Cyprus Holding Companies are known and used by businesspeople around the world due to the major tax benefits Cyprus offers, the European Union status, as well as many other benefits making them ideal to carry on investments.
What is a Holding Company?
A holding company is a company that controls more than 50% of the share capital of another Company (i.e. the subsidiary Company).
An ultimate holding company is a holding company that is not itself a subsidiary of any other company and holds all the other entities of the Group. The Ultimate Holding Company is then held by the individuals/natural persons, i.e. the Ultimate Beneficial Owner(s).
Cyprus Holding Companies are ideal for carrying on structures because of a variety of reasons such as the below:
Benefits of a Cyprus Holding Company
Attractive tax regime
One of the major advantages of Cyprus as a Jurisdiction is its attractive tax regime which is favorable for holding companies. The main tax attributes relating to Holding Companies are as follows:
- Tax residency is determined by the management and control concept, i.e. the management and decision making of the Company needs to be made out of Cyprus. This is achieved as a minimum through having the majority of the Board of Directors to be Cyprus Tax Residents. Asterisk offers professional, highly-experienced Directors with limited appointments who will strengthen the tax-residency case of your company, meaning that such a service can be outsourced.
It is worth noting in terms of substance and tax residency that although the above is set as a minimum requirement currently, the more substance you have in Cyprus the more it strengthens your case for tax residency. That is hiring full time employees on the island, renting fully-equipped offices and others will help strengthen your case for Cyprus Tax Residency.
- The Corporate Income Tax rate is currently set at 12.5%, which is one of the lowest in the European Union. Expenses can also be deducted for tax purposes, when they relate to the generation of taxable income.
- Cyprus Tax Regime is very beneficial for Holding Companies, as dividends received/paid are generally tax exempt (certain conditions apply), as well as no capital gains tax is applicable on the disposal of titles (except for the disposal of immovable property based in Cyprus). This means that disposal of subsidiaries is generally tax exempt.
- Cyprus also offers an advantageous double tax treaty network with 65 countries to avoid international double taxation, i.e. to protect against the risk of double taxation where the same income is taxable in 2 states.
It is therefore clear from the above, that Cyprus offers an advantageous tax regime for Holding Companies, as you can send and receive dividends without been subject to tax / withholding tax, as well as disposal of subsidiaries is also tax exempt.
For more information on Cyprus as a Jurisdiction you can read our ‘Why Cyprus‘ section.
Additionally, there are no limitations on the domiciliation of assets in Cyprus. This means that if you set up a holding company in Cyprus, your subsidiaries and assets need not be held in Cyprus. As a result, you can structure your business more flexibly and operate anywhere else in the world where your customer base is, or where your investors might be.
Ease of compliance
Furthermore, it is relatively simple to comply with the regulations of setting up a holding company in Cyprus. Regarding the ongoing compliance obligations of maintaining a holding company in Cyprus, you have to fulfil just two main obligations:
- The usual tax filing obligations; and
- Financial reporting obligations to the Registrar of Companies.
Under the financial reporting obligations, holding companies in Cyprus have to submit their audited Financial Statements to the Registrar of Companies 18 months after incorporation and once per calendar year thereafter. The Financial year, although recommended to be 31.12 to coincide with the tax year, it can be set in accordance with your Groups Policy. Functional currency can also differ from the Euro. Financial Statements are prepared in accordance with the International Financial Reporting Standards (IFRS), and is a service we can assist you with as described here.
Every Cyprus Company needs also to submit its Corporate Income Tax Return (T.D.4), 15 months after the year end. Therefore for the financial year which ended on 31.12.2021 the deadline for submission is 31.03.2023. This is also a service we can assist you with, so you can be stress-free.
Opening of Bank Accounts
A Cyprus Company can apply and have a bank account opened either with a banking institution in Cyprus or abroad.
Although banks apply significant compliance procedures in recent years, it is still possible to open bank accounts, provided that the source of wealth, activities, and UBO details are communicated to the bank in a clear and cohesive manner.
Our specialized banking team can assist you with all stages of the bank account opening process as described here.
How to Incorporate in Cyprus
Incorporation of a Cyprus Holding Company does not differ from the incorporation of a standard Cyprus Co and we can assist you with all the steps in the process as outlined here.
As a first step you will need to choose a name for your entity, and after that is approved we will work with you to draft the Memorandum & Articles of Association, determine the share capital of the entity, as well as the Registered Office, Corporate Secretary and Directors of the entity. Please note that the Company will need to have the majority of its Board of Directors (i.e it can also be a sole Director) to be Cyprus Tax Residents. These are services we can provide as outlined here.
It is also worth noting that you do not need to visit the island and scanned copies would suffice for the incorporation of your entity.
For more information on how to incorporate in Cyprus you may find useful our article on 3 Steps to Incorporate in Cyprus or our article outlining the 5 Things to know about Cyprus Company Incorporations and our relevant service offering on Cyprus Company Incorporations.
*Please note that the above are applicable at the date of writing of this article and it is not an exhaustive list of Cyprus Tax matters, is shown for information purposes and shall not be taken as tax advise.
Written by : Asterisk Corporate Services Team