Cyprus Tax System
Presented by Rutger Kriek
1) Corporate income tax rate
June 2011
2) The different forms of using a Cyprus company
June 2011
3) I. The Cyprus holding company
June 2011
5) The subsidiary must not at the same time;
• directly or indirectly engage more than 50% of its
activities leading to investment income (the
“activities test”), and
• be liable to an effective tax burden over its
income, which is substantially lower than the
Cyprus tax burden (the “tax burden test”).
June 2011
6) The term “Investment income”; the activities test
June 2011
7) Tax burden “substantially lower” than the Cyprus tax
burden
June 2011
8) Look through approach is allowed
June 2011
Cyprus Holding
Company (CC)
Dutch Holding
Company (DHC)
Trading
Company (TC)
June 2011
10) Gains from the sale of shares; “conditions” for
exemption
June 2011
11) Branch income
June 2011
12) Dividend withholding tax
June 2011
13) II) The Cyprus finance company; 10% tax only
June 2011
14) III) The Cyprus license company; 10% tax only
June 2011
15) IV) The Cyprus trading company; 10% tax only
June 2011
16) Incorporation and maintenance
June 2011
TAX SAVING STRUCTURES
June 2011
• No withholding tax over outbound
dividends
CYPRUS COMPANY
• Tax exemption for benefits
• 0% withholding tax based upon EU-parent
subsidiary directive (PSD), also in Italy,
where Cyprus is now on the white list.
EU- COMPANY
June 2011
• Capital gains tax protection based upon
many double tax treaties (DTTs); Cyprus has
DTTs with more than 45 countries.
• No withholding tax over outbound
dividends
• Tax exemption for benefits
CYPRUS COMPANY
• 0% withholding tax based upon broad
implementation PSD
LUXEMBOURG
HOLDING COMPANY
June 2011
• Capital gains tax protection based upon
new DTT
• No withholding tax over outbound
dividends
CYPRUS COMPANY
• 0% withholding tax based upon
broad implementation PSD
DUTCH
HOLDING COMPANY
June 2011
• Capital gains tax maybe an issue due to
lack of DTT
• No WHT over outbound dividends
CYPRUS COMPANY
• 5% withholding tax only under the mere
condition of a USD 100,000 capital
investment
RUSSIAN COMPANY
June 2011
• Capital gains tax protection including real
estate companies
• No WHT over outbound dividends
CYPRUS COMPANY
• Licensing and/or financing activities
• Profits subject to 10% income tax only
• 0% WHT over licence/ interest payments
based upon Cyprus- Russia DTT
RUSSIAN COMPANY
June 2011
• No WHT over outbound dividends
CYPRUS COMPANY
• Holding company income generally exempt
• Other income subject to 10% tax only
• 0% WHT over dividend/ interest and licence
payments without special conditions to be
met, based upon DTT
UKRAINE COMPANY
June 2011
• Capital gains tax protection including real
estate companies
• No WHT over outbound dividends
• Holding company income generally tax
exempt
CYPRUS COMPANY
• Other income subject to 10% tax only
• 0% WTH over dividends, interest & royalties
OTHER
“EX-USSR” COMPANY
• Armenia, Azerbaijan, Kyrgyzstan, Tajikistan,
Turkmenistan, Uzbekistan
• Capital gains tax protection, including real
estate companies
June 2011
• No WHT over outbound dividends
CYPRUS COMPANY
• Tax exemption for the entire income
INDIAN COMPANY
• Cyprus-India treaty provides for
protection from Indian capital gains tax,
including shares in real estate companies
June 2011
• No WHT over outbound dividends
CYPRUS COMPANY
• No additional taxation over interest
income
LOAN
INDIAN COMPANY
• Reduction of WHT over interest
payments to 10% only based upon
Cyprus – India DTT
REAL ESTATE INVESTMENTS
IN EASTERN EUROPE
• No WHT over outbound dividends
CYPRUS COMPANY
• Tax exemption for entire income
• No withholding tax over dividends
(based upon PSD)
REAL ESTATE COMPANY
• Czech Republic/ Hungary/ Poland/
Romania/ Slovak Republic/ Slovenia
• Capital gains tax protection based upon
respective DTTs
June 2011
• No WHT over outbound dividends
CYPRUS COMPANY
• Tax exemption for benefits
REAL ESTATE COMPANY
• Bosnia & Herzegovina/ Macedonia/
Serbia/ Montenegro
• Capital gains tax protection based upon
DTTs
June 2011
• No WHT over outbound dividends
CYPRUS COMPANY
• Tax exemption for profits in Cyprus
• Construction project > 3 months ≤ 12 months in a treaty
country (e.g. Poland, Romania)
• No taxation in source country based upon DTT (and/or
domestic legislation)
June 2011
• No WHT over outbound dividends
CYPRUS COMPANY
• Tax exemption for profits in Cyprus
• Offshore support services (e.g. in relation to oil exploration /
exploitation) outside Cyprus’s territorial waters for more than
3 months.
