Cyprus: The Cyprus Holding Company

Last Updated: 28 June 2017
Article by Kinanis LLC

A. INTRODUCTION

Holding companies are set up as the vehicle to hold investments in subsidiaries or associate companies. Their primary income derived from their holding activities is dividend income and profits from the disposal of their investments, mainly shares.

For a country to be an attractive location in which to set up a holding company, various tax criteria are taken into consideration.

With the introduction of the Cyprus new tax legislation on 1.1.2003 and the relevant tax provisions enacted, Cyprus has become a major player in the field of holding companies.

With this brochure we shall examine the main features of the Cyprus tax regime so that to identify the importance of the Cyprus holding company in the field of holding structures judged from the international investor's point of view.

B. MAIN CRITERIA FOR THE SELECTION OF A PRIME LOCATION FOR A HOLDING COMPANY

The following issues related to the holding activities are considered to be the main criteria for the selection of a prime location to set up a holding company in conjunction with the particular circumstances of the investor.

  1. Incoming Dividends – Withholding Tax on Foreign Jurisdiction
    Incoming dividends remitted by the subsidiary to the holding must either be exempted from, or subject to, low withholding tax rates relying on any applicable foreign legislation or any applicable double tax treaty.
  2. Dividend Income Received – Local Tax
    Dividend income received by the holding company must either be exempted from or subject to low corporate income tax rates in the holding company's jurisdiction.
  3. Outgoing Dividends
    Outgoing dividends paid by the holding company to its ultimate shareholders must either be exempted from or subject to low withholding tax rates in the holding company's jurisdiction.
  4. Capital Gains Tax on the Sale of Titles
    Profits realised by the holding company on the sale of titles in the subsidiary must either be exempted from or subject to a low rate of capital gains tax in the holding company's jurisdiction.
  5. Additional Tax Considerations
    Additional tax considerations, which may identify whether a particular location is suitable for a holding company to be established may include:

    1. The existence or not of flexible re-organisation rules;
    2. Whether group relief is granted;
    3. Possibility of losses to be carried forward;
    4. The existence or not of controlled foreign company (CFC) rules;
    5. The existence or not of thin capitalisation provisions and the ability to obtain interest deduction as an expense in full;
    6. Possibility of re-domiciliation to other jurisdictions;
    7. Possibility as to the listing in stock exchanges;
    8. Favourable or not provisions as to the taxation of interest income and royalties;
    9. Percentage of withholding taxes on interest and royalties;
    10. Obligation or not to get registered with VAT;
    11. Favourable or not liquidation provisions and taxation of assets distributed to the shareholders;
    12. The level of corporate and local tax rates in respect of other income;
    13. Favourable or not provisions as to stamp duty.

Jurisdictions which provide some or all of the above criteria with flexible and favourable rules at low tax rates are considered as prime locations for holding companies.

Which location though is more suitable in each specific case ultimately depends on the particular circumstances in question and on individual tax and non-tax objectives.

To read this Report in full, please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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