Cyprus Company Advantages
The EU’s Optimal Tax Regime
The synergy created by Cyprus’ modern, simple and attractive tax regime coupled with its advanced and adaptable English Common Law legal system have created the EU’s most efficient and effective tax regime in tax planning and asset protection. The reasons for Cyprus’ leading position and Cyprus Company Advantages are the following:
- 0% Tax on Dividends received. Dividends received by Cypriot tax resident companies are exempt from Cyprus tax subject to minor exceptions. The extensive network of DTTs allows beneficial treatment in respect of withholding taxes in the source country.
- 0% Withholding tax on Dividend payments – Dividends paid by a Cyprus tax resident company to its non-Cyprus resident shareholder(s) are not subject to any withholding tax (“WHT”) in Cyprus. Thus the non-Cyprus resident shareholder of a Cyprus tax resident company receives the dividends free of any WHT.
- 0% Tax on trading/sale of titles or shares – The disposal or transfer of titles is exempt from all Titles are described as shares, bonds, debentures and similar titles as well as rights thereon (options, futures etc).
- 0% Capital Gains Tax is paid in Cyprus on the transfer of immovable property owned by a Cyprus tax resident company abroad (outside Cyprus).
- Companies receiving Income on Intellectual Property:
- Cyprus tax legislation provides that 80% of the net income received by a Cyprus tax resident company on Intellectual Property (“IP”) it owns is exempt from taxation (i.e. chargeable profit shall be calculated as income derived from IP less direct expenses and only 20% of the net amount will be taxed at 12.5% corporation tax).
- 0% Estate Duty is payable on the inheritance of shares in case of the death of a shareholder.
- The lowest uniform tax rate in the EU – 12.5%.
- Trusts International Cyprus Trusts (CIT) may be established holding the shares or to beused as a vehicle in a tax structure – International trusts do not pay any taxation on their profits. Amendments to Cyprus’ Trust Law have restored the CIT as one of the most effective instruments available today.
- Unilateral Tax Credit Relief. Unilateral tax credits are granted on any tax paid abroad to any foreign country, irrespective of whether Cyprus has a DTT or not. In such a case the income is not taxed twice but only once.
- Double Tax Treaties Cyprus has an impressive and continually growing network of DTTs, a Cyprus company can benefit from the EU Directives to eliminate WHTs when collecting income from the EU. Unilateral tax credit on foreign taxes withheld at source is also available.
- Anonymity of the beneficial owner – Anonymity is imperative to many investors, who do not wish to have their names appear on public record at the Registrar of Companies. In such instances it is possible to appoint a shareholder provided by LSTS, who will hold the shares on trust for the beneficial owner, only LSTS will appear as the registered shareholder of the company at the Registrar of Companies. The name of the beneficial owner is thereby kept out of all public records.
- Losses can be carried forward and set off against future profits for the next five years.
- Group relief:
- Group relief (set off of the loss of one company with the profit of another) is allowed provided both companies of the group are tax resident in Cyprus. Two companies are deemed to be members of a group if:
- One company is the 75% subsidiary of the other or
- Both are 75% subsidiaries of a third company.
- Thin Capitalisation Rules:
- Cyprus tax legislation does not contain Thin Capitalisation provisions, there are no provisions in the Law requiring companies to maintain a particular debt to equity ratio. Consequently, a Cyprus holding company may be capitalised with loans without any risk that interest paid at arms’ length to the parent company will not be deductible.
- No VAT for Holding Companies – holding activities fall outside the scope of the VAT in Cyprus and the Cyprus holding company engaged exclusively in holding activities is not entitled or obliged to register for VAT purposes.
- 0% Withholding Taxes on Interest and Royalties
There are no WHTs on interest payments made by a Cyprus tax resident company. There is also no WHT on royalties arising from sources outside Cyprus.Royalties arising from the use of an asset within Cyprus are subject to 10% WHT.
- No Tax on Liquidation: A Cypriot holding company held by non-resident shareholders can cease operations in Cyprus and distribute assets to its shareholders in any form (dividends etc.) without any tax cost to the shareholders.
Cyprus is most commonly used as an intermediate holding company jurisdiction and is of particular interest in the following circumstances:
- For international groups investing outside Cyprus, aiming at dividend income streams. Such dividends in almost all cases will be tax exempt in Cyprus;
- To hold subsidiaries that have potential for significant capital appreciation that may sold in the future. Such disposals are tax exempt in Cyprus;
- To benefit from the favourable WHT provisions of the Cypriot DTT network, the EU Parent-subsidiary directive and other directives;