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Holding companies in Cyprus
What does Cyprus Holding Company mean? (Cyprus Holding Company)
One of the most sought after types of companies is the Holding Company. Status of holding a company receives from the point of view of the tax authority, but subject to the following conditions:
- The shareholders of the company must be non-residents of Cyprus (100%).
- Such companies are exempted from registration with the tax authority as payers of VAT (VAT) in Cyprus, provided that the main and main activity of such a company is the acquisition of shares (participation interests) in other companies, but without participation in the management or administration of such other companies, directly or indirectly. In many cases, this can be a big plus, as the VAT reverse provisions will not apply to the Holding Company.
- Dividends received by a Cyprus Holding Company from abroad are exempt from taxation in Cyprus, but under certain conditions, namely, such exemption from taxation does not apply if (a) the non-resident company that pays dividends to the Cyprus Company has more than 50% main activities are classified as investment activities (i.e. the income of such a non-resident company in the amount of more than 50% is classified as passive income), and (b) the tax burden of such a non-resident company in the country of incorporation is significantly lower than in Cyprus ( the tax authorities of Cyprus interpret such taxation significantly lower if the rate in such a country is lower than 5% - "not effective tax burden").
- A Holding Company does not pay tax on income from the sale or transfer (transfer) of securities, and such income is exempt from income tax (with the exception of income from the sale (or disposal) of shares in companies owning real estate property located and registered in Cyprus). Thus, the Cyprus Holding Company does not have any taxation of profits received from the sale of participation interests (shares) and the termination of participation in a subsidiary, and also there is no taxation from the sale of shares of the Cyprus Holding Company, or the liquidation of the Cyprus A holding company owned by non-residents of Cyprus.
- Profits of a Cyprus Holding Company derived from the Permanent Establishment of such Holding Company outside of Cyprus are exempt from taxation in Cyprus. Any losses of such Permanent Establishment (PE) outside Cyprus may be offset against the profits earned in Cyprus by the Holding Company (provided that the activities of such PE outside Cyprus are not more than 50 % of passive activity, and the tax burden in the country of location of the BCP is not significantly lower than in Cyprus (the tax authorities of Cyprus interpret such taxation as significantly lower if the income tax rate is below 5% - not effective tax berden). If exemptions are applicable, they may be applied in parallel with the exemptions that may be applicable under the provisions of the Cyprus Double Tax Treaties with such countries (all together).
- When distributing profits and making payments to shareholders of a Cyprus Holding Company abroad, such distributions are exempt from withholding tax, regardless of whether the recipient is a legal entity or an individual, regardless of which country the shareholder is resident, and regardless of what is defined in Double Taxation Agreement of Cyprus with the country where the payment is made.
- Tax losses are carried forward for a period of five (5) years.
- In case of reorganization of such a company in the form of acquisition, consolidation, spin-off or division, if such reorganization is carried out within the group of companies, no tax consequences arise.
- The provisions of the EU Parent-Subsidiary Directive apply in full to the Cyprus Holding Company, provided that the criteria for applying the provisions of this Directive are applicable for such Holding Company.
- Holding companies enjoy all the benefits and tax provisions of all Cyprus International Double Tax Treaties in respect of royalties, interest, dividends and other taxes.
This information is not a consultation and is posted only for your information. If you need an advice on the tax regime, we recommend contacting professional tax consultants and/or auditors to get professional tax advice from a tax specialist . We can help you in this matter - to find a good tax consultant or auditors in Cyprus. Please inform us via contact form.