Areas of Practice

The Cyprus Holding Company

Cypriot Holding Companies

We have unrivalled expertise in advising clients on strategic cross-border investments through the use of Cyprus holding companies especially used for Russia and ex CIS and Eastern European countries.

Cyprus is most commonly used as an intermediate holding company jurisdiction and is of particular interest in the following circumstances:

  • • for international or domestic groups investing outside Cyprus, aiming at dividend income streams. In most cases such dividends will be tax exempt in Cyprus
  • • to hold subsidiaries that have scope for significant capital appreciation and that may be spun off or sold in the future. Such disposals are not taxable in Cyprus
  • • to benefit from the favourable withholding tax provisions of the Cypriot double tax treaties network and the EU parent-subsidiary directive and other EU directives
  • • where a jurisdiction is required that does not have controlled foreign company legislation
  • • where it may be important to achieve a tax free unwind of the holding company at some stage in the future
  • • to avail of the easy exit strategy under Cypriot law which allows payment of dividend, interest and royalties (in most cases) without payment of withholding tax
  • • appropriate for any fund or investment vehicle, as there is no tax on transactions in securities as defined, even if this is the trading activity of the entity

 

Cyprus can also be used as the location for the ultimate holding company, for instance in a group that is relocating to a new jurisdiction or on formation of a new
publicly traded corporation with international operations.

Taxation Aspects
Taxation of Trading Income
Trading income is taxed at the rate of 10%.

Taxation of Dividend Income
Dividends and other profit distributions received by a Cypriot tax resident company from another Cypriot tax resident company are exempt from Corporation Tax.

Dividends and other profit distributions received by a Cypriot tax resident company from a foreign company are exempt from Corporation Tax. Such income is also exempt from Special Contribution for Defence (15%) provided that the company receiving the dividend own at least 1% of the company paying the dividend.
This exemption does not apply if:
(a) more than 50% of the paying company’s activities result directly or indirectly in investment income, and
(b) the foreign tax is significantly lower than the tax rate payable in Cyprus

Foreign Tax Credit on Income Received by a Cypriot Company
Income received by a Cypriot company from abroad may have been liable to a withholding tax on payment in the country of origin. If this income is liable to tax in Cyprus, the tax paid abroad can be credited against the tax payable in Cyprus.

Foreign taxes are credited in Cyprus:
(a) under unilateral provision of the Cypriot tax law and
(b) under bilateral treaty provisions which, in some cases, provide for credit of the underlying tax as well

Repatriation of Dividends from Cyprus

Cyprus does not impose any withholding tax on dividends and other profit distributions paid by a Cypriot company to non tax resident shareholders, including
both individuals and corporations.

Tax Exemption on Disposal of Shares
The profit arising by a Cypriot tax resident company on the disposal of shares in a company is exempt from any tax in Cyprus, provided the shares being disposed qualify as “titles” under the provisions of the Cypriot tax legislation. “Titles” are defined as Shares, Bonds, Debentures, Founder and other titles of companies or legal persons incorporated in Cyprus or abroad and rights therein.

Deduction of Costs
Under Cypriot law all expenses incurred wholly and exclusively for the production of the income are deducted before arriving at the taxable income.

Group Loss Relief

A loss making company can surrender its losses to other group companies as defined.

Controlled Foreign Corporation (“CFC”)


Legislation

Cyprus does not have controlled foreign corporation legislation. As a result, no income is imputed to a Cypriot parent even if the income arises in a tax haven or out of passive activities.

Thin Capitalisation

Cypriot tax legislation does not contain thin capitalisation provisions.

Setting-Up a Cypriot Holding

Although there are no restrictions on the legal form of the holding company in Cyprus, the most commonly used form is the private limited liability company.
There are no legal requirements as to the minimum or maximum share capital of the company. However, it is recommended that the authorised share capital be
at least Euro 5.000 that may conveniently be divided into 5.000 shares of 1 Euro  each. Not all of these shares have to be subscribed for, but it is recommended that at least 1.000 shares are issued and fully paid upon incorporation.

Under Cypriot law, every company limited by shares must have at least one shareholder.

Companies are managed and controlled by the board of directors. Under Cypriot Company Law, a Cypriot private company must have at least one director. In all other cases at least two directors are required.

Under Cypriot tax legislation, the management and control of a company determines the tax status of the company. Therefore, where the board meets is
significant for tax purposes.

The formation and registration procedures can normally be completed within a period of two weeks. These include various administrative functions such as printing of the company’s letterheads, opening of statutory books and the opening of the required bank accounts, up to the time the certificate of incorporation is issued.