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How Can You Benefit from a Cyprus Holding Company?
Essentially, a holding company is established as an effective means of consolidating ownership of operating holding companies. Deciding where to establish a holding company isn't necessarily a tax issue, but business entrepreneurs usually find the most efficient way to consolidate business ownership. However, setting up a Cypriot holding or parent company can be a big step forward for your business, and let us explain you the reason for it.
The tax and non-tax factors that determine the holding company's jurisdiction should be carefully considered, and Cyprus is at the top of the EU tax mix. Combining the attractiveness of the tax system with the consistency of EU tax interpretation and the stability of resistance to frequent changes in EU tax laws, this country is nothing more than an opportunity for you. It is a well-known fact that if you do business in a country with an attractive corporate tax system, you will have a competitive advantage against foreign companies. In that sense:
-Cyprus law requires national holding companies to receive a reduced withholding tax and exemption from dividends, that is, dividends obtained under some simple conditions, under a network of double taxation treaties. Incoming dividends will be distributed to non-resident shareholders who are exempt from Cyprus withholding tax (whether in the EU or in a country where Cyprus has a double taxation treaty).
-In addition, the sale of a major stake in a Cyprus company is not subject to capital gains tax unless the Cyprus company is the owner of immovable property situated in Cyprus or holds shares in a company that owns Cyprus immovable property. . This constitutes important tax-saving measures.
-The introduction of the new Cyprus tax law (available in Greek only) has dynamically placed Cyprus on the map of the most attractive destinations to set up a holding company in the world. The main characteristics are defined below.
-The Cyprus holding company may also be used as a family investment company (FIC), and as an alternative to a family trust.
Main Features of a Cyprus Holding Company
1. Incoming dividends taxation: Dividends received by a Cypriot parent company from a Cypriot holding company are exempt from Cypriot tax. Dividends are subject to Special Defense Contribution (SDC) tax at a rate of 17% but Cyprus offers a generous exemption which is appropriate in most cases so that foreign source dividend income is exempt from both income tax and SDC tax.
2. Outgoing dividends taxation: There is no imposition of withholding taxes on outbound dividend payments irrespective of any double tax treaty terms.
3. Tax treatment of capital gains in Cyprus: There is no capital gains tax except on income from the sale of real estate held in Cyprus or from the sale of shares of a company which holds real estate in Cyprus. The new law also exempts taxes resulting from the disposal of shares, securities, and bonds.
4. Extraction of dividends from subsidiaries: Holding companies in Cyprus rely on a network of double taxation treaties or EU Parent Subsidiary Directives to have little or no withholding tax when withdrawing dividends from their subsidiaries. If one of these options is available (i.e. if the investment is a qualifying investment within the EU) then the parent/subsidiary guidance should be preferred to completely eliminate the tax. If the investment is made outside the EU or if the conditions of the parent/subsidiary directive are not met, Cyprus can rely on its extensive network of double taxation treaties. It is considered particularly advantageous.
In general, the tax framework of Cyprus offers a broad range of financial benefits that can represent an advantage for you if you establish a Cypriot holding company. Some of these are:
-12.5% Corporate Tax
-Corporate Tax of 2.5% from Intellectual Property rights income (IP Box Regime)
-Zero withholding tax on outbound payment of
-Zero withholding tax on outbound interest payments.
-Zero capital gains or income tax applied at the time of liquidation of the company
-The zero withholding tax applies to profit sharing, except for profits from property disposal in Cyprus or from the disposal of shares of a company that owns immovable property situated in Cyprus.
-Cyprus has signed around 50 Double Tax Treaties to prevent double taxation
-The holding company is resettable in a third country (as long as the law of that country allows it).
-A company in Cyprus has Easy access to the European market. It is also an ideal investment doorway to the EU and important markets such as India or China.
-Low maintenance cost.
Procedure for the Creation of a Cypriot Holding Company
The procedure for registering and incorporating a Cyprus company with the Cyprus Registrar of Companies usually takes from ten (10) up to fifteen (15) working days to be completed, depending on the Registrar’s workload. In order to complete a Cyprus company’s registration with the registry of the Cyprus Registrar of Companies, the following procedure shall be followed:
Choose the name of your business. A company’s name shall be unique, distinctive, shall not be general and not misleading. A name application can be submitted with the Registrar in Greek or English language. Each private limited liability Cyprus company’s name shall end with “Limited” or “Ltd”.2. The approval of name application usually takes three (3) to five (5) working days to be completed. Once the company name has been approved, the incorporation forms as well as the Memorandum and Articles of Association of the company shall be prepared, be duly signed accordingly and be submitted with the Registrar of Companies.
3. As per the provisions of the Companies Law, Cap. 113, a limited liability company shall have at least one registered shareholder, one director and a secretary who can be a physical or corporate. If the Memorandum of the company does not prohibit the same, all three offices (shareholder, director and secretary) can be fulfilled by the same physical person or corporate entity. Please note that the majority of directors appointed shall be Cyprus residents in order for the company to be deemed taxable under the Tax regime of Cyprus. In addition, the registered office of the company shall be a valid address in Cyprus.
5. Each company in Cyprus is required to maintain accounting records that enable the preparation and audit of financial statements which present a true and objective view of the financial position and operations of the company following International Financial Reporting Standards (IFRS). Accounting records must be kept at the registered office or elsewhere in Cyprus and are available for inspection by the Director at all times.
We understand that these processes may seem tough at the beginning. Luckily, Mundo has partnered with experts who can offer you a wide range of advisory services, including the establishment of a company in Cyprus and abroad. We do so through an outstanding team of corporate lawyers, tax advisors, auditors and accountants. Let yourself trust in our professional, honest and trustworthy team, complying with all applicable ethical and professional standards and regulatory requirements. Are you ready to succeed?
Contact us to get a consultation with one of our experts!
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