The Cyprus Holding Company, i.e. a Cyprus-incorporated corporate person holding shares in other companies wherever these are incorporated. In fact, the Cyprus Holding Company is one of the most highly regarded investment vehicles globally. The Cyprus Holding Company is one of the most highly regarded investment vehicles globally. Offering the lowest corporate tax rate in the EU at 10%, ensuring compliance with EU requirements as an EU Member State as well as committing to the OECD requirements against harmful tax practice, featuring a substantial number of Double Tax Treaties with other States and boasting one of the most business-friendly legislative frameworks, are some of the reasons behind Cyprus’ evolvement into an ideal holding and investment destination.
A resident Cyprus Holding Company is fully subject to tax at the rate of 10% on its worldwide income. It is held to be resident in Cyprus if its management and control are in Cyprus.
A non-resident company is taxed only on income derived from a permanent establishment in Cyprus and on rental income from property located in Cyprus.
A credit for tax on profits and gains of a Cyprus Holding Company may be offset against tax payable in Cyprus for the same income unilaterally under domestic law, even in the absence of a double taxation treaty.
The taxable income of a Cyprus Holding Company is based on the annual financial statements prepared in accordance with international financial reporting standards. Expenses incurred exclusively for the purposes of the business are deductible while expenses incurred with exempt income are not deductible.
Exemption from Income Tax
Non-resident Cyprus companies are not subject to Cyprus income tax. These companies cannot take advantage of the treaty network and from the tax regime applicable to resident companies.
Resident companies’ profits that are derived directly or indirectly from a permanent establishment outside Cyprus, are not subject to tax. The exemption is not granted if more than 50% of the activity of the paying establishment results in investment income and if the foreign tax is significantly lower than the one payable in Cyprus.
Dividends received by a Cyprus resident company are not subject to tax and are excluded from the net profits but are subject to a special defense contribution tax at a rate of 15% as deemed distributions to Cyprus resident shareholders. This may be avoided if the holding is more than 1%.
Capital Gains Exemption
Profits from the sale of securities (shares, bonds, debentures, etc.) are not subject to tax. No capital gains tax is levied, unless from immovable property in Cyprus or if shares represent immovable property located in Cyprus (in the usual cases).
Interest received by a Cyprus resident company is exempt from income tax, irrespectively of whether it is from a Cypriot or a foreign source. Interest is only taxed at a 10% rate by way of special defense contribution tax.
Income from industrial or intellectual property rights granted for use outside Cyprus are not subject to tax.
Exemption from Withholding Tax on Payment of Dividends, Interest and Royalties
Dividends and interest paid by a Cyprus Holding Company are exempt from withholding tax. Royalties paid to non-residents derived from sources outside Cyprus are also not subject to withholding tax. Dividends paid by a Cyprus Holding Company to non-residents are not subject to withholding tax. To avoid submission to a special 15% defence contribution tax, at least 70% of the profits must be distributed within 2 years after the end of the income year.