18 Dec 2019 | Charalambos G. Prountzos
Cyprus is a member of the EU and the Eurozone, and consistently aligns its legislation with the acquis communautaire. It is well-established as a reputable international business and financial centre, particularly considering its investor-friendly environment, compliance with OECD standards and transparency, and geostrategic location as a gateway between the crossroads of Europe, Africa, Asia and the East. It has highly-skilled and multilingual legal, financial and administration professionals, and remains an attractive and competitive holding company jurisdiction.
Of course, deciding on a suitable location to incorporate a holding company can be difficult and require consideration of several relevant matters. The Cyprus holding company however is often a preferred vehicle of choice for managing investments of high-calibre, worldwide clients. The Cyprus holding company is favoured by many for numerous reasons. For instance, it can be incorporated and maintained at very low cost and overhead expenses, and benefits from one of the lowest corporate income tax (“CIT”) in the EU at 12.5%. Moreover, the Cyprus holding company can be redomiciled at any time out of Cyprus, provided that the third country permits so as well. Although there are no restrictions on its legal form, the most popular business vehicle used in Cyprus is in the form of a Cyprus private company limited by shares (“CyCo”).
There is no minimum share capital for a CyCo, however it is usually at least EUR 1,000. Nonetheless, it is prudent if the share capital of the CyCo reflects its actual business. It can have between 1 to 50 shareholders, including nominees, who may be either natural or legal persons of any nationality or residency.
Registration fees are payable to the Cyprus Registrar of companies (“Registrar”) upon incorporation of a CyCo, upon every further increase of registered nominal/authorized capital and upon every further issue of shares. There is no cap on the amount payable for registration fees.
Any capital contribution, for instance, share premium contributions, into a Cypriot company will not be subject to the levy of registration fees. Such contributions can be made through the issue of one or more shares with nominal value and share premium, subject to payment of minor registration fees only. Such contributions are common practice to reduce the amount of registration fees payable and are not considered to be abusive, even in cases of disproportionate share premium contributions.
For confidentiality purposes, it may be possible to use nominee or fiduciary arrangements. For instance, the shares may be held by a nominee (individual or company) as legal / registered owner in trust for the beneficial owner (“BO”) – i.e. without public disclosure of the UBO’s identity. The identity of the legal owner is recorded in the public registers of the Registrar. However, information regarding the BO is disclosed upon opening a bank account whereby the bank in complying with the applicable AML laws, rules and regulations requires all relevant information of the BO to establish the Client Due Diligence information regarding the BO. Nonetheless, in accordance with the applicable banking laws such information shall be maintained by the bank in strict confidence, subject to any obligatory exchange of information i.e. if required by law or if ordered by a Court. Pursuant to AML legislation and once agreed at EU level, additional changes are required including the creation and development of ultimate beneficial owner registers in Cyprus. Therefore, Cyprus companies may (in the future) need to declare ultimate beneficial owners in registers, in addition to shareholders. Whilst Cyprus is expected to implement and comply with EU requirements, it is not expected to introduce a central register in early course or before the mandatory requirement arises.
A CyCo must have at least one director and, in order for it to be tax resident in Cyprus to enjoy its benefits, must have its management and control function in Cyprus. Its registered office address must also be in Cyprus.
The CyCo must have a secretary which could be a natural or legal person residing in Cyprus.
Further the CyCo must maintain bookkeeping and an auditor licenced in Cyprus must prepare its audited financial statements in accordance with IFRS.
Furthermore, a CyCo is subject to an annual levy of EUR350 payable at the Registrar.
In addition to holding subsidiaries for international tax planning purposes, the Cyprus holding company can in parallel undertake commercial activities. Only certain financial activities including, but not limited to, investment services in relation to financial instruments, may require authorization from the Cyprus Securities & Exchange Commission, unless an exemption can be provided.
As regards the Cyprus tax regime, please note as follows:-
Interest expense incurred in connection with the acquisition (directly or indirectly) of shares in a 100% owned subsidiary company which is made on or after 1 January 2012 (irrespective of the tax residency status of the subsidiary) will be deductible for Cypriot tax purposes. This would apply provided that the assets of the subsidiary do not include assets not used in the business. However, in case the subsidiary possesses such assets, the restriction on interest at the level of the holding company is limited only to the amount corresponding to these assets.
NID granted on new equity cannot exceed 80% of the taxable profit before allowing the NID.
There is a 17% withholding tax on dividend payments made to an individual who is considered to be both a resident and domiciled for tax purposes in Cyprus.
Cyprus therefore also offers significant international tax planning incentives and prospects.
As regards registration of a CyCo, 2 – 3 proposed names are normally required which should first be approved by the Registrar. Additionally, the client must specify its source of funds which will be used to fund the CyCo, the required share capital, the object and activities, products or services, type of clients, with which jurisdictions the CyCo will transact business and expected annual turnover. Subject to standard Client Due Diligence procedures and approvals, our firm regularly assists with the set up of corporate structures which consist of a Cyprus element.
In summary, Cyprus continues to be in the top tier of holding company jurisdictions, with substantial benefits for serious investors, particularly for business in Europe, Africa, Asia and the East. In fact, the CyCo has over the years proved its resilience, flexibility and robustness as a holding company. Hence the numerous reasons for which a CyCo should be considered as a strong holding company candidate.