Cyprus company Advantages (Cyprus International company)
Over the past twenty years, Cyprus has developed into one of the most favourable places for international business. The Cyprus tax regime combined with its excellent geographical position and infrastructure were the key factors for its success.
The accession of Cyprus to the European Union triggered a bold tax reform that aimed towards the alignment of the legislation with EU’s Acquis Communautaire and Code of Conduct of Business Taxation as well as the compliance with the requirements of the Organisation for Economic Co-operation and Development (OECD).
The result of this reform was a sophisticated low tax jurisdiction that rapidly became the jurisdiction of choice for international investors and the premier financial centre for the set-up and operation of Cyprus holding companies for the purpose of holding their participation around the world.
Cyprus Company advantages (Cyprus Holding Company):
Full exemption from tax on dividend income received from participation. Dividends received by a Cyprus Holding company from overseas participation will be exempt from tax provided that:
Dividends are not considered investment income if they are derived directly or indirectly from trading subsidiaries.
No Cyprus withholding tax on distribution of profits by a Cyprus Holding company irrespective of the country of residence of the recipient or the existence of a double tax treaty
No Cyprus withholding tax on dividends to non-residents (individual or body corporate) irrespective of the country of residence or the existence of a double tax treaty.
Full exemption from capital gains tax and income tax on the disposal of securities
Full exemption from Cyprus tax on gains from the disposal of securities (shares, debentures, founders’ shares, units of Cyprus funds – open-ended and close-ended collective investment schemes etc) regardless of whether the gain is considered to be of capital or revenue nature.
Therefore, the disposal of shares held in a subsidiary by a Cyprus Holding Company has no Cyprus tax effects.
Low tax rate
The Cyprus company tax rate is 12.5%
No capital gains or income tax on the liquidation of participation.
The liquidation of participation held by Cyprus Holding Company’s does not give rise to any Cyprus taxes.
No capital gains tax or income tax on the disposal of the shares of a Cyprus Holding Company
The disposal of the shares of the Cypriot Holding Company will not result in any Cyprus taxes irrespective of the provisions of a double tax treaty.
No capital gains tax or income tax on the redemption of a unit of a Cyprus collective investment scheme (ICIS) (Alternative Investment Funds)(AIFs)
The redemption of a unit of a Cyprus collective investment scheme (ICIS) will not result in any Cyprus taxes irrespective of the provisions of a double tax treaty.
No capital gains or income tax upon liquidation of a Cyprus Company.
No capital gains-tax, income tax or any other tax arising from the liquidation of a Cyprus Holding Company, owned by non-residents.
Reduced withholding tax on dividends received from countries which Cyprus has concluded a double tax treaty
Cyprus double tax treaty network is extensive and expanding with over 50 countries. Cyprus double tax treaty network can be used by the investor to minimize tax burden.
Unilateral tax credit
Regardless of whether a tax treaty is present, unilateral tax credit is applied for taxes paid abroad if the income is subject to Cyprus tax. Cyprus double tax treaties provisions may be applied if they are more beneficial than the tax credit.
EU parent – subsidiary Directive
According to the provisions of the Directive, any payment of dividend from one member state to another is free of withholding tax provided the required conditions are satisfied under the local legislation of the member state.
According to the Cyprus tax legislation, there are no Cyprus substance requirements for a Cyprus company.
Debt-equity/thin capitalization rules
There are no debt-equity restrictions in Cyprus and a company may therefore be financed in any proportion of debt-to-equity.
Minimum holding period
There is no minimum period of holding participation for Cyprus Company in order to be eligible for either the tax exemption on dividend income or the tax exemption on the disposal of shares
Interest income of a Cyprus company arising as a result of ordinary activities is taxed like any other “trading” income at Cyprus company tax rate of 12.5%
Other non trading interest is tax at 30%
Transactions that are defined as “reorganizations”, involving Cyprus companies resident in the Republic and / or not residents of the Republic, are exempt from Cyprus income tax or capital gains tax as well as transfer fees.
Group loss relief
Offsetting of losses between group companies will be granted only where the surrendering company and the claimant company are part of the same group for the whole of the tax year and interest participation rate between the two companies is more than 75%.
In the case where a subsidiary company is incorporated by its parent company during a specific tax year, the subsidiary company will be considered as being a member of the group for the whole tax year and therefore will be able to claim group relief for that tax year.
Cyprus VAT considerations
If the Cyprus Holding Company’s activities are strictly the holding of shares in other entities, then it is not considered as a taxable entity as it falls outside the scope of Cyprus VAT legislation and as such it is not obligated to be registered for VAT purposes.
However, if the Cyprus Holding Company is engaged in other activities as well, such as the provision of management and administration services, then it may be able to deduct Cyprus VAT expenses.
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The authors expressly disclaim all and any liability and responsibility to any person, entity or corporation who acts or fails to act as a consequence of any reliance upon the whole or any part of the contents of this website.
Accordingly no person, entity or corporation should act or rely upon any matter or information as contained or implied within this publication without first obtaining advice from an appropriately qualified professional person or firm of advisors, and ensuring that such advice specifically relates to their particular circumstances.
PKF / ATCO Limited is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms. This publication is for information purposes only and should not be considered as professional advice.