KNOWLEDGE BASE

EUROPEAN HOLDING COMPANIES

The Cyprus Holding Company

Overview Related Resources Cyprus Key Elements

HOW TO PROCEED

OVERVIEW

Definition

The Cyprus Holding Company takes full advantage of the favourable Cypriot tax regime, which has made Cyprus an ideal holding destination for international tax planning purposes. There is no legal definition for the Cyprus holding company hence it may be involved in various activities. The trading income of a Cyprus holding company is taxed in Cyprus while the 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.

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.

Profits from the sale of securities (shares, bonds, debentures, etc) are exempt from income tax in Cyprus.

Dividends Exemption

Dividends received by a Cyprus resident company are not subject to corporation tax and are excluded from the net taxable profits but may be subject to a special defense contribution tax at a rate of 20%..Dividends recieved from abroad are exempt from special defence contribution tax provided that more than 50% of the income of the company's paying the dividends derives directly or indirectly from trading activities or the tax paid abroad by the foreign company is not lower than 5%. Tax paid abroad on dividends recieved in Cyprus, could be used as tax credit against the tax payable in Cyprus if the exemption criteria mentioned are not met.

Capital Gains Exemption

There is no capital gains tax implication on the disposal of immovable properties situated outside Cyprus and held by Cyprus Companies. Capital gains tax applies only to gains from disposal of immovable property which is situated in Cyprus or in the disposal of unlisted shares in a company which owns immovable property situated in Cyprus.

Interest Exemption

With the 2009 amendments of the Law, interest income arising from the ordinary activities of the business is subject to income tax only. Passive interest income is subject to Special Defence Contribution Tax Law at the rate of 15% (10% until August 2011).

Royalties Exemption

As from the beginning of 2012, 80% of the net income generated from intellectual Properties and 80% of the net profit generated from the disposal of intellectual Properties owned by Cypriot tax resident companies is exempt from income tax.

Some Advantages of the Cyprus Holding Company

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 if the shareholders are non-resident in Cyprus.

Cyprus tax resident companies ultimately held by non-Cyprus tax resident shareholders will not come under the scope of the demed dividend distribution.

RELATED RESOURCES

Double Tax Treaties

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CYPRUS KEY ELEMENTS

Formation
Legal Form: Private Limited Company
Public Limited Company
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: 43
Dividends Exemption: 100%
Holding Requirements: NA (up to 2008 was 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- 20%
Non-residents- 0%4
Interest: Non-residents- 0%
Royalties: Non-residents- 10%7
Liquidation: Nil

7 If the royalty is used within Cyprus, otherwise no withholding tax is levied.

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FREE INITIAL CONSULTATION

A bespoke 'offshore' solution can be complex and requires careful planning and execution. We therefore encourage our clients to contact us directly, without obligation.

While all of our consultants in our offices provide a Free Initial Consultation, the office and consultant listed below has particular expertise in this area and will gladly assist with advice on how to approach your unique challenge.

Alternatively, to select one of our multilingual offices, click here for a list of our office contact details.

OCRA (Cyprus) Ltd
15 Agiou Pavlou Str.
Ledra House
Ayios Andreas
1105 Nicosia
Cyprus

Languages spoken in this office: English and Greek

REQUEST A CALLBACK

Christodoulos Vassiliades (Attorney at Law)
CYPRUS OFFICE
Tel: 
Fax: 
+357 22 556666
+357 22 556767
Email: ocra@ocra.com
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