Miscellaneous
Back to article Cyprus Holding company
Tax Treatment of the Participation
Costs relating to the acquisition of participation
The cost of investment relating to the acquisition of participation is not tax deductible. This is in line with the tax exemption on gains from sale of shares in Cyprus.
The value of the shares in the subsidiary
The value of the shares held in a subsidiary or any shares held should be written down for financial reporting purposes. Financial statements for Cypriot companies are subject to International Financial Reporting Standards, which allow the written value not to reflect the actual market value but the initial cost price.
Capital gains and losses
Capital gains are tax exempt, except for gains arising from the sale of immovable property located in Cyprus, or from sale of shares in non-listed companies that own immovable property in Cyprus. The tax rate is 20%.
Capital losses relating to immovable property can be offset against capital gains relating to immovable property, and therefore reduce the taxable amount subject to capital gains tax.
Controlled Foreign Companies legislation
Cyprus does not have any controlled foreign company legislation (CFC).
Tax rulings
A ruling may be obtained from the Cypriot tax authorities. The timeframe is usually one month from submitting the request. The ruling is binding on the tax authorities as to the facts presented but can be overturned by a court.
Disposal of shares
Gains on the sale of shares are tax exempt provided that the disposed shares comply with the definition of “securities” under the Cypriot income tax law. “Securities” are defined as “shares, bonds, debentures, founders’ shares and other securities of companies or other legal persons, incorporated under a law in the Republic or abroad and options thereon”. The only exemption is if, and to the extent that, the company holds real estate located in Cyprus, as mentioned in the above section on capital gains and losses.
Liquidation
A Cypriot holding company may cease operations and distribute the assets to its shareholders as proceeds on liquidation are tax exempt (subject to the company not having any undistributed dividends from any year, in accordance with the deemed distribution regulations).
Consolidated Tax Treatment
A holding company may not opt for the consolidated tax treatment of its subsidiary. However, Cypriot tax legislation provides for losses to be offset against profits within the same group of companies during the same year of assessment.
Companies are considered to be in the same group if they are resident in Cyprus and have a 75% direct or indirect holding relationship: one company is owned 75% (of the ordinary share capital with voting rights) by the other, or if both companies are owned 75% by a third company throughout the whole year of assessment, and if that shareholder is beneficially entitled to not less than 75% of the profits available for distribution and any assets that would be available for the shareholder upon winding-up thereof.
Company A would not be considered to be the owner of 75% of Company B if any of the profit upon a sale of the share holding that Company A holds directly or indirectly in Company B would be considered as a trading receipt for Company A.
Company losses may be carried forward indefinitely and offset against future profits.
Reorganisation regulations
Cypriot income tax law introduces regulations regarding company reorganisations, which strictly comply with the regulations of the Merger Directive, but with a wider application. The regulations apply to domestic reorganisations, cross-border reorganisations with both EU and non-EU member states as well as to reorganisations abroad with tax implications in Cyprus. There are no tax consequences on income or capital from a Cypriot holding company involved in a reorganisation.
The reorganisation has to qualify as a reorganisation under Cypriot law.
VAT
Due to the fact the VAT is a tax on consumption, the Cypriot holding company will not be subject to VAT legislation, or entitled or obliged to register for VAT purposes, if the activity of the Cypriot holding company is restricted to merely holding assets.
If the company has business activities or provides management services which fall under the scope of VAT, it may be required to register for VAT purposes if the value of the taxable supplies in the last 12 months exceeds CYP 9,000. If the value is lower than CYP 9,000 the holding company may register voluntarily.
The standard rate of VAT is 15%.
Stamp Duty
Stamp duty is a tax on contracts documenting transactions in Cyprus. The tax becomes payable upon execution of some corporate documents and most contracts.
The stamp duty on corporate documents is various fixed amounts of minor value. The stamp duty payable on execution of contracts is levied on the value (consideration), and the rates are CYP 1.50 for every CYP 1,000 for contracts of the value of up to CYP 100,000, and CYP 2 for every CYP 1,000 for contracts of the value of over CYP 100,000 up to CYP 5,000,000 where stamp duty is capped to a maximum of CYP10,000.
Income tax
Individuals resident in Cyprus are taxed on their worldwide income. Non-Cypriot residents are taxed on their Cypriot-source income only.
Rates of the individual income tax:
From CY£0 to CY£10,000 is 0%, from CY£10,001 to CY£15,000 is 20%. from CY£15,001 to CY£20,000 is 25% and for CY£20,001 and over 30%.
Income tax for expatriates:
Non-resident individuals, who take up residency and employment in Cyprus, are liable to income tax as shown in the above table, but they are entitled to tax relief of 20% on their total income, up to a limit of CYP 5,000 per year, for the first three years following the year the employment commenced.
