Company Formation Cyprus, Holding Cyprus, Establishing and Maintaining a Holding Structure

Company Formation Cyprus: Holding

Company Formation Cyprus: Cyprus Limited as Holding

Cyprus Holding (legal form of a Limited company) is not subject to taxation. In addition to the characteristics of a permanent establishment according to tax laws, it requires pure holding tasks and that the shareholders/co-partners perform active operations in their respective countries and are taxed or that the right of taxation is utilised, respectively. Example: an entrepreneur has independent enterprises in the form of limited liability companies in several countries, i.e. for example, an English Limited, a German GmbH and a Spanish S.I. All companies carry out active business in their countries and are subject to tax or the right of taxation is used, respectively. Now a Cyprus Limited is established, which becomes shareholder in the foreign companies. The foreign companies’ profits flow tax-free into the Cyprus Limited. Provided that they are European companies (directive on parent companies and their subsidiaries in the European Union), no withholding tax is imposed in the countries of the co-companies. That means that any profits may be received completely tax-free! It is again important that the Cyprus Limited (Holding) company meets all requirements of a permanent establishment according to tax laws:

  • Place of business management: A Cypriot must hold the business management, at least to the outside (nominee solution)
  • No bogus company in its sense, but a regular registered office (deliverable postal address, availability by telephone and fax during normal business hours, company sign). Any office or employees (commercially equipped business operation) are not required, since the freedom of establishment in the European Union is applicable
  • Bank account in Cyprus

If the member companies are non-EU companies, withholding tax is usually imposed in case of a flow of profits into the Cyprus Limited. This withholding tax varies greatly within the individual countries.

Company Formation Cyprus: Establishing and Maintaining a Holding Structure

Holding Structures – Advantages & Benefits

A holding structure is an ideal way in which to manage diversification and growth of business operations.  There are a large number of benefits that can be seen by the implementation of a holding structure. A holding structure can address certain constraints, costs and risks; it ensures assets are managed efficiently and enables future growth to be managed more effectively. In summary a holding structure offers the following benefits:

  • Unification of reporting and decision making;
  • Portfolio optimization and increased ability to formulate group strategy management;
  • Faster management decision making in response to changing market conditions;
  • Increased ability to pursue business tie-ups, mergers and acquisitions and other strategies;
  • Optimal allocation of management resources; greater ability to identify where resources need to be allocated or reduced;
  • Overall stronger corporate governance and control;
  • Reduction and isolation of risk;
  • Optimal group structure in combination with International tax planning will enable group companies to significantly reduce amount of taxes paid;
  • Low reorganization and legal expenses;
  • Increased ability to obtain financing from reputable financial institutions internationally;
  • Making easier exit and succession of the business;
  • A well structured way to realize potential for shareholders;
  • Best way to present a business as a whole in an understandable way for financial institutions and prospective investors by having a legal basis for preparation of consolidated accounts reflecting all sides of the business.

The formation of a holding company is a very logical way of integrating companies under one management system and achieving long term independent and self-sustaining management. A holding structure can provide valuable insight into the business performance as a whole and also assess the overall profitability and pinpoint where efficiencies can be made.

Cyprus Holding Structure

Cyprus has been a full member of the European Union since 2004 and a member of the Eurozone since 2008.  The strategic position of Cyprus, connecting Europe, Middle East and Asia as well as the simple and straight forward tax legislation with the lowest tax burden in the European Union naturally make the island a hub for business and trade.

In the last decade Cyprus has established itself as a reputable and trust-worthy financial centre complemented by an advanced legal, accounting and banking system, highly skilled and multilingual workforce, excellent telecommunications systems and convenient year round flight connections.

The Cyprus tax legislation is fully compliant with the EU Acquis Communautaire and EU Directives.  It is in full compliance with the code of Conduct for Business Taxation and against harmful tax competition.  As of April 2009, Cyprus proudly features on the white list of OECD.

Important advantages of Cyprus Holding Company

  • Reputable trust worthy financial centre
  • Part of EU and Euro zone
  • Cyprus features on the white list of OECD
  • Lowest tax rate in EU, 10% corporation tax
  • Tax free Intercompany dividends
  • Tax free income from trading in securities
  • Tax losses group relief for group structures
  • Large number of tax treaties with many countries internationally