Cyprus Holding Companies - Uses

Cypriot Holding Companies

Corporate tax rate and Withholding Taxes on:

1. Dividends

2. Interest

3. Royalties

Corporate Tax Rate

The standard rate of company tax is 10%. Expenses incurred wholly and exclusively in the production of the income are fully deductible for Cyprus corporate income tax purposes.

Dividends

Dividend income from an overseas subsidiary is exempt from tax, provided that at least 1% is held in its share capital and the income of the subsidiary does not meet the following cumulative conditions;

it directly or indirectly engages more than 50% in activities leading to “investment income” (“passive” income such as interest), and;
it is subject to a tax burden lower than 5%.

Thus, dividends from a (more than) 1% subsidiary whose income is subject to 5% (or higher) tax are exempt, regardless of the subsidiary’s activities.

Dividends from a (more than) 1% subsidiary whose income does not for more than 50% consist of investment income should also be exempt, even if its income is subject to very low or no taxation at all.

In case a company does not qualify for the exemption, it will be liable to a so-called “special contribution for defence tax” at 15% rate.

Cyprus does not impose any withholding tax on dividends paid to non-resident shareholders.

Interest

50% of interest income received by a Cyprus resident company is exempt from corporate income tax. Furthermore, the whole interest received will be subject to a special contribution for defence tax of 10%, leading to a total effective income tax rate for interest income of 15%.

However, when interest income is the result of the ordinary activities of the company or is closely connected to the ordinary activities of the company, it is subject to 10% tax like any other ordinary Cyprus company.

A Cyprus company whose main purpose and conduct is to act as (group) finance company should only be subject to the standard 10% corporate income tax rate.

Cyprus does not impose any withholding tax on interest paid to non-resident creditors.

Royalties

No special provisions apply to the tax treatment of royalties. Royalty income received by a Cyprus resident company is subject to standard corporation tax rate of 10%.

Royalty payments made by a Cyprus resident company to a non resident company are not subject to any withholding taxes in Cyprus provided that the exercise of those royalty rights takes place outside Cyprus. The granting of a license to a foreign licensee typically qualifies as such.

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