- Cyprus Holding Corporation - Tax Structure

A Cyprus holding company (CHC) may be used very effectively for international tax planning purposes. This is through the use of the Cyprus Domestic Tax Incentives, EU Directives and Treaties for the avoidance of double taxation (DTT). In the scenario shown, a Cyprus Holding Company has subsidiaries within the EU and outside the EU. For the EU subsidiaries, based on the EU Parent/Subsidiary Directive the Austrian Company will be able to pay dividends to the Cyprus Company at 0% provided that the Cyprus Company fulfills the EU Parent/Subsidiary requirements (i.e. minimum 15% participation as of 1.1.2007, minimum Holding period of 2 years). If participation requirements are not fulfilled, then the dividends will be taxed under the DTT at 10% withholding tax prior to distribution to Cyprus compared to the normal rate of 25%. Dividend income of the Cyprus Holding Company to the beneficiaries will not be taxed. The Cyprus Holding Company can then distribute dividends anywhere in the world with 0% withholding tax based on a domestic law. Under the Cyprus Income Tax law, a Cyprus Company is considered to be a Holding company provided that:

1. Firstly, the CHC should be a Tax resident in Cyprus.

2. In order to be eligible from tax exception then the holding company must participate with at least 1% in the share capital of the subsidiary. The only case where the exemption will not apply is where both:

   1. the overseas tax burden on the income of the paying company is significantly lower than 5% than the Cyprus tax of the company receiving dividend and

   2. The overseas company paying dividends engages directly or indirectly in more than 50% activities which give rise to investment income.

    

As such, the Holding company will be entitled to the following: there are no substance requirements or dept-equity restrictions for the Cyprus Holding Company. There is no minimum period of holding participations in order to be eligible for either the tax exemption on dividend income or the tax exemption on the disposal of shares. There is no Capital Gains or income tax for the disposal of shares or liquidation of the Cyprus Holding Company. Further more corporations whose the main activity is to hold investments do not need and are not obliged to register to the VAT. For further information please contact us.