June 2011
• No WHT over outbound dividends
CYPRUS COMPANY
• Tax exemption for profits in Cyprus
• Other kind of services (e.g. IT services) outside Cyprus for
more than 3 months
June 2011
• No WHT over outbound dividends
CYPRUS
INVESTMENT FUND
June 2011
• Access to 50 treaties; no special purpose vehicle
required. So unlimited access.
• Tax exemption for all the profits from the sale of
securities (shares, bonds, put options, call options)
• No capital tax
• No net wealth tax
• Effective tax exemption for all dividends from
• EU companies
• EU passport
• Superb Infrastructure
• High financial expertise
• No WHT over outbound dividends
CYPRUS
INVESTMENT FUND
• Investments in securities
• Tax exemption for profits from the sale of
securities
• Tax exemption for all the benefits from the SPV
as well
• Dividends
TAX EXEMPT SPV
June 2011
• Investments in commodities (gold, oil etc…)
profits from the sale of which would be subject
to 10% tax in Cyprus
OFFSHORE
COMPANY
CYPRUS
COMPANY
TREATY COUNTRY/
EU-COUNTRY
BASED
AFFILIATED
DEBTOR
June 2011
• No transfer pricing documentation
requirements
• No exchange of information risk
• No WHT over interest
• No thin capitalisation rules
• Relatively small spreads acceptable
• Reduction of/ exemption from WHT based on
treaty, or
• Exemption from WHT based upon EU Interest
and Royalty Directive.
OFFSHORE
COMPANY
CYPRUS
COMPANY
TREATY COUNTRY/
EU-COUNTRY
BASED
AFFILIATED
DEBTOR
June 2011
• No transfer pricing documentation
requirements
• No exchange of information risk
• No WHT over license payment
• Relatively small spreads acceptable
• Reduction of/ exemption from WHT based on
treaty, or
• Exemption from WHT based upon EU Interest
and Royalty Directive.
• The double tax treaty between Cyprus and Italy
provides for withholding tax exemption in Italy.
No WHT over
outbound dividends
“Soft” Advantages:
CYPRUS
GROUP TREASURY
COMPANY
• No traffic problems
• Good schools & universities
• Fairly priced commercial & private real estate broadly available
• Low population density and clean air
• More than 300 days of sunshine per year
• Good air connections
• Low criminality
June 2011
• Group treasury activities
• Profits subject to 10% tax only
• Access to good treaty network
• Access to EU Interest and Royalty Directive
• No withholding tax over interest
• Ideal strategic position for companies with
operations in Europe, Russia, CIS, The Middle
East and Asia
• Low taxation on salaries
Entire income exempt from tax provided that:
• The settlor is not a resident of Cyprus
CYPRUS
INTERNATIONAL TRUST
• At least one trustee is resident of Cyprus
• No beneficiaries are resident of Cyprus and
• The trust property does not include Cyprus
immovable property
June 2011
CYPRUS COMPANY
• No WHT over outbound dividends
• Tax exemption for all the benefits
OPERATIONAL
DUBAI
COMPANY
(OR COMPANY BASED IN
ANOTHER TAX HAVEN)
June 2011
CYPRUS COMPANY
• No WHT over outbound dividends
• Tax exemption for all the benefits
TAX EXEMPT GROUP
FINANCE COMPANY
June 2011
QUESTIONS?