Cyprus Holding Company
A Cyprus holding company that its shareholders are not Cyprus tax resident has the following tax advantages:
- Dividends received by a Cyprus Holding Company from overseas are tax-exempt. This exemption does not apply if both (i) the non-resident company paying the dividend carries on, directly or indirectly, more than 50% of investment activities (passive income) - and (ii) the overseas tax burden of the paying company is significantly lower than the Cyprus tax burden (practically interpreted by the Tax authorities as being less than 5% “headline tax” – not effective tax burden).
- No capital gains tax is payable on the sale or transfer of securities and the gains are exempt from income tax (except gains from disposal of shares in companies owning real estate situated in Cyprus). Therefore, no tax arises on the disposal / liquidation of participations held by the Cyprus holding company or the disposal of the shares of the Cyprus Holding Company or the liquidation of the Cyprus holding company owned by non-residents.
- Profits from a Permanent Establishment (PE) outside Cyprus are tax-exempt and losses can be set-off against Cyprus income (this exemption also does not apply if the PE carries on more than 50% of investment activities and the overseas tax burden is significantly lower than the Cyprus tax burden). PE’s exemption in conjunction with the use of some of Cyprus Double Tax Treaties (DTT) can result in PE profits avoiding tax altogether.
- No withholding taxes on distribution of profits by a way of dividend payments to non-residents, irrespective of whether the recipient is a legal entity or individual, its country of residence or the existence of a DTT.
- No capital gains or income tax on the liquidation of participations or the liquidation of the Cyprus holding Company itself.
- No capital taxes during the life of the Cyprus holding company.
- Tax losses are carried forward for a period of five (5) years.
- Mergers, takeovers and other re-organizations can take place within groups with no tax consequence.
- Unilateral tax-relief is granted to all Cyprus Companies for foreign tax suffered irrespective of the absence of a DTT.
- No obligation or right for the holding company to register for VAT. This applies where the main business activity is the acquisition and holding of shares in other companies without taking part in the management and administration of these companies either directly or indirectly. In many cases this may be an advantage as the VAT reverse charge provisions will not apply.
- Benefits from the use of Cyprus's wide treaty network with approximate 45 countries (including main Western European countries as well as most of Eastern European Countries) which provides for reduced withholding tax rates on dividends received from treaty countries.
- Cyprus as a full member of the European Union offers the benefits from the provisions of the parent - subsidiary directive, provided the required conditions are satisfied under the local legislation of the relevant EU country, with payment of dividend from any other member state to be free of withholding tax.