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Holding Company Structures

A Cyprus Holding Company offers the following advantages in relation to the major tax considerations:

Main points

  • Trading income taxed at 12.50%
  • No special contribution on dividends from foreign corporations if: shareholding >1% of share capital of paying company and other provisions
  • No Capital Gains Tax on profits from disposals of assets abroad
  • No taxes on profits arising from equity, bonds, derivatives etc.

In Detail

  • No tax on dividend income received from a subsidiary company from abroad (provided the direct holding is at least 1% of the share capital of the overseas company. The exemption does not apply if the subsidiary company engages in more than 50% of its activities in producing investment income. In that case it would be taxed at 12.50%)
  • Double Tax treaties with over 42 countries enable lower withholding tax rates on dividend or other income received from the said subsidiaries.
  • Being an EU member state, holding companies registered in Cyprus may also enjoy no withholding tax on dividends received from EU subsidiaries as a result of the utilization of the EU Parent Subsidiary Directive.
  • No withholding tax on Capital Gains and income on the disposal of neither, shares of the subsidiary's share capital nor the shares of the Cyprus Holding Company.
  • Outward dividends by the Cyprus holding Company to its non resident shareholders are exempt from any withholding taxes.

Further opportunities : A scenario case study

A Cyprus Holding Company's primary purpose is, owning shares in other companies. Such a Holding Company is used as a vehicle to benefit from tax advantages.
Cypriot Tax Resident group Finance Companies can be employed for intra-group financial management functions such as granting of loans for project financing or working capital requirements. These structures are particularly attractive for loan granting in high tax countries where high debt structures are used.

A Cypriot Group can be used to interpose between a holding and an operating company in a foreign treaty location. It then advances interest bearing loans to fund the operating company. When the ultimate financing is from a tax efficient jurisdiction the interest expense is fully deductible from the operating company and thus avoids tax charges in the holding company jurisdiction.

In most cases there is absence of foreign withholding tax on interest or royalty income (under Double Tax Treaty or EU Interest and Royalty Directive.)

Ability to deduct interest and royalty expense from taxable income.

There is an absence of "thin capitalization" rules or they are inapplicable in the case of "back to back" Financing.

Securities Trading Companies

Profits and gains made by a Cyprus Tax Resident Company, on the trading of securities such as shares and bonds, are exempt from Cyprus tax.