{"id":10757,"date":"2025-02-06T13:16:36","date_gmt":"2025-02-06T11:16:36","guid":{"rendered":"https:\/\/gls-law.company\/?p=10757"},"modified":"2025-02-06T13:16:46","modified_gmt":"2025-02-06T11:16:46","slug":"cyprus-holding-in-2025-when-it-works-and-when-it-doesn-t","status":"publish","type":"post","link":"https:\/\/gls-law.company\/en\/cyprus-holding-in-2025-when-it-works-and-when-it-doesn-t\/","title":{"rendered":"Cyprus Holding in 2025: When It Works and When It Doesn\u2019t"},"content":{"rendered":"\n<h4 class=\"wp-block-heading\"><strong>Why Does Cyprus Remain a Popular Jurisdiction for Holdings?<\/strong><\/h4>\n\n\n\n<p class=\"wp-block-paragraph\">Cyprus has traditionally been considered one of the key jurisdictions for structuring international business. The main factors that make it attractive for holding companies include:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Favorable tax system<\/strong> (12.5% corporate tax, exemption from dividend repatriation tax and capital gains tax).<\/li>\n\n\n\n<li><strong>Extensive network of double taxation treaties<\/strong> (agreements with over 65 countries).<\/li>\n\n\n\n<li><strong>Stable legal system<\/strong> based on English law.<\/li>\n\n\n\n<li><strong>Mandatory audit<\/strong>, which increases trust from banks and investors.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">However, in 2024, using a Cyprus holding comes with certain nuances. Without proper structuring and compliance with international standards, the real tax efficiency of such a model may be lost.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>When Does a Cyprus Holding Actually Work?<\/strong><\/h3>\n\n\n\n<h4 class=\"wp-block-heading\"><strong>1. Real Business Management and Economic Substance<\/strong><\/h4>\n\n\n\n<p class=\"wp-block-paragraph\">Previously, it was possible to simply register a company in Cyprus and use it to receive dividends at reduced rates. However, tax authorities in countries such as <strong>Ukraine, the Netherlands, and Germany<\/strong> are now actively checking the real presence of businesses in Cyprus.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For a Cyprus holding to comply with international standards, it must:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Rent a <strong>real office<\/strong> and have <strong>local employees<\/strong>.<\/li>\n\n\n\n<li>Have <strong>local directors<\/strong> who make key decisions.<\/li>\n\n\n\n<li>Maintain <strong>financial records<\/strong> and submit <strong>audit reports<\/strong>.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Without this, a Cypriot company risks losing tax benefits, and payments in its favor may be subject to additional taxes due to non-compliance with the <strong>Principal Purpose Test (PPT)<\/strong>.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><strong>2. Consolidation of International Business<\/strong><\/h4>\n\n\n\n<p class=\"wp-block-paragraph\">If a corporate group operates in multiple jurisdictions, a Cyprus holding can help:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Maintain consolidated financial reporting<\/strong>.<\/li>\n\n\n\n<li><strong>Facilitate intra-group financing<\/strong> between companies.<\/li>\n\n\n\n<li><strong>Optimize corporate governance<\/strong>.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">Banks and investors often require a holding structure to attract financing. Cyprus is convenient in this case due to its <strong>flexible corporate legislation<\/strong> and access to <strong>European banking institutions<\/strong>.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><strong>3. Holding for International Investments<\/strong><\/h4>\n\n\n\n<p class=\"wp-block-paragraph\">Cyprus can be a useful tool for:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Investing in <strong>startups and IT companies<\/strong>.<\/li>\n\n\n\n<li><strong>M&#038;A transactions<\/strong> (mergers and acquisitions).<\/li>\n\n\n\n<li>Managing <strong>corporate assets<\/strong>.<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">The key is to <strong>avoid using Cyprus solely as a tax tool<\/strong>. If a company is real, has economic substance, and maintains proper accounting, tax benefits will remain available.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>What Has Changed? Why Simply \u201cSetting Up a Cyprus Company\u201d No Longer Works?<\/strong><\/h3>\n\n\n\n<h4 class=\"wp-block-heading\"><strong>1. Test of Principal Purpose (PPT)<\/strong><\/h4>\n\n\n\n<p class=\"wp-block-paragraph\">Now, <strong>just having a Cypriot company is not enough<\/strong> to qualify for reduced tax rates on dividends or royalties. Tax authorities in <strong>Ukraine and other countries<\/strong> can verify whether the main purpose of structuring was actual <strong>economic activity<\/strong> or merely <strong>tax minimization<\/strong>.