Using a Cyprus Holding Company for International Property Investments
A Cyprus holding company can provide an efficient platform for holding international real estate investments, subject to the tax and legal rules applicable in both Cyprus and the country where the property is located.
When properly structured, Cyprus continues to offer a competitive and internationally recognised jurisdiction for cross-border investment structures.
Typical Holding Structure
A common structure involves:
- A non-resident investor owning a Cyprus holding company.
- The Cyprus holding company investing (through equity and/or shareholder loans) into a foreign company that owns the underlying immovable property.
- The overseas company holding the real estate located in the relevant jurisdiction.
The suitability of any structure depends on the domestic tax legislation, double tax treaties and regulatory framework of the country where the property is situated.
Key Advantages of a Cyprus Holding Company
Depending on the circumstances, a Cyprus holding company may offer advantages including:
- Participation exemption on qualifying dividend income.
- Exemption from tax on qualifying gains from the disposal of securities.
- Tax-efficient liquidation of foreign subsidiaries (subject to the applicable conditions).
- No Cyprus withholding tax on dividends paid to non-Cyprus tax resident shareholders (subject to the applicable anti-abuse provisions).
- Access to Cyprus’ extensive double tax treaty network.
- Availability of Notional Interest Deduction (NID), where applicable.
- A stable legal and regulatory framework within the European Union.
Each structure should be reviewed individually, particularly where anti-avoidance rules or the legislation of another jurisdiction may affect the overall tax outcome.
Other Reasons to Choose Cyprus
Cyprus continues to offer a number of advantages for international holding structures, including:
- European Union and Eurozone membership.
- Extensive network of double taxation agreements.
- Modern legal system based on English common law principles.
- Highly developed professional services sector.
- No exchange controls.
- Strategic location connecting Europe, the Middle East and Africa.
Important Tax Considerations
When establishing a Cyprus holding structure, a number of tax and regulatory matters should also be considered, including:
- Corporate tax.
- Dividend participation exemption.
- Capital gains taxation.
- Withholding tax rules.
- Notional Interest Deduction.
- Double tax treaty availability.
- Ultimate Beneficial Owner (UBO) reporting obligations.
- Transfer Pricing requirements where related-party financing or transactions exist.
- Economic substance and tax residency requirements.
- International anti-avoidance rules.
The appropriate structure should always be designed having regard to both Cyprus legislation and the laws of the jurisdiction where the underlying property is located.
How UHY Can Help
Selecting the appropriate ownership structure requires careful consideration of the commercial, legal and tax implications in every jurisdiction involved.
Our experienced team can assist with:
- International holding company structures.
- Property investment structuring.
- Cross-border tax planning.
- Company formation and corporate services.
- Tax residency planning.
- Transfer Pricing and UBO compliance.
- Ongoing accounting, tax and corporate compliance services.
For more information on how we may assist you, please contact us at uhy@uhy.com.cy or call +357 22379210.
The contents of this publication are provided for general information purposes only and should not be regarded as legal, tax or professional advice. Specific advice should always be obtained based on your particular circumstances before taking any action.
Description of the structure
- The establishment of a Cyprus holding company whose shares will be held by the non-resident investor.
- The Cyprus company may receive funding in the form of debt and/or equity from its shareholder in order to invest in the share capital of the Overseas company formed in country where the immovable property is located (which will be the holder/owner of the immovable property itself.)
Summary of Cyprus tax benefits of the Cyprus Holding Company
- Income of the Cyprus holding company from dividends is tax free (subject to conditions see further below).
- Gains made by the Cyprus holding company on the sale of shares are tax free.
- Proceeds from the liquidation of subsidiaries abroad are tax free.
- Capital gains made by the Cyprus holding company on disposals of capital assets are tax free in Cyprus (except only if the capital asset is immovable property situated in Cyprus).
- Profits from activities of a Permanent Establishment abroad are tax free.
- Notional Interest Deduction on new capital introduced.
- Lower withholding tax rates in other countries on remittances of income from dividends, royalties or interest due to wider applicability of Treaties for the Avoidance of Double Taxation.
