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Kyriacos Th. Michaelides & Co 66 Ippokratous Street   
P.O. Box 21548   
1510 Nicosia   
Cyprus   
Tel. 00357 22763751 & 00357 22452400   
Fax. 00357 22761878   
Email: online@ktmlaw.com   

Company Registration & The Cyprus Holding Company

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The firm provides legal advice and assistance to clients wishing to register any type of Cyprus Company in order to benefit from the tax incentive regime of Cyprus as well as its wide network of Double Tax Treaties. Among the various Cyprus Companies which can be registered, the Cyprus Holding Company stands out as the most efficient vehicle for tax-planning structures.

Below is information on the following:

  • The Cyprus Company
  • The Cyprus Holding Company
  • Company Registration
  • Tax residency, Confidentiality & Disclosure
  • Security provisions
  • Types of Cyprus companies

The Cyprus Company of Limited Liability

  • The liability of its members is limited to the amount, if any, unpaid on their respective shares.
  • There is no more 'offshore' status in Cyprus; there is now only one form of Cyprus Company which can have activities in or out of Cyprus or both.
  • The Company can be owned at 100% by Europeans or non-Europeans.
  • There is a corporate tax of 10% on all Cyprus Companies and full exemption on disposal of securities
  • The Company can have 1 shareholder owning 100% of shares.
  • The Company can benefit from a large Double tax treaty network with about 40 Countries.
  • The Memorandum must state the name and objects of the company, the fact that the liability of its members is limited and its share capital.
  • The Articles of Association contain the regulations governing the administration and functioning of the Company: changes in the statutes of the Company are made by special resolutions, private companies may have only one member and the maximum number is limited to fifty, private companies are prohibited from inviting the public to subscribe for any share or debentures. A private company can become public and vice-versa.
  • Capital: The usual authorized/nominal share capital is Euro 10,000. The usual issued share capital is Euro 1,000 but in practice it is not paid up/subscribed for as the payment done by the beneficiary to register the Company is considered by the local authorities to cover the Euro 1,000.The usual value is Euro 1.00 per share.
  • Board meetings: must be held in Cyprus if management and control is to be deemed to be conducted from within Cyprus. General Meetings can be held anywhere. Independent tax advice is recommended.
  • Local premises: a Cyprus company can have any activity which implies owning and using local premises, storing goods, receiving and executing orders, etc.
  • The tax on the Cyprus Company's net profit is 10%, save for Shipping Companies (0%) which opt for tonnage tax instead.
  • Registration of the Cyprus Company & Prerequisites: please go to the Company Registration paragraph.

The Cyprus Holding Company

It is possible to achieve 0% taxation using a Cyprus Holding Company. The Cyprus Holding Company under certain conditions can extract dividends from its foreign subsidiaries at 0% withholding tax as long as these subsidiaries are within the EU and there is compliance with the EU Parent Subsidiary Directive. In the event the provisions of the EU Parent Subsidiary Directive are not met or where there are anti-avoidance provisions the Cyprus Holding Company can use its wide network of Double Tax Treaties.

1. Taxation in Cyprus of Dividends received in Cyprus.

Dividends received in Cyprus by a Cyprus Holding Company from Cyprus resident or non-resident Companies or foreign Companies are not taxed under Cyprus income tax law. However, they are subject to Special Defence Contribution Tax (15%) according to which Dividends received from another Cyprus Resident Company are not taxed, whereas dividends received from a non-Resident Company are not taxed if the Cyprus Holding (Resident) Company holds at least 1% of the shareholding of the non-resident Company paying the dividend, with this exemption not being granted when the Company paying the Dividend is directly or indirectly engaged in activities of which more than 50% result in investment income and the general tax income imposed by the foreign jurisdiction on the Company paying the Dividend is significantly lower (at least 50%) than the general 10% income tax applicable in Cyprus to the Cyprus Holding (Resident) Company. The above also implies that both criteria must be fulfilled for the exemption not to apply.

2. Taxation in the foreign jurisdiction of Dividends paid to Cyprus.

Taxation in the foreign jurisdiction of Dividends sent to a Cyprus Holding Company by its subsidiary can be lowered or fully exempted in various ways. Furthermore, the investor can then repatriate income from Cyprus without any withholding tax in Cyprus.

(i) The EU Parent Subsidiary Directive: Its application in Cyprus abolishes withholding taxes upon the subsidiary for dividends paid to its mother Company resident in any member state, as long as the mother Company has its tax residence in a member state and possesses 1% or more of the shareholding of its subsidiary for any period of time (the original EU Directive implies 25% and a time period of a few years).

(ii) The Double Tax Treaties: The network of Double Tax Treaties ratified by Cyprus comprises of around 40 treaties with 40 different Countries. Their purpose is to avoid the double taxation of the income of a Company in the two states jurisdictions related to the incoming Dividends. Most Double Tax Treaties provide full exemption or low taxation in the foreign jurisdiction for incoming dividends to Cyprus. In order for double taxation to be avoided the Cyprus Holding Company or individual must be a tax resident in Cyprus or both contracting states. In Cyprus the criterion for tax residency is for the management and control of the Company to be in Cyprus, in other words for the Company to have a majority of Cyprus resident directors and in the event where both state jurisdictions would dispute the tax residency the applicable criterion would be where the effective management of the Holding Company applies.

