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A Gateway to Europe, Asia, Africa and the Middle East Tax Services The Cyprus Holding Company: A gateway to Europe, Asia, Africa and the Middle East Tax Services November 2016 kpmg.com.cy 02 | Section or Brochure name Table of contents The Cyprus Holding Company 3 Corporate Tax provisions 4 Other taxes 6 Other considerations 8 Tax Treaties: withholding tax tables 10 Cyprus Holding matrix 12 The Cyprus Holding Company 1 The Cyprus Holding Company Cyprus is a full member of the by the OECD- hosted Global Forum European Union and a member of the on transparency and exchange Eurozone. Strategically positioned to of information for tax purposes. connect Europe to Africa, the Middle Cyprus has in this spirit, assumed East and Asia, Cyprus is a natural hub the status of an early adopter under for business and trade. the Common Reporting Standard initiative. The recent political and social upheaval in the Eastern Aspiring to become the jurisdiction Mediterranean basin, which has of choice, Cyprus offers one of the spilled over the wider area of the lowest corporate rates in the EU, Middle East, in combination with the combined with a notional interest political and economic uncertainty in deduction on newly introduced the greater region, not only upgrade equity and a fully reformed Intangible the strategic position and geopolitical Property regime in line with OECD’s role of Cyprus in this part of the Base Erosion Profit Shifting (BEPS) world, they render Cyprus a symbol action plan and the nexus principle. of security and stability, in its capacity The KPMG network of professionals as the Easternmost border of Europe. spans over 155 countries and Cyprus has in the last decades, guarantees the success of our established itself as a reputable clients’ business by complementing and trust-worthy financial centre the efforts undertaken locally, complemented by an advanced with the support and expertise we legal, accounting and banking possess globally. system, highly skilled and KPMG in Cyprus has 6 offices multilingual workforce, excellent servicing the island and more telecommunications infrastructures than 770 personnel and qualified and convenient year round flight professionals offering Audit, Tax and connections. Advisory services of the highest The Cyprus tax legislation is fully standards as prescribed by KPMG compliant with the EU Acquis International. Communautaire and all EU Join us and experience first hand Directives. It is in full compliance a wider spectrum of opportunities with the EU Code of Conduct for available to you and your business. Business Taxation and against harmful tax competition and has been recently rated as “largely compliant” George Markides Board Member, Head of Tax The Cyprus Holding Company 3 Corporate Tax provisions Tax residency the Special Contribution for Defence If neither of the above conditions is A company is considered to be tax (SCD) at the rate of 30% on a gross satisfied, then dividends received resident in Cyprus if the management basis. from abroad are taxed at the SDC and control function is exercised in level at the rate of seventeen percent Cyprus. Dividends (17%). Inter-company dividends Corporate tax A Cyprus tax resident company is Tax credit availability Trading profits are taxed at the rate of exempt from tax when receiving A tax credit will be afforded according 12,5%, one of the lowest corporate dividends from another Cyprus tax to the Double Taxation Agreements income tax rates in Europe. resident company, provided the (DTAs) concluded by Cyprus. In the Notional interest deduction (NID) dividend is not indirectly received absence of a DTA, Cyprus unilaterally The NID is available on equity after the expiry of a four year period, affords a credit for the foreign tax issued by a Cyprus company on from the end of the year to which paid up to the amount of tax that or after 1st January 2015 and used the profits giving rise to the dividend would have been payable in Cyprus in the business for the purpose relate. on the same income. For dividends of generating taxable income. It received from EU Member States the underlying tax credit is also available. is calculated by multiplying the Dividends received from abroad new qualifying equity amount by a As of January 2016, dividends Royalties reference interest rate. The reference received from abroad by a Cyprus tax If the intangible property right is interest rate is equal to the yield of resident company are exempt from granted to a Cyprus company for the 10-year Governmental bond of corporate income tax, provided they use outside Cyprus, then there is no the country in which the new capital are not allowed as a tax deduction in withholding tax and the corporate is invested, plus 3%. The NID is the jurisdiction of the foreign paying rate of 12,5% is applied only on the deductible against the