A Cypriot company will be considered resident for tax purposes in Cyprus if "management and control" of the company is exercised in Cyprus. Although there is no definition of what constitutes "management and control" for these purposes, it is generally accepted that, if management decisions and the decision-making process are based in Cyprus, this should be sufficient to meet the management and control test; the mere fact that the company is a Cypriot company will not be sufficient evidence of residence. If a company is to qualify for the domestic tax benefits available in Cyprus it is of the utmost importance that the majority of its board of directors are Cyprus residents and that those directors are responsible for making the company's most important management decisions .

A Cyprus Holding company ("Cyprus Holdco") is a normal commercial company, which may carry out any of the activities permitted under its corporate objects clause. Dividend distributions by the Cyprus Holdco are not subject to any dividend withholding tax in Cyprus, because Cyprus does not impose dividend withholding taxes. Cyprus Holdcos have access to the benefits of the tax treaties concluded between Cyprus and other countries (more than 40) and under the EU Parent-Subsidiary Directive .

Cyprus Holdcos are subject to Cypriot taxation at a rate of 12.5%, one of the lowest income tax rate in the European Union.

There are no net worth taxes levied in Cyprus.

A Cyprus Holdco is subject to a stamp duty tax of 0.6 % on the amount of its authorised share capital. In many cases, exposure to stamp duty can be minimised by issuing a smaller number of shares and classifying the bulk of the capital as share premium or informal capital, which is exempt from stamp duty .

As a commercial company a Cyprus Holdco should be registered in the Cyprus register of companies. Costs are marginal.

A Cyprus Holdco may be entitled to the participation exemption. The Cyprus participation exemption slightly differs for dividends and capital gains. Note that capital losses on alienation or otherwise (e.g., liquidation or depreciation) are not tax deductible.

According to the Cyprus Corporate Income Tax Act, dividends received by a Cyprus Holdco from its non-Cyprus subsidiary are exempt from corporate income tax, although in principle these dividends are subject to a special defence tax of 20%. There is an exemption, however, from this special defence tax where the Cyprus Holdco holds at least 1% in the non-Cyprus subsidiary and also meets one of the two following requirements:

Group financing activities are considered trading activities and profits derived from those activities are therefore not considered passive investment income.

In addition, under the EU parent-subsidiary directive, no withholding tax is levied on dividend payments from any EU subsidiary to a Cypriot Holdco, provided that all requirements are met (e.g. minimal 15% shareholding, annual possession).

Furthermore, dividends payable by a Cypriot subsidiary to its Cypriot parent are exempt from taxation (e.g. not included in the taxable income of the parent company).

Capital gains made by a Cyprus Holdco on the alienation of its shares in a non-Cyprus subsidiary are fully exempt from Cypriot tax. The exemption requires no specific holding period and there are no other shareholding requirements. There is an exception to this rule where the subsidiary in question holds immovable property (land) located in Cyprus.

By the same token, capital losses are not deductible, although when the company making the loss is a member of a group, another group company can sometimes use the loss.

No Cypriot income tax will be levied on unrealised capital gains on the liquidation of a Cypriot Holdco or on the transfer of the management and control of a Cypriot Holdco to another jurisdiction.

domestic rate and tax treaties

Cyprus tax law does not impose a dividend withholding tax on the distribution of dividends by a Cypriot Holdco.