International business tax benefits
December 9, 2006
In brief, the answer is ‘very well’. Cyprus has an extensive network of double tax treaties. Under Cyprus law all expenses incurred for the production of the associated income are deducted before arriving at taxable income. At 10%, Cyprus’s corporation tax rate is the lowest in the EU. Dividends received by one Cyprus resident company from another are exempt from all forms of tax. If a Cyprus resident company owns 1% or more of the share capital of a foreign corporation, any dividends it receives are also exempt from tax, with certain exceptions, as are profits of a permanent establishment. Non-exempt dividend income is subject to defence tax contribution at the rate of 15%. Tax credits are available 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 10%, like any other ‘active’ trading income. Group finance income is treated as active trading income. Mergers, acquisitions and other reorganisations may be effected without tax cost. The only withholding tax levied by Cyprus is a 10% (subject to treaty provisions) withholding tax on royalties derived from the use of a right or asset within Cyprus. Furthermore, the tax legislation does not contain any thin capitalisation rules. Crucially, capital gains deriving from the disposal of shares and other securities are exempt from all forms of taxation, providing the company whose shares are being sold does not hold Cypriot real estate.
As a result…
These factors make Cyprus represents a highly attractive
intermediate holding company jurisdiction, as it offers
the following benefits:
■ groups investing outside of Cyprus may flow through
income streams, which will generally be tax-exempt in
Cyprus and not attract withholding tax as they leave;
■ subsidiaries that have scope for significant capital
appreciation may be held in Cyprus and sold without
any liability to tax on the gain;
■ other assets (including, in certain circumstances,
foreign real estate) that have scope for significant
capital appreciation may be placed in a Cypriot
corporate wrapper and sold without any liability to tax
on the gain.
Cyprus can also be used as the location for the
ultimate holding company, and is particularly suitable for
funds or investment vehicles.
Some caveats should be made. First, the holding
company must genuinely be resident in Cyprus. Second,
the holding company must have a genuine reason for
being, in line with current EU tax principles. The holding
company must produce financial statements complying
with IFRS, particularly IAS 27.
Copyright © 2003-2006 «Joseph Kokkinos & Co.»
22 Aiantos Street, Ayioi Omoloyitai 1082, P.O. Box 23336, 1681 Nicosia, Cyprus
Telephones: (00 357) 22 31-79-90 (6 lines)