company’s company. taxable profits that arise as a result royalty income left in the Cyprus Company. Gross amounts of of the newly introduced capital and Dividends received from abroad are royalties from sources within Cyprus, cannot exceed 80% of the taxable also exempt from Special Defense by a company which is not a tax profit as calculated before allowing Contribution (SDC) if one of the resident of Cyprus are liable to 10% for this deduction. following conditions is satisfied: withholding tax at source subject to Interest Income (1)The company paying the dividend the provisions of a DTT (for income Active interest income (interest does not engage more than 50% received from qualifying IP assets, income effectively connected with directly or indirectly in activities which see below). the carrying on of a trade or business) lead to passive income (active vs is subject to the corporate income tax passive test) Intellectual property rights (IPR) rate of 12,5%, as any other income. A new IP regime is in place as from OR July 1st 2016 fully aligned with BEPS Passive interest income, (income not (2) The foreign tax burden on the Action 5 and the nexus principle. connected to a trade or business), is income of the company paying Qualifying profits are still entitled to exempt from corporate income tax the dividend is not substantially an 80% deduction and therefore the and instead it is taxed separately at lower than the tax burden in Cyprus (effective tax test ). resulting effective tax rate will always Cyprus tax legislation. A tax credit or in a country with which Cyprus be 2.5% or less. for foreign tax paid abroad will be has a double tax treaty in place or A tax payer may elect to claim all or afforded in Cyprus, up to the level of an agreement for the exchange of part of the available deduction for a the Cyprus tax payable arising on such information. particular year. profits. Losses incurred by a Cyprus company In the event of a loss, only 20% of The exemption method will retain the in relation to business carried outside that loss can be offset against income default position in the absence of an Cyprus, are allowed as a deduction from other sources or be carried election. against taxable profits generated by forward to be offset against income of that Cyprus company in the current following tax years. Trading in securities year and any balance can be set- Any income arising from trading in off against profits of other group Transitional arrangements, have “securities” is completely exempt companies for the same year. also been introduced allowing the from tax. The term securities includes provisions of the current IP regime to but is not limited to: ordinary and Losses that cannot be utilised in the continue to apply up and until the 30th preference shares, founder’s shares, current year, are carried forward for a of June 2021. options on titles, debentures, bonds, period of five (5) years, commencing short positions on titles, futures/ from the end of the year to which the Withholding taxes forwards on titles, swaps on titles, losses relate. There are no withholding taxes on depositary receipts on titles, rights payments to non tax resident persons of claims on bonds and debentures, Losses arising from a foreign PE can in respect of dividends and interest. index participations (only if they result be deducted against the profits of the in titles), repurchase agreements Cyprus company. Future profits of or Repos on titles, participations the foreign PE however, will be taxed Offshore drilling activities in companies, units in open-end or at the level of the Cyprus company As from 1st January 2016, a 5% closed-end collective investment up to the amount of the losses withholding tax is levied on the schemes such as Mutual Funds, previously relieved. remuneration derived by a non tax International Collective Investment resident person with no permanent Schemes (ICIS) and Undertakings for Business entertainment establishment in Cyprus, as a result Collective Investments in Transferable Expenses incurred in the course of of the provision of services within Securities (UCITS). business entertainment are generally Cyprus in relation to the extraction, tax deductible whilst being subject exploration or use of the continental Tax losses to a cap at the rate of 1% of gross shelf as well as the establishment and Group relief is allowed for at least income with a maximum amount of use of pipelines and other installations seventy-five percent (75%) group €17.086. on the ground, on the seabed and on holdings and is applicable only on the surface of the sea. current year’s results assuming Expenses related to innovation claimants are Cyprus tax resident companies Foreign permanent establishments companies and members of the same All expenses related to research (PE’s) group for the whole tax year.
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