18/7/2022
Tax Advantages for Holding Companies in Cyprus
Residents of Cyprus are taxed on their worldwide income. Non-residents are taxed only on some specific income from sources in Cyprus.
A company is resident in Cyprus if its business is centrally managed and controlled in Cyprus. (Incorporation is, by itself, insufficient to establish residence in Cyprus). Corporation (Income) Tax
Basic Features
As stated above, a company is resident in Cyprus if its business is centrally managed and controlled in Cyprus.
As of 2021, a Cyprus incorporated company will by default be considered a tax resident of Cyprus, subject to the relevant law being enacted.
All Cyprus tax resident companies are taxed on their income accrued or derived from all chargeable sources in Cyprus and abroad.
With effect from 1 January, 2019 Controlled Foreign Companies (CFCs) rules apply i.e. non-distributed profits of CFCs directly or indirectly controlled by a Cyprus tax resident company, may become subject to tax in Cyprus (certain exceptions may apply).
A non-Cyprus tax resident company is taxed only on income accrued or derived from a business activity that is carried out through a permanent establishment in Cyprus and on certain income arising from sources in Cyprus.
Foreign taxes paid can be credited against the Cyprus corporation tax liability.
Tax Exemptions
Tax exemptions apply to the following income:
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Dividend income
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Profits from the sale of shares and other securities
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100% of passive interest
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Profits of a permanent establishment (p.e.) abroad, provided the foreign tax is not significantly lower than Cyprus tax and the p.e. does not derive more than 50% of its total income from investments.
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Note: With effect, as from 01 July 2016, taxpayers may elect to tax the profits earned by a foreign p.e. with a tax credit for foreign taxes incurred on that foreign p.es'. profits. Transitional rules apply in certain cases on the granting of foreign tax credits where a foreign p.e. was previously exempt and subsequently a taxpayer elects to be subject to tax on the profits of the foreign p.e.
Interest Expense for Acquisition Of 100% Subsidiary
Interest expense incurred for the direct or indirect acquisition of 100% of the share capital of a subsidiary company will be treated as deductible for income tax purposes provided that the 100% subsidiary company does not own (directly or indirectly) any assets that are not used in the business. If the subsidiary owns (directly or indirectly) assets not used in the business the interest expense deduction is restricted to the amount which relates to assets used in the business. This applies for acquisitions of subsidiaries from 1 January 2012.
Notional Interest Deduction (NID)
Equity introduced to a company as from 1 January 2015 (new equity) in the form of paid- up share capital or share premium is eligible for an annual notional interest deduction (NID). The annual NID deduction is calculated as an interest rate on the new equity.
NID Cap of 80%: The NID deduction cannot exceed 80% of the taxable profit derived from the assets financed by the new equity
A taxpayer may elect not to claim all or part of the available NID for a particular tax year. Certain anti-avoidance provisions apply.
Tax Losses
The tax loss incurred during a tax year and which cannot be set off against other income, is carried forward subject to conditions and set off against the profits of the next five years.
- As from 1 January 2015, interposition of a non-Cyprus tax resident company(ies) will not affect the eligibility for group relief as long as such company(ies) is tax resident of either an EU country or in a country with which Cyprus has a double tax treaty or an exchange of information agreement (bilateral or multilateral).
- As from 1 January 2015, a Cyprus tax resident company may also claim the tax losses of a group company which is tax resident in another EU country, provided such EU Company firstly exhausts all possibilities available to utilise its losses in its country of residence or in the country of any intermediary EU holding company.
Withholding Taxes
No Cyprus withholding tax on dividends or interest is paid to non-residents
Relief from Foreign Taxes
Foreign taxes, both underlying and withholding, are deducted from taxes in Cyprus on the same income.
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