www.servpro.com.cy CYPRUS TAX STRUCTURES Serviced By PROFESSIONALS
Holding Company (Inbound Investment) Non- Resident Company 0% / low withholding tax on dividends EU Parent Subsidiary Directive EU 0% withholding tax on dividends HoldCo Non- Resident Individuals DTT For dividend stream income, form a Holding company in order to hold the operating subsidiaries in EU and DTT countries. Eliminate / minimise withholding tax in EU/DTT country on the payment of dividends to No tax on dividend income in - Participation exemption No withholding tax on dividends paid from to non-tax resident shareholders No CFC rules in No tax in on gains from the sale of shares of the Holding or Subsidiaries 2
Holding Company (Outbound Investment) 0% / low withholding tax on dividend EU Parent Subsidiary Directive EU Subsidiary Non- Parent Company HoldCo 0% withholding tax on dividend payments DTT Subsidiary A foreign parent company forms a company in order to hold EU and DTT subsidiaries for dividend stream income. The Holding company is used as a vehicle to access EU directives and DTT s and therefore eliminate / minimise withholding tax on dividend No tax on dividend income in - Participation exemption No withholding tax on dividend paid from to the foreign parent company No CFC rules in No tax in on gains from the sale of shares of the Holding or Subsidiaries 3
Financing Company (Inbound Investment / Back-to-back loans) LOAN LOAN EU Non- Company / Financial Institution FinCo Interest payable 0% withholding tax Interest receivable 0% / low withholding tax DTT A foreign company or financial institution forms a company to finance the EU and DTT operating subsidiaries. Interest expense is deductible in the operating subsidiary (thin cap rules may apply) Zero/ low withholding tax on interest paid to the FinCo (EU Interest & Royalties Directive / DTT) No withholding tax on interest paid from to the foreign company A small margin is taxable in at the rate of 12,5% Minimum margins Minimum margins in for back-to-back loans (EUR): Loan amount < 50m 0,35% Loan from 50m to 200m 0,25% Loan amount > 200m 0,125% 4
Financing Company (Outbound Investment) EQUITY LOAN EU Foreign Investor FinCo Dividend payable 0% withholding tax Interest receivable 0% / low withholding tax DTT A foreign investor forms a company to finance the operations of EU and DTT operating subsidiaries (Capitalisation with equity). Interest expense is deductible in the operating subsidiary (thin cap rules may apply) Zero/ low withholding tax on interest paid to the FinCo (EU Interest & Royalties Directive / DTT) No withholding tax on dividend payable from to the foreign investor Profit is taxable in at the rate of 12,5% 5
Cypriot IP Company back-to-back royalties A foreign EU or Non-EU company holds the IP rights and licenses them to a company which in turn sub-licenses them to an EU / Non-EU operating company. Royalty Payable IP Co Royalty payment 0% or low withholding tax Royalty payment 0% withholding tax Royalty Receivable Royalty payments deductible in the Operating Co No WHT in EU based on EU Interest & Royalties Directive (subject to conditions) Small margin taxed at 12,5% in No withholding tax on Royalty payments from to the Licensor 6
Royalty receivable Dividend payable IP company Owner of IP Foreign Investor Dividend payment 0% withholding tax IP Co (owner of IP) Royalty payment 0% or low withholding tax Profit less than 2.5% effective tax A foreign investor forms a company as the owner of the IP Rights. Capitalisation with equity (IP rights may be transferred in exchange for shares). 80% of profits arising from royalties and profits from disposal of IP are exempt from tax, thus only 20% is taxed at the rate of 12,5% (effective tax rate lower than 2,5%) Amortisation of IP acquisition cost over 5 years Zero or low WHT on royalty payments - EU Interest & Royalty Directive and DTT network No WHT on dividend payments from Royalty payments are deductible in operating country No TP rules in, the arm s length principle applies 7 EU or DTT IP rights include patents, trademarks, software, know how, trade secrets, R&D
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