Group Finance Companies perform the following functions:
- Sourcing external debt finance.
- Accumulation of interest income and tax optimization of high tax country group operating companies.
- Redistribution of funds within the group.
Such companies may take advantage of the Cyprus Double Tax Treaties by providing loans in treaty countries or other countries where withholding tax on interest is low or nil.
The use of Cyprus Entities for group finance are extremely attractive. Cyprus Finance Companies can fulfil intra-company and inter-company financial management functions, such as granting of loans for project financing or working capital requirements. Interest payments to the Cyprus Financing Company is tax deductible in the country of the borrower reducing the overall corporation tax liability. Choosing the right international jurisdiction for the use of double tax treaties can reduce or eliminate withholding taxes on interest payments.
These structures are particularly attractive for investment into high-tax countries where, local rules permitting, high debt structures are widely used.
Apart from the generic features of the tax system, the DTT Network and the adoption of EU Directives, other important features of the tax system beneficial to Cyprus (Group) Finance are the following:
- Absence (under a Double Tax Treaty or the Interest and Royalty Directive) of interest withholding tax.
- Low overall tax burden.
- Possibility of deducting interest expenses from taxable income.
- Absence of thin capitalization rules or their inapplicability in the case of “back to back” financing.
- Absence of interest withholding tax in connection with interest paid on loan financing, irrespective of jurisdiction or the absence of a DTT (even for interest payments to offshore jurisdictions).
- Reasonable level of “margin” required by tax authorities.
- Low expense level for professional / financial fees.
Please contact us for more information:
Tax Structures can legally mitigate one’s tax liabilities. More information can be provided on request (contact us). However, it must be noted that since some of the structures may be technically complex, they are ideally discussed at a meeting with Focus Business Services’ Directors.
Note: Our Directors are continuously travelling to a number of countries meeting existing and potential clients and associates.
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