Tax Benefits Cyprus
Cyprus as a leading finance, holding, royalty and trading company jurisdiction, operating in various tax structures offers multiple tax benefits to investors.
Cyprus is an exceptional location for holding companies for many reasons such as, the transparent legal system, the outstanding communications and the world-class professional and banking services. It has no restrictions on capital movements. It is a member of the EU and its tax system is fully compliant with the EU and OECD requirements. Cyprus has become an international and European business center and thus an ultimate place for incorporating a company within the European Union.
What is a Cyprus Holding company or Parent company?
Firstly, a holding company is a legal entity registered in Cyprus which partakes in other companies with a percentage of shares. The purpose of the Holding company is the holding of participation shares in subsidiaries based in Cyprus or abroad.
Beyond the participation in other subsidiaries, the holding company can also develop other activities such as commercial, developments, financial and more without any restrictions.
Characteristics of holding companies
One basic feature of a holding company is the fact that it safeguards the reduction of risk for owners and can provide at the same time the ability of ownership and control on other companies.
From a tax point of view, a multinational group requires the following grounds from a holding company:
- The holding company must be capable to extract value from the operating company
- The domestic laws of the holding company jurisdiction should exempt such share and
capital gains from local tax.
- It should be achievable to take share out of the holding company without giving rise to any charge to tax in the holding company jurisdiction.
Cyprus endures multiple advantages
Below are few aspects that shows why Cyprus can accommodate any holding company choosing to incorporate their business within Cyprus jurisdiction.
- Cyprus has a wide network of double tax treaties with a huge quantity of countries, for the avoidance of double taxation. Due to the widespread double tax treaty network system, Cyprus is a perfect location for investments to and from central and eastern Europe and for investments to and from the E.U.
- Under Cyprus law all expenses acquired for the production of the connected income are withhold before arriving at taxable income.
- The corporation tax rate is at 12,5 % which is the lowest in the European Union. Cyprus upholds an exceptional legal and economic infrastructure where accountants, banks, tax authorities, hotels etc., have the maximum professional standards.
- Bonuses received by one Cyprus local company from another are excepted from all forms of tax. So, if a Cyprus local company owns 1% or more of the share capital of a foreign corporation, any shares it receives are also exempt from tax, with some exceptions, as are earnings of a permanent establishment.
- Non-exempt bonuses income is subject to defense tax payment at the rate of 15%. Tax credits are obtainable for taxes paid abroad. Interest income that is the result of the main activities of the company or that is closely connected to those activities is subject only to corporation tax at a rate of 12,5%, like any other ‘active’ trading income.
- Group finance income is treated as active trading income. Mergers, purchases and other reorganizations may be made without tax cost. The only withholding tax charge by Cyprus is a 10% withholding tax on royalties resulted from the use of a right or asset within Cyprus.
- There is no taxation on dept. equity, on profit of permanent establishment
- The Profits of partnerships are fully tax excused;
- Where administration and control are outside Cyprus, profits of branches are fully tax exempt
- Tax assumptions include all operating expenses, as well as yearly allowances on set assets;
- There is no property tax on inheritance of shares in a Cyprus company;
- There is no capital gain tax, except on sale of fixed property located in Cyprus;
- There are no stamp duties on contracts entered by entities;
- The Foreign employees of offshore companies are excepted from social insurance contributions;
- Foreign workforce of offshore bodies providing services in Cyprus, are accountable to Cyprus income tax at a rate equal to half the normal Cyprus tax rates;
- Foreign employees of offshore bodies working outside Cyprus, but being paid of foreign funds, submitted through Cyprus are accountable to Cyprus income tax at a rate equal to one-tenth of the normal Cyprus tax rates;
- No import fee for the importation or purchase of cars, office and household equipment (except furniture and air-conditioning equipment) for the use of the offshore body and its foreign workforce;
- Free moveable currency accounts (in any currency) may be kept both in Cyprus and abroad;
- No exchange control limitations;
- Work permits for foreign workers and residence permits for their families are willingly acquired.
- Additionally, the tax legislation does not enclose any thin capitalization rules. Importantly, capital gains receiving from the clearance of shares and other securities are excepted from all forms of taxation, providing the company whose shares are being sold does not hold Cypriot real estate.
- Groups investing outside of Cyprus may flow through income flows, which will generally be tax-exempt in Cyprus and not attract withholding tax as they leave;
- Cyprus can also be utilized as the location for the ultimate holding company, and is mostly suitable for funds or investment vehicles. Some warning should be made. First, the holding company must indisputably be resident in Cyprus. Second, the holding company must have a genuine cause for being, in line with current EU tax principles.
The above mentioned are a few reasons why many business people around the world choose Cyprus as their base for their business activities.
Making a permanent move overseas can be a tough decision. However, decision delay of any business matters leaves your capital and income open to important risks.
Not covering your wealth up in appropriate legal structures will mean that you and your family will pay more tax than needed. Inflation will show off the spending power of your income and capital, as will unfavorable movements in currency exchange rates. Taxation and inflation are the two biggest threats to one's wealth. Taking advice and guidance from specialists will help protect your capital. Consulting with a financial adviser with the appropriate knowledge and expertise is important.
Cyprus is now a leading finance, holding, royalty and trading company jurisdiction and it is also operating in other types of tax structures as shipping structures, employment structures, and foreign permanent establishment structures.
Cyprus tax consultants can offer a wide range of a high quality services, such as: Formation and administration of local, offshore and International Business Companies; Corporate and financial consulting; Trust; Legal & corporate Services, Assets Management; auditing, tax, banking and accounting services, general administrative support and other business solutions.