Why Cyprus?

Overview

Cyprus has always been an excellent location for holding companies for many reasons, including its transparent legal system, based on English law, excellent communications, and world-class professional and banking services. It has a market economy and no restrictions on capital movements; it is a member of the European Union and the Eurozone, and its tax system is fully compliant with EU and OECD requirements; it is on the OECD’s “White List” of compliant tax jurisdictions, issued in April 2009. Since joining the EU in 2004, Cyprus has become the ideal gateway for investment between the EU and the dynamic economies of Central and Eastern Europe, Russia, India and China.

 

An Ideal Holding Company Location

TAX BENEFITS

  • Dividend income is totally tax-exempt.
  • Under Cyprus law, all expenses incurred for the production of the associated income are deducted before arriving at taxable income.
  • Cyprus’ corporation tax rate of 10% is the lowest in the EU.
  • Dividends received by one Cyprus-resident company from another are exempt from all forms of tax.
  • The profits of a Cyprus company’s permanent establishment in another jurisdiction are similarly exempt, subject to the same conditions as for dividends.
  • Non-exempt dividend income is subject to special tax contribution at the rate of 17% only for Cypriot Residents. Tax credits are available for taxes paid abroad.
  • Interest income which is the result of the main activities of the company or which 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, acquisitions and other corporate reorganisations may generally be effected without any tax cost.
  • The only withholding tax levied by Cyprus is a 10% (subject to treaty provisions) tax on royalties derived from the use of a right or asset within Cyprus. All other dividend, interest and royalty payments made to non-residents may be made without deduction of tax.
  • Furthermore, the tax legislation does not contain any thin capitalisation rules (a debt:equity ratio requirement) and a Cyprus-resident holding company can be primarily financed by debt to capitalise foreign subsidiaries by way of loans rather than equity capital.

 

Why it matters to you

These Tax Benefits make Cyprus a highly attractive intermediate holding company jurisdiction, offering the following benefits:

  • Groups investing outside Cyprus may flow through income streams, which will generally be tax-exempt in Cyprus and not attract withholding tax as they leave;
  • Subsidiaries that have scope for significant capital appreciation may be held in Cyprus and sold without any liability to tax on the gain;
  • Cyprus’s double tax treaty network and the EU Parent-Subsidiary Directive offer a number of other tax planning opportunities;
  • Cyprus offers a favourable exit strategy under Cyprus law, which allows payment of dividend, interest and royalties without payment of withholding tax; and
  • Cyprus offers a well-regulated, business-friendly environment with a minimum of unnecessary “red tape”.

Cyprus can also be used as the location for the ultimate holding company, for instance in a group that is relocating to a new jurisdiction or on formation of a new publicly-traded corporation with international operations. It is particularly suitable for any fund or investment vehicle, since there is no tax on transactions in securities as defined, even if this is the entity’s main trading activity. As there is no withholding tax on dividends, there is no uncertainty over recovery of tax paid.

 

The Ideal Place to Settle Disputes

Cyprus’s tradition in following  the English system has allowed Cyprus to maintain the speed, effectiveness and facts-specific disposal of all cases without compromising thoroughness and well-reasoned decisions in settling disputes. Legal fees are competitive throughout the European Union and the world. Legal and court fees are also highly competitive compared  to countries  upholding a level of excellence on a par with Cyprus.