Cyprus: The ideal Holding Company Location

The numerous tax incentives that Cyprus has to offer to international investors make Cyprus an ideal Holding Company location.

A Holding Company is commonly used for the purposes of holding participations in other companies and groups throughout the world.

The advantages and benefits that a Cypriot Holding Company has to offer are variant and numerous.

First of all Cyprus has the lowest corporation tax rate in the European Union, which currently stands at 10%.

Furthermore there is a full exemption from tax on dividend income received from participations. Therefore dividends received by a Cypriot Holding Company from overseas participations will be exempt from tax, provided that a minimum of 1% of the share capital of the overseas participation is held.

Moreover there is no withholding tax on distribution of profits, irrespective of the country of residence. Also no capital gains-tax, income tax or any other tax is enforced arising from the liquidation of a Cyprus Holding Company, owned by non-residents.

In addition there is a full exemption from capital gains tax and income tax on the disposal of securities. No taxation is enforced on the profits from the disposal of securities. This allows the disposal of shares held in a subsidiary by a Cypriot Holding Company with no tax effects in Cyprus.

Cypriot Holding Companies can also benefit from the provisions of the EU parent-subsidiary Directive as well as from the multiple double tax treaties. According to the provisions of the Directive, any payment of dividend from one member state to another is free of withholding tax provided the required conditions are satisfied under the local legislation of the member state. On the other hand the extensive double tax treaties network with over 40 countries, enables lower withholding tax rates on dividend or other income received from the subsidiaries abroad.

What is more transactions that are defined as “reorganizations or restructurings”, involving companies that are either residents or non-residents of the Republic of Cyprus, are exempt from corporation or capital gains tax as well as transfer fees. In any case mergers, divisions, exchanges of shares or transfer of assets are considered as reorganizations.

Important to state here is that there is no minimum period of holding participations in order to be eligible for either the tax exemption on dividend income or the tax exemption on the disposal of shares.

All the above highlight the importance of Cyprus as an ideal Holding Company location and the jurisdiction of choice for foreign businessmen and investors.