How to set up a holding company in Cyprus: legal and tax considerations

Cyprus is a well-established hub for international holding companies. Its attractive tax system, business-friendly regulatory landscape, and EU membership draw businesses from around the world looking for asset protection, group structuring, and tax efficiency. If your business is considering expanding internationally or consolidating assets, creating a holding structure in Cyprus may be a practical step.

Main advantages of a Cyprus holding company

A holding company in Cyprus is primarily used to own shares in other companies, manage subsidiaries, and oversee international assets. The reasons businesses choose this jurisdiction are clear:

• Low corporate tax rate: Cyprus boasts a 12.5% corporate income tax, which remains among the lowest across the European Union.
• Zero withholding tax: There is no withholding tax on the payment of dividends, interest, or royalties to non-residents.
• Participation exemption: Most dividends received from subsidiaries (either domestic or foreign) are tax-exempt, subject to a few conditions.
• Capital gains exemptions: Profits from selling shares or securities are generally not taxed, except for gains arising from disposals of shares in companies holding Cyprus real estate.
• Access to double tax treaties: Cyprus has established over 65 double tax treaty agreements, reducing or eliminating withholding taxes on cross-border payments.
• EU Parent-Subsidiary Directive: For EU structures, dividends from subsidiary companies can often be received tax-free under this directive.
• No thin capitalization rules: There are no statutory restrictions on the debt-to-equity ratio, allowing for flexible group financing.
• Group relief: Tax losses of one group company can often be offset against the profits of another if certain conditions are met.

Types of Cyprus holding structures

Most commonly, holding companies in Cyprus take the form of a private limited liability company (Ltd.). This entity suits all typical international holding activities, allows 100% foreign ownership, and offers limited liability for shareholders. Variations exist—such as mixed or intermediate holding companies—but for most corporate groups, the standard limited liability structure is the default and preferred option.

Legal steps for incorporating a Cyprus holding company

Setting up a company in Cyprus is a straightforward process, but compliance with certain legal formalities is essential:

1. Select a company name
   Submit your chosen name to the Registrar of Companies for approval. It must be unique and not misleading or similar to any existing names.
2. Draft constitutional documents
   Prepare the Memorandum and Articles of Association. These set out the business objectives and regulatory “rules” for the company.
3. Appoint directors, shareholders, and secretary
   A minimum of one director and one shareholder is required (these can be non-residents). You also need a company secretary (often provided by a local services firm).
4. Registered address in Cyprus
   The company must have a physical registered office in Cyprus where official correspondence and statutory records are kept.
5. Share capital
   There is effectively no minimum share capital requirement – in practice, a modest €1,000 is often used. The amount should reflect your company’s actual operational needs.
6. Company registration
   Submit all formation documents, including proof of director/shareholder identity and address, to the Companies Registrar. Upon approval, you will receive a certificate of incorporation.
7. Open a bank account
   Open a corporate bank account in Cyprus. Banks typically require certified copies of company documents, details of the shareholder(s) and director(s), and information on the business activities.
8. Tax registration and compliance
   Register your company for tax with the Cyprus Tax Department. If your company anticipates VAT-applicable turnover, also register for VAT. Obtain a tax residency certificate if you plan to utilize double tax treaties or need to demonstrate Cyprus tax residence.
9. Additional registrations and licenses
   Most holding companies do not need sector-specific licenses. However, engaging in regulated activities—such as financial services—will require specific authorization from supervisory bodies such as CySEC.

Accounting, record-keeping, and audit requirements

Once established, a Cyprus holding company must meet local accounting and filing obligations.

• Bookkeeping: Keep proper and up-to-date records of business transactions, which may be maintained electronically and outside Cyprus if needed, but must always be accessible to Cyprus tax authorities.
• Financial statements: Prepare annual financial statements in accordance with International Financial Reporting Standards (IFRS).
• Annual audit: All Cyprus-registered companies are required to have their accounts audited annually by a Cyprus-licensed auditor, regardless of turnover.
• Annual returns: File an annual return with the Registrar of Companies, listing directors, shareholders, the company secretary, and confirming registered office details. This return must be accompanied by the most recent financial statements.
• Tax filings: Submit an annual tax return and settle any corporate tax due.
• Currency: Although accounts may be kept in a different currency for daily use, official financial statements must be presented in euros.

Care must be taken to stay on top of these requirements, as non-compliance can result in fines or even involuntary deregistration. For tailored support, our lawyers can assist you in all necessary compliance procedures.