A holding company based in Cyprus must detain more than half of the stocks of another company so it may control its actions. The parent company may only exist to perform activities through its subsidiary or may also operate the business on its own. These two types of holding companies are known as the pure holding company and the operating holding company. Our Cypriot lawyers can help you open a business in Cyprus, either through a holding company or through any business form you choose.
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Legislation on holding companies in Cyprus
Holding companies fall under the same regulations as all other businesses in Cyprus, however, the most employed type of entity used for this vehicle is the company limited by shares or limited liability company. The main particularity of setting up such an entity is its role which implies ownership of various assets in other enterprises called subsidiaries.
A holding company in Cyprus can own from shares to real estate and even intellectual property in its subsidiaries. Compared to other jurisdictions, in Cyprus there are no restrictions on completing other operations, however, these will be treated accordingly. This is an important aspect to mention, as the holding in its pure state benefits from several tax advantages.
Should you want to open a holding company, get in touch with our Cypriot lawyers who are at your disposal.
The main uses of a Cypriot holding company
Holding companies can be regarded as vehicles used for various purposes, among which:
- owning assets in its subsidiaries, however, the minimum ownership is established at 1% in order to meet the holding requirement;
- this structure can also be used to invest in multiple industries, thus it can be seen as a diversification vehicle;
- it can also be used as a tax minimization entity.
In order for a holding to be an efficient tax minimization vehicle, it must be both registered and managed from Cyprus. This way, it can benefit from the low corporate tax (when applicable), as well as from EU directives that apply to them.
Requirements for owning a holding company in Cyprus
An entrepreneur must be aware of the requirements that must be accomplished before holding a company in Cyprus.
First of all, the name must contain the abbreviation “Ltd” or the word “Limited” at the end of it.
There must be at least one shareholder and the minimum share capital that has to be deposited is at least 1,000 Euro. The company must appoint a director (of any nationality) and a secretary. A local registered office is required for performing the business. The major decisions are taken by the General Meeting of the Shareholders.
The residency in Cyprus of the shareholders is not mandatory but it is advisable because of the benefits that may occur from that. The control and management in Cyprus are easy to prove if some actions are performed in Cyprus: the board meetings must be held in Cyprus, the invoices must be raised in Cyprus, all the contracts must be signed here, the bank account must be controlled by local directors and the residence of the director is preferably to be in Cyprus. If these criteria are met, certain advantages may occur, especially financially.
A holding company may keep its accounts in a foreign currency, but the Annual Accounts must be in Euro. The Annual Accounts must be submitted to the Central Bank of Cyprus no later than 15 months since the Annual Shareholder Annual Meeting. The Accounts must meet the International Accounting Standards.
The Annual Return must also be filled every year in a holding company in Cyprus.
You can also rely on our lawyers for trademark registration services in Cyprus.
Registration procedure for a holding company in Cyprus
The incorporation of a holding company is the same as any other Cypriot business. The Articles of Association are the most important documents to be filed for registration with the Companies Register alongside information on the shareholder(s) and director(s). A local bank account is also mandatory if the company is a domestic business. The company must also be registered for taxation purposes. VAT registration is not mandatory for the holding unless it engages in other activities than those of owning assets in its subsidiaries.
The timeframe to incorporate a holding company in Cyprus is approximately 5 working days, however, it should be considered that opening a bank account can take longer.
Dissolution of holding companies in Cyprus
The dissolution of a Cypriot holding company may be requested only by a general meeting of the shareholders. An announcement must be made in the Government Newspaper and the decision must be registered at the Company Registrar of Cyprus. The Final Accounts must be submitted at the Cyprus Inland Revenue Dept.
Tax advantages for a Cypriot holding company
In most cases, the holding company is used for its beneficial tax treatment which implies:
- no withholding tax on income from dividend payments;
- no capital gains tax on the sale of shares;
- the profits obtained through permanent establishments in other countries are also exempt from taxation in Cyprus;
- distributions to non-resident shareholders are also free from taxation.
Apart from these advantages, it is also worth noting that:
- a holding company in Cyprus can benefit from the EU Parent-Subsidiary Directive 2011/96/EU;
- the net income from other activities is levied at Cyprus’ corporate tax rate of 12,5%, which is one of the lowest in Europe;
- a holding can also benefit from one of the lowest intellectual property-related levies that range from 0% to 2.5%;
- the holding has access to more than 60 double tax treaties worldwide.
Also, the holding can be re-domiciled to other countries if the law of the respective state allows it, such as in the case of Malta. It can also be listed on any stock exchange outside its home country if it operates on the Cyprus Stock Exchange.
The registration and administration costs of a Cypriot holding company are also quite low compared to other jurisdictions. Our lawyers can offer more information on why you should choose Cyprus for setting up such a vehicle.
Advantages of owning a holding company in Cyprus
Another reason the foreign companies choose to hold companies in Cyprus is the advantageous tax system. For example, the incomes coming from selling or buying the shares are not taxable.
For locally managed companies, the corporate tax is 10%. The profits above 1 mil. Euro are subject to a special corporate tax of 15%. The locally managed companies in Cyprus may also benefit from the Double Tax Treaties provisions. For this, the majority of the Board must reside in Cyprus.
In a Cypriot holding company, 50% of the income is free to Income Tax and balanced is taxed at 10%. Also the incomes are subject of the Defense tax of 10%. If the company is based on loans, the company must pay a 9% interest charge at the Cyprus Inland Revenue. 50% is free of to income tax and the rest of the 50% is taxed at 10% income tax. The whole sum is subject to pay 10% Defense tax. If you need more details about the taxes that must be paid by a holding company our Cyprus tax attorneys.
The holding companies are preferred in Cyprus because of the small administration prices and the small risks that are involved. For more information in this matter please contact our law firm in Cyprus.