SINCE CYPRUS JOINED THE EU on May 1st, 2004, interest from Swedish and foreign companies to establish holding companies in Cyprus have increased significantly. The reason for establishing a foreign holding company is usually that the owner of the Swedish company is moving abroad. He or she then chooses to sell the company through a foreign holding company to minimize taxes. Another reason could be that the owner wants to administer company excess liquidity in a more tax efficient way.
One of the reasons why Cyprus has become such a popular country for setting up a holding company is the low 10 percent corporate tax rate. There is no tax on capital earnings from buying and selling shares owned by a Cypriot company. Cyprus has tax treaties with a number of countries, among them Sweden.
- Interest income from a Cypriot holding company has a maximum tax rate of 15 percent, says Stefan Hellstrand, tax consultant at Grant Thornton.
A WELL MANAGED HOLDING company in Cyprus could provide large
tax benefits and is an excellent option, stresses Stefan Hellstrand, but there are a lot to consider and it is extremely important to be cautious.
- Make sure that you don’t have any “substantial connection” to Sweden, explains Stefan Hellstrand.
This means that if you keep an all-the-year-around residence, continue to run a business in Sweden and/or are financially engaged in Sweden through assets, you are considered to have “substantial connection” to Sweden and will continue to pay taxes here.
EVEN IF YOU MOVE AND no longer have a “substantial connection” to Sweden, you are still tax liable in Sweden according to the so-called “10 year tax outmigration rule”. This rule is applied on capital gains on Swedish as well as foreign shares for ten years after outmigration.
- According to Swedish law, you are still “restrictedly tax liable” in Sweden on certain income, explains Lars Wiberg, tax consultant at Grant Thornton. However, if you sell a Swedish company through a foreign company, you could in some cases avoid this, he adds.
ANOTHER IMPORTANT ISSUE, as stressed by Lars Wiberg and Stefan Hellstrand, is that transactions made by the Cypriot company should be approved by a local, professional board.
- We recommend our customers to let the Cypriot board make transaction decisions themselves. We discourage them from being board members themselves, says Lars Wiberg. When dealing with Cypriot holding companies, Grant Thornton always calls in Grant Thornton Cyprus to pick a suitable and professional local board.
DESPITE MANY LAWS, rules and a lot to consider when establishing a
foreign holding company, Lars Wiberg stresses that a Cypriot company is a flexible solution.
- It is easy to set up and administer a holding company in Cyprus and it is easy to liquidate if you want to start over in Sweden again.
Emelie Ring