Cyprus implemented the EU Anti-Tax-Avoidance Directive (ATAD I and II) by 2020. The directive affects holding companies and groups: interest deductibility limitation (30% EBITDA cap), CFC (Controlled Foreign Company) rules for low-tax subsidiaries, exit tax on cross-border asset transfers, hybrid mismatch rules, and GAAR (General Anti-Abuse Rule). This guide covers what these mean for Cyprus holdings.
Interest deduction limited to 30% of EBITDA — when does it bite?
Net interest expense above €3M (safe harbor) is capped at 30% EBITDA. Excess interest can be carried forward (5 years) and carried back (1 year). For Cyprus holdings with significant intercompany loans, the cap can constrain tax-efficient structuring.
CFC rules — when is a foreign subsidiary "controlled"?
Cyprus parent owns >50% (direct + indirect) AND foreign subsidiary's effective tax rate <half of Cyprus rate (i.e., <6.25%). If both: Cyprus must tax the foreign subsidiary's passive income (interest, royalties, dividends) at Cyprus rates.
Exit tax on moving IP from Cyprus to UAE — how is it calculated?
Market value of IP at exit MINUS tax book value = exit tax base, taxed at 12.5% (with potential IP Box reduction to 2.5%). Can be deferred via 5-year installment payment if moving within EU/EEA. Non-EU moves are immediate.
The 4b2b ecosystem covers every topic described here.
