Although their function has changed throughout the years, holding companies have always been crucial components of the business landscape and the world economy. The emergence and adaptations of the concept of holding companies have come a long way from the days of the Theodore Roosevelt administration and Rockefeller’s business establishments.
Although sometimes thought of negatively as it is associated with lack of transparency and accountability, a holding company can serve as a significant investment vehicle and financial tool.
Some of the largest companies in the world use the holding company structure to establish power consolidation over diverse portfolios. Moreover, many of them are looking into relocating to attractive new markets that allow for greater legal financial incentives, a possibility that emerged, and was backed, by the 2003 United Nations Conference on Trade and Development. It was at this time that a press release was issued analyzing the scope and benefits of using the world market for corporate headquarters.
Following the 2016 Brexit Referendum, many well-known British and European resident companies opted to relocate their headquarters to more favourable tax and business jurisdictions, one of the most prominent being Cyprus. The establishment of a Cyprus Holding company can come with many legal and tax incentives, as well as other locational benefits such as a skilled workforce, high quality-of-life and global connectivity and accessibility.
From Then to Now: The Concept Behind a Holding Company
A holding company, or sometimes referred to as a parent company, owns a substantial amount of stock of other companies and oversees the governance of the Group. The assets which a holding company may oversee include other companies, real estate, intellectual property, and securities. Since a holding company is distinct from the companies under its control, there are legal and financial benefits as well as a layer of protection should these companies grow or fold.
By the mid-19th century, American corporation laws made it easier for company incorporation, but provisions limited corporations from owning property or conducting business across both state and international borders.
In 1889, the US state New Jersey was the first to utilize this form of corporate control after other forms of organization received criticisms.
It began when John D. Rockefeller circumvented the restrictions by joining forces with other trustees and establishing a trust to manage the control of a single company in each American state. It was not long before other entrepreneurs took to this company structuring system and New Jersey became the first to introduce the Holding Company Act of 1889 in a move to entice companies to the state.
Holding companies have come a long way from their humble beginnings. They have become fundamental tools of the modern economy and are almost ubiquitous in all financial sectors. In modern contexts, they may be used strategically for better organisational and financial management of the group or as a safety net of limited liability for volatile industries such as investment banking and real estate.
Legal Tax Benefits for a Cyprus Holding Company
Cyprus is a well-established international hub due to its geographical location (connecting three continents) and the steady rise to the flow of investments within and into the country. This Mediterranean jurisdiction is an attractive location for the registration of a Cyprus holding company.
As a member of the European Union, a Cyprus holding company can become an EU parent-subsidiary for foreign companies without the tax burdens of other locales. Further, Cyprus has taken measures to work with the EU and the OECD to establish transparent tax legislation for Cyprus tax residents and resident shareholders.
Under the Cyprus IP Box regime, companies are finding many tax benefits and increased intellectual property protection which allow them to maximize their financial profits.
A resident Cyprus holding company is mainly subjected to the corporate tax rate of 12.5% on worldwide income, one of the lowest rates in the EU. To be a resident holding company, the management and operations of the offices must be located in Cyprus. Non-resident holding companies are taxed according to the income produced within the country.
Yet, there are many tax benefits to registering a Cyprus holding company and relocating the headquarter operations to this jurisdiction.
Other tax advantages of establishing a holding company in Cyprus
- No capital gains tax on disposal or trading of securities
- Full exemption of dividends received from abroad from corporation tax and Special Defence Contribution Tax given that they meet certain criteria
- No withholding taxes on dividend income received from an EU resident company, as mandated by the EU Parent-Subsidiary directive
- No withholding taxes on dividends or interest paid by a Cyprus resident company to non-resident shareholders
- No withholding taxes on royalties paid from Cyprus, when the intellectual property is utilized outside Cyprus
- The lowest corporation tax on IP income in Europe (2.5%)
- Full group tax relief (i.e. losses of one group company are netted off with profits of another group company)
- Beneficial Double-tax treaties with over 60 countries
- Full compliance with all regulations of the EU, FATF, FSF, and OECD and continuous legal commitment to high standards of transparency
A Cyprus holding company is the ideal vehicle into the EU and offers numerous legal and internationally-competitive tax benefits.
Cyprus, The Jurisdiction of Choice for The Relocation of Headquarters
Following the current legislations published by the EU and OECD on Tax Planning jurisdictions, Groups are advised to set up substance offices for their Holding companies in the country of incorporation as their Headquarters, in order to enjoy the incentives with transparency.
The Cypriot government continues to look outwards for foreign investment and residency program growth. As a result, numerous measures have been taken to invest in the country’s infrastructure and business environment while providing a straightforward, easy company registration process.
Many international groups have already utilized the many benefits of the Cyprus jurisdiction as well as its strategic geographical position (acting as a junction to Asia, Africa, Europe and the Middle East) with the aid of the wide range of affordable lawyers, accountants and business service providers operating on the island.
Further, this increased attention by international firms has been accompanied by a boom in real estate development, which increases the availability of desirable office spaces in the heart of financial hubs and allows more beneficial Headquartering opportunities.
Moreover, with more than 20 internationally-recognized universities and the influx of highly-skilled foreign residents, groups with a Cyprus holding company have access to a highly-educated workforce.
Since Cyprus is an EU member, groups with a Cyprus holding company are not only granted inclusion in the EU market but also full protection under EU laws, making Cyprus an ideal base for a company’s headquarters and its employees.
Our professional team of consultants at the Aspen Trust Group can assist you with the establishment of a Cyprus holding company and its Cyprus Headquarters; read more about our local services we offer on our website.
Contact our team for an assessment on how establishing a Cyprus holding company can benefit your Group.