What is a holding company?

A holding company owns shares in other companies and, where it holds a controlling interest, those companies are known as subsidiaries. Although holding companies can manufacture goods and provide services, they usually function as the legal owners of the group’s subsidiary companies. Physical assets used by the subsidiaries, such as plant, equipment or property, may also be owned by the holding company.

While the subsidiaries carry out the day-to-day trading activities, the holding company may oversee the group’s legal, banking, property and investment activities. This separation can help manage business risks, although it does not eliminate all potential liabilities.

Holding companies do not have to be established in the countries where their subsidiaries do business. They can be established in a jurisdiction the business owners consider favourable, subject to applicable legal and tax requirements. Cyprus is an attractive location within the European Union for this purpose.

The Cyprus Holding Company

Cyprus offers a highly respectable and entrepreneurial business environment in which to set up a holding company. It is politically stable, with an exceptionally high standard of living and well-developed telecommunications and infrastructure. The high standards adhered to by the legal and accountancy professions contribute to the country’s international reputation as a business centre in its own right.

Cyprus also provides a convenient base for businesses from non-EU countries to engage in trade with Europe and beyond, supported by its strategic location, EU membership and competitive standard VAT rate of 19%.

Over and above logistical and geographical advantages, the main attractions of establishing a Cyprus holding company can be summarised as enhanced post-tax returns coupled with an environment where the business's financial resources can be well and truly optimised.

Cyprus holding company benefits

A holding company set up in Cyprus can benefit from tax exemptions on dividend income and gains from the disposal of shares, subject to applicable conditions and exceptions.

• No requirement to create complex, questionable and expensive tax structures to benefit from a favourable tax regime.
• A Cyprus holding company can combine holding investments with other business activities, subject to applicable licensing and regulatory requirements.
• The Holding company can be a private limited company or a public limited company.
• Eligible group companies can benefit from group loss relief, generally requiring a direct or indirect holding of at least 75% of voting shares, subject to applicable conditions.
• Dividend and interest payments to non-residents are generally free from Cyprus withholding tax, while royalty exemptions depend on where the rights are used, subject to applicable exceptions.
• Gains from selling shares in subsidiaries are generally exempt from Cyprus tax, subject to exceptions, including those relating to Cyprus immovable property.
• Distributions on liquidation to non-resident shareholders may benefit from favourable Cyprus tax treatment, subject to the assets distributed and applicable tax rules.
• Cyprus has an extensive double taxation treaty network, offering access to treaty relief and relevant EU directives, subject to applicable conditions.
• Cyprus represents a highly efficient and effective solution where a group wishes to relocate to an entirely new jurisdiction, or when forming a new and publicly traded corporation with international operations.
• A holding company whose sole activity is holding shares and receiving dividends generally falls outside the scope of VAT. Providing management or other taxable services may create VAT obligations.

The best holding company structure

A Cyprus holding company offers an attractive combination of tax benefits, EU membership and an established legal framework, making it a strong option for international holding structures.

Cyprus combines an attractive tax environment with an extensive double taxation treaty network and a legal system based on English Common Law, providing a familiar framework for international businesses and investors.

The tax system in Cyprus operates within the EU framework and incorporates international standards against harmful tax practices. When you establish a holding company in Cyprus, the combination of the country’s sophisticated regulatory framework, double taxation treaties and established business and financial services sector provides a strong foundation for a structure tailored to your requirements.