Cyprus holding company formation

Cyprus has one of the best legislations in the EU in respect to the formation of tax efficient holding companies and operational companies. The corporate tax in Cyprus is only 10 % and the VAT is only 15%. 

The Republic of Cyprus has been a full member of the EU since 1st May 2004.

Benefits from having a Cypriot company:

• Corporation tax is fixed at 10 %
• Dividends received from foreign/non-Cypriot companies are tax-free
• Profits from sale of assets (mostly assets in other companies) are tax-free
• Capital income is tax-free, unless it comes from property in Cyprus
• Royalties are tax-free
• Financial yields are tax-free; however interest is not
• Cypriot companies are exempt from property profit taxation on non-Cypriot property

These benefits are very interesting and the reason why Cypriot holding companies are particularly attractive for international tax optimisation, specifically combined with the double taxation agreements Cyprus has entered into.

Cyprus should feature in the considerations of anyone looking to set up a holding company where these benefits must be compared to the equivalent for holding companies in other jurisdictions.

The advantages are only applicable when the company has an established business facility on Cyprus. This means that the management’s decision and daily running have to take place in Cyprus. In other words, the majority of the management team has to be based on Cyprus and a ‘local director solution’ is therefore advisable.

The role for your local director

The director will be the contact person for the local authorities and will submit Annual Returns, once they have been prepared, to the authorities.
 

The primary role of the director is to ensure that the company adheres to the applicable regulations and carry out the tasks the board or shareholders have asked for.

It is important to stress that the local director only works on the instructions of the beneficial owners, and only on the tasks that have been agreed. In most cases the beneficial owners wish to be the only ones with access to bank accounts.

Double taxation agreement

When you compare Cyprus with other countries with typically low taxation, Cyprus has a clear advantage as a result of the many double taxation agreements that have been entered into. This makes Cyprus interesting when planning tax and when setting up tax-effective holding structures for  European companies. This structure can include several operating companies or can be run separately.

Cyprus has double taxation agreements with the following countries:

Belgium
Bulgaria
Canada
China
Czech Republic
Denmark
Egypt
France
Germany
Greece
Hungary
India
Ireland
Italy
Kuwait
Lebanon
Malta
Mauritius
Norway
Poland
Rumania
Russia
Seychelles (when trading with Special License Company, SLC)
Singapore
Slovakia
South Africa
Sweden
Syria
Thailand
UK (Great Britain)
USA
USSR (*)
White Russia

Cross-border fusion (from a EU company to Ltd. in Cyprus)

A cross-border fusion is possible since Cyprus is a member of the EU. It has been possible for years to create cross-border fusions, but in terms of company legality it was not feasible, which is why the tax opportunities could not be exploited.

On 13th December 2005 the EC Courts announced that cross-border fusions within the EU should be allowed to the same extent that national fusions are possible.

Time frame for fusion

The fusion plan is commonly published by the authorities in the country of origin for a period of 4 weeks, and not until then can the fusion proceed. The authorities then need all the documents submitted for registration. This typically takes 4-6 weeks. Taking this into account it will take about 3 months for the fusion to be completed.

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