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Cyprus holding company – the best holding company structure within the EU

What is a holding company?

A holding company owns a controlling interest in other companies, which 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. Any physical assets the subsidiaries may utilise, such as plant, equipment or property etc, may be "owned" by the holding company, which can also hold the shares of its subsidiaries. While the subsidiaries carry all the day-to-day trading risks, the holding company assumes responsibility only for the group's legal, banking, property and investment activities, removing itself from the day-to-day trading activities (and risks) of its subsidiaries.

Holding companies do not have to be domiciled in the country or countries where the subsidiaries do business and can in fact be established in any jurisdiction which the business owners consider favourable: one of the European Union's most popular countries in that respect is Cyprus.

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 exceptional high standard of living and a well developed telecoms and infrastructure. The high standards adhered to by the legal and accountancy professions contribute to the country's growing and international reputation as a business centre in its own right. Cyprus also provides a convenient "foothold" for non-EU countries such as Russia, China, India and Japan to engage in trade with Europe and vice versa with no exchange restrictions and — at 19% — Europe's lowest permissible rate of VAT.

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, offers all the tools and benefits to dismiss or minimize taxes on dividend income or gains from disposal of shares.

  • No requirement to create complex, questionable and expensive tax structures to benefit from a favourable tax regime
  • As Cyprus has yet to define (in legal terms) exactly what constitutes a holding company, there are no restrictions on the holding company's activitie
  • The Holding company can be a private limited company or a public limited company
  • The holding company needs to hold no more than 1% of any subsidiary's shares to qualify for tax consolidation benefits
  • Dividend, interest and royalty payments can (in most cases) be made without payment of withholding tax
  • When disposing of any subsidiary which has grown significantly in capital value, the gains realised from the disposal are not subject to tax
  • Providing the company is held by non-resident shareholders, when the group ceases operations, assets can be distributed to the shareholders without incurring any tax liability
  • Cyprus has double taxation treaties with 43 other countries so the group can benefit from the favourable withholding tax provisions of those arrangements, as well as the EU Parent-Subsidiary directive and other related directives
  • Where the group requires a jurisdiction that does not operate under controlled foreign company legislation
  • 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
  • Providing the holding company holds only shares and no other assets, there is no requirement for it to be registered for VAT

The best holding company structure

It is no wonder why the Cyprus holding company is regarded as the best holding company option. The benefits it offers tick most boxes for earning its place as the best holding company structure.

Although the Cyprus tax environment is extremely attractive to group companies, Cyprus is not what's known — and doesn't wish to be known — as a "tax haven". And few tax havens, if any, have double taxation agreements with other countries and next to none have a tried and tested legal system that's enshrined in UK law.

The tax system in Cyprus is fully compliant with EU requirements and more than satisfies the OECD requirements 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 the fact that Cyprus is an acknowledged centre of business and financial excellence, ensures that your Cyprus holding company will meet all your expectations and perform exactly as you require.