- Distributions by Cyprus Holding Companies to their non-Cyprus resident shareholders are free of tax in Cyprus. Also, distributions to Cyprus resident but non-domiciled shareholders are free of Cyprus tax.
- There are no exit taxes on the sale or during the liquidation of the Cyprus company and no withholding tax on distribution of the proceeds to the non-resident investors.
Obviously it will also be necessary to consider all the relevant tax and other regulatory requirements of the local jurisdiction where the overseas company and the property itself is situated.
Other reasons to choose Cyprus in locating your holding company
- Full membership of the EU and of the EURO Zone.
- The membership of the EU enables employment of any EU national without complicated procedures. Non EU personnel may also be employed following the required procedure for securing work-residence permits.
- No exchange controls.
- Compliance with OECD and FATF standards.
- A broad range of high-quality professional services.
- A very favorable and welcoming environment to international business.
Cyprus: General Tax Provisions
Here is some additional detailed information regarding the Corporation Tax regime in Cyprus which may also be relevant when considering using Cyprus in a property ownership structure :
Tax residency
· A company is considered to be tax resident in Cyprus if the “management and control” is exercised in Cyprus.
Notional Interest Deduction (NID)
· As of 1st January 2015, a NID is granted for
new capital introduced in a Cyprus tax resident company and used in the
business.
· The deemed tax deduction is equal to the amount of the new equity multiplied by a reference interest rate.
Dividends received from abroad
· As from 1st January 2016, foreign dividends received by a Cyprus tax resident company will not be exempt from corporation tax in Cyprus if these are allowed as a tax deduction in the country of residency of the dividend paying company.
· Dividends received from abroad are exempt from tax in Cyprus (SDC at the rate of 17%) if one of the following conditions is satisfied:
a) The company paying the dividend does not engage directly or indirectly more than 50% in activities which lead to passive income OR
b) The foreign tax burden on the income of the company paying the dividend is not substantially lower than the tax burden in Cyprus.
Tax credit available
· A tax credit is afforded according to the Double Taxation Agreements concluded by Cyprus. In the absence of a Double Taxation Agreement, Cyprus unilaterally affords a credit for the foreign tax paid on the same income. For dividends received from other EU Member States the underlying tax credit is also available. Furthermore, a number of Double Tax Treaties concluded by Cyprus also allow for the availance of an underlying tax credit.
Taxation of rental
income in Cyprus
·
Rental
income is subject to both Corporation Tax (CT) and Special Defence Contribution
Tax (SDC).
·
The
net rental income will be included in the taxable base of the Cyprus company
and will be taxed at the corporate tax rate of 12,5%.
·
The
rate of SDC on rents is 3% and it is imposed on the gross rental income reduced
by 25%.
Withholding taxes
· There are no withholding taxes on payments to non tax resident persons (companies or individuals) in respect of dividends, interest and royalties. (Royalties sourced in Cyprus have a 10% withholding tax subject to DTT provisions)
Capital Gains Tax (CGT)
·
Capital
gains in Cyprus are not included in the pool of ordinary trading profits of a
business but instead are taxed separately under the Capital Gains Tax Law
(CGT).
·
Capital gains tax is only imposed on the disposal of
immovable property situated in Cyprus as well as the disposal/redemption of
shares in companies (other than quoted shares) in which the underlying asset
(either directly or indirectly) is immovable property situated in Cyprus.
Capital gains tax is imposed on the profit at a flat rate of twenty percent
(20%) after allowing for indexation.
·
Capital Gains that arise from the disposal of immovable
property held outside Cyprus or shares in companies which may have as an
underlying asset immovable property situated outside Cyprus, are completely
exempt from capital gains tax.
Inheritance or Estate Taxes
·
There are no inheritance or estate taxes.
Wealth Taxes
·
Cyprus imposes no tax on wealth.
How we can help you
Our team of experienced and qualified professionals can provide a wide range of services in relation to the Acquisition of Property in Cyprus and any other related Services.
For more information on how we may be able to assist you and your business please contact us at uhy@uhy.com.cy or call (00357) 22379210.
We look forward to hearing from you.
The contents of this article should be considered to be of a general nature only not referring to any particular business. Before proceeding with any action, please request further advice relating specifically to your business. We will be very pleased to be of assistance.