- A Synopsis of the Cyprus Holding Company
- July 28, 2014 | Author: Aquilina Demetriadi
- Law Firm: Anastasios Antoniou LLC - Limassol Office
- A Cyprus holding company can achieve low or zero withholding tax rates when extracting dividends from underlying subsidiaries by relying either on its double tax treaty network, or on the provisions of Council Directive 2003/123/EC of 22 December 2003 amending Directive 90/435/EEC on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (the Parent/Subsidiary Directive).
In instances where the transaction in relation to which a Cyprus holding company is used is purely intra-EU, the provisions of the Parent/Subsidiary Directive should be invoked in eliminating occurrence of taxation entirely. In extra-EU transactions, the provisions of the wide double tax treaties network Cyprus maintains with other states should be relied upon.
A synopsis of how the Cyprus Holding Company can be an efficient tax planning solution for holding assets and investments, financing and private equity transactions, corporate structuring and investment management worldwide follows:
There are no withholding taxes on dividend payments to persons not resident in Cyprus, irrespective of where they reside or whether a double tax treaty is in place with the jurisdiction of residence.
Dividends received into a Cyprus Holding Company are taxed at 17%, however an exemption mechanism which can be satisfied in the majority of cases can result in zero taxation of incoming foreign dividend.
There is no capital gains tax in Cyprus other than on gains accruing from the disposal of immovable property held in Cyprus or shares in companies the property of which consists of immovable property held in Cyprus. Moreover, Cyprus legislation specifically exempts from taxation any gains accruing from the disposal of shares, securities and debentures.
Incoming IP Royalties
Profits from the use or sale of intellectual property is reduced by 80% before being taxed at the corporate income tax rate of 12.5%. This mechanism, known as Cyprus’ IP Box, can result in an effective taxation of IP royalties income at less than 2.5%.
Interest income effectively connected with the carrying on of a trade or business of the company is subject to the corporate income tax rate of 12.5%. Interest income not connected to the company’s business is exempt from corporate income tax and taxed separately at the Special Contribution for Defence.
No tax consequences arise in the case of a reorganisation involving a Cyprus Holding Company.