Cyprus provides multiple tax benefits and is an exceptional location for holding companies for many reasons such as, the transparent legal system, the outstanding communications and the world-class professional and banking services.
From a tax viewpoint, a multinational group requires the following grounds from a holding company:
- The holding company must be capable to extract value from the operating company.
- The domestic laws of the holding company jurisdiction should exempt such share and
capital gains from local tax.
- It should be achievable to take share out of the holding company without giving rise to any charge to tax in the holding company jurisdiction.
So what are the benefits Cyprus provides?
- To start with Cyprus has no restrictions on capital movements.
- It is a member of the EU and its tax system is fully acquiescent with EU and OECD requirements.
- The island has a wide network of double taxation treaties.
- Under Cyprus law all expenses acquired for the production of the connected income are withhold before arriving at taxable income.
- At 10%, Cyprus’s corporation tax rate is the lowest in the European Union.
- Bonuses received by one Cyprus local company from another are excepted from all forms of tax. So, if a Cyprus local company owns 1% or more of the share capital of a foreign corporation, any shares it receives are also exempt from tax, with some exceptions, as are earnings of a permanent establishment.
- Non-exempt bonuses income is subject to defense tax payment at the rate of 15%.
- Tax credits are obtainable for taxes paid abroad.
- Interest income that is the result of the main activities of the company or that is closely connected to those activities is subject only to corporation tax at a rate of 10%, like any other ‘active’ trading income.
- Group finance income is treated as active trading income. Mergers, purchases and other reorganizations may be made without tax cost. The only withholding tax charge by Cyprus is a 10% withholding tax on royalties resulted from the use of a right or asset within Cyprus.
- Groups investing outside of Cyprus may flow through income flows, which will generally be tax-exempt in Cyprus and not attract withholding tax as they leave;
- Cyprus can also be utilized as the location for the ultimate holding company, and is mostly suitable for funds or investment vehicles. Some warning should be made. First, the holding company must indisputably be resident in Cyprus. Second, the holding company must have a genuine cause for being, in line with current EU tax principles.
Bonus tax benefit
Additionally, the tax legislation does not enclose any thin capitalization rules. Importantly, capital gains receiving from the clearance of shares and other securities are excepted from all forms of taxation, providing the company whose shares are being sold does not hold Cypriot real estate.
These aspects compose Cyprus as a highly attractive transitional holding company jurisdiction.
For firms that copes with taxation law please click here.