Holding companies
ideal for investors wishing to set up a
holding company. Cyprus has signed an
extensive number of double tax trea-
ties with countries not only within the
European Union but also outside of
it. Within the sphere of the European
Union, the Parent Subsidiary Directive is
applicable.
pany will need to satisfy is the ability to
extract dividends from its subsidiaries
at a zero or low tax rate. The Cypriot
holding company achieves this with the
extensive double tax treaties that Cyprus
has signed and which are applicable both
to countries outside the EU or within the
EU. Within EU countries in which the
Parent Subsidiary Directive (PSD) is not
applicable, then the relevant Double Tax
Treaty (DTT) if one exists will apply.
providing sufficient protection or if their
criteria are not met for implementation,
Cyprus applies unilateral tax credit relief
in the form of tax credit by operation of
its local laws.
dent company to its foreign shareholders
(whether a company or individual) are
not subject to any withholding tax in
Cyprus.
The non-resident shareholder of a
Cyprus company receives the dividends
free from any withholding tax. Effective-
ly, Cyprus provides full exemption on the
payment of dividends to its non-resident
shareholders giving Cyprus an actual
advantage over other traditional holding
jurisdictions.
If the person receiving the dividend
is a Cyprus resident, then withholding
tax is payable at a rate of 17 percent.
There is no withholding tax on dividends
payable from one Cyprus tax resident
company to another Cyprus tax resident
company. The relevant legislation pro-
vides for deemed distribution of divi-
dends every two years in the case of tax
resident shareholders.
According to Cypriot tax legislation,
foreign dividend income received in
Cyprus by a Cyprus tax resident com-
pany will not be taxed under the Income
Tax law but under the special contribu-
tion of the Defense law.
Effectively, there is full tax exemp-
tion upon income tax-dividends received
from Cyprus companies (either resident
from overseas companies (foreign) do not
bear any corporation tax. Additionally,
there is no special defense contribution
tax on dividends received from another
Cyprus resident company.
There is full exemption from any type
of tax on profits from the sale of titles
(shares, bonds, debentures, and found-
ers' shares) as well as full exemption
from any capital gains tax from profits
realised from the disposal of titles.
Effectively, any profits from the
disposal of titles are free from any taxa-
tion in Cyprus unless the company is the
owner of immovable property in Cyprus.
In conclusion, the new Cypriot tax
legislation has created a unique envi-
ronment for holding companies. It has
introduced numerous advantages making
Cyprus a prime holding location in the
international field of holding regimes.