Holding Company Structure
Cyprus has become the most popular holding company jurisdiction in Europe and amongst the most popular in the world. A Cypriot holding company enjoys the following tax advantages:
- Full exemption from tax on dividend income received from participations (subject to non stringent conditions).
- No withholding tax on distributions of profits irrespective of the country of residence of the recipient or the existence of a double tax treaty.
- Full exemption from capital gains tax and income tax on the disposal of securities;
- No capital gains or income tax on the liquidation of participations;
- No capital gains or income tax on the sale of the shares of the Cypriot Holding Company;
- No capital gains tax or income tax on the liquidation of the Cypriot Holding Company;
- No capital taxes or net worth taxes during the life of the Cypriot Holding Company;
- Use of the wide double tax treaty network with over 43 countries which provide for reduced withholding taxes on dividends received from treaty countries;
- Unilateral tax credit relief irrespective of the existence of a double tax treaty;
- No substance requirements, no debt-equity restrictions, no minimum holding period and no thin capitalization rules;
- Use of EC Directives.
The basic holding company scenario can be illustrated diagrammatically below:
Using a Cyprus company as a holding company of companies in the EU e.g. Germany or of companies with zero tax e.g. Belize, would result in zero taxation on profit distributions from the operating locations to the ultimate investor.
Similarly in the case where a Cypriot company holds subsidiaries in double tax treaty countries e.g. Belarus, Russia, the use of a Cyprus holding company will result in a minimal withholding tax on dividend distributions all the way to the investor.
Lastly a future sale by the Cypriot holding company of its investments will not result in any taxes in Cyprus. Similarly, the disposal of the shares in the Cypriot company or the liquidation of the Cypriot company will not give rise to any taxation in Cyprus