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">If a taxpayer cannot justify the <strong>business rationale<\/strong> of a transaction, they may face additional tax charges (e.g., Ukraine\u2019s <strong>9% repatriation tax + 5% military levy<\/strong> instead of <strong>5% under the Cyprus-Ukraine tax treaty<\/strong>).<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><strong>2. Banks Are Asking More Questions<\/strong><\/h4>\n\n\n\n<p class=\"wp-block-paragraph\">Previously, to distribute dividends to Cyprus, it was enough to provide a <strong>certificate of tax residency<\/strong> to the bank. Now, banks conduct their own <strong>transaction analysis<\/strong> and may <strong>block payments<\/strong> if they do not see real business substance in Cyprus.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><strong>3. Automatic Exchange of Tax Information (CRS)<\/strong><\/h4>\n\n\n\n<p class=\"wp-block-paragraph\">Ukraine has joined the <strong>Common Reporting Standard (CRS)<\/strong>, meaning that <strong>bank account and company structure information<\/strong> can be automatically shared with Ukrainian tax authorities. This <strong>eliminates the possibility of using Cypriot holdings as \u201copaque\u201d structures<\/strong> for tax avoidance.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>How to Use a Cyprus Holding Effectively?<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">To ensure that a Cyprus company complies with international regulations and retains its tax benefits, it should:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Conduct <strong>real operational activities<\/strong> (e.g., own assets or manage other companies).<\/li>\n\n\n\n<li>Follow <strong>substance requirements<\/strong> (local directors, employees, office, financial reporting).<\/li>\n\n\n\n<li><strong>Document the business purpose<\/strong> to pass the <strong>Principal Purpose Test (PPT)<\/strong>.<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Conclusion<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">Cyprus is <strong>no longer just a \u201cdividend tax haven\u201d<\/strong>. It remains an effective jurisdiction for <strong>international business consolidation, attracting investments, and managing corporate assets<\/strong>, but only if the company conducts <strong>real activities<\/strong> and complies with modern tax regulations.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">If your main goal is simply <strong>\u201csaving on taxes\u201d<\/strong> by using Cyprus, this could result in <strong>additional tax assessments, penalties, and financial risks<\/strong>. It is crucial to properly structure your business in accordance with <strong>modern tax realities and BEPS requirements<\/strong>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Why Does Cyprus Remain a Popular Jurisdiction for Holdings? Cyprus has traditionally been considered one of the key jurisdictions for structuring international business. The main factors that make it attractive for holding companies include: However, in 2024, using a Cyprus holding comes with certain nuances. Without proper structuring and compliance with international standards, the real [&hellip;]<\/p>\n","protected":false},"author":4,"featured_media":10742,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_uf_show_specific_survey":0,"_uf_disable_surveys":false,"footnotes":""},"categories":[222],"tags":[],"class_list":["post-10757","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-cfc"],"_links":{"self":[{"href":"https:\/\/gls-law.company\/en\/wp-json\/wp\/v2\/posts\/10757","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/gls-law.company\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/gls-law.company\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/gls-law.company\/en\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/gls-law.company\/en\/wp-json\/wp\/v2\/comments?post=10757"}],"version-history":[{"count":1,"href":"https:\/\/gls-law.company\/en\/wp-json\/wp\/v2\/posts\/10757\/revisions"}],"predecessor-version":[{"id":10758,"href":"https:\/\/gls-law.company\/en\/wp-json\/wp\/v2\/posts\/10757\/revisions\/10758"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/gls-law.company\/en\/wp-json\/wp\/v2\/media\/10742"}],"wp:attachment":[{"href":"https:\/\/gls-law.company\/en\/wp-json\/wp\/v2\/media?parent=10757"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/gls-law.company\/en\/wp-json\/wp\/v2\/categories?post=10757"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/gls-law.company\/en\/wp-json\/wp\/v2\/tags?post=10757"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}