Costas Indianos & Co law 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 nominal value of the shares, for which they have subscribed in the company. In other words 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 general tax of 12.5% on all Cyprus Companies and full exemption on disposal of securities
- The Company can have 1 shareholder owing 100% of shares.
- The Company can benefit from a large Double tax treaty network of more than 40 treaties.
- 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 ; private companies are required to restrict the right to transfer their shares.
- Capital: The usual authorized/nominal share capital is € 2000.The usual issued share capital is € 2000 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 € 2000.The usual value is € 1.00 per share. When the Company has a physical presence in Cyprus with its own offices and staff the paid up capital must reflect the nature of the activity in Cyprus, which usually increases the issued share capital to a minimum of € 5000.
- Board meetings of the Directors (BOD): The Directors of the Company represent the Company and according to corporate governance should 'act for the best interest of the Company's Board Meetings must be held in Cyprus if management & control is to be deemed to be conducted from within Cyprus.
-General Meetings of Shareholders can be held anywhere.Shareholders do not act on behalf of the Company but according to corporate governance their approval is necessary for many legal acts and they have the discretionary power to appoint & remove directors therefore the General Meeting is more powerful than the Board of Directors.
- 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 12.5%, safe 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 can extract dividends from its foreign subsidiaries at 0% withholding tax, as long as these subsidiaries are within the EU and there is compliance to 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 (20%) 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 a shareholding of the non-resident Company paying the dividend even if that is less than 1%. 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 5%) than the general 12.5% 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 around 40 treaties. 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 20% 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 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 1rst 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.
Tax advantages referred to in the Taxation and Tax-planning webpage applying to Cyprus companies also apply to the Cyprus Holding Company.
Cyprus Company Registration
In order to proceed with the registration of the Cyprus Company we shall need the following information from the beneficiary 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 this delay, we suggest to choose a company name from our list of available shelf company names which can be found on the main page of our website at www.indianos.com.cy
- 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 which can be found on the main page of our website at www.indianos.com.cy and that we can deliver in a few days. 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 passport copy of the beneficiary (or the copy of the certificate of incorporation of the company if the client is a company): 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. The Registrar of Companies will need to know what the business is about.
- Whether or not the beneficiary wishes to benefit from full confidentiality/nominees (see further).
- The beneficiary will receive from us: the ‘Trust deed’ attesting that he is the real legal owner of the Company, the Memorandum & Articles of Association of the Company, Certificates of incorporation, registered address, directors & secretary, shareholders.
Tax residency, Confidentiality and Disclosure
Tax residency (Management & Control, Nominees): under Cyprus Law, a Cyprus Company is tax resident and can benefit from the 12.5% 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 Board Directors reside, where Board Meetings are held, where decisions are taken and where the general policy is formulated, therefore there must be a majority of Cyprus nominee resident directors for the Company to have management & control in Cyprus.When the beneficiary is not a Cyprus resident, Cyprus resident nominee directors (always members of our Law Firm) are appointed. Furthermore, the beneficiary will have to sign and return to us Nominee Director and Shareholder Agreements (if a nominee shareholder is also used for confidentiality) attesting that our Law Firm cannot take responsibility for the actions of the beneficiaries as it is providing nominees for confidentiality purposes. Without the signature of the agreements, we cannot provide nominee services.
Confidentiality (Nominees): the beneficiary can choose if he wants confidentiality or not. If he decides to appear as a director in the company together with the Cypriot nominee directors, he will be able to sign all documents for the company as director if he wants. If he does not want to appear as a director in the company, he will send us the contracts/documents for us to sign as nominee directors and send back to him. In any of the above event, there will always be nominee directors.
The shares of the company must belong directly or indirectly, exclusively to non-residents. Individuals, companies, partnerships or Trusts may be shareholders. As no share warrants can be issued to the bearer, if confidentiality and/or anonymity is required, nominees may be used with adequate safeguards such as blank transfers and trust instruments. The Cyprus Company can have one or more shareholders. The beneficiary can appear as shareholder, but if he wants confidentiality and does not want to appear as shareholder in the company, we can provide him with a Nominee shareholder, which in practice is a company belonging to our Law firm holding the shares of the Cyprus company ‘in trust’ for the beneficiary. In this event, the beneficiary will have to sign a Nominee Agreement in return. Furthermore, the beneficiary will receive the ‘Trust deed’ document attesting he is the real owner of the Cyprus Company. In practice, the Registrar of Companies can only possess the identity of the beneficial owner of the company when the client does not opt for the confidentiality.
Disclosure of information: the new law to be voted by the Parliament of The Republic of Cyprus will provide for the possibility of disclosure of information if a clause in the relevant Double Tax Treaty allows it and there is official consent to the disclosure from Cyprus Attorney General, an autonomous and independent institution in Cyprus. In real terms, considering the existing legal practice and the fact that under the OECD Directive information can only be disclosed to another requesting State if there is proof of a serious legal case, this means that the Attorney General's consent will seldom be given.
Cyprus companies can have their charges registered and bankers can appoint receivable managers to control the company and replace the board of directors. PIedge of shares are registered with the registrar of companies, so are mortgages.
Types of Cyprus Companies
The firm provides for tax-planning advice to the client in order to choose the adequate type of Cyprus Company and then provides the client with the full incorporation of Cyprus Companies which may be formed for any kind of business as the following non-exhaustive list shows:
- Holding Companies
- Shipping Companies
- Trading Companies
- Investment Companies
- Real Estate Companies
- Finance Companies
- Oil & Gas Companies
- Manufacturing Companies
- Internet based 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.