The Interpretative Circular 222 for Holding Companies (HC) was issued on the 9th January 2018 by the Cyprus Tax Department aiming to explain the tax treatment of companies that are exclusively involved in the holding of shares in other companies.
The circular, clarifies that HC are not considered taxable persons exercising an economic activity, as the mere holding of shares in other enterprises does not constitute an economic activity.
With the introduction of Circular 222, the above tax treatment may be differentiated if it is evidenced that a HC is directly or indirectly involved in the management of the companies in which it holds shares. The dividend income received by the HC may be regarded as a consideration for the direct or indirect management of the companies it holds shares in, having as a result the obligation of HC to register for VAT in Cyprus.
In the above sentence, the words directly or indirectly and management have the following meaning:
If the HC acquires services that are or will be used by its subsidiaries, input tax cannot be claimed unless subsequently recharged to the subsidiaries, and as a result VAT payment liability may arise for HC.
For further information and a free consultation on tax matters relating to Cyprus company formation or holding company structures and their VAT implications, please contact Mr Charles Savva, at firstname.lastname@example.org or Mr Christos Tsaousis at email@example.com who will be happy to assist you further.