A Cyprus Holding company is a legal entity that can be used by investors as a vehicle to hold properties or make investments in Cyprus and or abroad.
Cyprus has become an important world business centre mainly due:
- To it’s favourable tax regime, having one of the lowest corporation tax in Europe at 12.5 %,
- The exemption from tax for dividend income from overseas subsidiaries ,(under some criteria)
- The wide network of double tax treaties that Cyprus has signed with several countries
- The exemption from taxation of the sale of securities such as shares, bonds, debentures and other securities of companies incorporated both in Cyprus or abroad.
Functions of Holding companies
The main functions of the Holding companies are:
- Receiving dividends, interest or royalties
- Making investments in other companies (holding shares in subsidiary or associated undertakings)
- To act as Financing bodies for their investment undertakings by supplying the companies that they hold shares in with funds.
Criteria for choosing the location to set up a Holding Company
It is very important to evaluate carefully the location that a Holding Company will be set up and in this respect the following must be taken into account:
- Membership of European Union as from 1 st May 2004
- Anonymity of the beneficial owners of a company
- High standard of banking system
- Freedom from exchange control
- Strategic geographical location being at the cross-roads of Europe, Asia & Africa
- No formalities are present for obtaining work permits for EU citizens
- Low operating costs
- Availability of English speaking schools
- High quality standards of professional services
- Excellent telecommunication system
- Provision of professional services at competitive & reasonable prices
- High level of standard of living
- Low crime level
- Pleasant climate being an island in the northeastern basin of the Mediterranean Sea
- Excellent health care system
- English language is widely spoken
- One of the lowest tax system in the European Union at 12.5 % on taxable profits
- One of the most favorable Holding company jurisdiction
- Availability of Group losses relief without any time restrictions, under certain conditions
- No withholding tax on dividends paid to non-residents shareholders
- Exemption from taxation of capital gains apart from the disposal of immovable property situated in the Republic of Cyprus
- A sophisticated network of double tax treaties in operation
- Non resident companies are taxed only on the income derived in the Republic of Cyprus
- Sales of shares and securities are tax free
- No taxation on dividend income
- VAT optional registration allowing them to claim back any VAT imposed on local expenditure and services offered
- Salaries from services outside Cyprus for more than 90 days in a non-Cypriot resident employer or in the permanent establishment of a Cypriot resident employer are not taxed in Cyprus
- Low income tax rates for expatriates
- No inheritance tax
More specifically, the following matters are worth mentioning at this point as they further explain why Cyprus is an advantageous location to establish a Holding Company (and an International Business company in general):
Dividends from abroad received in Cyprus
Dividends paid by a foreign company to a tax resident Cyprus Holding company are tax free in Cyprus, if the following apply:
a) the revenue of the foreign company paying the dividend ,derived directly or indirectly from investments activities does not exceed 50 % of the total revenue and,
b) the corporation tax rate of the country of the paying company is not substantially lower than the Cypriot corporate tax rate.
Double Tax Treaties
The wide network of Double Tax Treaties that Cyprus has entered into makes Cyprus a very attractive place to establish a Holding Company as it helps to minimize the withholding tax rates.
Group losses relief
- The tax losses of one company in the Group can be set off against the Profits of another group company if:a) the companies are tax resident in Cyprus, and
b) the holding company has at least a 75 % of the share capital of the subsidiary, or
c) each company is at least 75 % subsidiary of the other company
- The set off of the losses can be made against profits of the same tax year
- Any unused tax losses are carried forward to be set off against future profits without any time restrictions.
Cyprus enjoys good reputation-as it is not a "tax heaven" country
Using jurisdictions that are tax heavens with no taxation is not advisable as the invoices raised by the companies will be treated with suspicion by the investor's own country's tax authorities and maybe disregarded when calculating the tax to be paid. Cyprus is a good jurisdiction to use in order to set up an IBC, as it is a well known and reputable international business center.
Cyprus has an effective mechanism of regulating and supervising the Banking system via the local regulatory monetary body, which is the Central Bank of Cyprus.
The Central Bank of Cyprus utilizes the directives and recommendations of the Basle Committee on Banking regulation, in order to reduce the systematic risk and maintain the stability of the Cyprus Banking system helping to preserve public confidence, protecting depositors at the same time.