Cyprus: Holding Companies & Their Respective Tax Treatment

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Cyprus: Holding Companies & Their Respective Tax Treatment

Cyprus is an ideal place for holding company location.
The following factors are important when deciding the location of a holding company:

  1. Tax treatment of inward and outward dividends.
  2. Tax treatment of capital gains arising from sales of subsidiaries.
  3. Taxation of consolidated profit.
  4. Reputation of jurisdiction where the holding company was formed.
  5. Cost of incorporation and maintenance.
  6. Cost of audit of consolidated accounts.

Tax treatment of dividends

Dividends received from subsidiaries are exempt from profit tax.

Dividends paid to non-residents are exempt from withholding tax.

Tax treatment of capital gains

There is no tax liability when a holding company disposes shares in subsidiary or associated company.

Tax treatment of consolidated profit

There is no controlled foreign company rule. There is no income tax on consolidated profit in hands of a Cyprus holding company. This simply means that a profit centre could be in Singapore or Hong Kong (both jurisdictions are applying territorial taxation principle where non-Singapore or non-Hong Kong source income is not a subject to income tax in Singapore or Hong Kong), or even a “tax haven” like Belize where all profit is earned but consolidated in the hand of Cyprus company and show in consolidated profit a loss account and balance sheet without incurring any tax liability in Cyprus.

Reputation of jurisdiction

Cyprus officially joined the European Union from the 1st of May, 2004.

Annual audit cost

Annual audit cost of a Cyprus holding company is 25%-30% lower than in continental Europe.