusively for the purposes of the business are deductible while expenses incurred with exempt income are not deductible.

» Exemption from Income Tax

Cyprus companies which are not residents for tax purposes (control and management outside Cyprus) are not subject to Cyprus income tax. These companies cannot take advantage of the treaty network and from the tax regime applicable to resident companies.
Profits of a resident company derived directly or indirectly from a permanent establishment outside Cyprus are not subject to tax. The exemption is not granted if more than 50% of the activity of the paying establishment results in investment income and if the foreign tax is significantly lower than the one payable in Cyprus.

» Dividends Exemption

Dividends received by a Cyprus resident company are not subject to tax and are excluded from the net profits but are subject to a special defense contribution tax at a rate of 15% as deemed distributions to Cyprus resident shareholders. This may be avoided if the holding is more than 1% and if the CFC provisions do not apply.
However, deduction for tax paid abroad is not available.

» Capital Gains Exemption

Profits from the sale of securities (shares, bonds, debentures, etc) are not subject to tax in Cyprus. No capital gains tax is levied, unless from immovable property in Cyprus or if shares represent immovable property located in Cyprus (except for shares of companies listed on a recognized stock exchange).

» 50% Interest Exemption

50% of the interest received by a Cyprus resident company is exempt from income tax, either from Cyprus or foreign source. The other 50% is taxed at a 10% rate by way of special defense contribution tax.
If the interest arises from the ordinary course of the business of the company, it will not be subject to the special defense contribution tax once such interest is already subject to income tax.

» Royalties Exemption

Income from industrial or intellectual property rights which are granted for use outside Cyprus are not subject to tax

Some Advantages of the CHC

Besides the common advantages of a holding company, the CHC may also enjoy from the following:

» Exemption from Withholding Tax on Payment of Dividends, Interest and Royalties

Dividends and interest paid by a CHC are exempt from withholding tax. Royalties paid to non-residents derived from sources outside Cyprus are also not subject to withholding tax.
Dividends paid by a CHC to non-residents are not subject to withholding tax. However, at least 70% of the profits must be distributed within 2 years after the end of the income year; otherwise a 15% special defense contribution tax shall be applied.

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Cyprus Key Elements

	Formation
	Legal Form:		Private limite company (Ltd) ; Public limited company (Ltd)
	Minimum Subscribed Capital:		€1
	Minimum Paid-Up Capital:		€0)
	Number of Shareholders:		1 (private limited co) 1 (public limited co)
	Type of Shares:		Preferential, redeemable and with voting rights
	Substance Requirements:		Nil
	Taxation
	Capital Duty:		0%
	Net Worth Tax:		0%
	Corporate Income Tax:		10%
	Double Tax Treaties:		42
	Dividends Exemption:		100%
	Holding Requirements:		1%
	Capital Gains Exemption:		Yes
	Holding Requirements:		Shares must not represent immovable property located in Cyprus
	Tax Credit:		Yes
	Relief of Losses:		Carry forward indefinitely
	CFC Rules:		No
	Debt-to-Equity Ratio:		No
	Withholding Taxes
	Dividends:		Residents- 15% Non-residents- 0%4
	Interest:		Non-residents- 0%
	Royalties:		Non-residents- 10%7
	Liquidation:		Nil

Information Downloads

	Web
Double Tax Treaties	39KB

 
⁴ The company must distribute at least 70% of its profits within 2 years after the income year or a 15% defense contribution tax is imposed.
⁷If the royalty is used within Cyprus, otherwise no withholding tax is levied.

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