(iii) Unilateral Tax Credit Relief: In practice this means that a tax credit is given in Cyprus on any tax including Special Defence Contribution Tax and Income Tax for any tax paid in the foreign state jurisdiction including underlying local trade tax paid by the subsidiary company or withholding tax on outgoing dividends to Cyprus.

3. Taxation in Cyprus of Dividends paid from Cyprus

(i) There is no withholding tax in Cyprus on dividends paid by the Cyprus Holding Company to its non Cyprus resident shareholders (companies and/or individuals), whether the shareholders are holding their shares in the company directly or via nominees.

(ii) There is no withholding tax in Cyprus on dividends paid by one tax resident Cyprus Company to another tax resident Cyprus Company.

(iii) There is 15% withholding tax in Cyprus on dividends paid by one tax resident Cyprus Company to a physical individual person who is resident of the Republic of Cyprus.

4. Gains from disposal of securities: full exemption from capital gains tax and income tax

There is no taxation on the profits from the disposal of securities for all the companies and individuals that are tax residents of Cyprus irrespective of whether the gain is of capital or revenue, and this exemption applies without any minimum holding period criteria. It allows the Cyprus Holding Company to dispose of the shares in a subsidiary with no tax in Cyprus, and allows the disposal of shares of a Cyprus Holding Company with no tax in Cyprus irrespective of the provisions of a relevant Double Tax Treaty. However, the full capital gains tax exemption on profits from the disposal of securities does not apply to the disposal of shares of a Cyprus company owning immovable property, the sale of the property and the disposal of the shares being subject to 20% Capital Gains Tax.

According to the new Law 118(1)2002 which applies since January 1st 2003, securities include shares, debentures, government bonds, founder's shares or other securities of companies or other legal entities incorporated in Cyprus or abroad and stock options thereon. It solely refers to buying and selling securities and does not include promissory notes. It allows 0% tax on profits made from the sale of shares bought before or after 1/1/2003 from another company abroad, with the sale of the shares taking place after 1/1/2003, and without affecting the value of shares.

5. Tax advantages applying to the Cyprus Holding Company

Cyprus Registration

In order to proceed with the registration of the Cyprus Company we shall need the following information from the Ultimate beneficial owner:

  • A list of 3-4 names as diverse and original as possible by order of preference for the name application of the company.
  • For clients who wish to avoid the company registration delay, we suggest to choose a company from our list of available ready-made shelf companies. If the client then wishes to change the company name, he can send us the name he wants for the company so that we can proceed with the change of the company's name.
  • Full name & address of the beneficiary
  • The passwort copy of the beneficial owner or corporate documents by law of all intermediate companies leading up to the clients beneficial owners: please e-mail a copy of the passport (jpeg format).
  • Number of shares per shareholder. One shareholder can have 100% shares
  • Object/activities of the Company: the simple mention of a type of activity will not be enough but a brief description of what the business is about is required.
  • Whether or not the beneficiary wishes to benefit from full confidentiality/nominees (see further).
  • The beneficiary will receive from us: the Memorandum & Articles of Association of the Company, Certificate of incorporation, registered address, directors & secretary and shareholders, and in case a nominee shareholder/s is/are appointed, a trust deed will also be provided.

Tax residency, Confidentiality and Disclosure

Tax residency (Management & Control, Nominees): under Cyprus Law, a Cyprus Company is tax resident and can benefit from the 10% corporate tax on profits and take advantage of the wide range of Double Tax treaties only if its Management & Control is in Cyprus. Management and Control is where the majority of the Board of Directors reside, where Board Meetings are held, where decisions are taken and where the general policy is formulated, therefore, it is advisable that there must be a majority of Cyprus resident directors for the Company to have management & control in Cyprus. When the beneficiary is not a Cyprus resident, Cyprus resident directors may be appointed. Our firm provides corporate nominee directors.

Confidentiality (Nominees): The shares of the company may be held by individuals, companies, partnerships, trusts or foundations or any other entity having legal personality. As no share warrants can be issued to the bearer, if confidentiality and/or anonymity is required, nominee shareholders may be used with adequate safeguards such as blank transfers and trust instruments. The Cyprus Company can have one or more shareholders. Only the registered shareholders will appear in the public folder of the company held with the Registrar of Companies.

Security Provisions

Cyprus companies can have their charges such as Pledge of Shares or mortgages registered with the Registrar of companies, whereas some types of charges, for example floating charges must be registered.

Types of Cyprus Companies

The firm provides for full incorporation and administration services of Cyprus Companies which may be formed for any kind of business as the following non-exhaustive list shows: Holding Companies, Trading Companies, Investment Companies, Finance Companies, Royalty Companies, Re-Invoicing Companies,.com / e-business / on-line companies, Employment Companies, Leasing Companies, Management Companies, Sales Companies, Advertising & Marketing Companies, Architecture & Engineering Companies, Construction & Drilling Companies, Magazines & Newspaper Companies