Cyprus Holding Company Has Many Tax Advantages
Updated 02 July 2021
It is well known in the financial circles that the Cyprus holding company has many tax advantages which are so great that they make it the absolute tool for international tax planning and optimization. The procedure for setting it up is fairly simple, fast and fuss free. Your presence is not necessary as we can do everything through fax, email and courier. This type of company also allows for nominees.
Our firm can offer you nominee directors, shareholders and secretaries if you require. In a couple of days we will register it with the tax authorities for your TIC number and in 2 days the vat registration number if required will also be secured. It requires no special license to operate in Cyprus and worldwide.
Unless of course the type of activity to be carried out is one that is included in the list of activities requiring by law a license, like banking, insurance, investment company etc. As you will see below Cyprus holding company advantages are too many such a 0% tax on dividends paid to it for shares which it holds in any other company abroad. Also 0% tax on dividends paid out by it to its shareholders! The vat tax applicable to it is also low at 19%!
Tax Benefits of Holding Company for 2021
Cyprus as a jurisdiction offers many advantages and incentives for the Cyprus holding company making it very attractive to the international businessman and entrepreneur. Below see some of the most important advantages:
- It can distribute the profits to their nonresident shareholders entirely tax free. This is one of its major advantages making the corporate tax rate of 12.5% a power tool and a foundation block in your international drive for tax management.
- Zero tax on the revenues from the sale of securities. This too is a major tax advantage as in many countries this revenue is heavily taxed.
- Receives dividends at very low or even zero withholding tax rate!
- No taxes on dividends which it receives as shareholder of other subsidiary companies from abroad!
- Zero tax on their profits from a permanent establishment abroad.
- Only 2% corporate tax on their revenues from intellectual property rights.
- No defense contribution tax which is 30%, on interest income!
- Many other tax incentives and advantages.
A. Analysis Of The Cyprus Holding Company Advantages
One of the major advantages of a Cyprus holding company is that distribution of dividends to non tax resident beneficiaries is done without the need for cutting back withholding tax, irrespective of whether the beneficiaries hold their shares directly as shareholders or just as beneficiaries through nominee shareholders thus securing their anonymity. This is also true irrespective of whether the beneficiaries or shareholders are real persons or corporations.
Another big advantage is that where the shareholders or beneficiaries are not tax resident here, deemed distribution is also not applied, and again this is true for real persons and or corporations. Yet another very important of its advantages is that if a tax resident company pays out dividends to another tax resident company no withholding tax applies except for indirect dividends paid after four years from the end of the tax year in which the profits arose. These provisions are valid for real persons or corporations.
The legislation for the special defense contribution tax provides for the deemed distribution of dividends to real persons or corporations every two years. See more information for the company registration to understand how simple it is to register a company. A holding company is just another company and therefor its registration is exactly the same. The same procedures are followed. The only difference is that in the memorandum in the section for the activities of the company the first paragraph states that the company will carry out holding activities: Cyprus Company Registration.
B. No Tax on Revenues From Trading in Securities
- According to the law the term securities includes shares, bonds, debentures, options, futures, binaries, collective investment schemes which can be open-ended or closed-ended and repos on titles.
- According to the tax department bills of exchange, currency trading, and promissory notes are not securities (titles) and therefore revenue from these sources will be taxable at 12.5%.
- In case a holding company is tax resident and it is the owner of immovable property, if all its shares are sold to a third party, it will be considered as sale of that property too, and 20% capital gains tax will be levied on the value of the property as estimated by the IRD.
C. Dividends Received By A Cyprus Holding Company Are not Taxable
- Any dividends received by a Cyprus holding company, which is tax resident or non-tax resident which maintains a permanent establishment it the country, are not taxable! There are some exceptions to this rule however:
(a) So if the foreign company paying the dividends engages its activities in more than 50% in investments and the dividends paid are of income of more than 50% from such investments such dividends will be taxable provided that the tax paid on such income abroad, is substantially lower than the Cyprus corporate tax which is 12.5% and is lower than that of many other countries in the EU and outside. If you want to do some reading on the subject and on tax planning just follow this link: Cyprus Tax Planning-Cyprus Taxes.
- So is that income is taxed for example at 5% abroad, such income will be taxed under the special defense contribution law.
(b) This tax hike however can be compressed in two ways. First by taking refuge in the provisions of the double tax treaty of the third country in question. Tax credit is usually given for any foreign tax paid on the profits of the company which is making the dividend payout. Secondly the application of a unilateral tax credit relief, such as tax credit which can be given by Cyprus on any third country withholding tax paid on the dividends paid out.
- Tax is not paid on any dividends paid out to a tax resident company by some other tax resident company. However dividends paid indirectly after four years from the end of the tax year in which the revenue accrued by the dividend paying company.
- No special defense contribution tax is paid on dividends coming from dividends on which such tax has already been paid.
D. Dividends at Very Low or Even Zero Withholding Tax Rates
- A rich network of double tax treaties with third countries enables a Cyprus Holding Company to receive dividends from other legal entities local or foreign without having to pay tax on those dividends in respect of the same company or even physical person.
- The parent-subsidiary directive of the European Union exempts the withholding tax deduction on the dividends and other revenues distributed in the EU by a subsidiary company to the holding company and so it eliminates the double taxation of dividends of the parent companies.
- A unilateral tax relief is given for any withholding tax paid on the specific revenue abroad, and so the tax bill is lessened.
E. Other Advantages of The Cyprus Holding Company
- It pays no withholding taxes on interest income or revenues from intellectual property (royalties).
- It can be re-domiciled to a third country, provided the law of that country also allows re-domiciliation of companies from other countries.
- Our laws allow flexible re-organization, group relief, and the luxury of losses being carried forward indefinitely.
- It can be listed in any foreign stock exchange.
- There are no thin capitalization rules.
- There are also no controlled foreign company rules.
- It can be incorporated and maintained at lower cost schedules than other jurisdictions.
- Excellent infrastructures and accounting, legal and banking services.
- Corporate tax at only 12.5%, one of the lowest tax rates in the EU