The most popular type of holding company in Cyprus is a private limited liability which requires one, or more people in order to establish it. Whilst there are no requirements for minimum capital, it is recommended to pay up a small amount of share capital, for example EUR 1,000 divided into 1,000 of EUR 1 each. All of these must be issued and then paid up upon incorporation of the company.
Under Cypriot company law, financial statements have to be prepared annually and an annual return must be given to the Registrar of Companies as well. Additionally, a corporate income tax return must be submitted each year, in line with the requirements of the Cyprus Tax Office.
When it comes to fiscal benefits, international businesses can enjoy a number of perks with a Cyprus Holding Company. These include:
Any income that arises from the trading or disposal of securities is exempt from corporate tax rates in Cyprus. Under Cypriot law, the definition of securities include shares, bonds, debentures, founder shares, other kinds of securities in companies, or other legal entities either in Cyprus or abroad. Additionally, any revenue generated from the disposal of shares is also exempt from tax but capital gains tax is payable on the sale of shares in non-listed companies and the immovable asset in question is a property situated within Cyprus. In cases such as this, the applicable tax rate is 20%.
Any income derived from dividends paid from a Cyprus tax resident company from abroad, or from a foreign permanent establishment of a Cypriot Holding Company, is not required to pay tax. In cases where the dividend comes from abroad, the exemption does not apply where more than 50% of the activities of the overseas paying company results either directly or indirectly in passive income. It also does not apply when the tax burden is significantly less than the corporate tax rate in Cyprus, for example less than 50% of the local corporate tax rate.
If your dividends are coming from an EU resident company, then the EU parent-subsidiary directive shall apply. This means that no withholding tax is payable. If the requirements of the directive are not met, then the provisions of any relevant double taxation treaties apply instead. Even if a tax treaty is not in place, a tax credit can be provided under the Cyprus Tax regime, amounting to the total of the foreign withholding tax.
Any dividends or interest that is paid by a Cyprus resident company to any non-resident shareholders are not liable for withholding tax. This also applies in the case of royalties that are paid from Cyprus, except in the circumstances of intellectual property used in Cyprus. In such cases, the applicable tax rate is 10%
Corporate Tax Rate
A Cyprus Holding Company is liable to pay tax on all worldwide revenue at a rate of 12.5%, making it one of the lowest corporate tax rates in the European Union. A company is considered as a tax resident of Cyprus if it is controlled and managed from within the jurisdiction.
Group Loss Relief
If one company within the group experiences losses, it is possible to set it off against the profit of another company within the same group. If both companies are residents of Cyprus and have been members of the tax group for the whole tax year, then these rules can apply. Please note that a years losses can only be set off against profits from that same year. Furthermore, any losses incurred in any tax year in Cyprus or abroad that has not been set off against income from other sources, can be carried forward and used to set off against any profits from the subsequent five years.
Exit taxes are not applicable in Cyprus for a holding company that sells participations, shares, or liquidates. This applies in the case of non-residents, providing that the company does not hold any immovable property within Cyprus. Disposal of such immovable property, will be subject o the applicable capital gains tax rate.
Opening a Cyprus Holding Company has a number of benefits and these include the ability of the holding company to receive income from operations outside of Cyprus, or from subsidiaries operating in another jurisdiction. This revenue will be subject to either zero or minimal tax loss both in Cyprus and in their foreign jurisdiction. Another benefit is the fact that the holding company can pay dividends abroad without paying any withholding tax and the company can also dispose of investment in a subsidiary without having to pay capital gains tax in Cyprus.
To find out more about incorporating a Cyprus Holding Company, get in touch with us today. We are able to provide extensive corporate and fiscal advice for any kind of business or investment opportunities in Cyprus, or many other jurisdictions.