Cyprus Holding Company For Zero Taxes- 2021

Cyprus Holding Company For Zero Taxes :The aftermath of the recent global economic turmoil has left no room for ignorance of tax and legal risks in the corporate finance market. Therefore, multiple European and international legislation impose increased scrutiny and compliance supervision on Nations tax authorities. If entrepreneurs wish to derive the optimum results from their business activities and also minimize the incidence of taxation, they need to implement tax efficient structures as well as restructuring options for existing ones.

Nevertheless, the selection of the appropriate jurisdiction for the best implementation of such structures, shall not always be a tax driven exercise. The most appropriate approach on this matter is a thoughtful, case-specific and tailor-made decision.  As an old apothegm states: ‘The best choice is to be prudent and to take proactive action’.  Act now get in touch with us to set up your Cyprus company. For more details about Cyprus Company Registration please follow this link.

Cyprus – an ideal gateway to Stability, Security, Prosperity and Success

Cyprus Holding Company For Zero Taxes :  Transparent legal and regulatory environment, high standards of transparency, excellent accounting/legal/banking professional services infrastructure…Cyprus scores high on all the aforementioned incentives. It is considered as a reputable, competitive, trust-worthy financial business center for the worldwide operations of multinational corporations.

Additionally, it is complemented as being one of the most prime international competitors in the field of holding regimes. The island is proudly a member of the White list of OECD and it is in full compliance with the code of Conduct for Business Taxation and against harmful tax competition. Furthermore, the island is always in line with the latest EU standards. It will be a missed opportunity not to invest in this international investment hub.

Defining Holding Company

Holding Companies may be defined as those set up as an effective means of consolidating ownership of operating subsidiaries. Noteworthy is the fact that if such companies are correctly integrated in a tax structure, they provide the best possible way of shareholdings management, identification of improvements and guarantee for profitability.

Implementation of EU Directives for 2021

Cyprus as an EU Member is in full conformity with the EU Directives. This includes the EU Parent-Subsidiary Directive, Royalties Directive and the Merger Directive. The first exempts the withholding tax deduction on dividends and other profit distributions paid by EU subsidiary companies to their EU parent companies and eliminates double taxation of dividend income at the level of the parent company. The second eliminates withholding tax obstacles specifically for licensing of royalties. Finally, the third secures that no tax consequences arise in the case of cross-border re-organizations within EU member and non-EU member states.

Cyprus Holding Company For Zero Taxes :  Double Taxation Agreements

Where the conditions of the aforementioned Directives are not met, Cyprus can rely on an extensive network of double tax treaties (reaching 63 by 2018) to avoid double taxation of the same profits in respect of the same person or entity. The DDTs rates are considered particularly advantageous. Going a step further, if no such treaty is in place, a Unilateral Tax Credit Relief can be utilised under the Cyprus Tax regime to the amount of the foreign withholding tax.

Cyprus Holding Company For Zero Taxes : Plethora of Benefits

a) No withholding tax on received profits

This is the most simplistic way to use a Cyprus-Holding-Company and start enjoying tax benefits.  The Cyprus-Holding-Company holds the shares of any operating European Company (or a DTT country) and receives, without suffering any domestic tax leakage, income streams and/or profits.

b) Acting as a Finance Company

Another efficient way to utilize a Cyprus-Holding-Company, is through group financing activities as no thin capitalization rules or withholding tax on interest apply. Therefore, a Cyprus-Holding-Company’s role is to grant loans for project financing or working capital requirements in a specific financial-managing tax plan. In more practical terms, the Cyprus-Holding-Company interposes between a holding and an operating company in a treaty location, while advancing interest bearing loans to fund the operating company using the wide DTT network of Cyprus.

