Cyprus Holding Company

A Cyprus Holding Company is a legal entity created in Cyprus to hold shares in other companies, whether locally or internationally. Additionally, it can possess other assets like real estate, intellectual property, and financial instruments. The main objectives of a Cyprus Holding Company are to consolidate ownership, manage investments, and optimise tax planning for its shareholders.

The primary legislation governing Cyprus Holding Companies is the Companies Law, Chapter 113. This law has undergone several amendments to comply with European Union (EU) regulations and directives, particularly after Cyprus’ accession to the EU in 2004.

Essential provisions of the Companies Law related to holding companies are:

Company Formation: A Cyprus Holding Company can be established as a private limited liability company, a public limited liability company, or a European Company (SE). The private limited liability company is the most popular structure, requiring at least one shareholder and one director.

Share Capital: No minimum share capital is mandated for private limited liability companies. However, public limited liability companies must maintain a minimum share capital of €25,629.

Corporate Governance: The company’s management falls under the responsibility of the board of directors, and the company is required to hold an Annual General Meeting (AGM) within 18 months of incorporation and subsequently every calendar year.

Financial Reporting: Cyprus Holding Companies are obligated to prepare annual financial statements following International Financial Reporting Standards (IFRS) and submit them to the Registrar of Companies.

The Cyprus tax framework features a low corporate tax rate and advantageous tax provisions for holding companies. Key tax legislation relevant to Cyprus Holding Companies includes:

1. Income Tax Law No. 118(I) of 2002 (as amended): The corporate tax rate in Cyprus stands at 12.5% on net profits. However, dividend income received by a Cyprus Holding Company from its subsidiaries is typically exempt from corporate tax. 

2. Special Contribution for the Defence of the Republic Law No. 117(I) of 2002 (as amended): This law imposes a special defence contribution on specific types of passive income, such as dividends and interest. Nevertheless, dividends received by a Cyprus Holding Company from foreign subsidiaries are exempt from this tax. 

3. Capital Gains Tax Law No. 52/1980 (as amended): Capital gains tax is charged at a rate of 20% on the disposal of immovable property situated in Cyprus or the disposal of shares in companies owning such property. However, the sale of shares in a Cyprus Holding Company is exempt from capital gains tax.

4. Double Tax Treaties: Cyprus boasts an extensive network of double tax treaties, which allow for the reduction or elimination of withholding taxes on dividends, interest, and royalties paid between Cyprus and treaty partner countries.

In order to prevent tax abuse and ensure compliance with international standards, Cyprus has implemented various anti-avoidance measures, such as:

1. Transfer Pricing Rules: Cyprus follows the OECD Transfer Pricing Guidelines, which mandate that transactions between related parties be conducted at arm’s length.

2. Controlled Foreign Company (CFC) Rules: In line with the EU Anti-Tax Avoidance Directive (ATAD), Cyprus has implemented CFC rules. These rules are designed to prevent the artificial shifting of profits to low-tax jurisdictions.

3. Anti-Avoidance Measures and Exchange of Information: Cyprus is a signatory to the OECD’s Multilateral Competent Authority Agreement (MCAA) on the Automatic Exchange of Financial Account Information and the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. These agreements enable the automatic exchange of tax-related information between participating jurisdictions, promoting tax transparency and combating tax evasion.

4. Economic Substance Requirements: In accordance with the EU’s requirements on fair taxation and the OECD’s Base Erosion and Profit Shifting (BEPS) project, Cyprus has adopted economic substance requirements. Cyprus Holding Companies must demonstrate that they have sufficient substance in Cyprus, including management and control, qualified personnel, and a physical presence.

The Cyprus Holding Company structure presents numerous advantages to investors and multinational corporations, including:

1. Tax-efficient structure: With a low corporate tax rate of 12.5% on company profits, Cyprus is an appealing location for holding companies.

2. Access to the European market: As a member of the European Union, Cyprus offers access to the single market, enabling companies to conduct business throughout Europe with ease.

3. Confidentiality: Strict laws in Cyprus protect the confidentiality of company ownership and financial information.

4. Favourable double taxation treaties: Cyprus has signed double taxation treaties with numerous countries, providing relief from double taxation for both companies and individuals.

It is important to note that holding companies can serve various purposes beyond simply holding other companies and assets. Some of these purposes include:

1. Asset protection: A Cyprus holding company can be utilised to hold assets such as property, shares, or intellectual property, offering a layer of protection for the assets and reducing the risk of loss.

2. Estate planning: Cyprus holding companies can be valuable for estate planning purposes, as they can assist in transferring assets to future generations in a tax-efficient manner.

3. International tax planning: Cyprus holding companies can be employed to minimise the overall tax burden for multinational businesses by allowing them to centralise their operations and take advantage of the country’s favourable tax regime.

4. Investment holding: Cyprus holding companies can be used to hold and manage investments, providing a convenient and tax-efficient structure for investing in foreign markets.

1. No withholding tax on dividends paid to non-resident shareholders.
2. No withholding tax on interest paid from Cyprus.
3. No tax on dividend income received from another Cyprus tax resident company.
4. No tax on dividend income received from a foreign PE of a Cyprus holding company if: a. The PE engages in less than 50% of activities that lead to passive income, or b. The foreign tax burden on the dividend-paying company’s profit is not lower than 6.25%.
5. No tax on dividend income received from abroad if: a. Dividends are not tax-deductible in the jurisdiction of the foreign paying company, b. The dividend-paying subsidiary engages in less than 50% of activities that lead to passive income, or c. The foreign tax burden of the dividend-paying company is not lower than 6.25%.
6. Dividends received from abroad are exempt from Special Defense Contribution if: a. The dividend-paying company engages in less than 50% of activities that lead to passive income, or b. The foreign tax burden on the dividend-paying company’s profit is not lower than 6.25%.
7. No withholding tax on royalties paid from Cyprus for intellectual property exploited outside Cyprus.
8. No tax on disposal or trading of securities.
9. Only 2.5% effective taxation on profits from qualifying intellectual property.
10. Notional interest deduction upon the introduction of new equity.

At Chambers & Co, we provide a full suite of services related to holding companies in Cyprus, ensuring that our clients receive the guidance and support they need to establish and maintain a successful corporate structure.