A Cyprus Holding Company is a company resident in Cyprus formed with the object of holding shares in other companies as well as any other asset including real estate, cash, movable valuables, shares and securities, and intellectual property whether in or outside Cyprus. Cyprus holding companies can be used to distribute income generated by such assets in a tax-efficient manner to shareholders.  Cyprus does not operate a specific holding company regime. Accordingly, a Cypriot 'Holding' Company is a regular company having, as its sole object, the acquisition of participations in other companies. Still, the benefits typically available under such regimes are equally available to Cypriot companies in respect of their holding activities.

A Cyprus Company is a very effective international tax-planning vehicle. Cyprus holding companies are onshore holding companies taxed on a worldwide basis at the normal corporate tax rate of 35% reduced to an effective tax rate of 0% in the hands of shareholders, and with the possibility of confidential beneficial ownership.

Typical Uses of Holding Companies

Cyprus Companies can perform specific active or passive holding activities or a mixture of holding and trading activities. The following are the typical but not the only uses of Cyprus Companies:

• property ownership & project management
• hold aircraft, motor cars, yachts, ships
• hold assets of all kinds: real estate, shares & securities, intellectual property, bank accounts
• hold patents, copyrights, franchises & other intangible rights
   

Legal Form

A Cypriot company may be constituted either as a public limited company or as a private limited company.

Capital Structure

The minimum share capital for incorporation of a Cypriot company is €46,588 for a public limited company and €1,165 for a private limited company.

25% of the issued share capital of a public company must be paid up whilst 20% of the issued share capital of a private company must be paid up.

Incorporation

A Cyprus company is typically incorporated within 1-2 days. 

Taxation

A company registered in Cyprus is subject to tax on its worldwide profits at the flat rate of 35%.

Cyprus operates a full imputation system. Dividends distributed by a Cypriot company carry a credit in favour of recipient shareholder/s equal to the amount of underlying tax paid by the Cyprus company on the profits out of which the dividend was distributed.

Income & Deductible Expenses

The taxable income of a Cypriot company is based on the financial statements of the company (subject to applicable adjustments). Expenses wholly and exclusively incurred in the production of chargeable income are deductible.

Tax Exemption on Foreign Gains & Profits

Shareholders of Cyprus holding companies qualify for a full refund of the Cypriot tax paid by the company on profits and gains arising from “participating holdings” when such profits are distributed. From 1st January 2008, Cyprus holding companies also qualify for an outright participation exemption subject to light anti-abuse provisions introduced from that date.

Therefore, capital gains realised by a Cyprus company pursuant to a disposal of its shares in a subsidiary would be exempt from Cyprus tax to the extent that the Cyprus company’s investment in the subsidiary would represent a 'participating holding'. A Cyprus company would have a 'participating holding' in a subsidiary company if the following conditions are satisfied:
 

1. The subsidiary does not own, directly or indirectly, immovable property situated in Cyprus (or rights over such property); and
2. The shares held by the Cyprus company in the subsidiary carry at least two of the following rights:
   • a right to votes; and/or
   • a right to profits available for distribution; and/or
   • a right to assets available for distribution in the event of a winding up; and
3. At least one of the following 6 additional qualifying criteria are met:
   • The Cyprus company holds more than 10% of the shares in the subsidiary; or
   • The Cyprus company holds shares in the subsidiary having an acquisition value of at least €1,164,000 and for an uninterrupted period of at least 183 days; or
   • The Cyprus company is entitled, at its option, call for and acquire the balance of shares in the subsidiary; or
   • The Cyprus company is entitled to first refusal in the event of the proposed disposal, redemption or cancellation of the shares in the subsidiary; or
   • The Cyprus company is entitled to sit on the board or to appoint a person to sit on the board of the subsidiary as a director; or
   • The Cyprus company holds shares in the subsidiary for the furtherance of its own business and not as trading stock.

Dividend income accruing to a Cyprus company from a non-resident subsidiary would be exempt from Cyprus tax to the extent that the Cyprus company's investment in the distributing subsidiary would represent a participating holding (satisfying the above rules) and, additionally, provided that:

• the distributing subsidiary is resident or incorporated in an EU country or territory; or
• the distributing subsidiary is subject to foreign tax at a rate of at least 15%; or
• no more than 50% of the distributing subsidiary's income is derived from passive interest or royalties; or
• the Cyprus company's holding in the distributing subsidiary is not a portfolio investment and the said subsidiary is subject to any foreign tax at a rate which is not less than 5%.

Additional Advantages of the Cypriot 'Holding' Company

Besides the common advantages of a Cyprus 'holding company', additional attractive features of a Cypriot company include the following:

1. No Cyprus tax is chargeable on capital gains realised on a disposal of shares in a Cyprus company.
2. No Cyprus tax is charged or withheld on dividends distributed by a Cyprus company.
3. Non-exempt income or gains derived by a Cyprus company may be taxed in Cyprus at a combined overall effective rate ranging between 0% and 6.25% by application of Cyprus’s full imputation and refundable tax credit system;
4. No Cyprus tax is chargeable or withheld on outbound payments of Interest or Royalties.
5. An extensive and expanding Double Tax Treaty network.
6. Access to the benefits of the EC Tax Directives.
7. Cyprus does not charge any Wealth or Capital Taxes.
8. Cyprus does not apply any CFC legislation or thin capitalisation or transfer pricing rules.
9. No exit/entry taxes are levied in Cyprus on a shift of fiscal residence and / or corporate domicile.