This can result in a double dip effect provided the financing is undertaken from a tax efficient location i.e., the interest will be tax deductible in the operating location and will be tax free in the recipient jurisdiction. Any margin remaining in the Cyprus company will be subject to income tax at the rate of 12.5%.

c)  Crossroad in Europe’s Trading Activities

Moreover, any profits realized by a Cyprus-Holding-Company from trading activities (such as the purchase/provision of services and/or selling of goods), would be taxable at the rate of only 12.5% with no further corporate tax implications.

d)  Royalties income under Licensing Arrangements

If a Cyprus-Holding-Company is granted with intangible property rights^[1] for use outside Cyprus, royalty income can be derived suffering no or little withholding tax at source in accordance with the provisions of the EC Interest & Royalties Directive or under Cyprus extensive network of double tax treaties. Hence, such profits can then be distributed through dividends to non-Cyprus tax residents-shareholders without any Cyprus tax being imposed.

e)  Non-taxation of profits from the sale of “securities”

Any income arising from trading in “securities” (shares, debentures, bonds, options/futures/forwards/swaps/depositary receipts/index participations/repos on titles,etc^[2]) is completely exempt from tax. If the Company, though, is the owner of immovable property located in Cyprus, a Capital Gains Tax of 20% on profit arising from sale, will be applicable.

[1] Qualifying IP rights include patents, trademarks, software, trade secrets, designs/models, internet domain names, secret formulae, know-how, work in process R&D, client lists, amongst others.

[2] Please note that bills of exchange, promissory notes, currencies and commodities are not considered as “securities” by the Cyprus Inland Revenue Department, hence profits from their trading will be included in taxable income of the company that is subject to income tax.

f) Tax exemption from the disposal of Intellectual property rights (IPR)

The gross income arising from IPR, other exploitation rights, compensations or other similar income arising from sources within the Republic, of a person who is not resident in the Republic and does not arise from a permanent establishment in the Republic, is subject to withholding tax at a rate of 10% (unless a tax treaty provides for a lower tax rate). Royalties received by a connected company registered in a European Union Member State are exempt from withholding tax (subject to conditions). Rights granted for use outside the Republic are not subject to any withholding tax.

Tax free distribution of dividends

Cyprus Holding Company For Zero Taxes.  Outgoing dividends paid by the Cyprus-Holding-Company to the ultimate non-resident beneficial owner (corporate or individual) are exempt from any withholding taxes irrespective of the existence of any DTTs and irrespective of the applicability of the EU Parent-Subsidiary Directive. This rule equally applies regardless of whether the beneficial owner holds shares directly or through nominees.  Alternatively, where the Beneficial Owner is Cyprus tax resident, any dividends are subject to 20% SCD.

Non-taxation of dividends received

As of January 2016, dividends received from abroad by a Cyprus tax resident company are exempt from corporate income tax, provided they are not allowed as a tax deduction in the jurisdiction of the foreign paying company.

Additionally, dividends received by a Cyprus resident company, or a company not resident in Cyprus but which maintains a permanent establishment in Cyprus, from a non-resident company are tax exempted, unless:

• the non-resident company paying the dividend engages more than 50% in activities that lead to investment income (passive income), and
• the foreign tax burden on the income of the non-resident company paying the dividend is substantially lower than the tax burden of the resident company that receives the dividend

If the abovementioned criteria are met, dividends will be taxable under Special Defence Contribution Tax (SDC) at the rate of seventeen percent (17%). The only way to avoid the latter depends on the application of:

1. underlying tax provisions included in the DTTs
2. unilateral tax credit relief

as already descripted above.

Tax Relief

Group relief is allowed for at least seventy-five percent (75%) group holdings and is applicable only on current year’s results assuming claimants are Cyprus tax resident companies and members of the same group for the whole tax year. (subject to conditions)

Cyprus Holding Company For Zero Taxes : Other tax considerations and incentives

• Trading profits are taxed at the rate of 12,5%, one of the lowest Corporate Income Tax Rates in Europe.
• No Controlled Foreign Company (CFC) rules.
• No thin capitalization provisions.
• Possibility of re-domiciliation to other jurisdictions.
• Possibility as to the listing in international Stock Exchanges.
• Competitively lower fees for establishment and maintenance of a Cyprus Company in comparison with other popular jurisdictions.
• The sale of participations and shares or the liquidation for a Cyprus holding company is not subject to exit taxes for non-residents provided that the company does not hold immovable property in Cyprus.

How we can help

Our Firm has been offering legal and corporate services since 1979. Therefore, our highly qualified personnel has the necessary knowledge and proper experience to assist you incorporate and integrate a Cyprus holding company in your tax structure.

To request more details or any other advice, do not hesitate to contact us at: [email protected]