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CYPRUS / Cyprus Holding Companies

Cyprus Holding Companies

A Cypriot holding or investment company is generally set up as an ordinary company resident in Cyprus which, besides participating in domestic and/or foreign companies, may also have other activities such as trading, manufacturing, financing. There are no restrictions on its activities.
 
The Companies Law of Cyprus, which closely resembles the UK Companies’ Act 1948 provides for private and public companies. The registration procedure is simple and straightforward and is effected by filing with the Registrar of Companies the company’s Memorandum and Articles of Association and pertinent particulars.
 
Companies are managed and controlled by the board of directors. Under Cyprus Company Law, a private company must have at least one director. In all other cases a minimum of two directors are required.
 
In accordance with Cyprus’ Income Tax Laws, a company is a tax resident of Cyprus if its management and control is exercized in the Republic of Cyprus. It is evident that the definition follows the OECD model convention in relation to “place of effective management”. Therefore, as a minimum, management and control is considered to be exercised where the board of directors meets and takes decisions.
 
The formation and registration procedures, including various administrative needs such as printing of the company’s letterheads, opening of statutory books and bank accounts until the certificate of incorporation is issued can normally be completed within a period of two weeks.
Cypriot companies can be either private or public.
 
Private Companies
A private company is a company which by its Articles of Association specifically:
  • restricts the right to transfer its shares
  • limits the number of its shareholders to 50
  • prohibits any invitation to the public to subscribe for its shares or debentures
  • prohibits the issue of bearer shares
Public companies
A public company must adhere to the following:
  • a minimum of 7 shareholders
  • a minimum of 2 directors
  • hold a statutory meeting and the directors make a statutory report to its shareholders
  • may issue share warrants
  • before issuing shares or debentures to the public it must issue a prospectus or a statement in lieu of a prospectus
The conversion from a private company into a public company can be done through a simple filing procedure prior to listing. Further, the law on redomiciliation opens new dimensions to international investors and traders as non-Cyprus companies can now be redomiciled in Cyprus and can benefit from the favourable provisions of the Cyprus legislation. It also provides for Cyprus registered companies which opt to  redomicile abroad. At the same time, redomiciled companies retain their previous records, investments, trading history and connections.
 
Management and control
 
Under Cyprus tax law, a company is considered a Cyprus tax resident if its management and control is exercised in Cyprus. In general, the Cypriot Tax Authorities adopt a liberal attitude accepting that management and control is exercised from Cyprus unless residence is claimed by another country. It is, therefore, important especially where a number of jurisdictions are involved, each with different requirements regarding substance, to ensure that the Cypriot companies are properly managed and controlled from Cyprus.
 
The following usually ensure that substance and management and control is achieved in Cyprus:
  • majority of the board are residents in Cyprus
  • regular meetings are held in Cyprus, perhaps every 3-4 months and maybe more regularly, if deemed necessary
  • major decisions and contracts should be approved by the board of directors in Cyprus and major contracts should, as far as possible, be signed in Cyprus
  • in certain circumstances, it is advisable that a company hires offices or locates in a serviced office
Cessation of activities
 
A Cypriot holding company held by non-resident shareholders can cease operations in Cyprus and distribute assets to its shareholders in any form (dividends, proceeds on liquidation, etc) without any tax cost to the shareholders.
 
If the Cypriot holding company owns immovable property in Cyprus, then its disposal at the time of ceasing operations may be subject to capital gains tax.
 
Use of Holding Companies
 
Cyprus is often used as an intermediate holding company jurisdiction and is of particular interest in the following circumstances:
  • For groups, international or domestic investing outside Cyprus, aiming at dividend income streams. Such dividend in most cases is tax exempt in Cyprus
  • To hold subsidiaries that have scope for significant capital appreciation, that may be spun off or sold in the future. Profits arising from disposals are not taxable in Cyprus
  • To benefit from the favourable withholding tax provisions of the Cypriot double tax treaties network, the EU Parent Subsidiary Directive and other EU Directives
  • Where a jurisdiction is required that does not have Controlled Foreign Company legislation
  • To avail of the favourable repatriation provisions under Cypriot tax law which allows payment of dividend, interest and royalties, in most cases, without payment of withholding tax
  • Suitable for any fund or investment vehicle, as there is no tax on transactions in securities even if this is the trading activity of the entity
  • Where it may be important to unwind the holding company structure at some stage in the future in a tax free manner. No capital gains tax on disposal of shares, dividends exempt from taxation subject to easily met conditions, no taxes on liquidation or capital reduction to non Cyprus resident shareholders.
  • To hold real estate companies for a tax free disposal of property. Since Cyprus imposes no tax on the disposal of shares (with the exception of gains derived from real estate situated in Cyprus) a Cyprus company offers an ideal way of holding a subsidiary real estate company. By selling the shares in the subsidiary real estate Company to a prospective buyer effectively allows for the tax free disposal of the property
  • To hold IP companies for a tax free exit route. Since Cyprus imposes no tax on the disposal of shares, a Cyprus company offers an ideal way of holding a subsidiary IP company. By selling the shares in the subsidiary IP company to a prospective investor effectively allows for the tax free disposal of the intangible assets
  • Cyprus can be used as the location for the ultimate holding company, for instance, for a group that is relocating to a new jurisdiction or on formation of a new publicly-traded corporation with international operations
  • The location of a holding company is decided taking into consideration both tax and non-tax issues. We focus only on the tax aspects by taking into account the significant Cypriot tax issues relevant to a holding company together with available exemptions

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